<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 11, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
METRO-GOLDWYN-MAYER INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
<TABLE>
<S> <C> <C>
DELAWARE 6712 95-4605850
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2500 BROADWAY STREET
SANTA MONICA, CALIFORNIA 90404
(310) 449-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
DAVID G. JOHNSON, ESQ.
SENIOR EXECUTIVE VICE PRESIDENT
AND GENERAL COUNSEL
METRO-GOLDWYN-MAYER INC.
2500 BROADWAY STREET
SANTA MONICA, CALIFORNIA 90404
(310) 449-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH A COPY TO:
<TABLE>
<S> <C>
BRUCE D. MEYER, ESQ. KENDALL R. BISHOP, ESQ.
GIBSON, DUNN & CRUTCHER LLP O'MELVENY & MYERS LLP
333 SOUTH GRAND AVENUE 1999 AVENUE OF THE STARS, 7TH FLOOR
LOS ANGELES, CALIFORNIA 90071 LOS ANGELES, CALIFORNIA 90067
(213) 229-7000 (310) 553-6700
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
---------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<CAPTION>
PROPOSED
MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE
- -------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.01 per
share............................ $250,000,000 $75,758
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 based on an estimate of the maximum offering price.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 11, 1997
PROSPECTUS
SHARES
[MGM LOGO]
METRO-GOLDWYN-MAYER INC.
COMMON STOCK
----------
All of the shares of the common stock, $.01 par value per share (the "Common
Stock"), offered hereby are being sold by Metro-Goldwyn-Mayer Inc. ("MGM" or
the "Company"). Of the shares offered by the Underwriters,
shares will be offered initially in the United States and Canada (the "U.S.
Offering") by the U.S. Underwriters and shares will be offered
initially outside the United States and Canada (the "International Offering"
and, collectively, with the U.S. Offering, the "Offering") by the International
Underwriters (collectively, with the U.S. Underwriters, the "Underwriters").
The public offering price and the underwriting discount per share will be
identical for the U.S. Offering and the International Offering.
See "Underwriting."
Prior to the Offering, there has been no public market for the Common Stock.
It is currently estimated that the initial offering price per share will be
between $ and $ . See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price. All information in
this Prospectus gives effect to a recapitalization of the Company occurring
concurrent with the closing of the Offering and consisting of (i) the
conversion of each share of the Company's Series A Cumulative Convertible
Preferred Stock (the "Series A Preferred Stock") into one share of the Common
Stock (the "Series A Preferred Stock Conversion") and (ii) a for stock
split of the Common Stock (the "Stock Split").
Application will be made to list the Common Stock on the New York Stock
Exchange (the "NYSE") under the symbol "MGM."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............................. $ $ $
- --------------------------------------------------------------------------------
Total.................................. $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses estimated at $ payable by the Company.
----------
Merrill Lynch & Co. is acting as book running lead manager for the Offering.
Merrill Lynch & Co. and J.P. Morgan & Co. are acting as joint lead managers.
The shares of the Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by the Underwriters,
subject to approval of certain legal matters by counsel for the Underwriters
and certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that the delivery of the shares will be made in New York, New York on
or about , 1997.
----------
MERRILL LYNCH & CO. J.P. MORGAN & CO.
Joint Lead Managers
----------
The date of this Prospectus is , 1997.
<PAGE>
Information in this Prospectus contains forward-looking statements which can
be identified by the use of forward-looking terminology such as "may," "will,"
"should," "expect," "intend," "estimate" or "continue" or the negative thereof
or comparable terminology. The matters set forth under the caption "Risk
Factors" in the Prospectus constitute cautionary statements identifying
important factors with respect to such forward-looking statements, including
certain risks and uncertainties, that could cause actual results to differ
materially from those in such forward-looking statements.
The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by an independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing interim unaudited financial information.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING TRANSACTIONS EFFECTED ON THE NYSE, IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
----------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE COMMON STOCK OFFERED HEREBY BY ANY PERSON IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE ANY SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the historical and pro forma financial statements of the
Company, including the notes thereto, appearing elsewhere in this Prospectus.
Throughout this Prospectus, except where the context otherwise requires, the
"Company" refers collectively to Metro-Goldwyn-Mayer Inc. and its direct and
indirect subsidiaries. Unless otherwise indicated, all information in this
Prospectus gives effect to the recapitalization of the Company occurring
concurrent with the closing of the Offering and consisting of (i) the Series A
Preferred Stock Conversion and (ii) the Stock Split. [The ratio for the Stock
Split has not yet been determined. When the ratio is determined the share
numbers herein will be adjusted.] Unless otherwise indicated, all information
in this Prospectus assumes no exercise of stock options outstanding as of July
31, 1997 to purchase 132,436 shares of the Common Stock.
THE COMPANY
COMPANY OVERVIEW
The Company is engaged primarily in the development, production and worldwide
distribution of theatrical motion pictures and television programs. The
Company, including Metro-Goldwyn-Mayer Studios Inc. (formerly known as Metro-
Goldwyn-Mayer Inc.) ("MGM Studios"), United Artists Corporation ("UA"), Orion
Pictures Corporation ("Orion"), Goldwyn Entertainment Company ("Goldwyn") and
its other subsidiaries, is one of only seven major film and television studios
worldwide. With approximately 4,000 film titles and over 8,200 episodes of
television programming, the Company's library (the "Library") constitutes the
largest collection of post-1948 feature films in the world. Motion pictures in
the Library have won over 185 Academy Awards, including Best Picture Awards for
Annie Hall, The Apartment, The Best Years of Our Lives, Dances With Wolves, The
Deer Hunter, Hamlet, In the Heat of the Night, Marty, Midnight Cowboy, Platoon,
Rain Man, Rocky, Silence of the Lambs, Tom Jones and West Side Story. The
Library also includes 17 titles in the James Bond film franchise, five titles
in the Rocky film franchise and nine titles in the Pink Panther film franchise.
Tracinda Corporation ("Tracinda"), Seven Network Limited ("Seven") and senior
management of MGM Studios formed the Company to acquire all of the outstanding
capital stock of MGM Studios and its subsidiaries, including UA, in October
1996 for an aggregate consideration of $1.3 billion (the "MGM Acquisition").
Tracinda is wholly-owned by Kirk Kerkorian. Seven is one of the largest
television broadcast networks in Australia with stations in five major
Australian metropolitan areas and one regional television station. Frank G.
Mancuso, Chairman and Chief Executive Officer of MGM Studios since July 1993
and of the Company since its formation, has approximately 35 years of
entertainment industry experience.
In July 1997 the Company acquired all of the outstanding capital stock of
Orion and its subsidiaries, including Goldwyn (the "Orion Companies"), from
Metromedia International Group, Inc. (the "Orion Acquisition"). In connection
with the Orion Acquisition, the Company obtained the film and television
libraries of the Orion Companies consisting of approximately 1,900 film titles
and 3,000 television episodes, nearly doubling the size of the Library to its
current size of approximately 4,000 film titles and over 8,200 episodes of
television programming. The Company also acquired 12 substantially completed
theatrical motion pictures and five direct-to-video features. The Goldwyn
cinema operations were excluded from the Orion Acquisition. See "Background of
the Company."
BUSINESS STRATEGY
The Company's goal is to enhance its position as a premier global
entertainment content company by maximizing the value of its assets, including
the Library and its film and television production units, under the direction
of its experienced management team. To achieve this goal, the Company intends
to:
Build and Leverage the Library. The Company believes that the Library is its
most powerful asset and that the Library will continue to generate relatively
stable cash flows through the worldwide distribution of its titles.
3
<PAGE>
Management intends to maximize the value of the Library by (i) producing new
motion pictures and television programs that will not only be successful on
their own, but will also increase the depth and breadth of the Library, (ii)
aggressively marketing and repackaging the Library's titles, (iii) developing
new distribution channels for delivering MGM branded programming, (iv)
capitalizing on developments in technology and (v) further penetrating
international markets as they grow. Additionally, the Company expects to
benefit as certain rights to the Library that have been previously licensed to
others revert to the Company over time. See "Business--Distribution."
Develop, Produce and Distribute Theatrical Motion Pictures. Through Metro-
Goldwyn-Mayer Pictures Inc. ("MGM Pictures") and United Artists Pictures Inc.
("UA Pictures"), the Company plans to produce or co-produce and distribute
approximately ten to 12 motion pictures annually across a variety of genres.
The Company intends to (i) actively manage its production and release schedules
to maximize overall performance of those motion pictures, (ii) tightly control
development and production expenditures while maintaining the artistic
integrity required to develop and produce successful feature films and (iii)
utilize the Library as an inexpensive source for sequels and remakes and the
expansion of certain well-tested, familiar film franchises. Additionally, the
Company plans to produce or acquire and release approximately four to six
specialty motion pictures annually through Goldwyn. The Company also plans to
distribute annually approximately four to six motion pictures produced by
others.
Develop, Produce and Distribute Television Programming. The Company intends
to focus primarily on the development and production of series for pay
television and the first-run syndication business by using its extensive
Library as a source of ideas. Under its television programming strategy, the
Company has generally been able to recover substantially all production costs
for a series shortly following completion of production by obtaining up-front
financial commitments from domestic pay television broadcasters for production
of multiple episodes of the series and concurrently licensing the series in
international markets. The Company also develops programs such as two-hour
television movies and mini-series. The Company intends to allocate a portion of
its future television production budget to producing series for network
television.
Leverage the MGM Brand Name. The Company believes that the MGM name and its
lion logo are among the most recognized in the world. The Company intends to
capitalize on the value inherent in its name and logo through the distribution
of branded programming and the selective development of high-quality consumer
products.
CONCURRENT BANK TRANSACTION
In October 1997 the Company and its principal lenders amended and restated
the Company's principal credit facilities into a single credit facility (the
"Amended Credit Facility"). The Amended Credit Facility consists of a $400
million six year revolving facility, increasing to $600 million upon
consummation of the Offering, a $400 million seven and one-half year term loan
and a $300 million eight and one-half year term loan.
The principal executive offices of the Company are located at 2500 Broadway
Street, Santa Monica, California 90404, and the Company's telephone number is
(310) 449-3000. Metro-Goldwyn-Mayer, MGM, United Artists, UA and Orion, among
others, are registered trademarks of the Company.
4
<PAGE>
THE OFFERING
Of the shares of Common Stock being offered hereby by the Company,
shares are being offered initially in the United States and Canada by
the U.S. Underwriters and shares are being offered initially outside
the United States and Canada by the International Underwriters. See
"Underwriting."
Common Stock offered:
U.S. Offering............. shares
International Offering.... shares
Total................... shares
Common Stock to be
outstanding after the
Offering...................
shares (1)
Use of proceeds............. Substantially all of the net proceeds to the
Company from the Offering will be used to reduce
indebtedness of the Company under the revolving
portion of the Amended Credit Facility, which
amounts may be re-borrowed in the future.
Remaining net proceeds, if any, will be used by
the Company for general corporate purposes,
including the payment of motion picture and
television development, production and
distribution costs. Pending their ultimate
application, the net proceeds will be invested in
interest or non-interest bearing accounts or
invested in short-term government obligations,
investment-grade securities, money market
instruments or certificates of deposit. See "Use
of Proceeds."
Proposed NYSE symbol........ Application will be made to list the Common Stock
on the NYSE under the symbol "MGM."
- --------
(1) Excludes 124,936 shares of the Common Stock issuable upon exercise of
employee stock options outstanding as of July 31, 1997 and 70,064 shares
issuable upon exercise of the stock options available for future grant
under the Company's stock option plans. See "Management--Incentive and
Bonus Plans--1996 Incentive Plan." Also excludes 7,500 shares of the Common
Stock issuable upon the exercise of stock options held by Tracinda and
Celsus Financial Corp. ("Celsus"). See "Ownership of Voting Securities" and
"Certain Transactions."
RISK FACTORS
See "Risk Factors" for a description of certain risks to be considered before
making an investment in the Common Stock.
5
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
PRO FORMA
FISCAL YEAR
PREDECESSOR SUCCESSOR ENDED
-------------------------------------- ------------- DECEMBER 31, PREDECESSOR SUCCESSOR
PRO FORMA 1996 ----------- -----------
YEAR ENDED FISCAL YEAR AS ADJUSTED SIX MONTHS SIX MONTHS
DECEMBER 31, OCTOBER 11 TO ENDED FOR OTHER ENDED ENDED
-------------------- JANUARY 1 TO DECEMBER 31, DECEMBER 31, NON-RECURRING JUNE 30, JUNE 30,
1994 1995 OCTOBER 10, 1996 1996 1996(2) ADJUSTMENT(3) 1996 1997
--------- --------- ---------------- ------------- ------------ ------------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS
DATA:
Revenues........ $ 597,121 $ 860,971 $ 912,706 $228,686 $1,315,128 $1,315,128 $ 595,132 $351,014
Expenses........ 732,706 973,331 1,589,275 215,112 1,913,870 1,350,041 644,942 356,873
Operating income
(loss)......... (135,585) (112,360) (676,569) 13,574 (598,742) (34,913) (49,810) (5,859)
Interest expense
and other
income, net.... (31,790) (56,014) (68,196) (9,062) (46,768) (46,768) (44,212) (19,211)
Income (loss)
before income
taxes.......... (167,375) (168,374) (744,765) 4,512 (645,510) (81,681) (94,022) (25,070)
Net income
(loss)......... (171,252) (169,309) (745,038) 166 (654,365) (90,536) (103,552) (29,005)
Net income
(loss) per
share..........
Number of shares
used in
computation of
net income per
share..........
OTHER DATA:
EBITDA(1)....... $(103,499) $ (81,588) $ (87,289) $ 16,709 $ (3,536) $ (3,536) $ (33,565) $ 1,192
Capital
expenditures... 9,099 9,376 6,901 2,079 10,057 10,057 5,291 5,294
Depreciation.... 5,335 4,021 4,645 1,418 6,935 6,935 2,871 3,230
<CAPTION>
PRO FORMA
SIX MONTHS
ENDED
JUNE 30,
1997(4)
----------
<S> <C>
STATEMENT OF
OPERATIONS
DATA:
Revenues........ $413,131
Expenses........ 436,698
Operating income
(loss)......... (23,567)
Interest expense
and other
income, net.... (23,980)
Income (loss)
before income
taxes.......... (47,547)
Net income
(loss)......... (55,529)
Net income
(loss) per
share..........
Number of shares
used in
computation of
net income per
share..........
OTHER DATA:
EBITDA(1)....... $(11,938)
Capital
expenditures... 6,606
Depreciation.... 4,019
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(5) ADJUSTED(6)
---------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA (UNAUDITED):
Cash and cash equivalents.................. $ 20,255 $ 34,492 $ 182,742
Film and television costs, net............. 1,263,073 1,669,510 1,669,510
Total assets............................... 1,806,574 2,586,037 2,734,287
Bank and other debt ....................... 566,258 796,004 711,754
Stockholders' equity....................... 876,708 1,236,708 1,469,208
</TABLE>
- -------
(1) Earnings before interest, taxes, depreciation and non-film amortization
("EBITDA") is a commonly used industry financial measure but should not be
construed as an alternative to operating income or cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles ("GAAP")).
(2) Reflects the effect of the MGM Acquisition Transactions, the Orion
Acquisition Transactions (as such terms are defined below--see "Background
of the Company") and the Offering as if they had occurred at the
beginning of the period presented.
(3) Reflects the effect of the MGM Acquisition Transactions, the Orion
Acquisition Transactions and the Offering as if they had occurred at the
beginning of the period presented as adjusted to give effect to the
elimination of the provision for impairment of intangible assets of $563.8
million incurred on October 10, 1996 in connection with the MGM Acquisition
Transactions.
(4) Reflects the effect of the Orion Acquisition Transactions and the Offering
as if they had occurred at the beginning of the period presented.
(5) Reflects the effect of the Orion Acquisition Transactions and the
refinancing under the Amended Credit Facility as if they had occurred as of
June 30, 1997.
(6) Gives effect to the application of the estimated net proceeds from the
Offering of $232.5 million and the repayment of $84.3 million, which
represents the pro forma outstanding balance, of the revolving portion of
the Amended Credit Facility, as if the foregoing had been completed as of
June 30, 1997. The Company has incurred additional debt under the revolving
portion of its credit facilities since June 30, 1997 and, accordingly,
expects that substantially all of the net proceeds of the Offering will be
used to reduce debt.
6
<PAGE>
RISK FACTORS
The Common Stock offered hereby is speculative in nature and involves a high
degree of risk. In addition to the other information set forth elsewhere in
this Prospectus, prospective investors should carefully consider the following
risk factors prior to investing in the Common Stock offered hereby.
SIGNIFICANT OPERATING AND NET LOSSES
The Company (including its predecessors) has not reported an operating
profit for any fiscal year since 1988, and while controlled by former
management (see "Background of the Company"), MGM Studios was the subject of
an involuntary bankruptcy petition that was filed in 1991. For 1994 and 1995
and for the period January 1, 1996 through October 10, 1996, the Company
reported an operating loss of $135.6 million, $112.4 million and
$676.6 million (including a $563.8 million provision for impairment of
intangible assets), respectively. In addition, the Company reported
significant net losses for each such period. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The Company does
not expect to be profitable for at least several years. There can be no
assurance that there will not be significant or increasing operating and net
losses in the future or that the Company will become profitable.
CURTAILMENT OF CERTAIN OPERATIONS DUE TO SALE OF THE COMPANY
In October 1996 MGM Studios was acquired by the Company from Consortium de
Realisation ("CDR"), a wholly-owned subsidiary of Credit Lyonnais S.A. ("CL").
See "Background of the Company." During the ten month period from CDR's
announcement in January 1996 of its intention to sell MGM Studios to the
consummation of the sale (the "Sale Period"), the uncertainty surrounding
future management affected the Company's ability to enter into new projects
with top artistic and creative talent. As a consequence, the Company did not
commence production of any new motion pictures during the Sale Period and
released only nine motion pictures (most of which were produced by others)
between August 1, 1996 and August 1, 1997. This curtailment of operations has
adversely affected revenues and results of operations, and given the extended
period over which motion picture revenues are typically received, will
continue to do so for at least the next three years. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations."
Although the Company has established a complete release schedule for the rest
of 1997 and the first half of 1998, such schedule includes only six films
produced by MGM Pictures or UA Pictures, with the remainder having been
acquired either in the Orion Acquisition or through negative pick-up or other
distribution agreements. This slate contains a smaller number and percentage
of Company-produced motion pictures than the Company intends to release in
future years. Since the MGM Acquisition in October 1996, management has taken
steps to return operations to a higher level, and in connection therewith, the
Company has hired a number of new employees, including experienced chief
production executives for MGM Pictures and UA Pictures. The Company has not
yet released any motion pictures that were completely developed and produced
under these new production executives. There can be no assurance that such
motion pictures, when released, will be successful or that the Company will
not experience problems or delays in its return to more normal operations. The
lack of production during the Sale Period may have adversely affected the
Company's relationship with major domestic exhibitors, as such relationships
(and a studio's negotiated share of the box office receipts) typically depend,
in part, on a studio's track record of delivering publicly appealing films.
FLUCTUATION OF OPERATING RESULTS; EFFECT OF ENTERTAINMENT ACCOUNTING POLICIES
The Company's revenues and results of operations are significantly dependent
upon the timing of its releases and the commercial success of the motion
pictures and television programming it distributes, none of which can be
predicted with certainty. Accordingly, the Company's revenues and results of
operations may fluctuate significantly from period to period, and the results
of any one period may not be indicative of the results for any future periods.
7
<PAGE>
In accordance with generally accepted accounting principles and industry
practice, the Company amortizes film and television programming costs using
the individual-film-forecast method under which such costs are amortized for
each film or television program in the ratio that revenue earned in the
current period for such title bears to management's estimate of the total
revenues to be realized from all media and markets for such title. Management
regularly reviews, and revises when necessary, its total revenue estimates on
a title-by-title basis, which may result in a change in the rate of
amortization and/or a write-down of the film or television asset to net
realizable value. Results of operations in future years are dependent upon the
Company's amortization of its film and television costs and may be
significantly affected by periodic adjustments in amortization rates. The
likelihood of the Company's reporting of losses is increased because the
industry's accounting method requires the immediate recognition of the entire
loss in instances where it is expected that a motion picture or television
program will not recover the Company's investment. On the other hand, the
profit of a successful motion picture or television program must be deferred
and recognized over the entire revenue stream generated by the individual
picture or television program. As a result of the lack of movie production
during the Sale Period and the subsequent reduction of distribution, the
Company expects to experience lower revenues for at least the next three
years, and thus the fluctuations caused by this accounting method may have a
greater impact, than otherwise might be the case. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Motion Picture
Industry Accounting Standards."
RISKS OF MOTION PICTURE AND TELEVISION PRODUCTION
General. Motion picture production and distribution is highly speculative
and inherently risky. There can be no assurance of the economic success of any
motion picture since the revenues derived from the production and distribution
of a motion picture (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
a motion picture also depends upon the quality and acceptance of other
competing films 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.
Further, the theatrical success of a motion picture is generally a key factor
in generating revenues from other distribution channels. There is a
substantial risk that some or all of the Company's motion pictures will not be
commercially successful, resulting in costs not being recouped or anticipated
profits not being realized.
Television production and distribution is also highly speculative and
inherently risky. The success of the Company's television production and
distribution business is affected by some of the same factors described above
and may also be impacted by prevailing advertising rates, which are subject to
fluctuation. Thus, there is a substantial risk that some or all of the
Company's television projects will not be commercially successful, resulting
in costs not being recouped or anticipated profits not being realized. See
"The Industry" and "Business--Production," "--Distribution" and "--
Competition."
Substantial Production and Marketing Costs. The production and marketing of
theatrical motion pictures requires substantial capital. The costs of
producing and marketing motion pictures have generally increased in recent
years. According to the Motion Picture Association of America ("MPAA"), the
average direct negative cost of a motion picture produced by one of the major
studios has grown from $23.5 million in 1989 to $39.8 million in 1996, an
increase of 69 percent, and the average domestic marketing cost per picture
has grown from $9.2 million in 1989 to $19.8 million in 1996, an increase of
115 percent. These costs may continue to increase in the future, thereby
increasing the costs to the Company of its motion pictures. Production costs
and releasing costs are rising at a faster rate than increases in either
domestic admissions to movie theaters or admission ticket prices, leaving the
Company more dependent on other media, such as home video and television, and
foreign markets. The direct negative costs of the motion pictures produced by
the Company (other than its specialty motion pictures) scheduled for release
in 1997 and the first six months of 1998 are estimated to range between
$12 million and $105 million. The direct negative costs of the specialty
motion pictures scheduled for release in 1997 and the first six months of 1998
are estimated to range between $300,000 and $9 million. The
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Company (like most major motion picture studios) generally does not obtain
"completion bonds" from outside insurers to protect itself against budget
overruns and completion delays. There can be no assurance that the Company
will not incur cost overruns or suffer delays in the production of its motion
pictures. See "Business--Production--Motion Picture Production."
Generally, television programs are produced under contracts that provide for
license fees which may cover only a portion of the anticipated production
costs. The "gap" or production deficit between these fees and production costs
can be substantial for series produced for the networks where production costs
are higher and the license fees for domestic first run programming are
becoming a smaller percentage of the program's costs. The recoverability of
the production deficit and the realization of profits, if any, are generally
dependent upon the ability to distribute the programs in subsequent domestic
television syndication and through foreign television licenses, additional
licenses and other uses. Therefore, the ability to recover the production
deficit and realize profits on any such network television series generally
requires the production and successful sale into syndication or to a cable
network of three to four years of new series episodes. There is increasing
competition among sellers of, and a decreasing number of independent
television stations buying, off-network programs available for syndication.
The Company intends to allocate a portion of its television production budget
to producing series for the networks. There can be no assurance that the
Company can recover the production deficit or realize profits on any
television series. See "Business--Production--Television Production."
Certain Elements of the Company's Motion Picture Production Strategy. Based
on the Company's current business plan for the next five years, its annual
release slates may be comprised of proportionately fewer large budget "event"
motion pictures than the current release slates of the other major studios.
The other major studios often pre-sell foreign rights to certain event motion
pictures to help offset production costs and mitigate box office performance
risks. The Company does not currently intend to pre-sell the foreign rights to
its event motion pictures to the same degree as it believes that certain of
its competitors have traditionally done. In addition, to improve access to top
talent and sought-after projects, the other major studios generally have a
number of "first look" or "housekeeping" agreements with successful producers
whereby the studio will have the first opportunity to acquire a motion picture
project from a producer in exchange for paying some or all of such producer's
annual overhead costs and agreeing in advance upon the production and other
fees to be paid for each project. The Company's current business strategy is
not focused on entering into a large number of such agreements. There can be
no assurance that these elements of the Company's strategic approach will
enable it to achieve its goal of producing commercially successful motion
pictures.
Possible Inability to Achieve Production Goals and Meet Production
Schedule. In August 1997 the Company announced that it had re-established a
full schedule of motion picture releases for the rest of 1997 and the first
half of 1998. See "--Curtailment of Certain Operations Due to Sale of
Company." However, no assurances can be given that the Company's production
and release goals will be met in such, or any future, period. In particular,
there can be no assurance that any of the pictures scheduled for release in
the rest of 1997 or thereafter will be completed or that completion will occur
in accordance with the anticipated schedule or budget, as the production,
completion and distribution of motion pictures are subject to numerous
uncertainties, including financing requirements, personnel availability and
the release schedule of competitive motion pictures. The Company's ability to
meet its production and release goals will also depend in part on its ability
to identify and obtain sufficient amounts of quality material. See "Business--
Production--Motion Picture Production."
CERTAIN LIMITATIONS ON THE EXPLOITATION OF THE LIBRARY
The Company has differing types of rights to the various titles in the
Library. In some cases, the Company owns the title outright, with the right to
exploit the title in all media and territories for an unlimited time. In other
cases, the title may be owned by a third party and the Company may have
obtained the right to distribute the title in certain media and territories
for a limited term. In accordance with industry practice, for purposes of
calculating the size of the Library, the Company includes any title that the
Company has the right to distribute in any territory in any media for any
term. The only material exception to the foregoing practice is that, even
though
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the Company has home video distribution rights through 2001 with respect to
approximately 2,950 titles owned by Turner Broadcasting System, Inc.
("Turner"), the Company does not include such titles in calculating the number
of titles in the Library. Even if a title is owned by the Company, the Company
may have granted the rights to exploit the title in certain media and
territories to others. Prior management entered into an agreement in 1990 with
Warner Home Video, Inc. ("WHV"), pursuant to which WHV provides certain
services in connection with the distribution of MGM Studios' motion pictures
in worldwide home video markets for a fee which is a percentage of home video
revenues (the "WHV Agreement"). The WHV Agreement expires in 2003, provided
that with respect to any given film that is subject to the WHV Agreement,
WHV's rights do not expire until five years after the film's availability in
the U.S. home video market. The Company believes that the WHV Agreement does
not cover the Orion Companies' future production and library product. The
Company believes that if the Orion Companies' future production and library
product were covered by the WHV Agreement, there would likely be a reduction
in the revenue received by the Company from the distribution of that product.
See "Business--Distribution--Home Video Distribution." Prior management also
entered into long-term, pre-paid licenses for domestic and certain
international television markets with respect to portions of the Library.
Until these agreements expire and the rights revert to the Company, the
Company expects contributions to earnings from these markets to continue to be
below those achieved by its competitors for similar products. There can be no
assurance that sales or profitability will increase after these agreements
expire. The existence of these agreements may make an acquisition of the
Company less attractive to a potential acquiror in the entertainment business.
See "Business--Distribution."
LIQUIDITY AND FINANCING REQUIREMENTS
The Company's theatrical motion picture and television production activities
require the initial expenditure of significant funds, while revenues relating
to such films and programs are typically not generated for some period after
such expenditure and may be received over an extended period of time. Since
the Company's cash requirements generally have exceeded cash flow from
operations, the Company has been required to utilize borrowings under its
principal credit facilities to fund operations. The Company will continue to
be dependent upon the availability of its principal credit facilities to fund
its production and distribution activities for the foreseeable future.
Borrowings under such principal credit facilities are subject to the Company's
continuing performance of certain covenants and continuing satisfaction of
certain conditions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Financing Arrangements."
Although the Company believes that the sources of capital available to it
after completion of the Offering will be adequate to meet the Company's
current obligations and commitments and will enable the Company to continue to
conduct its operations in accordance with its current business plan, no
assurance can be given in that regard. If such sources of funds prove to be
insufficient, the Company will be required to seek other sources of financing.
There can be no assurance that the Company will be able to obtain any such
financing or that such financing, if available, will be on terms satisfactory
to the Company.
The Amended Credit Facility contains certain covenants which restrict the
payment of dividends by the Company. The Company does not expect to pay any
cash dividends on its Common Stock for the foreseeable future. See "Dividend
Policies" and "Financing Arrangements."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts and abilities of its senior
management, particularly those of Frank G. Mancuso. Mr. Mancuso, age 64, has
substantial experience in the entertainment industry and extensive
relationships within the motion picture and television community, including
creative talent and distributors. Mr. Mancuso is involved in various aspects
of the production process, including the selection of the creative elements of
the Company's motion pictures and television programs. Virtually all decisions
concerning the conduct of the business of the Company, including the
properties and rights to be acquired by the Company and
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<PAGE>
the arrangements to be made for the development, financing, production and
distribution of the Company's motion pictures and television programs, are
made or are significantly influenced by Mr. Mancuso. The loss of his services
for any reason could have a material adverse effect on the Company's business
and operations and its prospects for the future. See "Management--Executive
Compensation."
IMPORTANCE OF THIRD-PARTY RELATIONSHIPS
The Company has a number of important relationships with third parties. The
James Bond films are produced by Danjaq LLC (together with its predecessors,
"Danjaq") pursuant to a series of agreements with the Company dating back to
1962. The Company jointly owns the copyright to such films with Danjaq and has
the right to approve all key elements of the films, such as the script, the
director and the leading actors. Certain other rights are either controlled by
Danjaq (e.g., merchandising) or jointly by Danjaq and the Company. Although
the Company does not believe that the nature of the ownership and control of
the James Bond franchise will have any material adverse effect on the Company
in the future, no assurance can be given. See "Business--Film Library" and "--
Production--Motion Picture Production."
The Company generally distributes its motion pictures in theatrical markets
outside of the United States and Canada through United International Pictures
("UIP"), a partnership owned equally by the Company, Paramount Pictures
Corporation ("Paramount") and Universal Studios, Inc. ("Universal"). If this
partnership were terminated or otherwise ceased operations for any reason, the
Company believes that it would be able to find or develop satisfactory
alternative methods for international distribution. There can be no assurance,
however, that such alternative methods would not result in decreased revenues
or profitability. See "Business--Theatrical Distribution" and "--Regulation."
RISKS RELATING TO THE ORION ACQUISITION AND INTEGRATION OF OPERATIONS
On July 10, 1997 the Company acquired the Orion Companies (including two
companies which had been acquired by Orion in July 1996). There can be no
assurance that the Company will not encounter unanticipated problems or
liabilities with respect to the operations of the Orion Companies or with the
continuing integration of their operations with those of the Company.
RISKS OF INTERNATIONAL DISTRIBUTION
The Company distributes motion picture and television productions in foreign
countries, and in recent years the Company has derived approximately 40
percent of its revenues from foreign sources. As a result, the Company's
business is subject to certain risks inherent in international trade, many of
which are beyond its control, such as changes in laws and policies affecting
trade, investment and taxes (including laws and policies relating to the
repatriation of funds and to withholding taxes), differing degrees of
protection for intellectual property and the instability of foreign economies
and governments. In addition, fluctuations in foreign exchange rates can
adversely affect the Company's business and results of operations.
COMPETITION
Motion picture and television production and distribution are highly
competitive businesses. The Company faces competition from companies within
the motion picture and television industry and alternative forms of leisure
activities. The Company competes with other film studios, independent
production companies and others for the acquisition of artistic properties,
the services of creative and technical personnel, exhibition outlets and the
public's interest in its products. Many of the Company's competitors,
particularly the other major studios, may have greater financial and other
resources than the Company, while the independent production companies may
have less overhead than the Company. Most of the other major studios are part
of large diversified corporate groups with a variety of other operations,
including television networks and cable channels which can provide both means
of distributing their products and stable sources of earnings that offset
fluctuations in the financial performance of their motion picture and
television operations. The number of films released by the Company's
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<PAGE>
competitors, particularly the other major film studios, in any given period
may create an oversupply of product in the market, and that may reduce the
Company's share of gross box office admissions and may make it more difficult
for the Company's films to succeed. In addition, television networks are now
producing more programs internally and thus may reduce such networks' demand
for programming from other parties.
The entertainment industry in general, and the motion picture industry in
particular, are continuing to undergo significant changes, primarily due to
technological developments. Due to this rapid growth of technology, shifting
consumer tastes and the popularity and availability of other forms of
entertainment, it is impossible to predict the overall effect these factors
will have on the potential revenue from and profitability of feature-length
motion pictures and television programming. See "The Industry" and "Business--
Competition."
OWNERSHIP AND CONTROL OF PRINCIPAL STOCKHOLDERS
Upon completion of the Offering, Tracinda will beneficially own
approximately percent of the outstanding Common Stock. As a result,
Tracinda will continue to be the Company's single largest stockholder.
Additionally, Seven will beneficially own approximately percent of the
outstanding Common Stock. See "Ownership of Voting Securities."
The Common Stock does not have cumulative voting rights and, since Tracinda
will own greater than 50 percent of the outstanding Common Stock after the
Offering, Tracinda will have the ability to elect the entire Board of
Directors of the Company, subject to the agreement discussed immediately
below. Each of Seven, Tracinda and Mr. Mancuso has agreed to vote all of the
shares of the Common Stock beneficially owned by such party and take any
necessary or desirable action within such party's control so that the Board of
Directors of the Company consists of eleven members (subject to the provision
discussed below), up to four of whom are nominated by Tracinda (depending on
the number of shares of the Common Stock beneficially owned by Tracinda), up
to two of whom are nominated by Seven (depending on the number of shares of
the Common Stock beneficially owned by Seven), two of whom are nominated by
the Chief Executive Officer of the Company (one of whom shall be Mr. Mancuso
so long as he serves as the Chief Executive Officer of the Company), and three
"independent directors" who are nominated by the majority of the Board of
Directors of the Company (which majority, so long as Tracinda beneficially
owns at least 400,000 shares of the Common Stock, must include Tracinda's
nominees on the Board of Directors of the Company) and who are not affiliated
or associated with either Tracinda or Seven and otherwise meet the
requirements of the NYSE for serving as independent directors; provided,
however, that each of Tracinda and Seven is only obligated to vote for
nominees selected by the Board of Directors of the Company which are
acceptable to Tracinda or Seven, as the case may be. The Board of Directors of
the Company may determine to reduce the size of the Board of Directors to ten
persons, in which case the number of independent directors will be reduced to
two. The foregoing agreement to vote will remain in effect until the fifteenth
anniversary of the Offering. See "Ownership of Voting Securities--Investors
Shareholder Agreement." In addition to electing directors, Tracinda, on its
own or together with Seven and Mr. Mancuso, will be able to determine the
outcome of other matters submitted to the stockholders of the Company, such as
the approval of significant transactions.
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
The Board of Directors of the Company is authorized, without any vote or
further action by the stockholders of the Company, to fix the rights and
preferences of and issue up to 25 million shares of preferred stock (and the
rights of the holders of the Common Stock will be subject to, and may be
adversely affected by, the issuance of any such preferred stock). The
foregoing may make it more difficult for a third party to acquire control of
the Company. See "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have shares of
the Common Stock outstanding. The shares sold in the Offering will be freely
transferable under the Securities Act, except for shares
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acquired by "affiliates" as that term is defined under the Securities Act. Of
the remaining shares outstanding, approximately shares will be
"restricted securities" within the meaning of Rule 144 ("Rule 144")
promulgated under the Securities Act. These restricted securities may not be
sold without registration under the Securities Act unless an exemption from
registration is available. Resales under Rule 144 will be permitted as to
shares in October 1997, and as to an additional shares in July
1998, subject in each case to Rule 144's volume limitations. In addition, each
of the Company's current stockholders and certain holders of outstanding
options have been granted certain registration rights with respect to the
shares of the Common Stock owned by them or to be issued to them. See
"Ownership of Voting Securities--Shareholders Agreement." The Company has
agreed not to offer, sell, contract to sell, sell any option or contract to
purchase, purchase any option, right or warrant to purchase or otherwise
transfer or dispose of any shares of the Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or enter into
any swap or other arrangement that transfers to another, in whole or in part,
any of the economic consequences of ownership of the Common Stock, for a
period of 180 days from the date of this Prospectus without the prior written
consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"). Each of the Company's current stockholders, directors, executive
officers and option holders will be bound by a substantially similar
agreement. No predictions can be made as to the effect, if any, that public
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of substantial amounts
of the Common Stock in the public market, particularly by directors and
officers of the Company, or the perception that such sales could occur, could
have an adverse effect on the market price of the Common Stock. See "Shares
Eligible for Future Sale."
ABSENCE OF A PUBLIC MARKET; DETERMINATION OF OFFERING PRICE
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price will be determined through
negotiations between the Company and representatives of the Underwriters. See
"Underwriting" for factors to be considered in determining the initial public
offering price. There can be no assurance that a regular trading market for
the Common Stock will develop after the Offering or, if developed, that a
public trading market can be sustained. The initial public offering price will
not necessarily reflect, and may be higher than, the market price of the
Common Stock after the Offering. In recent years, the stock market in general,
and the entertainment industry in particular, have experienced extreme price
fluctuations, sometimes without regard to the operating performance of
particular companies. Factors such as variations in actual or anticipated
operating results (which motion picture production companies experience),
changes in or failure to meet earnings estimates of securities analysts,
market conditions in the industry, regulatory actions and general economic
conditions, among others, may have a significant effect on the market price of
the Common Stock.
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BACKGROUND OF THE COMPANY
Metro-Goldwyn-Mayer ("Old MGM") was established in 1924 through the merger
of Metro Pictures, Goldwyn Pictures and Louis B. Mayer Productions. A
corporation wholly owned by Mr. Kerkorian became Old MGM's controlling
shareholder in 1969. In 1981 Old MGM acquired UA, which had been formed in
1919 when Mary Pickford, Douglas Fairbanks, D.W. Griffith and Charlie Chaplin
joined forces to release their own motion pictures, as well as motion pictures
made by independent producers. In 1986 Turner acquired the businesses of Old
MGM, and as part of that transaction, Tracinda (and certain of the former
stockholders of Old MGM) concurrently acquired UA, including the UA library,
from Old MGM. Shortly thereafter, UA reacquired the Metro-Goldwyn-Mayer name
and logo and certain other assets from Turner. UA was then renamed MGM/UA
Communications Co. ("MGM/UA"). Turner retained the film library created
through the pre-1986 operations of Old MGM (the "Old MGM Library").
In November 1990 MGM/UA was acquired by Pathe Communications Corporation
("Pathe") and was renamed MGM-Pathe Communications Co., the predecessor to MGM
Studios ("MGM-Pathe"). In May 1992 Credit Lyonnais Bank Nederland N.V.
("CLBN"), Pathe's principal lender, foreclosed on substantially all of the
stock of MGM-Pathe, following default by Pathe, and such stock was ultimately
transferred to CDR.
In July 1993 Frank G. Mancuso was appointed as Chairman and Chief Executive
Officer of MGM Studios. In January 1996 CDR announced its intention to sell
MGM Studios.
Tracinda, Seven and senior management of MGM Studios formed the Company,
then known as P&F Acquisition Corp., to acquire all of the outstanding capital
stock of MGM Studios in October 1996 for an aggregate consideration of $1.3
billion. The Company financed the MGM Acquisition through (i) the issuance of
200,000 shares of the Common Stock to each of Tracinda and Seven and the
issuance of 450,000 and 50,000 shares of the Series A Preferred Stock to
Tracinda and Seven, respectively (the "First Private Placement"), for
aggregate consideration of $900 million and (ii) borrowings by MGM Studios
under an $800 million credit facility with Morgan Guaranty Trust Company of
New York ("Morgan"), as agent, and certain other lenders (the "Original MGM
Credit Facility"). The MGM Acquisition and the First Private Placement are
collectively referred to as the "MGM Acquisition Transactions."
In June 1997 Seven acquired 100,000 shares of the Series A Preferred Stock
from Tracinda through the exercise of an option granted to Seven by Tracinda
in October 1996.
In July 1997 the Company acquired all of the outstanding capital stock of
Orion and its subsidiaries, including Goldwyn which had been acquired by Orion
in July 1996, for an aggregate consideration of $573 million. The Company
financed the Orion Acquisition through (i) the issuance of 321,000 and 39,000
shares of the Common Stock to Tracinda and Seven, respectively (the "Second
Private Placement"), for aggregate consideration of $360 million and (ii)
borrowings by Orion under a $250 million credit facility with Morgan, as
agent, and certain other lenders (the "Original Orion Credit Facility" and,
together with the Original MGM Credit Facility, the "Original Credit
Facilities"). The Orion Acquisition and the Second Private Placement are
collectively referred to as the "Orion Acquisition Transactions." The Goldwyn
cinema operations were excluded from the Orion Acquisition.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares
offered hereby are estimated to be approximately $232.5 million, based upon an
assumed offering price of $ per share and after deducting estimated
underwriting discounts and offering expenses payable by the Company.
Substantially all of the net proceeds of the Offering will be used to reduce
indebtedness of the Company under the revolving portion of the Amended Credit
Facility, which amounts may be re-borrowed in the future. Remaining net
proceeds, if any, will be used by the Company for general corporate purposes,
including the payment of motion picture and television development, production
and distribution costs. See "Business--Production--Motion Picture Production"
and "--Television Production" for a discussion of the Company's current
development and production of motion pictures and television programs. Pending
their ultimate application, the net proceeds will be invested in interest or
non-interest bearing accounts or invested in short-term government
obligations, investment-grade securities, money market instruments or
certificates of deposit.
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CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 30, 1997, (i) on a historical basis, (ii) on a pro forma
basis to give effect to the Orion Acquisition Transactions and the Amended
Credit Facility as if they had occurred as of June 30, 1997, and (iii) on a
pro forma, as adjusted basis giving effect to the foregoing and as adjusted to
give effect to the Series A Preferred Stock Conversion, the Stock Split and
the consummation of the Offering as if the foregoing had occurred as of June
30, 1997 at an assumed initial offering price of $ per share, and the
application of the estimated net proceeds therefrom as described under "Use of
Proceeds." This table should be read in conjunction with "Pro Forma Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements and notes
thereto included elsewhere herein.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
DEBT:
Original Credit Facilities............... $ 564,250 $ -- $ --
Amended Credit Facility:
Term loans............................. -- 700,000 700,000
Revolving credit facility.............. -- 84,250 --
Other borrowings......................... 2,008 11,754 11,754
---------- ---------- ----------
Total debt............................. 566,258 796,004 711,754
---------- ---------- ----------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value per
share, 25,000,000 shares authorized;
502,588 shares issued and outstanding
and pro forma issued and outstanding;
pro forma as adjusted, no shares issued
and outstanding......................... 5 5 --
Common Stock, $.01 par value per share,
50,000,000 shares authorized (
shares authorized pro forma, as
adjusted); 402,070 shares issued and
outstanding; pro forma shares issued
and outstanding; pro forma, as adjusted,
shares issued and
outstanding............................. 4 8 13
Additional paid-in capital............... 904,649 1,264,645 1,497,145
Retained earnings (deficit).............. (28,839) (28,839) (28,839)
Cumulative translation adjustment........ 889 889 889
---------- ---------- ----------
Total stockholders' equity............. 876,708 1,236,708 1,469,208
---------- ---------- ----------
Total capitalization................... $1,442,966 $2,032,712 $2,180,962
========== ========== ==========
</TABLE>
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DIVIDEND POLICY
MGM Studios paid cash dividends to its prior owner in 1995 and 1996
(approximately $19.4 million in the aggregate, to service debt of MGM Studios'
parent). As the Company currently intends to retain any earnings to provide
funds for the operation and expansion of its business and for the servicing
and repayment of indebtedness, the Company does not intend to pay cash
dividends on its Common Stock for the foreseeable future. Furthermore, as a
holding company with no independent operations, the ability of the Company to
pay cash dividends will be dependent upon the receipt of dividends or other
payments from its subsidiaries. In addition, the Company's principal credit
facilities contain certain covenants which, among other things, restrict the
payment of dividends by the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations Liquidity and Capital
Resources" and "Financing Arrangements." Any determination to pay cash
dividends on the Common Stock in the future will be at the sole discretion of
the Company's Board of Directors.
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SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of the Company (including its
predecessor) presented below as of December 31 of each of the years 1992
through 1995, the period from January 1 to October 10, 1996 and the period
from October 11 to December 31, 1996 and each of the years or periods then
ending have been derived from the audited Consolidated Financial Statements of
the Company. The audited Consolidated Financial Statements of the Company for
the period from October 11 to December 31, 1996 and the audited Consolidated
Financial Statements of MGM Studios for the period from January 1 to October
10, 1996 were audited by Arthur Andersen LLP, independent accountants. The
audited Consolidated Financial Statements of MGM Studios for the years ended
December 31, 1995 and 1994 were audited by Price Waterhouse LLP, independent
accountants. The audited Consolidated Financial Statements of MGM Studios for
the years ended December 31, 1993 and 1992 were audited by KPMG Peat Marwick
LLP, independent accountants.
The selected consolidated financial data as of and for the six month periods
ended June 30, 1996 and 1997 have been derived from unaudited consolidated
financial statements of the Company and include all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the Company's financial position at such
dates and results of operations for such periods. The results of operations
for the six months ended June 30, 1997 are not necessarily indicative of the
results for the year.
The selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the related notes
thereto for the Company included elsewhere in this Prospectus.
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<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
-------------------------------------------------------------------------- -------------------------
SIX MONTHS SIX MONTHS
YEAR ENDED DECEMBER 31, JANUARY 1 TO ENDED OCTOBER 11 TO ENDED
-------------------------------------------- OCTOBER 10, JUNE 30, DECEMBER 31, JUNE 30,
1992 1993 1994 1995 1996 1996 1996(2) 1997(2)
--------- --------- --------- --------- ------------ ----------- ------------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS) (IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Revenues................ $ 729,450 $ 538,887 $ 597,121 $ 860,971 $ 912,706 $ 595,132 $228,686 $351,014
Expenses:
Feature films and
television
distribution......... 784,617 700,134 668,516 894,280 953,820 607,908 195,076 317,912
General corporate
administration
expenses............. 27,577 75,745 49,314 64,175 60,056 29,597 18,319 35,140
Goodwill amortization. 14,876 14,876 14,876 14,876 11,570 7,437 1,717 3,821
Provision for
impairment........... -- -- -- -- 563,829 (3) -- -- --
--------- --------- --------- --------- ---------- ---------- -------- --------
827,070 790,755 732,706 973,331 1,589,275 644,942 215,112 356,873
Operating income (loss). (97,620) (251,868) (135,585) (112,360) (676,569) (49,810) 13,574 (5,859)
Interest expense, net of
amounts capitalized.... (135,640) (87,472) (33,860) (66,386) (71,375) (45,086) (9,875) (20,599)
Interest and other
income, net............ 3,505 1,020 2,070 10,372 3,179 874 813 1,388
--------- --------- --------- --------- ---------- ---------- -------- --------
Income (loss) from
continuing operations
before provision for
income taxes........... (229,755) (338,320) (167,375) (168,374) (744,765) (94,022) 4,512 (25,070)
Provision for income
taxes.................. (11,677) (6,725) (3,877) (935) (273) (9,530) (4,346) (3,935)
--------- --------- --------- --------- ---------- ---------- -------- --------
Income (loss) from
continuing operations.. $(241,432) $(345,045) $(171,252) $(169,309) $ (745,038) $ (103,552) $ 166 $(29,005)
========= ========= ========= ========= ========== ========== ======== ========
Earnings (loss) per
share from continuing
operations
Primary............... $ -- $ --
Fully diluted......... $ -- $ --
OTHER OPERATING DATA
(UNAUDITED)
EBITDA(1)............... $ (67,335) $(222,118) $(103,499) $ (81,588) $ (87,289) $ (33,565) $ 16,709 $ 1,192
Capital expenditures.... 5,044 15,578 9,099 9,376 6,901 5,291 2,079 5,294
Depreciation expense.... 3,534 2,999 5,335 4,021 4,645 2,871 1,418 3,230
</TABLE>
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
------------------------------------------------------- ------------------------
AS OF DECEMBER 31, AS OF AS OF AS OF
------------------------------------------- OCTOBER 10, DECEMBER 31, JUNE 30,
1992 1993 1994 1995 1996 1996(2) 1997(2)
---------- ---------- ---------- ---------- ----------- ------------ -----------
(UNAUDITED)
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash
equivalents............ $ 19,412 $ 36,773 $ 28,797 $ 17,128 $ 24,717 $ 16,381 $ 20,255
Film and television
costs, net............. 1,458,680 1,343,931 1,412,607 1,565,438 1,006,402 1,099,201 1,263,073
Total assets............ 2,293,170 2,142,562 2,235,622 2,440,254 1,744,234 1,774,668 1,806,574
Bank and other debt..... 982,713 555,915 876,866 1,217,316 1,229,499 444,427 566,258
Stockholders' equity.... 274,061 984,607 829,059 659,499 -- 903,122 876,708
Cash dividends.......... -- -- -- 15,448 3,995 -- --
</TABLE>
- -------
(1) Earnings before interest, taxes, depreciation and non-film amortization
("EBITDA") is a commonly used industry financial measure but should not be
construed as an alternative to operating income or cash flows from
operating activities (as determined in accordance with GAAP).
(2) Financial data presented for periods subsequent to October 10, 1996
reflect the consolidated balance sheet and results of operations of the
combined entity resulting from the MGM Acquisition.
(3) The proceeds from the sale of MGM Studios were insufficient to recover the
net asset value of MGM Studios on the date of the disposition by CDR.
Accordingly, the Company recorded a provision for impairment of intangible
assets of $563.8 million.
19
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combining statement of
operations for the year ended December 31, 1996 gives effect to (i) the MGM
Acquisition Transactions, (ii) the July 2, 1996 acquisition by Orion of
Goldwyn, (iii) the July 2, 1996 acquisition by Orion of the former Motion
Picture Corporation of America ("MPCA"), (iv) the Orion Acquisition
Transactions, (v) the Series A Preferred Stock Conversion and the Stock Split
and (vi) the consummation of the Offering and the application of the net
proceeds therefrom as if each of the foregoing had occurred on January 1,
1996. The unaudited pro forma condensed combining statement of operations for
the six months ended June 30, 1997 gives effect to items (iv)-(vi), above, as
if they had occurred on January 1, 1997. The unaudited pro forma condensed
combining balance sheet as of June 30, 1997 gives effect to items (iv)-(vi),
above, as if they had occurred on June 30, 1997.
On October 10, 1996, the Company acquired all of the outstanding capital
stock of MGM Studios for an aggregate consideration of $1.3 billion. The
Company financed the MGM Acquisition through (i) the issuance of 200,000
shares of the Common Stock to each of Tracinda and Seven and the issuance of
450,000 and 50,000 shares of the Series A Preferred Stock to Tracinda and
Seven, respectively, for an aggregate consideration of $900 million and
(ii) borrowings by MGM Studios under the Original MGM Credit Facility.
On July 10, 1997, the Company acquired all of the outstanding capital stock
of Orion and certain of its subsidiaries, for an aggregate consideration of
$573 million. The Company financed the Orion Acquisition through (i) the
issuance of 321,000 and 39,000 shares of the Common Stock to Tracinda and
Seven, respectively, for aggregate consideration of $360 million and (ii)
borrowings by Orion under the Original Orion Credit Facility.
The pro forma adjustments are based upon currently available information and
upon certain assumptions that management of the Company believes are
reasonable. The Orion Acquisition will be recorded based upon the estimated
fair market value of the net assets acquired at the date of acquisition. The
adjustments included in the unaudited pro forma condensed combining financial
statements represent the Company's preliminary estimates based upon available
information. Although MGM does not believe that such preliminary estimates
will differ significantly from the actual adjustments, no assurance can be
given.
The unaudited pro forma condensed combining financial statements are based
on the historical financial statements of each of the Company and Orion and
the assumptions and adjustments described in the accompanying notes. The
Company believes that the assumptions on which the unaudited pro forma
financial statements are based are reasonable. The unaudited pro forma
consolidated financial statements are provided for informational purposes only
and do not purport to represent what the Company's financial position or
results of operations actually would have been if the foregoing transactions
occurred as of the dates indicated or what such results will be for any future
periods. The unaudited pro forma financial statements should be read in
conjunction with the Consolidated Financial Statements and the related notes
thereto for each of the Company and Orion, included elsewhere in this
Prospectus.
20
<PAGE>
METRO-GOLDWYN-MAYER INC.
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
AS OF JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ORION ADJUSTMENTS MGM
MGM ORION ASSETS NOT PRO FORMA FOR PRO FORMA
HISTORICAL HISTORICAL ACQUIRED(10) ADJUSTMENTS OFFERING COMBINED
---------- ---------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............ $ 20,255 $ 1,252 $ (1,050) $ 14,035 (/1/) $148,250 (/9/) $ 182,742
Accounts and contracts
receivable, net........ 150,920 45,878 (259) -- -- 196,539
Film and television
costs, net............. 1,263,073 237,558 -- 168,879 (/2/) -- 1,669,510
Property and equipment,
net.................... 29,411 39,287 (35,645) (1,000)(/3/) -- 32,053
Excess of cost over net
assets of acquired
businesses, net........ 298,920 129,439 (22,619) 195,744 (/7/) -- 601,484
Other assets............ 43,995 12,901 (888) (4,049)(/3/) -- 51,959
---------- --------- -------- --------- -------- ----------
TOTAL ASSETS............ $1,806,574 $ 466,315 $(60,461) $ 373,609 $148,250 $2,734,287
========== ========= ======== ========= ======== ==========
LIABILITIES
Bank and other debt..... $ 566,258 $ 292,434 $ (6,529) $(276,159)(/4/) $(84,250)(/9/) $ 711,754
220,000 (/4/)
Accounts payable and
accrued expenses....... 63,006 28,828 (4,011) 34,169 (/5/) -- 121,992
Accrued participants'
share.................. 150,035 56,657 -- -- -- 206,692
Income taxes payable.... 37,749 9,254 (9) -- -- 46,994
Advances and deferred
revenues............... 83,548 64,829 -- -- -- 148,377
Due to parent........... -- 85,168 -- (85,168)(/6/) -- --
Other liabilities....... 29,270 -- -- -- -- 29,270
---------- --------- -------- --------- -------- ----------
Total liabilities..... 929,866 537,170 (10,549) (107,158) (84,250) 1,265,079
---------- --------- -------- --------- -------- ----------
STOCKHOLDERS' EQUITY
Preferred Stock......... 5 -- -- -- (5)(/8/) --
Common Stock............ 4 -- -- 4 (/7/) 5 (/8/) 13
Additional paid-in
capital................ 904,649 350,774 (47,595) 56,817 (/7/) 232,500 (/9/) 1,497,145
Retained earnings....... (28,839) (421,629) (2,317) 423,946 (/7/) -- (28,839)
Cumulative translation
adjustment............. 889 -- -- -- -- 889
---------- --------- -------- --------- -------- ----------
Total stockholders'
equity............... 876,708 (70,855) (49,912) 480,767 232,500 1,469,208
---------- --------- -------- --------- -------- ----------
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY ................ $1,806,574 $ 466,315 $(60,461) $ 373,609 $148,250 $2,734,287
========== ========= ======== ========= ======== ==========
</TABLE>
21
<PAGE>
METRO-GOLDWYN-MAYER INC.
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDING JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ORION MGM
MGM ORION OPERATIONS NOT PRO FORMA ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL ACQUIRED(10) ADJUSTMENTS FOR OFFERING COMBINED
---------- ---------- -------------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $351,014 $ 90,910 $(28,793) $ -- $ -- $413,131
Operating expenses
Film and television
production and
distribution........... 317,912 99,181 (22,804) (17,518)(/1//2/) -- 376,771
General corporate
administration expense. 35,140 22,046 (4,869) -- -- 52,317
Goodwill amortization... 3,821 2,240 -- 1,549 (/1//4/) -- 7,610
-------- -------- -------- -------- ------ --------
Total operating
expenses.............. 356,873 123,467 (27,673) (15,969) -- 436,698
-------- -------- -------- -------- ------ --------
Operating income (loss). (5,859) (32,557) (1,120) 15,969 -- (23,567)
Non-operating income and
expense
Interest expense, net of
amounts capitalized ... (20,599) (10,822) 412 (1,741)(/1//6/) 3,706(/9/) (29,044)
Interest and other
income, net............ 1,388 -- -- -- 3,676(/9/) 5,064
-------- -------- -------- -------- ------ --------
Total non-operating
income (expense)...... (19,211) (10,822) 412 (1,741) 7,382 (23,980)
-------- -------- -------- -------- ------ --------
Income (loss) before
taxes.................. (25,070) (43,379) (708) 14,228 7,382 (47,547)
(Provision) benefit for
income taxes........... (3,935) (400) 9 (3,656)(/1//8/) -- (7,982)
-------- -------- -------- -------- ------ --------
Net income (loss)....... $(29,005) $(43,779) $ (699) $ 10,572 $7,382 $(55,529)
======== ======== ======== ======== ====== ========
Pro forma earnings per
share(19)..............
========
Pro forma weighted
average number of
common stock and common
equivalent shares
outstanding(19)........
========
</TABLE>
22
<PAGE>
METRO-GOLDWYN-MAYER INC.
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MGM
MGM STUDIOS
HISTORICAL HISTORICAL ORION
(10/11 TO (1/1 TO ORION OPERATIONS NOT GOLDWYN MPCA PRO FORMA
12/31/96) 10/10/96) HISTORICAL ACQUIRED(10) (11) (11) SUBTOTAL ADJUSTMENTS
---------- ---------- ---------- -------------- -------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES.......... $228,686 $ 912,706 $165,164 $(56,501) $ 54,112 $10,961 $1,315,128 $ --
OPERATING
EXPENSES
Film and
television
production and
distribution..... 195,076 953,820 139,307 (45,411) 53,617 11,769 1,308,178 (97,071)(/1//2/)
General corporate
administration
expense.......... 18,319 60,056 27,356 (9,089) 12,527 3,801 112,970 10,758 (/1//3/)
Goodwill
amortization..... 1,717 11,570 2,908 -- -- -- 16,195 (989)(/1//4/)
Provision for
impairment....... -- 563,829 -- -- -- -- 563,829 --
-------- ---------- -------- -------- -------- ------- ---------- --------
Total operating
expenses........ 215,112 1,589,275 169,571 (54,500) 66,144 15,570 2,001,172 (87,302)
-------- ---------- -------- -------- -------- ------- ---------- --------
Operating income
(loss)............ 13,574 (676,569) (4,407) (2,001) (12,032) (4,609) (686,044) 87,302
NON-OPERATING
INCOME AND
EXPENSE
Interest expense,
net of amounts
capitalized ..... (9,875) (71,375) (17,166) 1,024 (5,823) (300) (103,515) 36,843 (/1//6/)
Interest and
other income,
net.............. 813 3,179 286 -- -- -- 4,278 740 (/1//7/)
-------- ---------- -------- -------- -------- ------- ---------- --------
Total non-
operating income
(expense)....... (9,062) (68,196) (16,880) 1,024 (5,823) (300) (99,237) 37,583
-------- ---------- -------- -------- -------- ------- ---------- --------
Income (loss)
before taxes..... 4,512 (744,765) (21,287) (977) (17,855) (4,909) (785,281) 124,885
(Provision)
benefit for
income taxes..... (4,346) (273) (1,000) 463 (779) -- (5,935) (2,920)(/1//8/)
-------- ---------- -------- -------- -------- ------- ---------- --------
Income (loss)
from continuing
operations ...... $ 166 $( 745,038) $(22,287) $ (514) $(18,634) $(4,909) $ (791,216) $121,965
======== ========== ======== ======== ======== ======= ========== ========
Pro forma
earnings per
share(19)........
Pro forma
weighted average
number of common
stock and common
equivalent shares
outstanding(19)..
<CAPTION>
MGM PRO FORMA
ADJUSTED FOR
ADJUSTMENTS MGM OTHER OTHER
FOR PRO FORMA NON-RECURRING NON-RECURRING
OFFERING COMBINED ADJUSTMENT ADJUSTMENT
-------------- ----------- -------------------- -------------
<S> <C> <C> <C> <C>
REVENUES.......... $ -- $1,315,128 $ -- $1,315,128
OPERATING
EXPENSES
Film and
television
production and
distribution..... -- 1,211,107 -- 1,211,107
General corporate
administration
expense.......... -- 123,728 -- 123,728
Goodwill
amortization..... -- 15,206 -- 15,206
Provision for
impairment....... -- 563,829 (563,829)(/1//5/) --
-------------- ----------- -------------------- -------------
Total operating
expenses........ -- 1,913,870 (563,829) 1,350,041
-------------- ----------- -------------------- -------------
Operating income
(loss)........... -- (598,742) 563,829 (34,913)
NON-OPERATING
INCOME AND
EXPENSE
Interest expense,
net of amounts
capitalized ..... 7,473(/7/) (59,199) -- (59,199)
Interest and
other income,
net............. 7,413(/7/) 12,431 -- 12,431
-------------- ----------- -------------------- -------------
Total non-
operating income
(expense)....... 14,886 (46,768) -- (46,768)
-------------- ----------- -------------------- -------------
Income (loss)
before taxes..... 14,886 (645,510) 563,829 (81,681)
(Provision)
benefit for
income taxes..... -- (8,855) -- (8,855)
-------------- ----------- -------------------- -------------
Income (loss)
from continuing
operations ...... $14,886 $ (654,365) $ 563,829 $ (90,536)
============== =========== ==================== =============
Pro forma
earnings per
share(19)........ $ $
=========== =============
Pro forma
weighted average
number of common
stock and common
equivalent shares
outstanding(19)..
=========== =============
</TABLE>
23
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
(1) To record net cash remaining after drawdown on the Original Orion Credit
Facility at the date of the Orion Acquisition, net of closing payments.
(2) To increase the basis of the Orion film library in purchase accounting to
preliminary estimated fair market value of $406.4 million.
(3) To reflect new deferred loan fees of $4.5 million, eliminate unamortized
loan fees of $6.0 million on the retired Orion credit facility, and
reduce leasehold improvements and other equipment of $1.0 million and
other assets of $2.5 million acquired in the Orion Acquisition.
(4) To reflect repayment of borrowing under the retired Orion credit facility
of $276.2 million and drawdown under the Original Orion Credit Facility
of $220.0 million.
(5) To record the accrual of Orion's estimated employment termination
payments, lease termination costs and other non-recurring acquisition
costs.
(6) To reflect the termination of Orion's debt to its parent company.
(7) To reflect the issuance of 360,000 shares of the Common Stock for $360.0
million, the elimination of the Orion pre-acquisition equity accounts and
the preliminary allocation of the fair value of Orion's net assets
acquired allocated as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS,
EXCEPT
SHARE DATA)
--------------
<S> <C>
Pro forma debt retired at closing (including accrued interest
of $1,291)................................................... $277,450
Closing costs paid............................................ 4,567
Pro forma cash paid to former Orion shareholder............... 283,948
--------
Cash Purchase Price........................................... $565,965
========
The preliminary allocation of the Cash Purchase Price is as follows:
Cash.......................................................... $ 202
Accounts and contracts receivable, net........................ 45,619
Film and television costs, net................................ 406,437
Property and equipment, net................................... 2,642
Other assets.................................................. 7,964
Bank and other debts assumed.................................. (9,746)
Accounts payable and accrued liabilities...................... (58,986)
Accrued participants' share................................... (56,657)
Income taxes payable.......................................... (9,245)
Advances and deferred revenues................................ (64,829)
--------
Fair value of net tangible assets acquired.................... 263,401
Excess of cost over fair value of net assets acquired......... 302,564
--------
Cash Purchase Price........................................... $565,965
========
</TABLE>
24
<PAGE>
The foregoing purchase price allocation is based upon management's
preliminary estimates. The Company is in the process of working with
independent consultants to obtain valuations of individual assets and the
excess purchase price will be allocated accordingly.
(8) To reflect the conversion of 502,588 shares of the Series A Preferred
Stock into 502,588 shares of the Common Stock concurrent with the closing
of the Offering.
(9) To reflect the issuance of shares of the Common Stock offered in
connection with the Offering at an assumed offering price of $ per
share and the application of the $232.5 million estimated net proceeds
therefrom to reflect the repayment of the revolving portion of the
Amended Credit Facility, with the remaining proceeds representing net
cash.
(10) To eliminate the Goldwyn cinema operations not acquired in the Orion
Acquisition.
(11) To consolidate operating results for the period from January 1, 1996 to
June 30, 1996 of Goldwyn and MPCA, wholly-owned subsidiaries acquired by
Orion on July 2, 1996.
(12) To adjust film cost amortization for new basis in revalued MGM Studios
(for the period January 1, 1996 to October 10, 1996) and the Orion
library.
(13) To record long-term incentive management compensation plan accrual, which
was implemented concurrent with the closing of the MGM Acquisition in
October 1996.
(14) To adjust goodwill amortization from historical basis to pro forma basis.
(15) To reverse provision for impairment of intangible assets recorded in the
MGM Studios historical financial statements as a result of the
acquisition of MGM Studios by the Company.
(16) To adjust interest expense to reflect the application of the $360 million
equity contribution made as part of the Orion Acquisition and the pro
forma indebtedness.
(17) To record other miscellaneous pro forma adjustments.
(18) To adjust the tax provision to reflect pro forma pre-tax income,
including adjustments for non-tax deductible goodwill amortization and
other required items.
(19) Computes earnings (loss) per share as if all transactions occurred as of
the beginning of the periods presented computed as follows:
<TABLE>
<S> <C>
Common Stock outstanding as of June 30, 1997...........................
Shares issued in the Offering..........................................
Series A Preferred Stock, as converted.................................
</TABLE>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
"Selected Consolidated Financial Data" and the Consolidated Financial
Statements and the related notes thereto and other financial information
contained elsewhere in this Prospectus.
GENERAL
The Company is engaged primarily in the development, production and
worldwide distribution of theatrical motion pictures and television
programming.
SOURCES OF REVENUE
The principal sources of motion picture industry revenue are the domestic
and international distribution of motion pictures, including theatrical
exhibition, home video and television (network, syndication, basic cable, pay
and pay-per-view). Over the last decade, the relative contributions of these
components of revenues have changed dramatically. Although revenues from
domestic theatrical distribution have increased, growth in total motion
picture industry revenues has resulted predominantly from increased revenues
derived from the distribution of motion pictures internationally as well as
from other media and distribution channels.
The Company's feature films are exploited through a series of sequential
domestic and international distribution channels, typically beginning with
theatrical exhibition. Thereafter, feature films are first made available for
home video generally six months after theatrical release; for pay television,
one year after theatrical release; and for syndication, approximately three to
five years after theatrical release. The Company's television programming is
produced for initial broadcast on either pay, syndicated or network television
in the United States, followed by international territories and, in some
cases, worldwide video markets.
COST STRUCTURE
General. In the motion picture industry, the largest component of the cost
of producing a motion picture generally is the negative cost, which includes
the "above-the-line" and "below-the-line" costs of producing the film. Above-
the-line costs are costs related to the acquisition of picture rights and the
costs associated with the producer, the director, the writer and the principal
cast. Below-the-line costs are the remaining costs involved in producing the
picture, such as film studio rental, principal photography, sound and editing.
Distribution expenses consist primarily of the costs of advertising and
preparing release prints. The costs of advertising associated with a major
domestic theatrical motion picture release are significant and typically
involve national and target market media campaigns, as well as public
appearances of a film's stars. These advertising costs are separate from the
advertising costs associated with other domestic distribution channels and the
international market.
The major studios generally fund production costs from cash flow generated
by motion picture and related distribution activities or bank and other
financing methods. Over the past decade, expenses in the motion picture
industry have increased rapidly as a result of increased production costs and
distribution expenses.
Additionally, each of the major studios must fund substantial overhead
costs, consisting primarily of salaries and related costs of the production,
distribution and administrative staffs, as well as facilities costs and other
recurring overhead.
Participations and Residuals. In connection with the production and
distribution of a motion picture, major studios generally grant contractual
rights to actors, directors, screenwriters, producers and other creative and
financial contributors to share in the gross receipts or contractually defined
net profits from a particular
26
<PAGE>
motion picture. Except for the most sought-after talent, these third-party
participations are generally payable after all distribution fees, marketing
expenses, direct production costs and financing costs are recouped in full.
Major studios also typically incur obligations to pay residuals to various
guilds and unions including the Screen Actors Guild ("SAG"), the Directors
Guild of America (the "DGA") and the Writers Guild of America (the "WGA"). The
residual payments are made on a picture-by-picture basis with respect to the
exploitation of a motion picture in markets other than the primary intended
markets for such picture and are calculated as a percentage of the gross
revenues derived from the exploitation of the picture in these ancillary
markets.
The Company's cost structure for motion pictures generally follows the
industry structure described above. For a discussion of television programming
cost structure see "The Industry--The Television Industry."
In recent years the Company has experienced significant fluctuations in the
level of its production activities. In July 1993 a new management team was
brought into MGM Studios with a mandate to increase its production and
distribution activities in anticipation of the eventual sale of MGM Studios.
As a result, production and distribution expenditures increased substantially
in 1994 and 1995. Starting in January 1996 and continuing throughout the Sale
Period, no new production was approved, and accordingly, production
expenditures on new films decreased significantly during 1996. Following the
MGM Acquisition in October 1996, production activity increased as the Company
resumed a normalized production and distribution level. These fluctuations in
production and distribution expenditures had a material impact on operating
results and cash flows during the related periods and will continue to do so
for at least the next three years.
INDUSTRY ACCOUNTING PRACTICES
Revenue Recognition. Revenues from theatrical distribution of feature motion
pictures are recognized on the dates of exhibition. Revenues from home video
distribution, together with related costs, are recognized in the period in
which the product is available (assuming it has been shipped) for sale at the
retail level. Revenues from television distribution are recognized when the
motion picture or television program is available to the licensee for
broadcast.
Accounting for Motion Picture and Television Costs. In accordance with GAAP
and industry practice, the Company amortizes film and television programming
costs using the individual-film-forecast method under which such costs are
amortized for each film or television program in the ratio that revenue earned
in the current period for such title bears to management's estimate of the
total revenues to be realized from all media and markets for such title.
Management regularly reviews, and revises when necessary, its total revenue
estimates on a title-by-title basis, which may result in a change in the rate
of amortization and/or a write-down of the film or television asset to net
realizable value. A typical motion picture generates 80 to 85 percent of its
ultimate revenues within the first two years of release. By then, the picture
has been exploited in the domestic and international theatrical markets and
the domestic and international home video markets, as well as the domestic and
international pay television and pay-per-view markets. A similar percentage of
the picture's capitalized costs should be expected to be amortized
accordingly, assuming the picture is profitable.
The commercial potential of individual motion pictures and television
programming varies dramatically, and is not directly correlated with
production or acquisition costs. Therefore, it is difficult to predict or
project a trend of the Company's income or loss. However, the likelihood of
the Company reporting losses, particularly in the year of a motion picture's
release, is increased by the industry's method of accounting which requires
the immediate recognition of the entire loss (through increased amortization)
in instances where it is estimated the ultimate revenues of a motion picture
or television program will not recover the Company's costs. On the other hand,
the profit of a profitable motion picture or television program must be
deferred and recognized over the entire revenue stream generated by that
motion picture or television program. This method of accounting may also
result in significant fluctuations in reported income or loss, particularly on
a quarterly basis, depending on the Company's release schedule and the
relative performance of individual motion pictures or television programs. As
a result of the lack of movie production and distribution during the Sale
Period, the Company
27
<PAGE>
expects to experience lower revenues for at least the next three years, and
thus the fluctuations caused by this accounting method may have a greater
impact, than otherwise might be the case.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
In connection with the MGM Acquisition, all of the assets and liabilities of
MGM Studios, including the Library, were revalued as of October 10, 1996 under
purchase accounting, resulting in lower amortization rates in periods after
the MGM Acquisition than in the prior periods. Consequently, operating results
for the six months ended June 30, 1997 are not comparable to the corresponding
1996 period.
The following table sets forth the Company's operating results for the six
months ended June 30, 1997 as compared to the corresponding 1996 period,
presented on both an actual and a pro forma basis. The pro forma results
assume that the MGM Acquisition occurred at the beginning of the 1996 period
presented and do not give effect to the Orion Acquisition, which was
consummated on July 10, 1997.
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
-------------------- -----------
SIX MONTHS ENDED JUNE 30,
---------------------------------
1996 1996
ACTUAL PRO FORMA 1997 ACTUAL
--------- --------- -----------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Feature films............................... $ 542,658 $542,658 $303,100
Television programs......................... 52,474 52,474 47,914
--------- -------- --------
Total revenues............................ 595,132 595,132 351,014
Operating income (loss):
Feature films............................... (25,267) 6,834 31,633
Television programs......................... 12,491 13,958 1,469
General corporate administrative expenses... (29,597) (36,480) (35,140)
Goodwill amortization....................... (7,437) (3,821) (3,821)
--------- -------- --------
Total operating income (loss)............. (49,810) (19,509) (5,859)
Interest expense, net of amounts capitalized.. (45,086) (20,787) (20,599)
Interest and other income, net................ 874 1,282 1,388
--------- -------- --------
Income (loss) before provision for income
taxes........................................ (94,022) (39,014) (25,070)
Provision for income taxes.................... (9,530) ( 2,543) (3,935)
--------- -------- --------
Net income (loss) ............................ $(103,552) $(41,557) $(29,005)
========= ======== ========
</TABLE>
Feature Films. Feature film revenues decreased by $239.6 million, or 44
percent, to $303.1 million in the six months ended June 30, 1997 (the "1997
Period") compared to the six months ended June 30, 1996 (the "1996 Period").
Explanations for the decrease in revenues are discussed in the following
paragraphs.
Worldwide theatrical revenues decreased by $193.0 million, or 93 percent, to
$13.5 million in the 1997 Period, due to relatively limited worldwide
theatrical distribution activity following the Sale Period. See "Risk
Factors--Curtailment of Certain Operations Due to Sale of the Company." In the
1997 Period, the Company released only three new feature films domestically as
compared to 12 films released in the 1996 Period, which included significant
revenues from The Birdcage and Leaving Las Vegas. There were no such
comparably performing releases in the 1997 Period. In the 1997 Period, the
Company released only one new feature film in the international marketplace as
compared to six feature films released in the 1996 Period, which included
significant revenue from GoldenEye, The Birdcage and Get Shorty.
Worldwide home video revenues decreased by $77.1 million, or 30 percent, to
$179.3 million in the 1997 Period, which included the domestic releases of
Kingpin and Fled in the rental market, as well as the releases of
28
<PAGE>
Larger Than Life and The Birdcage in the sell-through market. The 1996 Period
included significant home video revenues from the releases of GoldenEye, Get
Shorty, Leaving Las Vegas and Showgirls in the rental market, and promotions
of the James Bond and Rocky film series in the sell-through market.
Worldwide pay television revenues increased by $21.6 million, or 77 percent,
to $49.7 million in the 1997 Period, primarily due to the availability of The
Birdcage, Biodome, Mulholland Falls and A Family Thing in the domestic pay
television market, as compared to the availability of Rob Roy in the 1996
Period. Network revenues increased $10.7 million to $12.2 million in the 1997
Period, which included license fees recognized on the films Stargate, Blown
Away, Getting Even With Dad and Clean Slate. The Company recognized network
license fees only on Undercover Blues in the 1996 Period. Worldwide
syndication revenues increased $3.0 million, or 7 percent, to $41.5 million in
the 1997 Period, principally due to the availability of Blown Away and Getting
Even With Dad in international markets.
The remaining $4.8 million decrease in feature film revenues in the 1997
Period principally related to lower merchandising and other revenues.
Feature film operating profit was $31.6 million in the 1997 Period as
compared to an operating loss of $25.3 million in the 1996 Period. The 1997
Period results reflect a higher operating margin on the Library, which was
revalued pursuant to purchase accounting in connection with the MGM
Acquisition and yielded lower amortization rates than in the 1996 Period.
Additionally, there were no feature film write-downs in the 1997 Period with
respect to the three theatrical releases in that period. This compares to
$52.2 million in write-downs on theatrical releases in the 1996 Period.
Feature film operating profit increased by $24.8 million, or 363 percent, in
the 1997 Period when compared to pro forma operating results in the 1996
Period, principally due to the aforementioned feature film write-downs in the
1996 Period.
Other operating expenses in the 1997 Period include interactive product and
development costs of $7.3 million and start-up losses of $5.6 million on the
Company's investment in MGM Gold (Asia), a satellite and cable delivery
channel based in Asia in which the Company holds a 50 percent equity interest.
The 1996 Period results did not include comparable activity in these new
businesses.
Television Programming. Television programming revenues decreased by $4.6
million, or 9 percent, to $47.9 million in the 1997 Period as compared to the
1996 Period. Worldwide pay television revenues decreased by $5.5 million, or
27 percent, to $14.9 million in the 1997 Period due to a reduction in the
license fees earned on the third season of the Outer Limits, as well as the
timing of delivery of current season episodes. Additionally, the Company
delivered only one new television movie in the 1997 Period as compared to four
movies in the 1996 Period. Worldwide syndication revenues increased by $1.3
million, or 5 percent, to $26.8 million in the 1997 Period due to the addition
of the series Poltergeist: The Legacy in domestic syndication, partially
offset by lower ratings on the Outer Limits series. The remaining revenue
decrease of $0.4 million in the 1997 Period principally related to lower home
video revenues earned on the aforementioned television movies.
Television programming operating profit was $1.5 million in the 1997 Period
as compared to an operating profit of $12.5 million in the 1996 Period.
Amortization expense on current series increased in the 1997 Period due to
reduced profitability estimates, as well as loss reserves recognized on
certain television series, including The Bradshaw Difference which has been
canceled.
Television programming operating profit decreased by $12.5 million, or 89
percent, in the 1997 Period when compared to pro forma operating results in
the 1996 Period for the reasons discussed above.
29
<PAGE>
General Corporate Administration Expenses. General corporate administration
expenses increased by $5.5 million, or 19 percent, to $35.1 million in the
1997 Period as compared to the 1996 Period due to the accrual of long-term
management incentive bonuses established in connection with the MGM
Acquisition.
General corporate administration expense decreased by $1.3 million, or 4
percent, in the 1997 Period when compared to 1996 pro forma results, which
include the aforementioned long-term management incentive bonuses.
Goodwill Amortization. Goodwill amortization decreased by $3.6 million, or
49 percent, to $3.8 million in the 1997 Period due to the revaluation pursuant
to purchase accounting of the Company's balance sheet as of October 10, 1996,
which resulted in lower goodwill than previously reflected in the pre-MGM
Acquisition balance sheet.
Interest Expense, Net of Amounts Capitalized. Net interest expense was $20.6
million in the 1997 Period as compared to $45.1 million in the 1996 Period.
Net interest expense decreased in the 1997 Period due to the substantial
equity investment received by the Company in connection with the MGM
Acquisition (see "--Liquidity and Capital Resources"). On a pro forma basis
after giving effect to such equity investment, net interest expense in the
1996 Period would have been $20.8 million.
Provisions For Income Taxes. The income tax provision of $3.9 million in the
1997 Period and $9.5 million in the 1996 Period reflects foreign remittance
taxes on international distribution revenues, which decreased substantially in
the 1997 Period.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
In connection with the MGM Acquisition, all of the assets and liabilities of
MGM Studios, including the Library, were revalued as of October 10, 1996 under
purchase accounting, resulting in lower amortization rates in periods after
the MGM Acquisition than in the prior periods. For purposes of presentation
and for management's discussion and analysis of the changes in financial
condition and results of operations for the above periods, the following table
combines the January 1, 1996 to October 10, 1996 pre-MGM Acquisition period
with the October 11, 1996 to December 31, 1996 post-MGM Acquisition period for
comparison to the year ended December 31, 1995.
<TABLE>
<CAPTION>
(PREDECESSOR) (SUCCESSOR)
--------------------------- ------------- COMBINED JAN.
YEAR ENDED JAN. 1 TO OCT. 11 TO 1 TO
DEC. 31, 1995 OCT. 10, 1996 DEC. 31, 1996 DEC. 31, 1996
------------- ------------- ------------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Feature films......... $ 770,740 $ 830,391 $214,273 $1,044,664
Television programs... 90,231 82,315 14,413 96,728
--------- --------- -------- ----------
Total revenues...... 860,971 912,706 228,686 1,141,392
Operating income (loss):
Feature films......... (61,560) (58,798) 35,655 (23,143)
Television programs... 28,251 17,684 (2,045) 15,639
General corporate
administration
expenses............. (64,175) (60,056) (18,319) (78,375)
Goodwill amortization. (14,876) (11,570) (1,717) (13,287)
Provision for
impairment........... -- (563,829) -- (563,829)
--------- --------- -------- ----------
Total operating
income (loss)...... (112,360) (676,569) 13,574 (662,995)
Interest expense, net of
amounts capitalized.... (66,386) (71,375) (9,875) (81,250)
Interest and other
income, net............ 10,372 3,179 813 3,992
--------- --------- -------- ----------
Income (loss) before
provision for income
taxes.................. (168,374) (744,765) 4,512 (740,253)
Provision for income
taxes.................. (935) (273) (4,346) (4,619)
--------- --------- -------- ----------
Net income (loss)....... $(169,309) $(745,038) $ 166 $ (744,872)
========= ========= ======== ==========
</TABLE>
30
<PAGE>
Feature Films. Feature film revenues increased by $273.9 million, or 36
percent, to $1.0 billion in the year ended December 31, 1996 compared to the
year ended December 31, 1995. Explanations for the increase in revenues are
discussed in the following paragraphs.
Worldwide theatrical revenues increased by $21.9 million, or 10 percent, to
$252.4 million in 1996. Theatrical revenues increased in 1996 principally due
to international theatrical revenues earned by GoldenEye, a substantial
portion of which were earned in 1996 although the film was initially released
in December 1995. The Company released 13 new feature films in each year in
the domestic marketplace, and eight new feature films in each year in the
international marketplace. In 1996 the Company earned significant revenues
from the domestic theatrical releases of The Birdcage and Leaving Las Vegas as
compared to GoldenEye, Get Shorty and Species in 1995. Internationally, the
Company earned significant revenues from GoldenEye, Get Shorty and The
Birdcage as compared to GoldenEye, Species and Rob Roy in 1995.
Worldwide home video revenues increased by $262.3 million, or 79 percent, to
$595.1 million in 1996, which included the domestic rental releases of
GoldenEye, The Birdcage, Get Shorty and Leaving Las Vegas as well as the sell-
through release of All Dogs Go To Heaven 2. In 1995 the Company released
Species, Rob Roy and Speechless in the domestic rental marketplace, as well as
Pebble and the Penguin in the domestic sell-through market. The increase in
home video revenue in 1996 reflected the strong performance of titles released
in the period, as well as the substantial increase in the number of titles
released as compared to 1995. Additionally, revenues earned under the
Company's distribution agreement with Turner increased substantially in 1996,
primarily as a result of a sell-through promotion of The Wizard of Oz. The
Company also earned significant revenues in 1996 from sell-through promotions
of the James Bond and Rocky film series. In 1996 significant international
home video revenues were contributed by GoldenEye, Species and Get Shorty as
compared to Blown Away and Getting Even With Dad in 1995.
Worldwide pay television revenues increased by $30.4 million, or 48 percent,
to $94.1 million in 1996, which included significant license fees earned on
the availability of GoldenEye, Get Shorty and Species, among others, as
compared to Stargate, Blown Away and Getting Even With Dad in 1995. Network
revenues decreased by $2.2 million, or 59 percent, to $1.5 million in 1996 due
to the availability of only one feature film, Undercover Blues, in 1996 as
compared to Benny & Joon and Untamed Heart in 1995. Worldwide syndication
revenues decreased by $23.7 million, or 22 percent, to $81.8 million in 1996,
primarily as a result of domestic license fees earned for Rainman, License to
Kill, A Fish Called Wanda, Rocky IV and Rocky V in 1995. The Company
recognized relatively lower license fees for Rocky III and The Russia House,
among others, in 1996. Additionally, international syndication revenues were
higher in 1995 due to license fees recognized under a new agreement covering
free television in Germany.
Other operating revenues decreased by $14.8 million, or 43 percent, to $19.8
million in 1996 as compared to 1995. Other revenues in 1995 included non-
recurring payments received in connection with an Australian pay television
joint venture and an audit settlement with a major distributor.
The Company recognized an operating loss from feature films of $23.1 million
in 1996 as compared to an operating loss of $61.6 million in 1995. The
improvement in the operating loss in 1996 reflects the aforementioned
substantial increase in revenues and a higher operating margin in the 1996
post-MGM Acquisition period (October 11 to December 31), which benefited from
the lower amortization rates due to the revaluation of the Library under
purchase accounting as a result of the MGM Acquisition. Additionally, feature
film write-downs decreased by $51.4 million in 1996 as compared to 1995.
Television Programming. Television programming revenues increased by $6.5
million, or 7 percent, to $96.7 million in 1996 as compared to 1995. Worldwide
pay television revenues increased by $11.6 million, or 81 percent, to $25.9
million in 1996, primarily due to the licensing of a new series, Poltergeist:
The Legacy. Network revenues decreased $2.7 million, or 95 percent, to $0.1
million in 1996 as a result of the broadcast in 1995 of one new television
movie. There was no comparable network programming broadcast in 1996.
31
<PAGE>
Worldwide home video revenues increased by $9.4 million, or 348 percent, to
$12.1 million in 1996, primarily as a result of international sales of made-
for-television movies and The Outer Limits series. Worldwide television
syndication revenues decreased by $13.0 million, or 19 percent, to $56.9
million due to substantial domestic license fees earned in 1995 on the In The
Heat Of The Night series. Other operating revenues increased $1.2 million in
1996 primarily due to merchandising income earned on current series.
Television programming operating profit decreased by $12.6 million, or 45
percent, to $15.6 million in 1996 due to higher amortization rates on the
Company's new series, which generated a higher proportion of 1996 revenues, as
compared to relatively lower amortization on revenues from the television
library of older series in 1995.
General Corporate Administration Expenses. General corporate administration
expenses increased by $14.2 million, or 22 percent, to $78.4 million in 1996
compared to 1995 due to increased executive compensation, accrual of long-term
management incentive bonuses and higher legal and professional fees.
Goodwill Amortization. The decrease in goodwill amortization in 1996 related
to the revaluation of the Company's assets and liabilities pursuant to
purchase accounting in connection with the MGM Acquisition, which resulted in
lower goodwill than carried in the balance sheet prior to the MGM Acquisition.
Provision For Impairment. In accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," the Company recorded a
charge of $563.8 million during 1996 in connection with CDR's sale of MGM
Studios to the Company to write-off certain intangible assets, including
$404.4 million to write-off its remaining investment in the film distribution
organization and a charge of $159.4 million to reduce its investment in
goodwill to net realizable value.
Interest Expense, Net of Amounts Capitalized. Net interest expense increased
by $14.9 million, or 22 percent, to $81.3 million in 1996 as compared to 1995.
Net interest expense increased in 1996 due to higher average borrowing levels
in the 1996 pre-MGM Acquisition period, partially offset by lower interest in
the 1996 post-MGM Acquisition period due to reduced debt levels associated
with the equity infusions received in connection with the MGM Acquisition.
Interest and Other Income, Net. Interest and other income, net decreased by
$6.4 million, or 62 percent, to $4.0 million in 1996 as compared to 1995. In
1995 the Company recovered proceeds under a directors' and officers' insurance
policy relating to litigation originating prior to 1991 and also reduced
certain prior period litigation reserves, resulting in additional income in
the period. There was no such comparable activity in 1996.
Provisions For Income Taxes. The income tax provision of $4.6 million in
1996 reflects foreign remittance taxes attributable to foreign distribution
revenues, net of the reversal of certain tax reserves of approximately $14.0
million, and tax expense on net profits in the post-MGM Acquisition period.
The income tax provision of $0.9 million in 1995 resulted from foreign
remittance taxes incurred on international distribution revenues, net of the
reversal of certain tax reserves of approximately $10.0 million. The Company
does not anticipate any further substantial reversals of tax reserves.
32
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
(PREDECESSOR)
YEAR ENDED DECEMBER 31,
------------------------
1994 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Feature films................................ $ 539,557 $ 770,740
Television programs.......................... 57,564 90,231
--------- ---------
Total revenues............................. 597,121 860,971
Operating income (loss):
Feature films................................ (86,422) (61,560)
Television programs.......................... 15,027 28,251
General corporate administration expenses.... (49,314) (64,175)
Goodwill amortization........................ (14,876) (14,876)
--------- ---------
Total operating income (loss).............. (135,585) (112,360)
Interest expense, net of amounts capitalized... (33,860) (66,386)
Interest and other income, net................. 2,070 10,372
--------- ---------
Income (loss) before provision for income
taxes......................................... (167,375) (168,374)
Provision for income taxes..................... (3,877) (935)
--------- ---------
Net income (loss).............................. $(171,252) $(169,309)
========= =========
</TABLE>
Feature Films. Feature film revenues increased by $231.2 million, or 43
percent, to $770.7 million in the year ended December 31, 1995 as compared to
the year ended December 31, 1994. Explanations for the increase in revenues
are discussed in the following paragraphs.
Worldwide theatrical revenues increased by $142.6 million, or 162 percent,
to $230.5 million in 1995 as compared to 1994. In 1995, the Company released
14 new feature films as compared to only six in 1994. Theatrical revenues
increased due to the significant contributions of GoldenEye, Get Shorty and
Species and due to the additional number of films released in 1995 as compared
to 1994. In 1995 these feature films included, among others, GoldenEye, Get
Shorty, Species and Rob Roy. In 1994, the Company released theatrically, among
others, the feature films Stargate, Speechless, Blown Away and Getting Even
With Dad.
Worldwide home video revenues increased by $67.6 million, or 25 percent, to
$332.8 million in 1995 as compared to 1994. Home video revenues in 1995
increased primarily due to the release of Species, Rob Roy and Speechless in
the domestic rental market, the release of Pebble and the Penguin in the
domestic sell-through market, and significant international revenues generated
by Blown Away and Getting Even With Dad. In 1994 there were only two
significant domestic rental releases, Blown Away and Getting Even With Dad,
and no significant international video releases.
Worldwide pay television and network revenues increased by $6.8 million, or
11 percent, to $67.4 million in 1995 as compared to 1994, principally as a
result of the recognition of significant domestic pay license fees in 1995 for
Stargate and Blown Away. There were no such comparable license fees earned in
1994.
Domestic syndication revenues decreased by $15.6 million, or 31 percent, to
$34.8 million in 1995 due to significant Library revenues generated in 1994 in
connection with an amendment to the Company's agreement with Turner, which
resulted in a one-time increase in license fees recognized in 1994.
International television syndication revenues increased by $7.4 million, or 12
percent, to $70.7 million in 1995, primarily due to the recognition of license
fees under a new agreement covering free television in Germany.
33
<PAGE>
Other operating revenues increased by $22.4 million, or 184 percent, to
$34.6 million in 1995 primarily due to payments received in connection with an
Australian pay television joint venture, an audit settlement with a major
distributor, the reversal of certain prior period litigation reserves, and
additional music and other ancillary revenues.
The Company recognized an operating loss from feature films of $61.6 million
in 1995 as compared to an operating loss of $86.4 million in 1994. The
improvement in the operating loss in 1995 reflects the substantial increase in
revenues earned in the period, partially offset by increased feature film
write-downs of $49.0 million on 1995 releases.
Television Programming. Television programming revenues increased by $32.7
million, or 57 percent, to $90.2 million in 1995 as compared to 1994.
Worldwide pay television revenues increased by $11.2 million to $14.3 million,
primarily due to the distribution of the new Outer Limits series and made-for-
television movies. Worldwide syndication revenues increased by $34.9 million,
or 98 percent, to $70.5 million, primarily due to the success of the In The
Heat Of The Night series in syndication. These increases were partially offset
by a decrease in network television revenues of $15.9 million, or 85 percent,
to $2.8 million in 1995 compared to 1994, which included the final season of
the In The Heat Of The Night series. In 1995 the only network revenues were
generated by one made-for-television movie. The remaining revenue increase in
1995 of $2.5 million resulted from home video revenues earned on the new Outer
Limits series and made-for-television movies.
Television programming operating profit increased by $13.2 million, or 88
percent, to $28.3 million in 1995 as compared to 1994 due to the
aforementioned increase in revenues and improved margins on the television
library as a result of increases in profitability estimates.
General Corporate Administration Expenses. General corporate administration
expenses increased by $14.9 million, or 30 percent, to $64.2 million in 1995
compared to 1994 primarily due to the accrual of non-recurring management
incentive bonuses of $10.0 million, higher legal and professional fees and
increased headcount associated with the growth in worldwide distribution
activities.
Interest Expense, Net of Amounts Capitalized. Net interest expense increased
by $32.5 million, or 96 percent, to $66.4 million in 1995 from $33.9 million
in 1994. Net interest expense increased due to higher borrowings outstanding
in 1995 and increases in interest rates.
Interest and Other Income, Net. Other income in 1995 includes proceeds
recovered under a directors' and officers' insurance policy relating to
litigation originating prior to 1991 and reductions in certain litigation
reserves.
Provisions For Income Taxes. The income tax provision of $0.9 million in
1995 includes foreign remittance taxes incurred on international distribution
revenues, partially offset by a reduction in tax reserves of approximately
$10.0 million due to the favorable settlement of certain international tax
audits. The provision for income taxes of $3.9 million in 1994 reflects
foreign remittance taxes, partially offset by the recognition of net operating
loss tax benefits.
LIQUIDITY AND CAPITAL RESOURCES
In recent years the Company has funded its operations primarily from
internally generated funds and bank borrowings. The Company is currently
operating under a business plan which calls for substantial continued
borrowing, primarily to fund film and television production.
In connection with the MGM Acquisition, MGM Studios obtained the Original
MGM Credit Facility aggregating $800 million, of which $450 million was used
to fund such acquisition. As of June 30, 1997, MGM Studios had $235 million
available under the Original MGM Credit Facility to fund ongoing operating
activities of the Company, and the interest rate was equal to the average of
the reserve-adjusted London Interbank Offered Rates quoted by certain
reference banks for deposits of U.S. dollars in comparable amounts and for
comparable periods in the London interbank market ("LIBOR") plus 2.75 percent.
34
<PAGE>
On July 10, 1997 the Company completed the Orion Acquisition for a total
purchase price of approximately $573 million. In connection with the Orion
Acquisition, the Company issued 360,000 shares of the Common Stock to Tracinda
and Seven for $360 million. In addition, Orion obtained the Original Orion
Credit Facility, consisting of a $200 million term loan and a $50 million
revolving credit facility. The interest rate on the Orion Credit Facility was
equal to LIBOR plus 2.50 percent.
In October 1997 MGM Studios and its principal lenders amended and restated
the Original MGM Credit Facility into the Amended Credit Facility, a
syndicated facility aggregating $1.3 billion which includes Orion as a co-
borrower, consisting of a six year $400 million revolving credit facility,
increasing to $600 million upon consummation of the Offering, a $400 million
seven and one-half year term loan and a $300 million eight and one-half year
term loan. The facility also contains provisions allowing, with the consent of
the requisite lenders and subject to syndication thereof, for an additional
$200 million tranche, raising the amount of the Amended Credit Facility to
$1.5 billion. Proceeds drawn from the Amended Credit Facility will be used to
retire all amounts outstanding under the Original Orion Credit Facility.
Scheduled amortization of the term loans under the Amended Credit Facility is
$0 in 1998, $0 in 1999, $0 in 2000, $33 million in 2001, $73 million in 2002,
$103 million in 2003, $103 million in 2004 and $103 million in 2005, with the
remaining balance due at maturity. The revolving facility portion of the
Amended Credit Facility matures in October 2003, subject to extension under
certain conditions. The Amended Credit Facility contains various covenants,
including limitations on indebtedness, dividends and capital expenditures and
maintenance of certain financial ratios. See "Financing Arrangements."
The Company's strategy and business plans contemplate substantial on-going
investments in production of new feature films and television programs. In
addition, the Company plans to make investments to develop new distribution
channels to further exploit the Library. The nature and extent of such
additional investments is dependent upon the future evaluation of the
strategic and economic factors underlying such opportunities. The Company
believes that the available credit under the Amended Credit Facility, together
with the proceeds from the Offering, should be sufficient to meet the
Company's current obligations and commitments and will enable the Company to
continue to conduct its operations in accordance with its current business
plans, although no assurance can be given in that regard.
35
<PAGE>
THE INDUSTRY
THE MOTION PICTURE INDUSTRY
General. The motion picture industry consists of two principal activities:
production and distribution. Production involves the development, financing
and production of feature-length motion pictures. Distribution involves the
promotion and exploitation of motion pictures throughout the world in a
variety of media, including theatrical exhibition, home video, television and
other ancillary markets. The U.S. motion picture industry can be divided into
major studios and independent companies, but the major studios dominate the
industry in the number of theatrical releases. In addition to the Company
(including MGM Pictures, UA Pictures, Orion and Goldwyn), the major studios as
defined by the MPAA are The Walt Disney Company (including Buena Vista,
Touchstone and Miramax) ("Disney"), Paramount, Sony Pictures Entertainment
Inc. (including Columbia and TriStar) ("Sony"), Twentieth Century Fox Film
Corporation ("Fox"), Universal and Warner Bros. (including Turner, New Line
Cinema and Castle Rock Entertainment) ("Warner"). The major studios are
typically large diversified corporations that have strong relationships with
creative talent, exhibitors and others involved in the entertainment industry
and have global film production and distribution capabilities.
Historically, the major studios have produced and distributed the majority
of high grossing theatrical motion pictures released annually in the United
States. Over the past decade, the number of feature-length motion pictures
released by the major studios has increased dramatically from 133 in 1986
(34.6 percent of the total) to a high of 233 in 1996 (71.7 percent of the
total). In addition, most of the studios have created or accumulated
substantial and valuable motion picture libraries that generate significant
revenues. These revenues can provide the major studios with a stable source of
earnings that offsets the variations in the financial performance of their
motion picture releases and other aspects of their motion picture operations.
The independent companies have more limited production and distribution
capabilities than do the major studios. While certain independent companies
may produce as many films as a major studio in any year, independent motion
pictures typically have lower negative costs and are not as widely released as
motion pictures produced and distributed by the major studios. Additionally,
the independent companies may have limited or no internal distribution
organizations and rely on the major studios for distribution and financing.
Motion Picture Production. The production of a motion picture begins with
the screenplay adaptation of a popular novel or other literary work acquired
by the producer of the motion picture or the development of an original
screenplay based upon a story line or scenario conceived or acquired by the
producer. In the development phase, the producer may seek production financing
and tentative commitments from a director, the principal cast members and
other creative personnel. A proposed production schedule and budget are
prepared. At the end of this phase, the decision is made whether or not to
"greenlight," or approve for production, the motion picture.
After greenlighting, pre-production of the motion picture begins. In this
phase, the producer engages creative personnel to the extent not previously
committed, finalizes the filming schedule and production budget, obtains
insurance and secures completion guaranties, if necessary. Moreover, the
producer establishes filming locations, secures any necessary studio
facilities and stages and prepares for the start of actual filming.
Principal photography, or the actual filming of the screenplay, generally
extends from seven to 16 weeks, depending upon such factors as budget,
location, weather and complications inherent in the screenplay. Following
completion of principal photography, the motion picture enters what is
typically referred to as post-production. In this phase, the motion picture is
edited, opticals, dialogue, music and any special effects are added, and
voice, effects and music soundtracks and pictures are synchronized. This
results in the production of the negative from which release prints of the
motion picture are made. Major studios and independent film companies hire
editors, composers and special effects technicians on the basis of their
suitability for a particular picture.
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Motion Picture Distribution. The distribution of a motion picture involves
the licensing of the picture for distribution or exploitation in various
markets, both domestically and internationally, pursuant to a release pattern.
These markets include theatrical exhibition, non-theatrical exhibition (which
includes airlines, hotels and armed forces facilities), home video (including
rental and sell-through), presentation on television (including pay-per-view,
pay, network, syndication or basic cable) and marketing of the other rights in
the picture and underlying literary property, which may include books,
merchandising and soundtracks. The domestic and international markets
generally follow the same release pattern, with the starting date of the
release in the international market varying from being concurrent with the
domestic theatrical release to being as long as nine months afterwards. A
motion picture typically is distributed by a major studio or one or more
distributors that acquire rights from a studio or other producer in one or
more markets or media or a combination of the foregoing.
Both major studios and independent film companies often acquire pictures for
distribution through a customary industry arrangement known as a "negative
pickup," under which the studio or independent film company agrees to acquire
from a production company all rights to a film upon completion of production,
and also acquire completed films.
THE TELEVISION INDUSTRY
Television Production. The production of television series programming
involves the development of a format based on a creative concept or literary
property into a television script, the hiring of talent, the filming or taping
of the program and the technical and post-production work necessary to produce
a finished program. Television producers may originate projects internally or
acquire them from others. If a concept is deemed suitable for development, the
studio or other producer or network typically commissions and pays for a
script. Once a script is ordered, one or more license agreements are
negotiated with the potential broadcasters of such program. A pilot episode
usually is ordered or commissioned prior to the determination of whether a
series will be produced.
Television production can generally be divided into two distinct businesses:
network production (i.e., television shows for ABC, CBS, NBC, Fox, UPN and WB)
and non-network production (i.e., made-for-cable and first-run syndication).
The economics of the two types of television production are different. In
network production, a network generally orders approximately six to 13 initial
episodes of each new series for a license fee equal to a percentage of the
program's cost. The balance of the production cost can only be recouped
through international sales and syndication if a series is successful and
generally remains unrecouped for at least four years. In the non-network
production or first-run syndication business, a producer seeking to launch a
new series commits to produce a minimum number of episodes if the producer can
"clear" the series by selling to individual television stations in sufficient
markets throughout the country (generally comprising 70 percent of television
households). Once produced, the episodes are immediately available for
licensing to international broadcasters as well. This approach generally
involves a lower production cost risk and earlier return on investment ("ROI")
than the network production business; however, non-network programming also
generally provides a lower ROI than successful network production. See
"Business--Free and Pay Television--Television Production."
Television Distribution. The U.S. television market is served by network
affiliated stations, independent stations and cable systems, although the
number of independent stations has decreased as many formerly independent
stations have become affiliated with new networks in recent years. During
"prime time" hours, network affiliates primarily broadcast programming
produced for the network. In non-prime time, network affiliates telecast
network programming, off-network programming, first-run programming
(programming produced for distribution on a syndicated basis) and programming
produced by the local stations themselves. Independent television stations and
cable networks, during both prime and non-prime time, produce their own
programs and telecast off-network programs or first-run programs acquired from
independent producers or syndicators. Syndicators generally are companies that
sell to independent television stations and network affiliates programming
produced or acquired by the syndicator for distribution.
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BUSINESS
COMPANY OVERVIEW
The Company is engaged primarily in the development, production and
worldwide distribution of theatrical motion pictures and television programs.
The Company, including MGM Studios, UA, Orion, Goldwyn and its other
subsidiaries, is one of only seven major film and television studios
worldwide. With approximately 4,000 film titles and over 8,200 episodes of
television programming, the Library constitutes the largest collection of
post-1948 feature films in the world. Motion pictures in the Library have won
over 185 Academy Awards, including Best Picture Awards for Annie Hall, The
Apartment, The Best Years of Our Lives, Dances With Wolves, The Deer Hunter,
Hamlet, In the Heat of the Night, Marty, Midnight Cowboy, Platoon, Rain Man,
Rocky, Silence of the Lambs, Tom Jones and West Side Story. The Library also
includes 17 titles in the James Bond film franchise, five titles in the Rocky
film franchise and nine titles in the Pink Panther film franchise.
Tracinda, Seven and senior management of MGM Studios formed the Company to
acquire all of the outstanding capital stock of MGM Studios and its
subsidiaries, including UA, in October 1996 for an aggregate consideration of
$1.3 billion pursuant to the MGM Acquisition. Tracinda is wholly-owned by Kirk
Kerkorian. Seven is one of the largest television broadcast networks in
Australia with stations in five major Australian metropolitan areas and one
regional television station. Frank G. Mancuso, Chairman and Chief Executive
Officer of MGM Studios since July 1993 and of the Company since its formation,
has approximately 35 years of entertainment industry experience.
In July 1997 the Company acquired all of the outstanding capital stock of
Orion and its subsidiaries including Goldwyn, from Metromedia International
Group, Inc. pursuant to the Orion Acquisition. In connection with the Orion
Acquisition, the Company obtained the film and television libraries of the
Orion Companies consisting of approximately 1,900 film titles and 3,000
television episodes, effectively doubling the size of the Library to its
current size of approximately 4,000 film titles and over 8,200 episodes of
television programming. The Company also acquired 12 substantially completed
theatrical motion pictures and five direct-to-video features. The Goldwyn
cinema operations were excluded from the Orion Acquisition. See "Background of
the Company."
BUSINESS STRATEGY
The Company's goal is to enhance its position as a premier global
entertainment content company by maximizing the value of its assets, including
the Library and its film and television production units, under the direction
of its experienced management team. To achieve this goal, the Company intends
to:
Build and Leverage the Library. The Company believes that the Library is its
most powerful asset and that the Library will continue to generate relatively
stable cash flows through the worldwide distribution of its titles. Management
intends to maximize the value of the Library by (i) producing new motion
pictures and television programs that will not only be successful on their
own, but will also increase the depth and breadth of the Library, (ii)
aggressively marketing and repackaging the Library's titles, (iii) developing
new distribution channels for delivering MGM branded programming, (iv)
capitalizing on developments in technology and (v) further penetrating
international markets as they grow. Additionally, the Company expects to
benefit as certain rights to its Library that have been previously licensed to
others revert to the Company over time.
Develop, Produce and Distribute Theatrical Motion Pictures. Through MGM
Pictures and UA Pictures, the Company plans to produce or co-produce and
distribute approximately ten to 12 motion pictures annually across a variety
of genres. The Company intends to (i) actively manage its production and
release schedules to maximize overall performance of those motion pictures,
(ii) tightly control development and production expenditures while maintaining
the artistic integrity required to develop and produce successful feature
films and (iii) utilize the Library as an inexpensive source for sequels and
remakes and the expansion of certain well-tested, familiar film franchises.
Additionally, the Company plans to produce or acquire and release
approximately four to six specialty motion pictures annually through Goldwyn.
The Company also plans to distribute annually approximately four to six motion
pictures produced by others.
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Develop, Produce and Distribute Television Programming. The Company intends
to focus primarily on the development and production of series for pay
television and the first-run syndication business by using its extensive
Library as a source of ideas. Under its television programming strategy, the
Company has been able to recover substantially all production costs for a
series shortly following completion of production by obtaining up-front
financial commitments from domestic pay television broadcasters for production
of multiple episodes of the series and concurrently licensing the series in
international markets. The Company also develops programs such as two-hour
television movies and mini-series. The Company intends to allocate a portion
of its future television production budget to producing series for network
television.
Leverage the MGM Brand Name. The Company believes that the MGM name and its
lion logo are among the most recognized in the world. The Company intends to
capitalize on the value inherent in its name and logo through the distribution
of branded programming and the selective development of high quality consumer
products.
When Mr. Mancuso was appointed Chairman and Chief Executive Officer in 1993,
he began implementing the above business strategy. Under Mr. Mancuso's
direction, the Company completed the Orion Acquisition to build the Library.
In addition, under Mr. Mancuso's direction the Company has produced and/or
released such successful motion pictures as The Birdcage, Get Shorty,
GoldenEye, Leaving Las Vegas, Species and Stargate. Although the Company did
not approve any motion pictures for production during the Sale Period, since
completion of the MGM Acquisition, management has taken steps to return
operations to a higher level. Since October 1996 the Company has approved six
motion pictures for production. See "Risk Factors--Curtailment of Certain
Operations Due to Sale of the Company." Since Mr. Mancuso's appointment, the
Company has reestablished a television series production business and has
taken steps to leverage the MGM brand name.
FILM AND TELEVISION LIBRARY
The Library is one of the most critically acclaimed libraries in the motion
picture industry, representing one of the largest collections of Academy
Award-winning films. As of August 1, 1997 the Company owned, or held certain
distribution rights with respect to, approximately 4,000 theatrical motion
pictures, excluding the approximately 2,950 titles that the Company has the
right to distribute in home video markets under an agreement with Turner. See
"--Distribution--Home Video Distribution." The motion pictures in the
Company's Library have won over 185 Academy Awards. Fifteen motion pictures
have won the Academy Award for Best Picture, including Annie Hall, The
Apartment, The Best Years of Our Lives, Dances With Wolves, The Deer Hunter,
Hamlet, In the Heat of the Night, Marty, Midnight Cowboy, Platoon, Rain Man,
Rocky, Silence of the Lambs, Tom Jones and West Side Story.
The Library also constitutes the largest collection of post-1948 feature
films in the world. In 1948 certain major studios negotiated consent decrees
requiring that the studios separate their exhibition businesses from their
production and distribution businesses and mandating the divestiture of
certain theater holdings. This is generally believed to have triggered greater
competition among the studios and an increased emphasis on the potential for
commercial success in the development and production stages, resulting in a
greater focus on the content and quality of the motion pictures produced and
distributed by the studios. The Company believes that films produced and
developed after 1948 generally are more valuable than films that were produced
and developed earlier.
Additionally, the Library includes motion pictures from a wide range of
genres, including dramas, comedies, action-adventure movies, westerns and
suspense thrillers. Management believes that the Library's diversity, quality
and extensive size provides the Company with substantial competitive
advantages. The Company intends to continue to build upon these advantages by
producing and acquiring new motion pictures across a variety of genres and
budget ranges to update and enhance the Library. See "--Production--Motion
Picture Production."
The Library also includes over 8,200 episodes from television series
previously broadcast on prime-time network television or in first-run
syndication, including episodes of The Addams Family, American Gladiators,
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<PAGE>
Bat Masterson, Cagney & Lacey, Fame, Green Acres, Highway Patrol, In the Heat
of the Night, Mr. Ed, The Patty Duke Show, Pink Panther, Sea Hunt and
thirtysomething. The television series in the Library have won 41 Emmy awards
and six Golden Globe awards.
The Company will continue to implement its strategy of developing new
projects from existing Library assets. The Library represents a readily-
available, "market tested" source of development ideas. For example, the
Company recently had success with the film The Birdcage, a remake of La Cage
aux Folles, and is expected to release Species II, the sequel to Species, in
1998. Furthermore, the Company has successfully expanded the valuable film
franchises within its Library, most notably the James Bond franchise, with the
1995 commercial success of GoldenEye. The Company expects to release the
latest James Bond film, Tomorrow Never Dies, in December 1997. Additionally,
the Company has successfully developed four television series based on Library
motion pictures: Poltergeist: The Legacy based on Poltergeist; Stargate SG-1
based on Stargate; All Dogs Go to Heaven, based on the movie of the same name;
Fame L.A. based on Fame; and The Magnificent Seven, based on the movie of the
same name. The Company also recently produced a remake of Twelve Angry Men as
a made-for-television movie, which has aired on Showtime Networks Inc.
("Showtime").
Eighteen James Bond motion pictures in the Library, including the upcoming
release, are produced and distributed pursuant to a series of agreements with
Danjaq. The motion pictures are produced by Danjaq, and the Company has the
right to approve all key elements of the pictures, such as the selection of
the director and the leading actors. The copyright in each of the motion
pictures is owned jointly by the Company and Danjaq. Generally, the Company
has the right to distribute each of the pictures in all media worldwide in
perpetuity or for a term of 15 years. Where the Company's distribution rights
are not perpetual, the rights revert to joint control after expiration of the
distribution term. Danjaq owns any television series created that is based on
the James Bond motion pictures, and the Company has the distribution rights to
such series. Danjaq controls the merchandising rights with respect to the
pictures, with the Company being entitled to receive a portion of the revenues
from all merchandising licenses. Additionally, the Company controls all
marketing rights, and controls the music from The Living Daylights (1987) and
all subsequent pictures. All other rights relating to the pictures are
controlled jointly by the Company and Danjaq. The agreements contain certain
restrictions on the sale or licensing by the Company of any of its rights in
the pictures.
The Company intends to aggressively market and distribute titles in the
Library in existing pay and free television, home video and other markets
worldwide, as well as through developing technologies. Rather than selling its
titles on a single or multi-picture basis, the Company strives to pool
strategically its motion picture and television titles into cohesive
programming packages directed at specific markets, including purchasers of
large quantity programming and services in emerging markets which may not have
their own programming capabilities. The Company believes that the development
and growth of direct broadcast satellite ("DBS") and other new distribution
systems may generate significant incremental profits for the industry as the
number of channels requiring content grows. The Company believes that, with
its extensive Library and its branded programming strategy, the Company is
well positioned to benefit from such growth and development.
Due to certain long-term pre-paid licenses entered into by prior management,
the Company does not expect to receive significant revenue with respect to a
portion of its Library from domestic free and certain international television
markets for the next several years. The Company expects to benefit as certain
rights to the Library that have been previously licensed to others revert to
the Company over time. See "Risk Factors--Certain Limitations on the
Exploitation of the Library" and "--Distribution--Home Video Distribution."
40
<PAGE>
PRODUCTION
MOTION PICTURE PRODUCTION
The Company currently develops and produces theatrical motion picture
projects through two separate production entities, MGM Pictures and UA
Pictures. The Company operates these production units independently with
separate management teams and allows them to compete directly for the best new
projects on the creative side of the business. At the same time, the Company
supports the units with the benefits of centralized marketing, sales, legal,
physical production and distribution functions. Direct access to senior
management also expedites major decision-making. By utilizing its two separate
production units, management believes that the Company benefits from the
distinct creative talents and perspective of each of its chief production
executives, resulting in greater diversity within its overall release slate.
Through these production units, the Company plans to produce or co-produce
and distribute between approximately ten and 12 motion pictures annually
across a variety of genres and budget ranges and release approximately four to
six additional pictures each year that are produced by other producers. Both
production units employ a development staff of creative executives who work to
refine concepts and scripts so that projects are developed to the point that
production decisions can be made. The creative staffs of both MGM Pictures and
UA Pictures currently have approximately 90 ongoing projects in the aggregate,
which are in various phases of development and pre-production. The Company's
current strategy is to have fewer projects in development at any one time than
the other major studios in order to concentrate its efforts and assets on the
projects that management believes could be the most commercially successful.
The Company believes that this strategy will result in lower development
related write-offs and abandonment costs relative to the other major studios.
Additionally, the Company plans to release approximately four to six
specialty motion pictures each year through Goldwyn. These motion pictures
will be produced or co-produced by Goldwyn or acquired through negative
pickups or other distribution arrangements and will include motion pictures in
a variety of genres generally involving producers and directors, writers or
other talent who typically work outside of the studio system. The Company's
investment in such pictures is expected to be significantly less than the
Company's investment for pictures produced through MGM Pictures or UA
Pictures. The Company believes that this strategy of releasing independent
motion pictures will add greater diversity to the Company's release slate and
enhance the Library both through the addition of new film product and the
building of relationships with up-and-coming producers and directors, writers
and other talent.
In order to manage the financial risks inherent in motion picture
production, management has developed a rigorous budgeting and approval process
and strictly controls the cost of each motion picture through active
management involvement in all phases of the production process. When a project
is considered to have commercial potential, budgets are developed
independently by the physical production department to determine the below-
the-line cost of a motion picture. At a point early in this process, a
preliminary below-the-line estimate is combined with potential above-the-line
costs, such as talent costs and participations, to form a model of the total
cost of the motion picture. The Company's financial planning and analysis
group then performs sensitivity analyses to determine the motion picture's
potential ROI. The ROI range is developed using a preliminary cost model
together with a revenue model based on the picture's budget, genre, cast,
international appeal and other factors. The Company believes that, as a result
of its focus on budgeting and controlling production expenditures, it will be
able to annually release a portfolio of commercially appealing films that cost
less to produce, on average, than films developed by the other major studios.
This strategy also provides the Company with the flexibility necessary to
opportunistically develop high visibility or event projects that may cost more
than the portfolio average.
The Company pursues fewer producer or talent "overhead" arrangements, in
which a studio pays a portion of the overhead of creative talent (i.e.,
producer, director or actor) for the right to receive a "first look" at that
party's projects, than other major studios. In general, the Company believes
that its capital resources are better allocated to acquire literary property
or the services of talent for a specific project than to fund overhead. See
"Risk Factors--Risks of Motion Picture and Television Production."
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The Company does not own any studio facilities or stages but rather leases
facilities and sound stages on an "as needed" basis in connection with the
production of specific motion picture and television projects. The Company has
not experienced any difficulties in leasing appropriate facilities and sound
stages when needed.
The following table details the Company's release schedule, as announced by
the Company in August 1997, for the remainder of 1997 and the first six months
of 1998.
RELEASE SCHEDULE
<TABLE>
<CAPTION>
APPROXIMATE
TITLE RELEASE DATE SUMMARY PRINCIPAL ACTORS
----- ------------ ------- ----------------
<C> <C> <C> <S>
Paperback Romance........... Released Madcap romantic comedy Gia Carides, Anthony
LaPaglia
Hoodlum(3).................. Released 1930's gangland action film Laurence Fishburne, Tim
centered on Bumpy Johnson Roth, Vanessa Williams,
Andy Garcia, Cicely Tyson
The End of Violence......... September 1997 Wim Wenders' look at Bill Pullman, Andie
exploitation and violence MacDowell, Gabriel Byrne,
Loren Dean, Traci Lind,
Pruitt Taylor-Vince
The Locusts................. September 1997 Film noir pot-boiler set in Kate Capshaw, Jeremy Davies,
1960's rural Kansas Vince Vaughn, Ashley Judd
Gang Related................ October 1997 Tupac Shakur's last movie, a James Belushi, Tupac Shakur,
thought-provoking police Dennis Quaid, James Earl
action thriller Jones
Napoleon.................... October 1997 Live-action children's Voices by: Adam Wylie,
adventure about a puppy lost Bronson Pinchot, Blythe
in the Australian outback Danner, Joan Rivers
Hurricane Streets........... October 1997 Disturbing look at modern- Brendan Sexton III, Shawn
day youth Elliott, Jose Zuniga
Red Corner(2)............... October 1997 Political thriller/courtroom Richard Gere, Bai Ling
drama directed by Jon Avnet
Liar........................ November 1997 Suspenseful thriller Tim Roth, Chris Penn, Renee
centered on a web of lies Zellweger, Ellen Burstyn,
and deceits Rosanna Arquette
Bent........................ December 1997 Based on the critically Lothaire Bluteau, Clive
acclaimed play Owen, Brian Webber, Ian
McKellen, Mick Jagger
Tomorrow Never Dies(3)...... December 1997 Latest installment of the Pierce Brosnan, Jonathan
James Bond series Pryce, Michelle Yeoh, Teri
Hatcher, Joe Don Baker,
Judi Dench
Welcome to Woop Woop........ January 1998 Twisted road comedy from the Johnathon Schaech, Rod
director of "The Adventures Taylor, Susie Porter, Dee
of Priscilla, Queen of the Smart
Desert"
Music From Another Room..... February 1998 Romantic comedy about a Jude Law, Jennifer Tilly,
man's search for his one Martha Plimpton, Brenda
true love Blethyn
The Man in the Iron Mask(3). February 1998 Period piece based on the Leonardo DiCaprio, Jeremy
Alexandre Dumas novel Irons, John Malkovich,
Gerard Depardieu, Gabriel
Byrne
Storefront Hitchcock........ March 1998 Concert/performance movie Robyn Hitchcock
directed by Academy Award-
winning director, Jonathan
Demme
I Love You Don't Touch Me... April 1998 A bold romantic comedy Marla Schaffel, Mitchell
Whitfield, Meredith Scott
Lynn, Michael Harris
Dirty Work(1)(2)............ April 1998 Comedy about the revenge Norm Macdonald, Chevy Chase,
business Jack Warden, Don Rickles,
Chris MacDonald, Artie
Lange, Taylor Howard
Species II(2)............... May 1998 Sequel to the successful Michael Madsen, Marg
1995 film Helgenberger, Natasha
Henstridge, Mykelti
Williamson, Justin Lazard,
James Cromwell,
George Dzundza
</TABLE>
- --------
(1) Principal photography has not been completed.
(2) Developed and produced by MGM Pictures.
(3) Developed and produced by UA Pictures.
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The Company may revise the release date of a motion picture as the
production schedule changes or otherwise to maximize revenues. Additionally,
there can be no assurance that any of the motion pictures scheduled for
release will be completed, that completion will occur in accordance with the
anticipated schedule or budget, or that the motion pictures will necessarily
involve all of the creative talent listed above. See "Risk Factors--Risks of
Motion Picture and Television Production."
TELEVISION PRODUCTION
Through MGM Worldwide Television, Inc., a subsidiary of MGM Studios, the
Company is engaged in the development and production of episodic television
series, mini-series and movies for distribution on domestic and international
television networks, local independent and network-affiliated television
stations, pay television networks, basic cable networks and home video. Since
the re-establishment of its television series production operations in 1994,
the Company has obtained commitments for approximately 625 hours of television
programming, of which approximately 50 percent remained to be aired as of
August 1, 1997. Historically, the Company's television activities were focused
on the traditional network production business and made-for-television movies,
and many of the television programs in the Library were produced as network
series. Since the networks have been able to substantially lower the license
fees as a percentage of the budget for network television programming in
recent years, resulting in significantly larger production investment risks
for the producers of such programming, the Company altered its television
strategy in 1994 when the Company's management re-established the Company's
television series production operations. See "The Industry."
Since 1994 the Company has focused primarily on the development and
production of series for the first-run syndication business, which involves a
lower production investment risk for the Company, and movies and mini-series
for both network and off-network broadcasters. The Company's strategy is
designed to (i) minimize up-front capital investment through the production of
series for the first-run syndication business and through co-production
arrangements, (ii) minimize risks associated with large deficit financing by
developing product such as two-hour movies or mini-series that generally offer
stable, predictable cash flows, (iii) use valuable Library assets such as The
Outer Limits, Poltergeist, Stargate, All Dogs Go to Heaven, Fame and The
Magnificent Seven to develop recognizable products with enhanced marketability
at a reduced cost and (iv) develop alternative types of programming, such as
animated cartoon strips, talk shows, variety shows and reality-based
programming such as LAPD--Life on the Beat.
As part of its strategy, the Company entered into a programming arrangement
with Showtime whereby the Company provides television series and movies for
premiere on Showtime. Showtime has agreed to license exclusive U.S. pay
television rights to the following television series: (i) 110 one-hour
episodes (five seasons) of The Outer Limits (winner of the Cable Ace award for
Best Dramatic Series in 1995 and 1996) of which 44 episodes remained to be
aired as of August 1, 1997; (ii) 88 episodes (four seasons) of Poltergeist:
The Legacy of which 44 episodes remained to be aired as of August 1, 1997;
(iii) 44 episodes (two seasons) of Stargate-SG1 of which 37 episodes remained
to be aired as of August 1, 1997; (iv) 44 episodes (two seasons) of a series
to be developed by the Company to air beginning in 2000; and (v) 22 episodes
(one season) of a series to be developed by the Company to air beginning in
2001. Showtime has also agreed to license exclusive U.S. pay television rights
to ten original television movies to be produced by the Company for premiere
on Showtime in the years 1997 through 2003. The production budgets for the
movies are between $2.5 million and $5 million and will be funded jointly by
the Company and Showtime.
Additionally, the Company has obtained a commitment to license, or
"cleared," 26 episodes of All Dogs Go to Heaven, a one-half hour animated
series, of which 13 episodes remain to be aired. Furthermore, the Company has
cleared 44 episodes (two seasons) of Fame L.A. with individual television
stations in markets throughout the country comprising approximately 90 percent
of television households.
The Company recently expanded its focus to produce series for network
television on a selective basis, which typically require deficit financing but
generally offer the potential for greater financial return. In its first sale
of a series to network television since 1994, the Company has produced a two-
hour pilot of The Magnificent Seven and obtained a commitment from CBS for
such pilot and six additional one-hour episodes.
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DISTRIBUTION
THEATRICAL DISTRIBUTION
General. The initial step in the release of a motion picture is the booking
of engagements with theatrical exhibitors. The exhibitors retain a portion of
the admissions paid at the box office, which generally includes a fixed amount
per week, as well as a percentage of the admissions that escalates over time.
A studio's or other producer's (or third party distributor's) share is
approximately 50 percent of gross box office admissions, although such
percentage, which has generally decreased in recent years, varies depending
upon factors such as the number and box office performance of such studio's or
other producer's recent releases. Although the lack of production during the
Sale Period may have adversely affected the Company's relationship with major
domestic exhibitors, the Company believes that its exhibitor relationships and
negotiated share of box office receipts will improve to the extent that it
achieves box office success with the films in its new release slate.
The Company intends to release a slate of films appealing to a wide variety
of audiences. By strategically timing the release of its motion pictures
throughout the year, the Company intends to avoid some of the risks posed when
a motion picture is inappropriately released during the most crowded and
competitive box office seasons.
All motion pictures that are released theatrically by the Company in the
U.S. and Canada, whether produced by MGM Pictures or UA Pictures or third
parties, are marketed and distributed by Metro-Goldwyn-Mayer Distribution Co.
Additionally, the Company generally distributes its motion pictures in
theatrical markets outside of the U.S. and Canada through UIP, a partnership
owned equally by the Company, Paramount and Universal. UIP is the world's
largest theatrical motion picture distribution company outside the U.S., with
distribution activities in over 50 countries. UIP has a cost sharing
arrangement that requires each partner to be responsible for one-third of
UIP's annual operating overhead. UIP charges each partner a distribution fee
of 35 percent of gross theatrical receipts until the fee equals one-third of
the annual operating costs of the partnership, and thereafter a negotiated
percentage of any additional gross receipts as a fee for incremental use of
the organization. Each partner bears all of its own releasing costs and
retains all cash flow from its pictures after payment of fees. See "--
Regulation."
The Company can elect to withdraw from UIP on November 1 of any year with at
least one year's prior notice (although the Company has no current intention
to withdraw). If the Company, or any partner, withdraws, that partner is
entitled to one-third of the book value of UIP less one-third of the estimated
winding down costs of the partnership. Both Universal and Paramount have
agreed not to withdraw from the partnership until after 2001. The partners are
prohibited from transferring their respective partnership interests.
Co-Production and Distribution Agreements. In addition to producing feature
motion pictures independently, the Company occasionally enters into co-
production agreements under which the Company retains certain distribution
rights with respect to a picture and shares the cost of production with a
partner that obtains other rights (generally outside of the U.S. and Canada).
While such agreements limit the Company's risk relating to a motion picture's
performance as they reduce the Company's production costs, such agreements
also limit profitability. The Company also acquires rights to distribute films
through negative pickup arrangements. Under co-production or negative pickup
arrangements, the Company may be committed to spend specified amounts for
prints and advertising. Additionally, the Company occasionally enters into
"rent-a-system" arrangements under which the Company provides distribution
services to an independent film company for a percentage distribution fee.
Under rent-a-system arrangements the independent film company generally is
responsible for all print and advertising costs. These types of arrangements
may be entered into before, during or after production of a particular motion
picture.
Theatrical Marketing. The Company's theatrical marketing department consists
of five functional groups: research, media planning, advertising, promotion
and publicity. The objective of the marketing department is to maximize the
Company's ROI on each motion picture by designing and implementing a marketing
campaign
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tailored to appeal to the picture's most receptive audience. The marketing
process begins with research before a motion picture is completed. The
research department determines, through audience screenings and focus groups,
a motion picture's appeal to its most likely target audience. The marketing
group begins to develop media plans and marketing materials well in advance of
a motion picture's scheduled theatrical release. The media campaign generally
begins six months before release with the circulation of teaser trailers,
posters and exhibitor advertising materials. The campaign becomes more
aggressive two to three months before release as full-length trailers are
released in theaters and more significant materials are sent to exhibitors.
Finally, a national campaign is launched four to five weeks before opening
day. This media campaign generally involves advertising a picture's release on
national television, including network prime time and syndication markets,
national cable and radio and in magazines, newspapers and specific target
markets, such as colleges. In addition, public appearances, such as television
talk shows, are arranged for a picture's stars in order to promote the film.
The entire process is managed by the Company's in-house staff, although
outside agencies are frequently retained to provide creative input.
HOME VIDEO DISTRIBUTION
The Company's marketing and distribution strategy in the home video market
domestically and internationally is to (i) market its motion picture and
television titles in cohesive packages, (ii) create branded product lines,
(iii) adapt to a maturing home video market and (iv) release new motion
pictures into the home entertainment market at the time of the year that it
believes will generate the most sales without diminishing revenues from other
markets. Under current management, the Company has repackaged and repriced a
number of Library titles. The Company believes this has resulted in increased
shelf space in video retail stores and that this increased visibility has led
to increased sales. For example, the Company recently experienced increased
sales with the packaging of groups of titles from the Rocky franchise.
Additionally, the Company will release Library films, or groups of Library
films, in connection with new films which it releases into the market, in
order to increase sales of both Library films and new releases. An example is
the recent James Bond video campaign, under which the 16 Bond films then in
the Library were remastered and repackaged into two sets of videos. The first
set was introduced in connection with the theatrical release of GoldenEye, in
order to capitalize on public awareness. The second set was introduced in
connection with the release of GoldenEye on video. The Company intends to
continue this strategy of packaging groups of films or film franchises and
releasing them in connection with the releases of its most highly visible new
films. Additionally, the Company intends to utilize new formats for home video
sales, such as the successful "infomercials" for James Bond and Elvis Presley
videos, the first in the motion picture business.
MGM Home Entertainment Inc. ("Home Entertainment") manages the marketing and
distribution of both current feature motion pictures and Library product of
MGM Studios and its subsidiaries in the home video and other home
entertainment markets. In addition, the Company has an agreement with Turner
pursuant to which the Company distributes the Turner library, the Old MGM
Library and all pre-1949 Warner titles in worldwide home video markets, for a
total of approximately 2,950 titles. The Company's rights under this agreement
with Turner expire in June 2001. As more fully described below, these titles
as well as the current pictures and Library product of MGM Studios and its
subsidiaries, and any theatrical motion picture in which MGM Studios or one of
its subsidiaries acquires home video rights, are serviced pursuant to the WHV
Agreement.
In 1990, as part of the acquisition of MGM/UA by Pathe, MGM-Pathe entered
into the WHV Agreement, under which WHV provides services in connection with
the distribution of the Company's motion pictures in worldwide home video
markets for a fee which is a percentage of home video revenues. The Company
maintains direct control of all significant elements of distribution such as
the determination of release dates, marketing and pricing for the Company's
home video releases. Laser disc and digital video disc ("DVD") distribution
rights are also covered by the WHV Agreement.
The WHV Agreement expires in May 2003, with the home video rights of each of
the films still covered by the WHV Agreement at that time reverting to the
Company five years after the film's initial availability in the
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U.S. home video market. Management believes that the Company will be able to
manage home video distribution in a more cost-effective manner and increase
sales and profitability upon the expiration of the WHV Agreement. Even with
the agreement in effect, the Company's home video sales have increased since
1993. From 1993 to 1996, the Company increased its worldwide home video gross
revenue from feature films by 145 percent, from $243.0 million to $595.1
million. The Company believes that this increase is a result of more effective
and efficient marketing by the Company, the renegotiation by the Company of
key vendor relationships and a reorganization of the Company's distribution
infrastructure.
Currently, Orion manages the marketing and distribution of both current
feature motion pictures and library product of the Orion Companies in the home
video markets, except for the current feature motion pictures and library
product of Goldwyn. Goldwyn has licensed to Hallmark Entertainment
Distribution Company, Inc. ("Hallmark") the right to distribute in the U.S.
home video market substantially all of the Goldwyn library and all feature
motion pictures produced or acquired by Goldwyn between May 1995 and April
2000. The term of Hallmark's license of each of its library pictures expires
on the later of five and a half years after the date of the picture's initial
availability in the U.S. home video market or Hallmark's recoupment of its
advance under the license, but no later than June 30, 2005. There is a maximum
license period for each of the current motion pictures of five and a half
years from the date of the picture's availability in the U.S. home video
market and a maximum period of ten years from availability.
The Company believes that the WHV Agreement does not cover the Orion
Companies' library products or future production. The Company believes that if
the Orion Companies' future production and library product were covered by the
WHV Agreement, there would likely be a reduction in the revenue received by
the Company from the distribution of those products. See "Risk Factors--
Certain Limitations on the Exploitation of the Library."
The Company also intends to capitalize on developing technologies such as
DVD, a high-quality mass-produced delivery system for video and audio data.
The Company believes that DVD is a promising technology that could generate
significant incremental profits for the industry because the cost of
manufacturing DVDs is substantially less than the cost of manufacturing
videocassettes and the format may be more attractive to retail purchasers than
videocassettes. The Company was among the first major studios to make titles
available on DVD. The Company believes that it is well positioned to benefit
if DVD is successful, since the high quality of DVD is expected to create
additional demand for the many classic or familiar "collectible" titles in the
Library.
PAY AND FREE TELEVISION DISTRIBUTION
General. The Company generally licenses its current theatrical motion
pictures for pay and free television through output agreements pursuant to
which films not yet produced are pre-licensed for a specified fee paid on
delivery. The Company believes that output agreements with international
distributors with recognized expertise are beneficial as they assure that a
significant advance will be received for a given territory and that a
prominent distributor with recognized distribution and marketing capabilities
will distribute the picture in such territory. The Company currently has a
long-term output agreement with a subsidiary of Seven. See "Certain
Transactions--Other Transactions with Seven and its Affiliates."
The Company does not intend to enter into any new long-term licensing
arrangements for its Library films as it believes that this would limit the
ability of the Company to respond quickly to changing marketplace needs, would
tie future revenue to current price levels and could decrease the value of the
Library. Instead, the Company expects to enter into relatively short-term
licenses of its Library motion pictures for pay and free television in
packages that are strategically designed for the relevant marketplace. The
Company has created a proprietary database for use by its salesforce which
contains detailed information on each of the Company's films, including dates
of availability, media controlled by the Company, sales history, genre,
format, length, stars, soundtrack, etc. This information can be utilized by
the sales force in order to create strategically designed packages of motion
pictures based on one or more various criteria. The Company believes that this
system is the most
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advanced in the entertainment business and provides its sales force with an
advantage in a competitive marketplace that requires large amounts of diverse
content and is becoming more receptive to packaged programming.
Previously, the Company had distributed its motion pictures in pay
television markets outside of the U.S. and Canada through UIP. However, as
part of an agreement reached between UIP and the competition authorities of
the European Union in 1997, UIP agreed that it will no longer engage in the
licensing or marketing of motion picture product for pay television, and the
Company now licenses its motion pictures to such markets directly. See "--
Regulation."
Domestic Pay Television. The Company and Showtime have entered into a
theatrical motion picture output agreement requiring the Company's future
theatrical motion pictures to air on Showtime's pay television network. The
first output period expires upon the first to occur of August 31, 2001 or the
delivery of 150 pictures (other than specialty pictures) under the agreement.
As of August 1, 1997, the Company had delivered 25 pictures to Showtime. The
second output period commences on September 1, 2001 and expires upon the first
to occur of December 31, 2003 or the delivery of 65 additional pictures (other
than specialty pictures). Additionally, the agreement requires the Company's
future specialty motion pictures to air on Showtime's pay television network.
The output period for specialty motion pictures expires upon the first to
occur of December 31, 2003 or the delivery of 50 independent motion pictures.
The license fees for each picture are determined according to a formula based
on U.S. theatrical rentals of such picture.
Orion and Home Box Office ("HBO") have entered into a theatrical motion
picture output agreement requiring future theatrical motion pictures produced
and distributed by the Orion Companies (excluding pictures produced by Goldwyn
and distributed under the Goldwyn logo) to air on HBO's pay television
network. The license fees for each picture are determined according to a
formula based on U.S. theatrical rentals of such picture. The agreement
expires on December 31, 2001, but HBO has the right to extend the agreement
through December 31, 2006.
Domestic Free Television. The Company distributes its feature motion
pictures to U.S. and Canadian networks, local television stations in the U.S.
and Canada and basic cable networks. The Company also generates revenue by
granting syndication licenses on a barter basis. Barter syndication allows the
television stations to license the Company's product in exchange for a portion
of the local commercial air time. The Company, in turn, sells the inventory of
commercial air time to advertisers on a national basis, while the television
stations retain a portion of the commercial air time for local advertisers.
The Company has used outside barter companies to sell television spots to
advertisers in the past, but the Company commenced its own barter sales
business in 1996.
In connection with the acquisition of MGM/UA by Pathe in November 1990, MGM-
Pathe licensed the domestic free television rights to a substantial portion of
its library (the UA library and the post-1986 MGM/UA titles in theatrical
release at the time) and selected television programs to Turner for a period
of ten years beginning from the availability of each such product in that
market. The license excludes motion pictures released theatrically after 1987.
With respect to most of the motion pictures and television programming covered
by the license, the domestic free television rights revert to the Company
between 2000 and 2003. The Company expects to receive relatively little
revenue from the licensing of the product covered by the agreement with Turner
in the domestic free television market until 2000. The Company believes that,
due to the significant increases in licensing fees for domestic television
since 1990, the expiration of the Turner license and the subsequent ability of
the Company to freely license the Library in this market will generate
incremental revenue for the Company. See "Risk Factors--Certain Limitations on
the Exploitation of the Library."
International Pay and Free Television. The Company currently distributes its
motion pictures through pay television licenses in over 90 territories. The
Company has output agreements with licensees in major territories, including
the United Kingdom, Spain, Italy, Germany, Japan and Brazil. In 1996 the
Company received $24.3 million in revenue from international pay television
distribution, accounting for two percent of the Company's total revenue for
the year.
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The Company currently distributes its motion pictures and television product
through free television licenses in over 100 territories. In 1996 the Company
received $54 million in revenues under these agreements, accounting for five
percent of the Company's total revenues for the year. These license
arrangements typically provide licensees with the right to exhibit the motion
pictures licensed on television for a specific number of airings over a period
of three to seven years.
However, in connection with the acquisition of MGM/UA by Pathe in November
1990, MGM-Pathe entered into long-term licenses of pay and free television
rights for theatrical and television movies and, in some cases, television
series in its Library at that time with United Communications (France) and
F.O.R.T.A. (Spain). A similar agreement had been entered into in 1984 with
Degeto Film (Germany). Substantially all of the license fees under these long-
term licenses have already been paid to the Company, and, therefore, the
Company does not expect to receive significant revenue from these licenses in
future periods. With respect to most of the motion pictures licensed to United
Communications, the rights granted revert to the Company between 2000 and
2003. The James Bond features were excluded from such license. With respect to
most of the motion pictures licensed to F.O.R.T.A., the free television rights
revert to the Company between 1997 and 2000. With respect to most of the
motion pictures and television series licensed to Degeto, the distribution
rights granted revert to the Company between 1999 and 2010. See "Risk
Factors--Certain Limitations on the Exploitation of the Library."
Additionally, Orion has entered into certain long-term licenses covering a
significant number of its library motion pictures in the international free
and pay television markets. Orion has already received substantially all of
the license fees under these licenses, and therefore, the Company does not
expect significant revenue from these licenses in future periods. Orion has
licensed titles to Capitol Film and TV International (Germany), Compagnie
Luxembourgeoise de Telediffusion (France), British Sky Broadcasting (the
United Kingdom), Film Finance Group, Inc. and Principal Network Limited
(Italy) and Televisio de Catalunya, S.A. (Spain). The distribution rights
granted to Capitol Film and TV International revert to Orion in 2025. The
distribution rights granted to Compagnie Luxembourgeoise de Telediffusion
revert to Orion between 2003 and 2013. The distribution rights granted to
British Sky Broadcasting currently are reverting to Orion, with such reversion
being complete in 2002. The distribution rights granted to Film Finance Group,
Inc. and Principal Network Limited revert to Orion between 1999 and 2012. The
distribution rights granted to Televisio de Catalunya, S.A. currently are
reverting to Orion, with such reversion being complete in 2010. The Company
believes that, due to the importance of France, Spain, Germany, the United
Kingdom and Italy and the significant increases in licensing fees for
television in these markets since 1990, the expiration of these licenses and
subsequent ability of the Company to freely license its Library in these
markets will create substantial incremental revenue for the Company.
In addition to licensing packages of films, the Company holds equity
positions ranging from 12.5 percent to 25 percent in joint ventures such as
CineCanal, Telecine, Star Channel (through UIP) and MovieVision, which are
emerging international cable television networks broadcasting in different
territories around the world. The Company has entered into license agreements
with respect to each of CineCanal, Telecine, Star Channel and MovieVision,
licensing theatrical and television motion pictures and, in some cases,
television series to each of the ventures.
The Company believes its strategy of providing strategically pooled, branded
MGM programming through the licensing of programming packages to cable
networks and television broadcasters, as well as through the development of
new channels of distribution that deliver the Company's programming, will
provide opportunities in the international marketplace as foreign countries
continue to develop cable television infrastructures and satellite television
becomes more available.
In June 1996 the Company announced the creation of MGM Gold (Asia), a 24-
hour satellite and cable delivery Hollywood-entertainment channel serving
Asian markets, featuring programming from the Library. MGM Gold (Asia) is a
joint venture between the Company and a subsidiary of Tele-Communications,
Inc. in which each of the joint venturers shares equally in the profits of the
venture and is obligated to fund 50 percent of the joint venture's expenses up
to a maximum of $23.3 million each. As of June 30, 1997, the Company had
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contributed $5.6 million to fund such expenses. MGM Gold (Asia) commenced
operations in Hong Kong in November 1996. As of August 1, 1997 MGM Gold (Asia)
was being delivered to 1.1 million subscribers in Hong Kong, Indonesia,
Malaysia, the Philippines, Singapore and Taiwan, and had authorization to
deliver in various hotels in the People's Republic of China. The Company has
entered into license agreements with MGM Gold (Asia), licensing certain motion
pictures and trademarks to the venture.
The Company plans to launch MGM Gold branded programming in Brazil in
December 1997. The Company is entering into agreements with two of the largest
cable delivery systems in Brazil that will allow the Company to deliver MGM
Gold programming 24 hours a day to over 90 percent of the cable households in
that country.
TRADEMARKS AND CONSUMER PRODUCTS
The Company owns the registered trademarks Metro-Goldwyn-Mayer, MGM, United
Artists, UA, Orion and variations thereof, as well as trademarks, logos and
other representations of characters, such as The Pink Panther, from motion
pictures and television series produced or distributed by the Company. In 1996,
the Company received $8.3 million in revenue from the licensing of these
trademarks, logos and other representations.
The Company believes that the MGM name and its lion logo are among the most
recognized in the world, evoking images of classic Hollywood. The Company
believes that the name and logo represent assets the value of which has been
substantially unrealized in the past. The Company plans to pursue a focused
branded strategy that will capitalize upon the Company's name and logo and seek
licensing opportunities for such name and logo, as well as other trademarks of
the Company, in a range of high quality product categories, distribution
channels and venues in both the domestic and the international market.
In February 1980 Old MGM granted MGM Grand Inc. ("Grand Hotel") an exclusive
open-ended royalty-free license to use certain trademarks and trade names that
include the letters "MGM," as well as logos consisting of a stylized depiction
of a lion, in Grand Hotel's hotel/gaming business and businesses that are not
entertainment-related. In 1986 MGM/UA granted MGM Grand Air, Inc. ("Grand Air")
an exclusive open-ended royalty-free license to use one of its logos consisting
of a stylized depiction of a lion in Grand Air's airline business. See "Certain
Transactions--Other Transactions with Tracinda and its Affiliates."
In June 1985 Old MGM granted to Walt Disney Productions ("Disney
Productions") an exclusive long-term worldwide license (the "Disney License")
to use all trademarks, trade names and logos of MGM Studios that do not include
"United Artists" or "UA" and portions from certain MGM and UA motion pictures
and television programming in movie theme parks of Disney Productions that
include a working movie production studio, as long as Disney Productions makes
the annual license payments. The Disney License becomes non-exclusive with
respect to the licensed trademarks, trade names and logos on May 1, 2004 and is
subject to early termination under certain circumstances. Additionally, if
Disney Productions did not develop a movie theme park in any given territory by
June 27, 1994, the Disney License requires that Disney Productions reconvey all
the licensed rights in that territory to MGM Studios. MGM Studios has requested
the reconveyance of the licensed rights in all territories except the U.S., and
Disney reconveyed those rights in 1995 for all territories except the U.S. and
Western European territories in 1995. The Company has filed a lawsuit against
Disney to compel the reconveyance of the licensed rights in Western Europe and
for temination of the Disney License. See "--Legal Proceedings."
COMPETITION
Motion picture production and distribution are highly competitive businesses.
The Company faces competition from companies within the entertainment business,
as well as alternative forms of leisure entertainment. The Company competes
with the other major studios, numerous independent motion picture and
television production companies, television networks and pay television systems
for the acquisition of literary
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properties, the services of performing artists, directors, producers and other
creative and technical personnel and production financing. Numerous
organizations with which the Company competes in the motion picture industry
have significantly greater financial and other resources than does the
Company, while the independent production companies may have less overhead
than the Company. Most of the other major studios are part of large
diversified corporate groups with a variety of other operations, including
television networks and cable channels, which can provide both means of
distributing their products and stable sources of earnings that offset the
fluctuations in the financial performance of their motion picture and
television operations. See "Distribution--Pay and Free Television
Distribution."
In addition, the Company's motion pictures compete for audience acceptance
and exhibition outlets with motion pictures produced and distributed by other
companies. As a result, the success of any of the Company's motion pictures is
dependent not only on the quality and acceptance of a particular picture, but
also on the quality and acceptance of other competing motion pictures released
into the marketplace at or near the same time. The number of films released by
the Company's competitors, particularly the other major film studios, in any
given period may create an oversupply of product in the market, thereby
potentially reducing the Company's share of gross box office admissions and
may make it more difficult for the Company's films to succeed. See "Risk
Factors--Risks of Motion Picture and Television Production."
Competition also is intense within the television industry. There are
numerous suppliers of television programming, including the networks, the
television production divisions of the major studios and independent
producers, all of which compete actively for the limited number of available
broadcast hours. The Company's programming competes with first-run
programming, network reruns and programs produced by local television
stations. Competition is also intense in supplying motion pictures and other
programming for the pay television and home video markets. Numerous
organizations with which the Company competes in the television industry have
significantly greater financial and other resources than does the Company. See
"Risk Factors--Risks of Motion Picture and Television Production."
EMPLOYEES
As of August 1, 1997, the Company had approximately 900 full-time and part-
time regular employees in its worldwide operations. Of that total,
approximately 125 were primarily engaged in production and development,
approximately 300 were primarily engaged in sales, marketing and distribution
and approximately 475 were primarily engaged in management and administration.
Approximately 140 of the Company's employees are currently covered by
employment contracts. The Company also hires additional employees on a
picture-by-picture basis in connection with the production of the Company's
motion pictures and television programming. The salaries of these additional
employees, as well as portions of the salaries of certain full-time employees
of the Company who provide direct production services, are typically allocated
to the capitalized cost of the related motion pictures or television
programming.
Approximately 45 of the Company's employees are represented under industry-
wide collective bargaining agreements with various unions, including the WGA,
the DGA, SAG and IATSE. A strike, job action or labor disturbance by the
members of any of these organizations may have a material adverse effect on
the production of a motion picture or television program within the U.S. The
Company believes that its employee and labor relations are good.
PROPERTIES
The Company leases approximately 300,000 square feet of office space, as
well as related parking facilities, for its corporate headquarters in Santa
Monica, California under several leases which generally expire in May 2003.
The Company also leases approximately 27,000 square feet in New York City for
its East Coast theatrical, publicity, marketing and theatrical and television
distribution offices under a lease that expires in June 2004. Additionally,
the Company leases approximately 96,000 square feet of office space in Los
Angeles,
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California, which has been used by Orion, under a lease that expires in
January 2004. The monthly rent for the above properties is approximately $1.2
million in the aggregate (in addition to taxes, insurance and certain expenses
paid by the Company). The Company plans to sublease the office space used by
Orion as the operations of MGM Studios and Orion are integrated. In addition,
the Company maintains relatively small domestic theatrical and television
distribution branches in Boca Raton, Chicago, Montreal, San Juan and Toronto
and has small international television distribution offices in London, Paris
and Sydney. The Company also leases studio facilities and stages from
unaffiliated parties on an as-needed basis in connection with the production
of specific motion picture and television projects.
The Company believes that its current facilities are adequate to conduct its
business operations for the foreseeable future.
REGULATION
In 1994 the U.S. was unable to reach agreement with its major international
trading partners to include audiovisual works, such as television programs and
motion pictures, under the terms of the General Agreement on Trade and Tariffs
Treaty ("GATT"). The failure to include audiovisual works under GATT allows
many countries (including members of the European Union, which consists of
Belgium, Denmark, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg,
The Netherlands, Portugal and the United Kingdom) to continue enforcing quotas
that restrict the amount of U.S. produced television programming which may be
aired on television in such countries. The Council of Europe has adopted a
directive requiring all member states of the European Union to enact laws
specifying that broadcasters must reserve a majority of their transmission
time (exclusive of news, sports, game shows and advertising) for European
works. The directive does not itself constitute law, but must be implemented
by appropriate legislation in each member country. In addition, France
requires that original French programming constitute a required portion of all
programming aired on French television. These quotas generally apply only to
television programming and not to theatrical exhibition of motion pictures,
but quotas on the theatrical exhibition of motion pictures could also be
enacted in the future. There can be no assurance that additional or more
restrictive theatrical or television quotas will not be enacted or that
countries with existing quotas will not more strictly enforce such quotas.
Additional or more restrictive quotas or more stringent enforcement of
existing quotas could materially and adversely affect the business of the
Company by limiting the ability of the Company to exploit fully its motion
pictures internationally and, consequently, to finance such motion pictures.
Distribution rights to motion pictures are granted legal protection under
the copyright laws of the U.S. and most foreign countries, which laws provide
substantial civil and criminal sanctions for unauthorized duplication and
exhibition of motion pictures. The Company seeks to take appropriate and
reasonable measures to secure, protect and maintain or obtain agreements to
secure, protect and maintain copyright protection for all of its motion
pictures or television programming under the laws of applicable jurisdictions.
Motion picture piracy is an international as well as a domestic problem,
however. Motion picture piracy is extensive in many parts of the world,
including South America, Asia (including Korea, China and Taiwan), the
countries of the former Soviet Union and other former Eastern bloc countries.
In addition to the MPAA, the Motion Picture Association, the American Film
Marketing Association and the American Film Export Association monitor the
progress and efforts made by various countries to limit or prevent piracy. In
the past, these various trade associations have enacted voluntary embargoes of
motion picture exports to certain countries in order to pressure the
governments of those countries to become more aggressive in preventing motion
picture piracy. In addition, the U.S. government has publicly considered trade
sanctions against specific countries which do not take steps to prevent
copyright infringement of U.S. produced motion pictures. There can be no
assurance that voluntary industry embargoes or U.S. government trade sanctions
will be enacted. If enacted, such actions could impact the amount of revenue
that the Company realizes from the international exploitation of its motion
pictures depending upon the countries subject to such action and the duration
of such action. If not enacted or if other measures are not taken, the motion
picture industry (including the Company) may continue to lose an indeterminate
amount of revenues as a result of motion picture piracy.
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Article 85(1) of the Treaty of Rome prohibits certain agreements and
concerted practices which prevent, restrict or distort trade within the
European Union. In 1989 after several years of proceedings before the European
Commission, UIP received an exemption from Article 85(1) with respect to its
theatrical distribution activities in the European Union. In connection with
this exemption, UIP gave certain undertakings to the European Commission. The
1989 exemption expired in 1993 and, although UIP has filed an application
seeking renewal of such exemption, such renewal has not yet been granted. In
July 1996 the European Commission conducted unannounced visits of four of
UIP's offices in Europe, interviewing officers and copying documents. These
visits were based on complaints submitted to the European Commission by third
parties, to the effect that UIP was acting in an anti-competitive manner and
was not complying with certain of the undertakings given by it in connection
with receiving the 1989 exemption. There can be no assurances that the 1989
exemption will be renewed or renewed on terms acceptable to UIP.
The Code and Ratings Administration of the MPAA assigns ratings indicating
age-group suitability for theatrical distribution of motion pictures. The
Company has followed and will continue to follow the practice of submitting
its pictures for such ratings. As a substantial number of the Company's films
are rated "R," under rules enforced by theatrical exhibitors, children under
certain ages may attend the applicable motion picture only if accompanied by
an adult.
United States television stations and networks as well as foreign
governments impose content restrictions on motion pictures which may restrict
in whole or in part exhibition on television or in a particular territory.
There can be no assurance that such restrictions will not limit or alter the
Company's ability to exhibit certain motion pictures in such media or markets.
LEGAL PROCEEDINGS
MGM Pictures and UA Pictures are named defendants in a matter entitled
Estate of Jim Garrison, et al v. Warner Bros., Inc., et al, which was filed as
a putative class action in the Los Angeles County Superior Court in November
1995. Warner, Paramount, Fox, Universal, Sony, Columbia Pictures Inc., Disney,
Disney Productions, Touchstone Pictures Inc., Hollywood Pictures Inc., Tri-
Star Pictures Inc. and the MPAA were also named as defendants in the action.
The plaintiffs in the action are the heirs of Jim Garrison, the former New
Orleans District Attorney who wrote the book "On The Trail of the Assassins"
upon which the Warner film JFK was based. The action is a purported class
action against all of the major studios in which the plaintiffs claim that the
defendant studios had conspired to fix the price and terms of contingent
compensation payable by the studios to actors, directors, producers, writers
and other "rights holders" (collectively identified as "talent"), through the
use of "standard net profits" provisions in contracts entered into with
respect to motion pictures produced by the defendant studios between January
1, 1988 and the date of the complaint.
In December 1995 the defendants removed the Garrison action to the U.S.
District Court for the Central District of California. MGM Pictures and UA
Pictures have denied all of the material allegations of the complaint and have
asserted 33 separate and additional defenses. The other studio defendants have
similarly responded to the complaint. The court has denied class certification
with respect to the plaintiffs' claims for breach of contract, breach of
implied covenant, unjust enrichment, imposition of constructive trust and
declaratory relief, but has granted class certification with respect to the
plaintiffs' claims for price fixing under the Sherman Antitrust Act, price
fixing under state law, boycott/concerted refusal to deal under the Sherman
Antitrust Act and boycott/concerted refusal to deal under state law.
Discovery was recently commenced in the case, but no dispositive motions
have been filed. The plaintiffs have not yet quantified their claim for
damages, nor has the size and membership of the class been determined. Based
upon the information available to date, the Company's management does not
believe that any adverse determination in the Garrison matter is likely to
have a material adverse effect on the financial condition or results of
operations of the Company.
52
<PAGE>
MGM Studios is a defendant in an action filed in the Los Angeles County
Superior Court in March 1994, entitled Parretti v. CLBN, MGM et al. The
complaint seeks damages totaling $3.9 billion dollars for breach of Mr.
Parretti's employment contract, rescission of certain pledge agreements
pursuant to which CLBN foreclosed on the stock of MGM/Pathe owned by Pathe,
injunctive relief to prohibit the sale or transfer of the MGM Studios' assets
or shares and indemnification for three pending lawsuits. MGM Studios' motions
for final judgment have been granted on all grounds, although a notice of
appeal was filed in August 1997 by Mr. Parretti. MGM Studios has
indemnification from liability in the Parretti proceeding from CDR.
Accordingly, the Company's management does not believe that any adverse
determination in the Parretti litigation will have any material adverse effect
on the Company's financial condition or results of operations.
In May 1996 MGM Studios initiated an action in Los Angeles County Superior
Court against Disney to compel the reconveyance of rights granted with respect
to Western European territories to Disney Productions under the Disney
License. See"--Consumer Products." MGM Studios also claims that Disney
Productions' breach of the reconveyance obligation entitles MGM Studios under
the terms of the Disney License to terminate the Disney License altogether.
Disney disputes MGM Studio's allegations and seeks a court declaration that it
is under no obligation to reconvey the Western European rights and that the
Disney License has not been terminated. The case is currently scheduled for
trial in October 1997.
MGM Studios, as successor in interest to UA, is a defendant in an action
filed in the United States District Court for the Northern District of Georgia
entitled Turner Broadcasting System Inc., et al. v. Metro-Goldwyn-Mayer Inc.,
et al. Turner alleges that, as a result of the 1986 acquisition of Old MGM by
Turner, UA was unjustly enriched by reason of a tax benefit (loss) in excess
of $260 million to which Turner was entitled but was actually utilized by
Tracinda. Turner has moved to remand the action to the Fulton County Superior
Court, and that motion has yet to be decided. If the case is not remanded, it
is likely that it will be transferred to the United States District Court for
the District of Nevada, in which a similar action between Turner and Tracinda
currently is pending. Management does not believe that any adverse
determination in the Turner matter will have any material adverse affect on
the Company's financial condition or results of operations.
Certain subsidiaries of the Company are defendants in an action pending in
the Commercial Court of Brussels, Belgium entitled Credit General Foncier et
Mobilier S.A. ("Cregefon") et al. v. Canon International V.O.F., Canon
International N.V., Canon Film Distribution Nederland B.V. and Pathe
Entertainment N.V. The action involves a suit by the bankruptcy trustee of
Cregefon to recover a 1990 loan made to Canon International V.O.F., as a
depository for Comfinance S.A. (a company associated with Mr. Parretti). The
Company has indemnification from CDR with respect to this matter. As a result,
management believes that the Cregefon litigation will not have any material
adverse affect on the Company's financial condition or results of operations.
Orion is a defendant in a matter entitled Sidney Sapsowitz et al. v. John W.
Kluge, Metromedia International Inc., and Orion Pictures Corp., et al., which
was filed in June 1997. The plaintiffs claim a "finder's fee" of $28.5 million
in connection with the Orion Acquisition. While there have been no material
developments in the Sapsowitz case, pursuant to the terms of agreements
executed in connection with the Orion Acquisition, the Company has
indemnification with respect to the payment of any finder's fee. As a result,
management believes that the Sapsowitz litigation will not have any material
adverse effect on the Company's financial condition or results of operations.
In addition, from time to time the Company becomes involved in other
litigation arising in the normal course of business, and the Company believes
that none of such other litigation as is currently pending will have a
material adverse effect on the Company's financial condition or results of
operations.
53
<PAGE>
MANAGEMENT
CURRENT DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each of the
directors and executive officers of the Company as of August 25, 1997. Each
director will hold office until the next annual meeting of stockholders or
until his or her successor has been elected and qualified. Executive officers
are elected by the Board of Directors and serve at the discretion of the Board
of Directors and Mr. Mancuso.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<C> <C> <S>
Frank G. Mancuso... 64 Chairman of the Board, Chief Executive Officer
and Director
A. Robert Pisano... 54 Vice Chairman
James D. Aljian.... 64 Director
Michael R. Gleason. 43 Director
Kirk Kerkorian..... 80 Director
Kerry M. Stokes.... 56 Director
Jerome B. York..... 59 Director
Michael G. Senior Executive Vice President and Chief
Corrigan.......... 39 Financial Officer
David G. Johnson... 40 Senior Executive Vice President and General
Counsel
William A. Jones... 55 Senior Executive Vice President and Secretary
</TABLE>
All members of the Board of Directors of the Company are elected annually by
the stockholders of the Company for a one-year term. The Common Stock does not
have cumulative voting rights. The Company, MGM Studios, Tracinda, Seven and
Mr. Mancuso are parties to an Amended and Restated Investors Shareholder
Agreement dated as of August 4, 1997 (the "Investors Shareholder Agreement")
pursuant to which they have agreed to vote their respective shares of the
Common Stock as a group with respect to certain matters, including, but not
limited to, certain corporate governance matters and the election of the Board
of Directors of the Company. See "Risk Factors--Ownership and Control of
Principal Stockholders" and "Ownership of Voting Securities--Investors
Shareholder Agreement."
BACKGROUNDS OF CURRENT DIRECTORS AND EXECUTIVE OFFICERS
Frank G. Mancuso. Mr. Mancuso has been the Chairman of the Board and Chief
Executive Officer of the Company since October 1996 and has been the Chairman
of the Board and Chief Executive Officer of MGM Studios since July 1993. Prior
to joining MGM Studios, Mr. Mancuso was the Chairman and Chief Executive
Officer of Paramount from September 1984 to March 1991, and served Paramount
in numerous other capacities beginning in 1963.
A. Robert Pisano. Mr. Pisano will be appointed as a director and Vice
Chairman of the Board of Directors of the Company immediately following the
Offering. Mr. Pisano has served as Vice Chairman of the Company and MGM
Studios since March 1997 and, prior thereto, served as Executive Vice
President of MGM Studios from August 1993 to March 1997. Prior to joining MGM
Studios, Mr. Pisano was Executive Vice President of Paramount from June 1985
to May 1991, where he served as General Counsel and a member of the Office of
the Chairman. Prior to 1985 and from February 1992 to August 1993, Mr. Pisano
was a partner with the law firm of O'Melveny & Myers LLP.
James D. Aljian. Mr. Aljian has been a director of the Company since October
1996. Mr. Aljian has served as an executive of Tracinda since October 1987. In
addition, Mr. Aljian serves on the board of directors of MGM Grand, Inc. and
Chrysler Corporation.
Michael R. Gleason. Mr. Gleason has been a director of the Company since
October 1996. Mr. Gleason has served as President of MPK Capital, Inc., the
general partner of Culmen Group, L.P., a Texas limited
54
<PAGE>
partnership since November 1993. Culmen Group, L.P. regularly provides
financial advisory services to Seven. Prior thereto, Mr. Gleason served as
Vice President of PaineWebber Group, Inc. from February 1991 to November 1993.
Kirk Kerkorian. Mr. Kerkorian has been a director of the Company since
October 1996 and has had a professional relationship with MGM Studios for over
25 years. See "Background of the Company." Mr. Kerkorian has served as Chief
Executive Officer, President and sole director and shareholder of Tracinda for
more than the past five years. In addition, Mr. Kerkorian serves on the board
of directors of MGM Grand, Inc.
Kerry M. Stokes. Mr. Stokes has been a director of the Company since October
1996. Mr. Stokes has served as the Chairman of Australian Capital Equity Pty
Ltd, an Australian private holding company, for more than the past fifteen
years. Australian Capital Equity has various interests, including a
Caterpillar dealership, print and electronic media and investments in real
estate, industrial and other listed public companies. In addition, Mr. Stokes
has been the Chairman of Seven since June 1995.
Jerome B. York. Mr. York has been a director of the Company since October
1996. Mr. York has served as the Vice Chairman of Tracinda since September
1995. Prior to joining Tracinda, Mr. York served as Senior Vice President and
Chief Financial Officer of IBM Corporation from May 1993 to September 1995 and
as a director of IBM Corporation from January 1995 to September 1995. Prior
thereto, Mr. York served as Executive Vice President-Finance and Chief
Financial Officer of Chrysler Corporation from May 1990 to May 1993 and as a
director of Chrysler Corporation from April 1992 to May 1993. In addition, Mr.
York serves on the board of directors of MGM Grand, Inc., Apple Computer, Inc.
and USA Waste Services, Inc.
Michael G. Corrigan. Mr. Corrigan has been Senior Executive Vice President
and Chief Financial Officer of the Company and MGM Studios since July 1997.
Prior thereto, Mr. Corrigan was a senior partner with the entertainment, media
and communications practice of Price Waterhouse LLP, an independent accounting
firm.
David G. Johnson. Mr. Johnson has been Senior Executive Vice President and
General Counsel of the Company and MGM Studios since June 1997 and, prior
thereto, was Executive Vice President and General Counsel of MGM Studios since
January 1995. Prior thereto, Mr. Johnson was a partner with the law firm of
White & Case.
William A. Jones. Mr. Jones has been Senior Executive Vice President and
Secretary of the Company and MGM Studios since June 1997 and, prior thereto,
served as Executive Vice President-Corporate Affairs and Secretary of MGM
Studios since January 1995. Mr. Jones served as Executive Vice President,
General Counsel and Secretary of MGM-Pathe and MGM Studios from May 1991 to
January 1995 and as General Counsel and Secretary of predecessors to the
Company since 1983. Mr. Jones was a director of MGM-Pathe from June 1991 to
January 1992.
DIRECTORS TO BE APPOINTED FOLLOWING COMPLETION OF THE OFFERING
In addition to Mr. Pisano, promptly following the completion of the
Offering, four persons will be added to the Board of Directors, including
three persons meeting the requirements of the NYSE for serving as independent
directors, and one person nominated by Tracinda.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Promptly following the completion of the Offering, a Compensation Committee
of the Board of Directors will be established. The Compensation Committee will
be responsible for administering the Company's stock option plans and
reviewing and making recommendations to the Board of Directors with respect to
employment agreements and the compensation of officers and key employees,
including the granting of options under the stock option plans. See "--
Executive Compensation" and "--Employment Agreements." During 1996 the
55
<PAGE>
Company did not have a Compensation Committee of the Board of Directors.
Messrs. Mancuso and Pisano, as well as Mr. Michael Hope (who is no longer
employed by the Company), served on a Management Committee of the Company
which, among other things, was responsible for the functions of the
Compensation Committee. None of the executive officers of the Company served
on the board of directors or the compensation committee of any other entity,
any of whose officers served either on the Board of Directors or on the
Management or Compensation Committee of the Company.
AUDIT COMMITTEE
The Audit Committee of the Board of Directors of the Company currently
consists of Mr. York and Mr. Gleason. Promptly following completion of the
Offering the three independent directors will be added to the Audit Committee.
The function of the Audit Committee is to: (i) review and approve the
selection of, and all services performed by, the Company's independent
auditors; (ii) meet and consult with and receive reports from, the Company's
independent auditors, its financial and accounting staff and its internal
audit department regarding internal controls; and (iii) review and act with
respect to the scope of audit procedures, accounting practices and internal
accounting and financial controls of the Company.
EXECUTIVE COMPENSATION
Compensation Summary. The following table sets forth the cash compensation
(including cash bonuses) paid or awarded by the Company for the fiscal year
ended December 31, 1996, to the Chief Executive Officer and the other four
most highly compensated executive officers of the Company who were serving as
executive officers at December 31, 1996 and certain other individuals who
would have been included among the four most highly compensated executive
officers of the Company, but for the fact that they were not serving as
executive officers of the Company at December 31, 1996 (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- ------------------------------- .
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL BONUS UNDERLYING ALL OTHER
POSITION SALARY ($) BONUS ($) COMPENSATION ($) INTERESTS (#)(1) OPTIONS (#)(2) COMPENSATION ($)
------------------ ---------- --------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Frank G. Mancuso........ $2,691,408 $750,000 $280,915(3) 19,482 41,896 $17,228,105(4)
Chairman of the Board
and Chief Executive
Officer
A. Robert Pisano........ 816,984 -- -- 5,845 12,570 1,800,706(5)
Vice Chairman
Michael S. Hope(6)...... 771,600 -- -- -- -- 1,800,969(7)
Executive Vice
President
David G. Johnson........ 482,623 122,692 -- 2,000 4,300 538,850(8)
Senior Executive Vice
President and General
Counsel
William A. Jones........ 466,966 -- -- 1,781 3,830 1,051,468(9)
Senior Executive Vice
President and Secretary
</TABLE>
- --------
(1) Represents the number of bonus interests granted pursuant to the Senior
Management Bonus Plan (as such term is defined below). Each bonus interest
entitles the participant to receive up to $1,000 under certain
circumstances. See "--Incentive and Bonus Plans--Senior Management Bonus
Plan."
56
<PAGE>
(2) Represents options granted under the 1996 Incentive Plan (as such term is
defined below, see "--Incentive and Bonus Plans--1996 Incentive Plan")
after giving effect to the cancellation and regrant of options described
under "--Incentive and Bonus Plans."
(3) Represents the portion of the annual stock purchase payment paid to Mr.
Mancuso during the period of October 10, 1996 to December 31, 1996
pursuant to his employment agreement, out of the after-tax proceeds of
which he is required to purchase shares of the Common Stock at a purchase
price of $1,000 through December 31, 1997 and, thereafter, at the fair
market value of such shares. See "--Employment Agreements--Frank G.
Mancuso."
(4) Includes: $14,468,220 paid to Mr. Mancuso by CL in 1997 as additional
compensation as a result of the sale of MGM Studios to the Company;
$1,020,000 in cash and 1,530 shares of the Common Stock (valued at $1,000
per share) paid or issued to Mr. Mancuso by the Company in connection with
the MGM Acquisition and the termination of his prior employment
agreement; and $209,885 in life insurance premiums paid by the Company for
the benefit of Mr. Mancuso. See "--Employment Agreements--Frank G.
Mancuso."
(5) Includes: $1,200,963 paid to Mr. Pisano by CL in 1997 as additional
compensation as a result of the sale of MGM Studios to the Company;
$235,343 in cash and 360 shares of the Common Stock (valued at $1,000 per
share) paid or issued to Mr. Pisano by the Company in connection with the
MGM Acquisition and the termination of his prior employment agreement; and
$4,400 in life insurance premiums paid by the Company for the benefit of
Mr. Pisano. See "--Employment Agreements--A. Robert Pisano."
(6) Mr. Hope, in addition to other duties, performed the duties of the Chief
Financial Officer of the Company and resigned from the Company effective
as of January 31, 1997. On July 1, 1997 Michael G. Corrigan was appointed
Chief Financial Officer of the Company. See "--Employment Agreements--
Michael G. Corrigan."
(7) Includes: $1,200,963 paid to Mr. Hope by CL in 1997 as additional
compensation as a result of the sale of MGM Studios to the Company;
$595,166 paid to Mr. Hope by the Company in connection with Mr. Hope's
election to terminate his employment with the Company as a result of the
MGM Acquisition; and $4,840 in life insurance premiums paid by the Company
for the benefit of Mr. Hope.
(8) Includes: $213,850 in cash and 325 shares of the Common Stock (valued at
$1,000 per share) paid or issued to Mr. Johnson by the Company in
connection with the MGM Acquisition and the termination of his prior
employment agreement. See "--Employment Agreements--David G. Johnson."
(9) Includes: $416,178 in cash and 625 shares of the Common Stock (valued at
$1,000 per share) paid or issued to Mr. Jones by the Company in connection
with the MGM Acquisition and the termination of his prior employment
agreement; and $10,290 in life insurance premiums paid by the Company for
the benefit of Mr. Jones. See "--Employment Agreements--William A. Jones."
57
<PAGE>
Option Grants. The following table sets forth information with respect to
grants of employee stock options issued by the Company to the Named Executive
Officers for the fiscal year ended December 31, 1996. The Company did not
grant any stock appreciation rights during such fiscal year.
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM ($)
-------------------------------------------------------- -----------------------
PERCENT OF
SHARES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#)(1) FISCAL YEAR (%)(2) ($/SH) DATE 5% 10%
- ---- -------------- ------------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Frank G. Mancuso........ 41,896 40.33% $1,000 10/1/2006 $26,348,169 $66,771,434
A. Robert Pisano........ 12,570 12.10 1,000 10/1/2006 7,905,205 20,033,343
Michael S. Hope......... -- -- -- -- -- --
David G. Johnson........ 4,300 4.14 1,000 10/1/2006 2,704,247 6,853,093
William A. Jones........ 3,830 3.69 1,000 10/1/2006 2,408,666 6,104,034
</TABLE>
- --------
(1) Represents options granted under the 1996 Incentive Plan after giving
effect to the cancellation and regrant of options described under "--
Incentive and Bonus Plans."
(2) Based on a total of 103,886 employee stock options granted as of December
31, 1996.
The following table sets forth information with respect to the ownership and
value of options as of December 31, 1996 held by the Named Executive Officers.
No Named Executive Officer exercised any options in the fiscal year ended
December 31, 1996.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED DECEMBER 31, 1996
AND OPTION VALUES AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT DECEMBER 31, 1996 OPTIONS AT DECEMBER 31, 1996
------------------------------------ ---------------------------------------
NAME EXERCISABLE (#)(1) UNEXERCISABLE (#) EXERCISABLE ($)(1) UNEXERCISABLE ($)(2)
- ---- ------------------ ----------------- ------------------ --------------------
<S> <C> <C> <C> <C>
Frank G. Mancuso........ -- 41,896 -- $ 0
A. Robert Pisano........ -- 12,570 -- 0
Michael S. Hope......... -- -- -- --
David G. Johnson........ -- 4,300 -- 0
William A. Jones........ -- 3,830 -- 0
</TABLE>
- --------
(1) No options under the 1996 Incentive Plan were exercised during the fiscal
year ended December 31, 1996. Each outstanding option under the 1996
Incentive Plan is exercisable at $1,000 per share of the Common Stock,
generally vests over a period of five years and is not exercisable until
vested and, as to the outstanding Series A Options and Series B Options
(described below), until six months after completion of the Offering or
December 31, 2001, respectively, subject in each case to early vesting
and, depending on the circumstances, early exercisability in certain
events, including the death or permanent disability of the optionee,
termination of the optionee's employment under certain circumstances or a
Designated Change in Control of the Company (as defined in the 1996
Incentive Plan). See "--Incentive and Bonus Plans--1996 Incentive Plan."
(2) The Board of Directors of the Company has determined that the fair market
value of the Common Stock as of December 31, 1996 was $1,000 per share,
the same as the exercise price under the 1996 Incentive Plan.
58
<PAGE>
The following table sets forth information with respect to the ownership of
bonus interests granted under the 1997 Senior Management Bonus Plan as of
December 31, 1996 held by the Named Executive Officers.
LONG-TERM INCENTIVE PLANS--AWARDS IN FISCAL YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF SHARES, PERFORMANCE OR OTHER
UNITS OR OTHER PERIOD UNTIL
NAME RIGHTS (#)(1) MATURATION OR PAYOUT
- ---- ----------------- --------------------
<S> <C> <C>
Frank G. Mancuso......................... 19,482 5 years
A. Robert Pisano......................... 5,845 5 years
Michael S. Hope.......................... -- --
David G. Johnson......................... 2,000 5 years
William A. Jones......................... 1,781 5 years
</TABLE>
- --------
(1) Represents the number of bonus interests granted pursuant to the Senior
Management Bonus Plan. Each bonus interest entitles the participant to
receive up to $1,000 under certain circumstances. See "--Incentive and
Bonus Plans--Senior Management Bonus Plan."
Pension Plans. The Company maintains a retirement plan (the "MGM Retirement
Plan"), which covers substantially all of the employees of the Company. See
"--Employee Benefit Plans--MGM Retirement Plan." The Company also has entered
into the MGM Supplemental Executive Retirement Agreement dated April 22, 1996,
as amended and restated as of July 18, 1997 (the "Supplemental Executive
Retirement Agreement"), with Mr. Pisano. See "--Employee Benefit Plans--
Supplemental Executive Retirement Agreement." The following table sets forth
estimated annual benefits payable upon retirement with regard to the MGM
Retirement Plan.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE(1)
---------------------------------------
REMUNERATION(2) 15 20 25 30 35
- --------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$50,000................................ $11,625 $15,500 $19,375 $23,250 $27,125
100,000................................ 25,067 33,422 41,778 50,133 58,489
150,000................................ 39,317 52,422 65,528 78,633 91,739
160,000................................ 42,167 56,222 70,278 84,333 98,389
200,000................................ 53,567 71,422 89,278 107,133 124,989
</TABLE>
- --------
(1) As of July 31, 1997, Messrs. Mancuso, Pisano, Johnson and Jones were
credited with 4, 4, 2 and 14 years of service, respectively. As of
December 31, 1996, Mr. Hope was credited with 3.5 years of service.
(2) The compensation covered by the MGM Retirement Plan includes base salary
only, and not bonus or other amounts. The amount of the benefit to which a
participant is entitled is an annual amount equal to 1.55% of annual base
salary up to the Social Security wage base (currently $65,400) plus 1.9%
of annual base salary above that amount up to the maximum allowable under
the MGM Retirement Plan (currently $160,000 per year) for each year of
credited service up to a maximum of 35 years, at which time the applicable
percentage is 1.55% of the annual base salary for each year of service in
excess of 35. Benefits become vested upon completion of five years of
service. For each of the Named Executive Officers, other than Mr. Hope,
the current compensation covered by the MGM Retirement Plan is the maximum
allowable under the MGM Retirement Plan, which is substantially less than
the annual compensation for each such Named Executive Offices listed in
the "Salary" column of the Summary Compensation Table. Mr. Hope resigned
from the Company effective January 1, 1997 and, therefore, is no longer
covered by the MGM Retirement Plan and, since Mr. Hope did not complete
five years of service with the Company, his benefits under the MGM
Retirement Plan did not vest.
INCENTIVE AND BONUS PLANS
1996 Incentive Plan. The Company has an Amended and Restated Stock Option,
Restricted Stock and Stock Appreciation Rights Plan (the "1996 Incentive
Plan"). The 1996 Incentive Plan will be administered by
59
<PAGE>
the Compensation Committee, which will have broad authority. Awards under the
1996 Incentive Plan are generally not restricted to any specific form or
structure and may include, without limitation, qualified or non-qualified
stock options, incentive stock options, restricted stock awards and stock
appreciation rights (collectively, "Awards"). Awards may be conditioned on
continued employment, have various vesting schedules and accelerated vesting
and exercisability provisions in the event of, among other things, a change in
control of the Company.
At July 31, 1997, 195,000 shares of the Common Stock were reserved for award
under the 1996 Incentive Plan, of which options to purchase 124,936 shares of
the Common Stock were outstanding. The outstanding options are exercisable at
$1,000 per share, generally vest over a period of five years and are not
exercisable until vested and, even if vested, are not exercisable until six
months after completion of the Offering (as to approximately one-half of the
options) or December 31, 2001 (as to the balance), subject in each case to
early vesting and, depending on the circumstances, early exercisability in
certain events, including the death or permanent disability of the optionee,
termination of the optionee's employment under certain circumstances or a
"Designated Change in Control" of the Company. A Designated Change in Control
is defined to include (i) Tracinda and Seven ceasing to beneficially own in
the aggregate 50.1% or more of the voting securities of the Company and any
other person, other than an entity controlled by the Company, beneficially
owning 30% or more of the voting securities of the Company or (ii) the sale of
substantially all of the assets of the Company. See "--Original Plan;
Repricing of Options and Cancellation of Bonus Interests."
Senior Management Bonus Plan. The Company has a Senior Management Bonus Plan
(the "Senior Management Bonus Plan") under which 58,095 bonus interests
("Bonus Interests") have been granted to key employees. No additional bonus
interests may be issued under the Bonus Plan. The Senior Management Bonus Plan
will be administered by the Compensation Committee.
Subject to certain vesting and other requirements, each Bonus Interest
entitles the holder to receive a cash payment if (a) the sum of per share
distributions on the Common Stock and the average closing price of the Common
Stock during the 20 trading days (together, the "Price") preceding a
Determination Date (defined below) is greater than (b) $1,000 and less than
$2,000 (adjusted for stock splits, reverse stock splits and similar events).
The cash payment will be equal to (i) the vested portion of the Bonus Interest
at the Determination Date multiplied by (ii) the amount by which the Price at
the Determination Date is less than $2,000 (i.e., a maximum of $1,000 per
Bonus Interest). Once a payment is made in respect of the vested portion of a
Bonus Interest, no further payment is due in respect of that portion. If at
any Determination Date the Price exceeds $2,000, no payment will thereafter be
due in respect of any then-vested portion of a Bonus Interest.
Determination Dates occur on June 30 and December 31 of each year,
commencing December 31, 2001 and ending December 31, 2006, and will also occur
upon a Designated Change in Control or the taking of any action for the
dissolution or liquidation of the Company (each a "Special Circumstance").
Bonus Interests generally vest 20% at October 1, 1997 and 1.67% each month
thereafter. The Senior Management Bonus Plan provides for accelerated vesting
and payment in the event of a Special Circumstance, accelerated vesting in the
event of termination of employment in certain circumstances and a special
Determination Date and payment at discounted present value, for the key
employee involved, in the event of death or permanent disability.
Original Plan; Repricing of Options and Cancellation of Bonus
Interests. Options to purchase 62,468 shares of the Common Stock at $1,000 per
share ("Series A Options"), 68,631 shares of the Common Stock at $3,268 per
share ("Series B Options") and 62,468 Bonus Interests that were granted in
tandem with Series A Options were outstanding under the 1996 Incentive Plan
prior to its amendment and restatement (the "Original Plan"). Subject to
vesting, which generally was to occur over a five-year period ending October
1, 2001 and was subject to acceleration under certain circumstances, these
bonus interests entitled the holder to $930 per Bonus Interest if the fair
market value of the outstanding capital stock of the Company (as determined in
the Original Plan) was more than $1.26 billion (subject to adjustment to
reflect certain capital distributions and contributions) at any determination
date specified in the Original Plan.
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In connection with the amendment and restatement of the Original Plan, the
optionees and holders of Bonus Interests agreed with the Company that the
Series A Options, Series B Options and Bonus Interests outstanding under the
Original Plan would be cancelled. Concurrently with such amendment and
restatement the options to purchase 124,936 shares of the Common Stock
described above under "1996 Incentive Plan" were granted to the holders
thereof.
EMPLOYMENT AGREEMENTS
Frank G. Mancuso. The Company has entered into an employment agreement with
Frank G. Mancuso effective as of October 10, 1996, as amended as of August 4,
1997, which provides that he will serve as Chairman and Chief Executive
Officer of the Company for a term of five years. Mr. Mancuso is entitled to an
annual base salary of $2 million, subject to increase at the discretion of the
Board of Directors of the Company and an annual stock purchase payment of $3
million (payable monthly) out of the after tax proceeds of which he is
required to purchase shares of the Common Stock at a price of $1,000 per share
until December 31, 1997 and, thereafter, at the fair market value of such
shares. In addition, Mr. Mancuso is entitled to receive certain other
benefits, including a car allowance, medical insurance and any other similar
plan or program which the Company provides for its senior officers generally,
participation in the Company's 1996 Incentive Plan and other benefits
customarily afforded to executives of similar stature in the motion picture
industry. The Company is also obligated to maintain a five year, reducing-term
life insurance policy in the initial face amount of $25 million on Mr.
Mancuso's life for his benefit. Pursuant to his employment agreement, Mr.
Mancuso holds stock options to purchase shares of the Common Stock. See "--
Executive Compensation" and "--Incentive and Bonus Plans--1996 Incentive
Plan." In connection with the MGM Acquisition and the termination of
Mr. Mancuso's previous employment agreement with the Company, in October 1996
Mr. Mancuso received 1,530 shares of the Common Stock and $1,020,000 in cash.
If Mr. Mancuso's employment is terminated without cause by the Company or if
Mr. Mancuso terminates the agreement for "good reason," which includes a
Designated Change in Control of the Company (as defined in the 1996 Incentive
Plan), he will be entitled to receive as severance an amount equivalent to the
present value of the sum of the base salary and the stock purchase payment for
the entire remaining term of the employment agreement, and his account in the
1996 Incentive Plan will vest immediately. Mr. Mancuso is entitled to resign
at any time on not less than 30 days' prior notice.
A. Robert Pisano. The Company has entered into an employment agreement with
Mr. Pisano effective as of October 10, 1996, which provides that he will serve
as Vice Chairman of the Company for an initial term of five years. Pursuant to
the agreement, Mr. Pisano is entitled to an annual salary of $950,000, an
annual guaranteed bonus of $750,000 and an annual discretionary bonus which is
determined by the Chief Executive Officer of the Company, subject to the
approval of the Compensation Committee of the Board of Directors. In addition,
Mr. Pisano is entitled to receive certain other benefits, including a car
allowance, medical insurance, participation in the Company's 1996 Incentive
Plan and participation in the Company's 401(k), savings plan, pension plan and
any other similar plan or program which the Company provides for its senior
officers generally. The Company is also obligated to maintain a term life
insurance policy in the face amount of $5 million on Mr. Pisano's life for his
benefit. Furthermore, Mr. Pisano is entitled to receive certain additional
retirement benefits under his Supplemental Executive Retirement Agreement. See
"--Employee Benefit Plans--Supplemental Executive Retirement Agreement." Under
the 1996 Incentive Plan, Mr. Pisano holds stock options to purchase shares of
the Common Stock. See "--Executive Compensation" and "--Incentive and Bonus
Plans--1996 Incentive Plan." In connection with the MGM Acquisition and the
termination of Mr. Pisano's previous employment agreement with the Company,
Mr. Pisano received 360 shares of the Common Stock and $235,343 in cash. If
Mr. Pisano's employment is terminated without cause by the Company or if he
terminates the agreement for "good reason," which includes a Designated Change
in Control of the Company (as defined in the 1996 Incentive Plan), he will be
entitled to receive the net present value of the difference between
(i) $8.5 million and (ii) the sum of the annual salary and the guaranteed
bonuses paid to him to the date of the termination and, in addition, all
insurance benefits for the remainder of the term of the employment agreement.
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Michael G. Corrigan. The Company has entered into an employment agreement
with Mr. Corrigan effective as of July 1, 1997, which provides that he will
serve as Senior Executive Vice President and Chief Financial Officer of the
Company for an initial term of five years. Pursuant to the agreement, Mr.
Corrigan is entitled to an annual salary of $700,000 and an annual
discretionary bonus which is determined by the Chief Executive Officer of the
Company, subject to the approval of the Compensation Committee of the Board of
Directors. In addition, Mr. Corrigan is entitled to receive certain other
benefits, including a car allowance, medical insurance, participation in the
Company's 1996 Incentive Plan and participation in the Company's 401(k),
savings plan, pension plan and any other similar plan or program which the
Company provides for its senior officers generally. Under the 1996 Incentive
Plan, Mr. Corrigan holds options to purchase 4,300 shares of the Common Stock,
each at an exercise price of $1,000 per share. See "--Incentive and Bonus
Plans--1996 Incentive Plan." Mr. Corrigan also holds 2,000 Bonus Interests
granted to him under the Senior Management Bonus Plan. See "--Incentive and
Bonus Plans--Senior Management Bonus Plan." If Mr. Corrigan's employment is
terminated without cause by the Company or if he terminates the agreement for
"good reason," he will be entitled to receive the net present value of the sum
of the annual salary through the entire remaining term of the employment
agreement and all insurance benefits for the remainder of the term of the
employment agreement.
David G. Johnson. The Company has entered into an employment agreement with
Mr. Johnson effective as of October 10, 1996, which provides that he will
serve as Senior Executive Vice President and General Counsel of the Company
for an initial term of five years. Pursuant to the agreement, Mr. Johnson is
entitled to a current annual salary of $550,000, which will increase by
$50,000 each year for four years, an annual guaranteed bonus of $100,000 and
an annual discretionary bonus which is determined by the Chief Executive
Officer of the Company, subject to the approval of the Compensation Committee
of the Board of Directors. In addition, Mr. Johnson is entitled to receive
certain other benefits, including a car allowance, medical insurance,
participation in the Company's 1996 Incentive Plan and participation in the
Company's 401(k), savings plan, pension plan and any other similar plan or
program which the Company provides for its senior officers generally. Under
the 1996 Incentive Plan, Mr. Johnson holds stock options to purchase shares of
the Common Stock. See "--Executive Compensation" and "--Incentive and Bonus
Plans--1996 Incentive Plan." In connection with the MGM Acquisition and the
termination of Mr. Johnson's previous employment agreement with the Company,
Mr. Johnson received 325 shares of the Common Stock and $213,850 in cash. If
Mr. Johnson's employment is terminated without cause by the Company or if he
terminates the agreement for "good reason," which includes a Designated Change
in Control of the Company (as defined in the 1996 Incentive Plan), he will be
entitled to receive the net present value of the sum of the annual salary and
the guaranteed bonus through the entire remaining term of the agreement and
all insurance benefits for the remainder of the term of the employment
agreement.
William A. Jones. The Company has entered into an employment agreement with
Mr. Jones effective as of October 10, 1996, which provides that he will serve
as Senior Executive Vice President of the Company for an initial term of five
years. Pursuant to the agreement, Mr. Jones is entitled to a current annual
salary of $525,000, which will increase $50,000 each year for two years and
then be subject to adjustment as determined by the Company, and an annual
discretionary bonus which is determined by the Chief Executive Officer of the
Company, subject to the approval of the Compensation Committee of the Board of
Directors. In addition, Mr. Jones is entitled to receive certain other
benefits, including a car allowance, medical insurance, participation in the
Company's 1996 Incentive Plan and participation in the Company's 401(k),
savings plan, pension plan and any other similar plan or program which the
Company provides for its senior officers generally. The Company is also
obligated to maintain a term life insurance policy in the face amount of $2
million on Mr. Jones' life for his benefit. Under the 1996 Incentive Plan, Mr.
Jones holds stock options to purchase shares of Common Stock. See "--Executive
Compensation" and "--Incentive and Bonus Plans--1996 Incentive Plan." In
connection with the MGM Acquisition and the termination of Mr. Jones' previous
employment agreement with the Company, Mr. Jones received 625 shares of the
Common Stock and $416,178 in cash. If Mr. Jones' employment is terminated
without cause by the Company or if he terminates the agreement for "good
reason," he will be entitled to receive the net present value of the sum of
the annual salary through the entire remaining
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term of the employment agreement and all insurance benefits for the remainder
of the term of the employment agreement.
The employment agreement of each of Messrs. Pisano, Corrigan, Johnson and
Jones also contains: (i) a nondisclosure provision which is effective for the
term of such individual's employment with the Company and for an indefinite
period thereafter; (ii) noninterference and non-competition provisions, each
of which is effective for the term of such individual's employment with the
Company and one year thereafter; and (iii) a provision prohibiting the
solicitation for employment and employment of certain Company employees, or
making public statements concerning the Company, for a period of one year
following termination of employment.
LIMITATION ON THE DEDUCTIBILITY OF COMPENSATION UNDER SECTION 162(m)
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to a publicly held corporation for compensation in excess of $1
million paid in any fiscal year to the corporation's chief executive officer
or the four other most highly compensated executive officers. Section 162(m)
further provides, however, that compensation will not be subject to the
deduction limit if (i) the compensation is paid for the attainment of one or
more performance goals, (ii) the performance goals are determined by a
compensation committee of the board of directors comprised solely of two or
more independent directors, (iii) the material terms of such compensation and
performance goals are disclosed to the shareholders and approved by a majority
of the vote in a separate shareholder vote before the payment of such
compensation and (iv) before the payment of such compensation the compensation
committee certifies that the performance goals and other material terms of
such compensation have been satisfied.
In the case of a privately held corporation that undergoes an initial public
offering, the Treasury Regulations under Section 162(m) provide that the
deduction limit does not apply to any compensation paid, during a specified
reliance period, pursuant to a plan or agreement that existed while the
corporation was privately held, if the prospectus accompanying the initial
public offering discloses such plans and agreements in accordance with the
applicable securities laws. The reliance period terminates on the earliest to
occur of (i) the expiration of the plan or agreement, (ii) the material
modification of the plan or agreement, (iii) the issuance of all stock and
other compensation allocated under the plan and (iv) the first meeting of the
shareholders at which directors are to be elected that occurs after the close
of the third calendar year following the calendar year in which the initial
public offering occurs. In the case of stock options, the reliance period
applies to the date of grant and not exercise. As this Prospectus has
disclosed, in accordance with the applicable securities laws, the terms of any
compensation plan or agreement applicable to its executive officers and in
effect prior to the Offering, the Company believes any compensation paid
pursuant to such plans or agreements during the reliance period will not be
subject to the deduction limit of Section 162(m).
The Company has the authority to award non-deductible compensation as it
deems appropriate. In addition, because of ambiguities and uncertainties as to
the application and interpretation of Section 162(m) and the Treasury
Regulations issued thereunder, no assurance can be given that compensation
intended by the Company to satisfy the requirements for deductibility under
Section 162(m) will so qualify.
EMPLOYEE BENEFIT PLANS
MGM Retirement Plan. The MGM Retirement Plan was adopted in March 1986 to
provide retirement income to certain employees who have completed at least one
year of service. The MGM Retirement Plan is a defined benefit plan under which
all contributions are made by MGM Studios. The compensation covered by the MGM
Retirement Plan includes base salary only, and not bonus or other amounts.
Subject to certain limits, the amount of the pension to which a participant is
entitled is an annual amount equal to 1.55 percent of annual base salary up to
the Social Security wage base (currently $65,400) plus 1.9 percent of annual
base salary above that amount up to the maximum amount allowable under the MGM
Retirement Plan (currently $160,000 per year) for each year of credited
service up to 35 years, at which time the applicable percentage is 1.55
percent of the annual base salary for each year of service in excess of 35.
Participants become vested upon completion of five years of service.
Participants, or their beneficiaries, are entitled to receive benefits which
have vested under the
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MGM Retirement Plan upon their normal or early retirement (or deferred
retirement if the participant is an executive and will be entitled to receive
at least $44,000 of retirement income annually) or upon the total and
permanent disability, death or other termination of such participant's
employment and after attaining normal or early retirement age. Benefits are
normally payable on a monthly basis either (i) in a "life only" form to a
unmarried participant during his or her life or (ii) in a qualified "joint and
survivor" form to married participants, which shall be the actuarial
equivalent of the life only form and which shall provide equal monthly
payments to the participant during his or her lifetime with an amount equal to
50 percent (or 75 percent or 100 percent at the election of the participant)
of such payments continued after his or her death payable to his or her spouse
for the remainder of such spouse's life. Alternatively, participants may,
under certain circumstances, elect that a single lump-sum death benefit be
payable to his or her beneficiary or a "ten-year certain and life" form,
providing that equal monthly payments be made to the participant during his or
her lifetime with the provision that in the event the participant dies prior
to the expiration of ten years, such payments would continue for the remainder
of the ten-year period.
It is the intention of the Company to continue the MGM Retirement Plan;
however, the Company has the right to amend or terminate the MGM Retirement
Plan at any time. If the plan is terminated, the available assets held in
trust will be used to pay benefits to retired employees (including
beneficiaries), terminated vested employees entitled to benefits and active
employees. If termination occurs when the MGM Retirement Plan assets are not
sufficient to pay all benefits accrued to the date of the termination, the
assets held in trust under the plan will be allocated among employees and
beneficiaries in accordance with the provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). The Company is not liable
for the payment of MGM Retirement Plan benefits from its own assets. Upon full
satisfaction of the MGM Retirement Plan's liability to employees and their
beneficiaries, any amount remaining in the plan will be returned to the
Company.
The Internal Revenue Code requires certain provisions for benefit accruals
if a defined benefit plan becomes "top heavy," that is, if the value of
accrued benefits for "key employees" is more than 60 percent of the total
value of all accrued benefits. While the Company believes that it is unlikely
that the MGM Retirement Plan will ever become top heavy, in such an event, it
may become necessary to amend the MGM Retirement Plan to conform it to the
applicable Internal Revenue Code requirements.
Supplemental Executive Retirement Agreement. Pursuant to Mr. Pisano's
previous employment agreement and in place of certain benefits under a pension
plan maintained for Mr. Pisano's benefit by a prior employer (the "Prior
Plan") which Mr. Pisano forfeited when he joined the Company in 1993, the
Company entered into the Supplemental Executive Retirement Agreement with Mr.
Pisano. The Supplemental Executive Retirement Agreement provides Mr. Pisano
with an annual benefit equal to $150,000 (the "Benefit Amount"), less an
amount equal to the benefit Mr. Pisano is entitled to receive under the Prior
Plan and subject to certain adjustments, payable in the form of a single life
annuity commencing on the later of the date Mr. Pisano attains age 60 and the
date Mr. Pisano's employment with the Company is terminated, including due to
Mr. Pisano's death. The minimum aggregate amount payable to Mr. Pisano or his
beneficiaries will be $900,000, less all benefits to which Mr. Pisano is
entitled under the Prior Plan. All benefits under the Supplemental Executive
Retirement Agreement are fully vested. If Mr. Pisano continues in the
employment of the Company after attaining age 60, the Benefit Amount shall be
increased by 5/12ths of one percent for each month Mr. Pisano continues to be
employed by the Company after such date. In addition, after payments have
commenced under the Supplemental Executive Retirement Plan, the Benefit Amount
shall be increased effective each January 1 by the adjustment factor applied
to retiree payments for the calendar year under the Prior Plan. If Mr. Pisano
is unmarried on the date benefits commence, the benefit shall be payable
monthly for Mr. Pisano's life ("life only" basis). If, however, Mr. Pisano is
married on the date benefits commence, he may elect to have the benefits to
which he is entitled payable on the life only basis or have the actuarial
equivalent of the life only form payable in equal monthly payments to him
during his lifetime with an amount equal to 50% or 100% of such payments to
continue after his death to his spouse for the remainder of his spouse's life.
In the event of a Designated Change of Control of the Company (as defined in
the 1996 Incentive Plan and the Supplemental Executive Retirement Agreement)
or the termination of Mr. Pisano's employment agreement by the Company without
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cause or by Mr. Pisano for good reason, the Company will deposit into escrow
an amount sufficient to provide on an actuarial basis the level of payments
required under the Supplemental Executive Retirement Agreement.
MGM Savings Plan. Employees, including officers, who have completed one year
of service have the opportunity to participate in the MGM Savings Plan (the
"Savings Plan") which is managed by the Merrill Lynch Asset Management L.P.
Participants in the Savings Plan may contribute a portion of their pre-tax
compensation (up to a maximum of $9,500) and after-tax compensation (subject
to certain limitations) into the Savings Plan and direct the investment of
such contributions. MGM Studios matches 100 percent of such employee
contributions up to four percent of such employee's eligible compensation. The
employee contributions to the Savings Plan and the earnings thereon are always
100 percent vested. The matching contributions and the earnings thereon vest
20 percent for each full year of service and employees become 100 percent
vested (i) after five years of service, (ii) upon their total and permanent
disability or (iii) upon their death. Employees receive a lump sum payment of
the vested portion of their respective Savings Plan account when their
employment is terminated. In addition, an employee may, under certain
conditions, withdraw or borrow from the vested portion of his or her
respective Savings Plan account.
DIRECTOR COMPENSATION
Directors who are full-time employees of the Company receive no additional
compensation for serving on the Board of Directors or its committees.
Following the Offering, each independent director will be paid $ per
meeting of the Board of Directors attended and will be reimbursed for his or
her out-of-pocket expenses in attending Board meetings. See "Certain
Transactions" for a description of transactions involving directors or their
affiliates and the Company, if any.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by applicable provisions of the Delaware General Corporation
Law (the "DGCL"), the Company's Certificate of Incorporation contains a
provision eliminating, to the fullest extent permitted by the DGCL as it
exists or may in the future be amended, the personal liability of a director
to the Company and its stockholders for monetary damages for breaches of
fiduciary duty as a director. However, in accordance with the DGCL, such
provision does not limit the liability of a director for (i) any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) payment of dividends, stock purchases or
redemptions that violate the DGCL or (iv) any transaction from which the
director derived an improper personal benefit. Such limitation of liability
also does not affect the availability of equitable remedies such as injunctive
relief or rescission.
The Certificate of Incorporation and Bylaws of the Company also provide
that, to the fullest extent permitted by the DGCL as it exists or may in the
future be amended, the Company will indemnify each of the officers and
directors of the Company, and may indemnify any employee or agent of the
Company or other person specified in the DGCL, who is or was a party to, or
threatened to be made a party to, any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, investigative or
otherwise, by reason of the fact that such person was an officer or director
or otherwise of the Company or is or was serving at the request of Company as
an officer, director or otherwise of another corporation, partnership or other
entity. In addition, expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement may, as permitted by the DGCL, be advanced by
the Company prior to the final disposition of such action upon receipt of an
undertaking by or on the behalf of such director or officer to repay such
amounts if it shall ultimately be determined that he or she is not entitled to
be indemnified as authorized in accordance with the DGCL. The Company's
Certificate of Incorporation and Bylaws also state that such indemnification
is not exclusive of any other rights of the indemnified party, including
rights under any indemnification agreements or otherwise.
The Company currently maintains insurance in the aggregate amount of $25
million on behalf of its officers and directors against any liability which
may be asserted against any such officer or director, subject to certain
customary exclusions.
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The Company has entered into indemnification agreements with its directors,
its executive officers and certain other officers providing for
indemnification by the Company, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. These
agreements constitute binding agreements between the Company and each of the
other parties thereto, thus preventing the Company from modifying its
indemnification policy in a way that is adverse to any person who is a party
to such an agreement.
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DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company's authorized common stock consists of shares of the
Common Stock. All authorized shares of the Common Stock have a par value of
$0.01 per share and are entitled to one vote per share on all matters
submitted to a vote of stockholders. Subject to the preferences applicable to
any outstanding preferred stock, beneficial owners of the Common Stock are
entitled to receive ratably those dividends declared by the Board of Directors
out of legally available funds. In the event of a liquidation, dissolution or
winding up of the Company, the holders of the Common Stock are entitled to
share ratably in all assets remaining after all liabilities and the
liquidation preference attributable to any outstanding preferred stock have
been paid. The holders of the Common Stock are entitled to one vote per share
on all matters submitted to a vote of stockholders. The holders of the Common
Stock will have no pre-emptive rights or cumulative voting rights and no
rights to convert their Common Stock into any other securities other than
those described under "--Investors Shareholder Agreement."
As of July 31, 1997 there were outstanding 762,123 shares of the Common
Stock. As of July 31, 1997 there were reserved for issuance under outstanding
options 132,436 shares of the Common Stock. The Company will effect the Stock
Split immediately prior to the completion of the Offering (and, unless
otherwise indicated, all information in this Prospectus gives effect to such
Stock Split).
PREFERRED STOCK
As of July 31, 1997, 502,654 shares of the Company's Series A Preferred
Stock were outstanding (not giving effect to the Series A Preferred Stock
Conversion). All of the holders of the Company's outstanding Series A
Preferred Stock have agreed to the Series A Preferred Stock Conversion,
effective upon completion of the Offering (and, unless otherwise indicated,
all information in this Prospectus gives effect to the Series A Preferred
Stock Conversion). Thus, upon completion of the Offering, the Company will not
have outstanding any shares of preferred stock (the "Preferred Stock"),
although the Company will be authorized to issue up to 25 million shares of
the Preferred Stock. Pursuant to the Company's Certificate of Incorporation,
the Board of Directors, without further action by the holders of the Common
Stock, is authorized to fix by resolution the voting power, designations,
powers, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations, or restrictions thereof,
including, without limitation, the dividend rate, conversion or exchange
rights, redemption price and liquidation preference, of one or more series of
the Preferred Stock, and to fix the number of shares constituting any such
series. In the event of any dissolution, liquidation or winding up of the
affairs of the Company, whether voluntary or involuntary, after payment or
provision for payment of the debts and other liabilities of the Company, the
holders of each series of the Preferred Stock shall be entitled to receive,
out of the net assets of the Company, an amount for each share of the
Preferred Stock equal to the amount fixed and determined by the Board of
Directors in the resolution creating such series and providing for the
issuance of such shares, and no more, prior to any of the assets of the
Company being distributed to the holders of the Common Stock (the "Liquidation
Preference"). The issuance of the Preferred Stock could adversely affect the
voting power and other rights of the holders of the Common Stock.
The authority possessed by the Board of Directors to issue the Preferred
Stock could potentially be used to discourage attempts by third parties to
obtain control of the Company through a merger, tender offer, proxy contest or
otherwise by making such attempts more difficult or more costly to
successfully complete. See "Risk Factors--Possible Anti-takeover Effect of
Certain Charter Provisions."
There are no agreements or understandings for the issuance of the Preferred
Stock and the Board of Directors has no present intention to issue any of the
Preferred Stock.
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OWNERSHIP OF VOTING SECURITIES
The table below sets forth the beneficial ownership of the Common Stock
(which constitutes the only class of issued and outstanding capital stock of
the Company), as of July 31, 1997, by each director of the Company, each of
the Named Executive Officers, the directors and executive officers of the
Company as a group and each person who at such time beneficially owned more
than five percent of the outstanding shares of any class of voting securities
of the Company.
<TABLE>
<CAPTION>
OWNERSHIP AFTER THE
OWNERSHIP PRIOR TO OFFERING OFFERING
------------------------------- -----------------------
NAME AND ADDRESS OF NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF
BENEFICIAL OWNER SHARES(1) CLASS SHARES CLASS
- ------------------- --------------- --------------- --------- -------------
<S> <C> <C> <C> <C>
Tracinda
Corporation(2)(3)...... 874,750 68.96% 874,750 %
4835 Koval Lane
Las Vegas, NV 89109
Seven Network
Limited(3)............. 389,000 30.76 389,000
ATN7, Mobbs Lane
Epping NSW 2121
Australia
Frank G. Mancuso(3)..... 2,707 * 2,707 *
A. Robert Pisano........ 360 * 360 *
James D. Aljian(4)...... -- -- -- --
Michael R. Gleason(5)... 3,750 * 3,750 *
Kirk Kerkorian(3)(6).... 874,750 68.96 874,750
Kerry M. Stokes(3)(7)... 389,000 30.76 389,000
Jerome B. York(4)....... -- -- -- --
Michael S. Hope(8)...... -- -- -- --
Michael G. Corrigan..... -- -- -- --
David G. Johnson........ 325 * 325 *
William A. Jones........ 625 * 625 *
All Director and
Executive Officers as a
group (10 persons)..... 1,271,517 100.33 1,271,517
</TABLE>
- --------
* Less than 1 percent.
(1) The shares of the Common Stock underlying options that are vested as of
July 31, 1997 or that will become vested within 60 days thereafter are
deemed to be outstanding for the purpose of calculating the beneficial
ownership of the holder of such options or other rights, but are not
deemed to be outstanding for the purpose of computing the beneficial
ownership of any other person. As a result, the aggregate percentage
ownership of the Common Stock may exceed 100 percent.
(2) Includes 3,750 shares of the Common Stock issuable at a price of $267 per
share pursuant to a presently exercisable stock option which expires on
October 10, 2002. See "Certain Transactions--Stock Option Grants and
Reimbursement of Fees to Tracinda and Celsus in Connection with the MGM
Acquisition." All of the shares of the Common Stock held by Tracinda are
pledged to a group of banks to secure a syndicated credit facility to
Tracinda.
(3) For a description of certain voting agreements applicable to such shares,
see "--Investors Shareholder Agreement."
(4) Each of Messrs. Aljian and York is an employee of, and was nominated to
the Board of Directors of the Company by, Tracinda.
(5) Mr. Gleason was nominated to the Board of Directors of the Company by
Seven. Mr. Gleason serves as the President of the general partner of
Culmen Group, L.P., which regularly provides financial advisory services
to Seven. Represents 3,750 shares of the Common Stock issuable at a price
of $267 per share pursuant to a presently exercisable stock option which
expires on October 10, 2002 held by Celsus, an entity wholly owned by Mr.
Gleason. See "Certain Transactions--Stock Option Grants and Reimbursement
of Fees to Tracinda and Celsus in Connection with the MGM Acquisition."
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(6) Mr. Kerkorian is the President and sole shareholder and director of, and
was nominated to the Board of Directors of the Company by, Tracinda.
Includes 874,750 shares beneficially owned by Tracinda.
(7) Mr. Stokes is the Chairman of, and was nominated to the Board of Directors
of the Company by, Seven. Represents 389,000 shares beneficially owned by
Seven as to which Mr. Stokes disclaims beneficial ownership.
(8) Mr. Hope resigned from the Company effective as of January 31, 1997.
INVESTORS SHAREHOLDER AGREEMENT
The following is a summary description of the principal terms of the
Investors Shareholder Agreement. This summary description does not purport to
be complete and is subject to and qualified in its entirety by reference to
the definitive Investors Shareholder Agreement, a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
Voting of Shares. Until the fifteenth anniversary of the closing date of the
Offering, (i) each of Tracinda and Seven has agreed to vote all of the shares
of capital stock of the Company beneficially owned by such party and take all
necessary or desirable action within such party's control, (ii) the Company
has agreed to vote all of the shares of capital stock of MGM Studios
beneficially owned by it and take all necessary or desirable action within its
control, (iii) Mr. Mancuso has agreed to vote all his shares of capital stock
of the Company and to take all necessary or desirable action and (iv) MGM
Studios has agreed to take all necessary or desirable action within its
control, in each case so that the Board of Directors of each of the Company
and MGM Studios consists of eleven members (subject to the provisions
described below), up to four of whom are nominated by Tracinda (subject to
reduction if Tracinda does not maintain a certain level of ownership of the
Common Stock), up to two of whom are nominated by Seven (subject to reduction
if Seven does not maintain a certain level of ownership of the Common Stock),
two of whom are nominated by the Chairman and Chief Executive Officer of the
Company (one of whom shall be Mr. Mancuso as long as he serves as the Chief
Executive Officer of the Company), and three independent directors who are
nominated by the majority of the Board of Directors of the Company (which
majority, so long as Tracinda beneficially owns at least 400,000 shares of the
Common Stock, must include Tracinda's nominees on the Board of Directors of
the Company) and who are not affiliated or associated with either Tracinda or
Seven and otherwise meet the requirements of the NYSE for serving as
independent directors; provided, however, that each of Tracinda and Seven is
only obligated to vote for nominees selected by the Board of Directors of the
Company which are acceptable to Tracinda or Seven, as the case may be. The
Board of Directors may determine to reduce the size of the Board of Directors
to ten persons, in which case the number of independent directors will be
reduced to two. Furthermore, each of Tracinda and Seven has the exclusive
right (which, to the extent the same may be required by law, may be exercised
indirectly) (i) to remove, with or without cause, any director designated by
it in accordance with the foregoing and (ii) to designate and elect any
replacement for a director designated by it in accordance with the foregoing
upon the death, resignation, retirement, disqualification or removal from
office of such director.
Except to the extent consistent with the Investors Shareholder Agreement,
the Board of Directors of the Company shall not be authorized to fill a
vacancy on the Board of Directors of the Company caused by the death,
resignation, retirement, disqualification or removal of a director.
For as long as Mr. Mancuso serves as a member of the Board of Directors of
the Company and MGM Studios, Mr. Mancuso shall act as the Chairman of the
Board of Directors of the Company and MGM Studios. The Board of Directors of
the Company shall have the right to remove Mr. Mancuso as a director of the
Company, with or without cause, only upon the termination of his employment as
Chief Executive Officer of MGM Studios, subject to the terms of Mr. Mancuso's
employment agreement. See "Management-- Employment Agreements--Frank G.
Mancuso." If Mr. Mancuso ceases to act as Chief Executive Officer of the
Company, Mr. Mancuso has agreed to resign as a director of the Company and MGM
Studios and all other positions held by Mr. Mancuso at the Company, effective
as of the time he ceases to act as Chief Executive Officer of the Company. Any
person selected by Mr. Mancuso as the second management director must agree to
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resign as a director of both the Company and MGM Studios at such time as Mr.
Mancuso ceases to serve as the Chief Executive Officer of the Company, unless
such other person is acceptable to the new Chief Executive Officer of the
Company. If Mr. Mancuso ceases to act as the Chief Executive Officer of the
Company, the parties to the Investors Shareholder Agreement shall promptly
remove the other person nominated by Mr. Mancuso and then serving as a
director of the Company and MGM Studios, unless such other person is
acceptable to the new Chief Executive Officer of the Company.
In addition, each of the Company, MGM Studios, Seven, Tracinda and Mr.
Mancuso has agreed that until the earlier to occur of (i) the fifteenth
anniversary of the closing date of the Offering and (ii) the date that Seven
no longer beneficially owns at least 250,000 shares of the Common Stock,
neither the Company nor MGM Studios shall (a) sell or agree to sell or (b)
license or agree to license for a period of more than three years, in
substantially all major territories of the world in one transaction, or a
series of related transactions, all or 85 percent or more of the films then in
the Library unless such sale, license or agreement shall have been unanimously
approved by the Board of Directors of the Company. Thereafter, any such sale,
license or agreement shall only require the approval of a majority of a quorum
of directors at a duly called meeting of the Board of Directors of the
Company.
Business Operations. Each of the Company, MGM Studios, Tracinda, Seven and
Mr. Mancuso has agreed to use their best efforts (until the fifteenth
anniversary of the closing date of the Offering) to ensure that neither the
Company nor any of its subsidiaries engages in any business activity except
the entertainment business unless (i) all directors of the Board of Directors
shall have approved such engagement in other business activities or (ii) a
majority of the Board of Directors shall have approved such engagement in
other business activities and such engagement in other business activities
shall have been approved by the stockholders of the Company in accordance with
the applicable provisions of the DGCL. For purposes of the Investors
Shareholder Agreement, the entertainment business shall include the
acquisition, development, production, marketing, distribution, exhibition,
publication or use of intellectual property for purposes of providing
entertainment, education or information and all services and activities
reasonably related thereto, including the services and activities currently
provided or conducted by the Company and its subsidiaries.
First Refusal Rights. Each of Seven and Tracinda has agreed to be bound by
certain "first refusal" rights with respect to the sale, transfer, assignment
or other disposition ("Transfer") of their shares of capital stock of the
Company, subject to certain conditions. If prior to October 10, 2001, either
Tracinda or Seven desires to Transfer, directly or indirectly, in whole or
part, all or any portion of the shares of capital stock of the Company
beneficially owned by it, such party must provide the other party with a
written notice detailing the terms and conditions of such proposed Transfer
and the other party shall have, subject to certain notice requirements, the
right to purchase such shares on the same terms and conditions as the proposed
Transfer. These first refusal rights do not apply to any bona fide pledge to a
bank or other institutional financial lender.
Pre-emptive Rights. The Company has granted to each of Seven, Tracinda and
Mr. Mancuso certain pre-emptive rights with respect to the Common Stock. If,
at any time prior to the fifteenth anniversary of the closing date of the
Offering, the Company proposes to issue to any person any shares of the Common
Stock or any securities exercisable for the purchase of or convertible into
the Common Stock, each of Seven, Tracinda and Mr. Mancuso may subscribe for
and purchase for cash a number of shares of the Common Stock or securities
exercisable for the purchase of or convertible into the Common Stock,
respectively, such that, after giving effect to such issuance to such other
persons and such purchase by any one or more of Seven, Tracinda and
Mr. Mancuso, as the case may be, such purchaser will continue to beneficially
own the same percentage of the outstanding Common Stock (including securities
exercisable for the purchase of or convertible into the Common Stock) that
such purchaser beneficially owned prior thereto.
Such pre-emptive rights shall not apply to: (i) the issuance of the Common
Stock or securities exercisable for the purchase of or convertible into the
Common Stock pursuant to a firm commitment underwritten public offering or
pursuant to Rule 144A or Regulation S promulgated under the Securities Act;
(ii) the issuance of the Common Stock or securities exercisable for the
purchase of or convertible into the Common Stock pursuant to a registration
statement directly or indirectly to the holders of the outstanding capital
stock of a corporation or
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other business entity with a class of equity securities registered under the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), in
connection with the Company's acquisition of such corporation or other
business or substantially all of its assets (whether by merger, consolidation,
purchase of stock or assets or otherwise); or (iii) the grant of stock options
to officers, directors or employees of the Company or any of its subsidiaries
pursuant to stock option plans approved by the Board of Directors of the
Company or the issuance of the Common Stock upon the exercise of any such
stock option.
The price to be paid in any such purchase by any one or more of Seven,
Tracinda and Mr. Mancuso and the other terms of purchase shall be the same as
applicable to the purchase of the Common Stock or such other securities by
such other person, except that in all cases the price to be paid by Seven,
Tracinda and Mr. Mancuso shall be paid in cash. If such shares of the Common
Stock or such other securities are to be issued to such other person for
property or services, the price per share or other security to be paid by
Seven, Tracinda and Mr. Mancuso shall be equal to the fair market value per
share or other security of the property or services to be received by the
Company from such other person, as such fair market value is determined by the
independent directors of the Company elected to the Board of Directors of the
Company.
Such pre-emptive rights will terminate, with respect to either Seven or
Tracinda, at such time as such party beneficially owns less than 250,000
shares of the Common Stock (as presently constituted) and, with respect to
Mr. Mancuso, at such time as Mr. Mancuso is no longer the Chief Executive
Officer of the Company.
SHAREHOLDERS AGREEMENT
The following is a summary description of the principal terms of the Amended
and Restated Shareholders Agreement (the "Shareholders Agreement") dated as of
August 4, 1997, by and among the Company, MGM Studios, Seven, Tracinda, Mr.
Mancuso and the other persons specified on the signature pages thereto
(Mr. Mancuso and such specified persons, collectively, "Executives"). This
summary description does not purport to be complete and is subject to and
qualified in its entirety by reference to the definitive Shareholders
Agreement, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
Tag-Along Rights. Each of Seven and Tracinda has agreed to be bound by
certain "tag-along" restrictions with respect to certain Transfers of their
shares of the Common Stock. If either Seven or Tracinda desires to Transfer
shares of the Common Stock beneficially owned by it, directly or indirectly,
in whole or in part (a "Tag-Along Sale"), then each of Seven, Tracinda, and
each of the Executives (collectively, the "Other Securityholders") shall have
certain "tag-along" rights, subject to certain notice provisions.
Specifically, each Other Securityholder shall have the right but not the
obligation, (i) in the case of the Executives, to exercise certain Options
held by such Executives which have vested pursuant to the 1996 Incentive Plan
to the extent required to realize the "tag-along" rights of such Executives
and (ii) to elect that Seven or Tracinda, as the case may be, be obligated to
require, as a condition to such Tag-Along Sale, that the proposed purchaser
purchase from each such electing Other Securityholder a proportional number of
shares (excluding shares of the Common Stock acquired pursuant to open market
purchases). Any such sales by any Other Securityholder shall be on the same
terms and conditions as the proposed Tag-Along Sale by Seven or Tracinda, as
the case may be and on the same date as the closing of the proposed Tag-Along
Sale.
The tag-along rights shall not apply to: (i) any transaction in which shares
of the Common Stock are proposed to be sold publicly pursuant to a
registration statement filed under the Securities Act or pursuant to Rule 144
promulgated under the Securities Act; (ii) any one transaction or series of
related transactions involving the transfer of less than one percent of the
then issued and outstanding shares of the Common Stock; (iii) any bona fide
pledge to a bank or other institutional financial lender; or (iv) any sale
from one of the parties to the Shareholders Agreement to another party
thereto, and shall terminate with respect to each of Seven and Tracinda at
such time as such party beneficially owns less than 250,000 shares of the
Common Stock (as presently constituted).
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In addition, the tag-along provisions shall not apply to, in the case of
each of Tracinda and Seven, (i) the transfer of, or the grant of options for
the acquisition of, up to 7,500 shares of the Common Stock (such number to be
appropriately adjusted in the event that the Company should effect any stock
dividend, stock split, reverse stock split, or any similar transaction) to its
officers, directors, employees, consultants and affiliates so long as such
transferee shall agree in writing to be bound by all the terms of the
Shareholders Agreement applicable to its transferor as if the transferee
originally had been a party to the Shareholders Agreement and (ii) the
transfer and assignment of all or any portion of the capital stock of the
Company beneficially owned by it to any direct or indirect wholly owned
subsidiary of such entity so long as (a) such transferee shall agree in
writing to be bound by all the terms of the Shareholders Agreement applicable
to its transferor as if the transferee originally had been a party to the
Shareholders Agreement and (b) the transferor agrees to cause such direct or
indirect wholly owned subsidiary to continue to be a direct or indirect wholly
owned subsidiary of the transferor for so long as such direct or indirect
wholly owned subsidiary shall beneficially own any such capital stock of the
Company.
If one or more Executives is then subject to a period of restriction on the
exercisability of Options following certain public offerings pursuant to the
1996 Incentive Plan then, if such Executive(s) would otherwise be entitled to
tag-along rights, such Executive(s) shall be entitled to tag-along rights
during such restricted period and shall be entitled to exercise Options during
such restricted period to the extent required to permit the applicable
Executive to sell pursuant to the applicable tag-along transaction the maximum
number of shares of capital stock such Executive(s) shall be entitled to sell
in such tag-along transaction (after first selling all shares of capital stock
of the Company then owned by the applicable Executive).
Demand Registration Rights. Seven, Tracinda and the Executives, at any time
following 180 days after the closing date of the Offering, have the right to
make up to three requests, in the case of each of Seven and Tracinda, and up
to two requests with respect to all of the Executives, for registration
("Demand Registration") under the Securities Act of all or part of the Common
Stock or securities issued as a dividend on or distribution with respect to or
in exchange, replacement or in subdivision of, any such Common Stock, which
have not been sold pursuant to an effective registration statement under the
Securities Act or pursuant to Rule 144 under the Securities Act (the
"Registrable Securities") held by them; provided that any request for a Demand
Registration shall not be otherwise deemed to be effective unless such request
includes Registrable Securities with an estimated value of no less than $50
million. Demand Registration requests may be for shelf registrations (covering
sales on a delayed or contingent basis) if the Company is then eligible to
effect shelf registrations. The Company will pay all of the expenses of any
such Demand Registration, including the fees and expenses of a single counsel
retained by the selling stockholders; however, each selling stockholder will
be responsible for the underwriting discounts and commissions and transfer
taxes in connection with shares sold by such stockholder and any party
requesting long-form registration when short-form registration is available
will bear the incremental cost thereof. Each selling stockholder and the
underwriters through whom shares are sold on behalf of a selling stockholder
will be entitled to customary indemnification from the Company and MGM
Studios, in the case of the selling stockholders, and the Company, in the case
of the underwriters, against certain liabilities, including liabilities under
the Securities Act.
The Company will not be obligated to effect any Demand Registration within
six months after the effective date of a previous Demand Registration and
during any two-year period, the Company may make a one-time election to
postpone the filing or the effectiveness of a registration statement for a
Demand Registration for up to six months if the Board of Directors of the
Company determines, in its good faith judgment, that (i) such Demand
Registration would reasonably be expected to have a material adverse effect
on, interfere with or delay any proposal or plan by the Company to engage in
any acquisition of assets (other than in the ordinary course of business) or
any merger, consolidation, tender offer or similar transaction, (ii) the
filing of a registration statement or a sale of Registrable Securities
pursuant thereto would require disclosure of material information that the
Company has a bona fide business purpose for preserving as confidential or
(iii) the Company is unable to comply with the registration requirements of
the Commission; provided, that, in such event, the holders of shares of
Registrable Securities initially requesting such Demand Registration will be
entitled to withdraw such
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request and, if such request is withdrawn, such request for Demand
Registration will not count as a request for Demand Registration under the
Shareholders Agreement and the Company will pay all Registration Expenses in
connection with such withdrawn registration request. The party requesting
Demand Registration may select the managing underwriters, who must be of
national prominence and reasonably acceptable to the Company.
"Piggyback" Registration Rights. If after the closing date of the Offering
the Company proposes to register any of its equity securities 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 Registrable Securities, whether or not for sale for
its own account, each of Tracinda, Seven and the Executives shall be entitled
to request that Registrable Securities of the same class beneficially owned by
such party be included in such registration (a "Piggyback Registration");
provided that if a Piggyback Registration is an underwritten primary
registration on behalf of the Company, and the managing underwriters advise
the Company in writing that in their opinion the number of shares of the
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
securities the Company proposes to sell and (ii) second, all other securities
requested to be included in such registration, pro rata among the respective
holders thereof on the basis of the number of securities owned by each such
holder; provided further, that if a Piggyback Registration is an underwritten
secondary registration on behalf of holders of securities of the Company, and
the managing underwriters advise the Company in writing that in their opinion
the number of securities requested to be included in such registration exceeds
the number which can be sold in such offering within a price range reasonably
acceptable to such holders, the Company will include in such registration the
securities requested to be included in such registration, pro rata among the
respective holders thereof on the basis of the number of securities owned by
each such holder. The Company will pay all of the expenses of any such
Piggyback Registration, including the fees and expenses of a single counsel
retained by the selling stockholders; however, each selling stockholder will
be responsible for the underwriting discounts and commissions and transfer
taxes in connection with shares sold by such stockholder. Each selling
stockholder and the underwriters through whom shares are sold on behalf of a
selling stockholder will be entitled to customary indemnification from the
Company and MGM Studios, in the case of the selling stockholders, and the
Company, in the case of the underwriters against certain liabilities,
including liabilities under the Securities Act.
Certain Holdback Agreements. Each of Seven, Tracinda and the Executives has
agreed, if requested in writing by the Company or any managing underwriters of
registration effected in accordance with the proceeding described in the
preceding three paragraphs, not to effect any public sale or distribution
(including sales pursuant to Rule 144) of shares of equity securities of the
Company, or any securities convertible into or exchangeable or exercisable for
equity securities, during the period reasonably requested by the managing
underwriters, not to exceed the period commencing with the date seven days
prior to and ending with the date 90 days, or such longer period, not to
exceed 180 days, as the managing underwriters shall request, after the
effective date of any underwritten registration by the Company of its
securities (except as part of such underwritten registration). The Company has
agreed to a similar restriction, if requested by the managing underwriters of
any such underwritten registration (except as part of such underwritten
registration or pursuant to registrations on Form S-4 or Form S-8 or any
successor forms), and to use its best efforts to cause certain holders of its
capital stock (other than in a registered public offering), to so agree.
Form S-8. The Company will, within six months following the closing date of
the Offering, cause to become effective a registration statement on Form S-8
with the Commission with respect to shares of capital stock of the Company
subject to Options granted to the Executives pursuant to the 1996 Incentive
Plan.
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FINANCING ARRANGEMENTS
The following is a summary of the Amended Credit Facility, and is qualified
in its entirety by reference to the definitive agreements and instruments
governing such indebtedness, copies of which have been filed as exhibits to
the Registration Statement.
General. In October 1997 MGM Studios and Orion (collectively, the
"Borrowers") entered into the Amended Credit Facility with Morgan, as
Administrative Agent (the "Agent") and a syndicate of banks (the "Banks")
arranged by J.P. Morgan Securities Inc. and BancAmerica Securities, Inc.,
which provides for borrowings up to $1.3 billion in aggregate principal
amount. The credit facilities provided in the Amended Credit Facility consist
of a seven and one-half year amortizing term loan in the amount $400 million
(the "Tranche A Facility"), an eight and one-half year term loan in the amount
of $300 million (the "Tranche B Facility") and a six-year revolving loan in
the maximum amount of $400 million (the "Revolving Credit Facility"). At the
time of consummation of the Offering, the Revolving Credit Facility will be
increased to $600 million. Amounts available under the Revolving Credit
Facility may be utilized for general corporate purposes.
The Borrowers have the option to borrow an additional $200 million term loan
in the future (the "Tranche C Facility"), with the consent of lenders holding
at least 66 2/3 percent of the aggregate loans and commitments and subject to
syndication thereof. The Tranche C Facility would be required to have a final
maturity no earlier than the final maturity of the Tranche B Facility and no
substantial amortization prior to that date.
Amortization. The Tranche A Facility will require no substantial
amortization until 2001, and thereafter will fully amortize by final maturity.
The Tranche B Facility requires no substantial amortization prior to the final
maturity thereof. The borrowing availability under the Revolving Credit
Facility is not scheduled to be reduced prior to final maturity.
Prepayment. The term loans are required to be prepaid (and, if the term
loans are prepaid in full, the Revolving Credit Facility is required to be
reduced) out of (i) all of the net proceeds of incurrence of additional
indebtedness by the Company or any of its respective subsidiaries, with
certain exceptions, (ii) all of the net proceeds of certain asset sales
(including certain license agreements with respect to motion picture and
television product) and of casualty insurance proceeds and condemnation
awards, subject to certain exceptions, and (iii) 75 percent of excess cash
flow (as defined in the Amended Credit Facility) in each fiscal year (or
50 percent for any year in which the Borrowers' leverage ratio is below a
specified level on the last day of the year), in any case subject to certain
exceptions, including an exception for the first $50 million of cumulative
excess cash flow.
Guarantees and Security. All of the Borrowers' domestic material
subsidiaries have guaranteed the Borrowers' obligations under the Amended
Credit Facility. The Borrowers' obligations under the Amended Credit Facility,
and their respective subsidiaries' obligations under their respective
guarantees, are secured by security interests and liens granted to the Agent
in substantially all of the assets of the Borrowers and their respective
subsidiaries, including copyrights, distribution rights, license, royalty and
other contract rights with respect thereto, trademarks and other intellectual
property and receivables, except to the extent that granting such a security
interest or lien would constitute a breach of or default under a contract by
which such property interest arises.
Interest Rates. Interest is payable quarterly in arrears on all borrowings
under the Amended Credit Facility at a variable rate equal to the sum of 1.50
percent (1.75 percent for the Tranche B Facility) plus the rate established by
the Agent from time to time as its base rate. Interest will accrue at a rate
equal to 2.50 percent (2.75 percent for the Tranche B Facility) plus LIBOR.
Interest that accrues at the LIBOR-based rate will be payable at the end of
each interest period for interest periods of three months or less and
quarterly in arrears for interest periods of six months. The interest rate
margins over the base rate and LIBOR will be decreased by 0.25 percent upon
consummation of the Offering, and are subject to further adjustment from time
to time based on the Borrowers' performance under certain financial tests and
ratios.
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If at any time an event of default, as defined in the Amended Credit
Facility, occurs, interest will accrue on the principal amount of all
outstanding obligations under the Amended Credit Facility at an annual rate
that is two percent greater than the rate that would otherwise be in effect,
for so long as such event of default continues.
Covenants. The Amended Credit Facility contains customary covenants which,
among other things, (i) require the Borrowers to satisfy certain financial
tests and ratios (including a minimum net worth requirement, maximum leverage
(measured both by reference to the Borrowers' combined earnings before
interest, taxes, depreciation and amortization and to cash flow from the
Library), an interest coverage ratio and maximum annual capital expenditures)
and (ii) impose certain limitations on (a) the incurrence of additional
indebtedness by the Company or the Borrowers, (b) the creation or incurrence
of liens, (c) the making of investments, (d) mergers and acquisitions and
sales or other dispositions of assets (including certain licensing
agreements), (e) transactions with affiliates and (f) the incurrence of lease
obligations. The Amended Credit Facility also requires the Borrowers to enter
into certain interest rate hedging arrangements, and requires them to release
a minimum number of new films each year.
The Amended Credit Facility also generally prohibits the Borrowers from
making any dividend payment or other distribution with respect to, or
redeeming or acquiring, any capital stock of the Borrowers.
These covenants will continue in effect so long as any of the funding
commitments under the Amended Credit Facility are in effect and until all
loans under the Amended Credit Facility and interest thereon and other amounts
payable by the Borrowers under the Amended Credit Facility are paid in full.
Events of Default. The Amended Credit Facility enumerates several
occurrences that constitute events of default thereunder, including: (i) the
failure to pay any principal, interest or other amounts due under the Amended
Credit Facility when due, subject in some cases to a period of grace; (ii) the
failure to maintain financial covenants or to comply with other restrictive
covenants; (iii) the failure to comply with any other provision of the Amended
Credit Facility or related documents, subject in some cases to a period of
grace; (iv) the occurrence of certain events of bankruptcy or insolvency with
respect to the Company or a material subsidiary; (v) a default in certain
other obligations of the Company or its subsidiaries; and (vi) the breach of
any representation or warranty made by the Company.
Additionally, the occurrence of a "change in control" constitutes an event
of default. A change of control occurs if Tracinda and Seven collectively do
not maintain voting and economic control over at least 35 percent of each
class of capital stock of the Company, any person or group of persons obtains
voting or economic control over a greater percentage of any class of the
outstanding capital stock of the Company than Tracinda and Seven,
collectively, or if certain changes occur in the composition of the Company's
Board of Directors.
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CERTAIN TRANSACTIONS
The Company believes the transactions described below that were entered into
by the Company and its subsidiaries were beneficial to the respective
companies, and were no less favorable to the respective companies than could
have been obtained from unaffiliated third parties pursuant to arms-length
negotiations.
FIRST AND SECOND PRIVATE PLACEMENTS; CAPITAL CALL AGREEMENT
Pursuant to an investment agreement dated July 11, 1996 among Seven,
Tracinda and the Company, and in connection with the MGM Acquisition, Tracinda
purchased 200,000 shares of the Common Stock and 450,000 shares of the Series
A Preferred Stock and Seven purchased 200,000 shares of the Common Stock and
50,000 shares of the Series A Preferred Stock, for a purchase price of $1,000
per share and an aggregate purchase price of $900 million.
Pursuant to an investment agreement dated May 2, 1997 among Seven, Tracinda
and the Company, and in connection with the Orion Acquisition, Tracinda
purchased 321,000 shares of the Common Stock and Seven purchased 39,000 shares
of the Common Stock, for a purchase price of $1,000 per share and an aggregate
purchase price of $360 million.
Pursuant to an agreement dated as of October 10, 1996 among Seven, Tracinda,
the Company, MGM Studios and the agent for the lending banks under the
Original MGM Credit Facility (the "Capital Call Agreement"), Tracinda and
Seven agreed to provide an aggregate of up to $60 million of equity to the
Company upon the occurrence of certain events. The Capital Call Agreement and
the obligations of Tracinda and Seven thereunder will terminate upon
completion of the Offering.
SALES OF UNREGISTERED SECURITIES TO MANAGEMENT
In connection with MGM Acquisition and the renegotiation of employment
agreements with certain employees of the Company, including certain members of
management, the Company issued an aggregate of 1,600 shares of the Common
Stock and 2,000 shares of the Series A Preferred Stock (which were converted
into 2,000 shares of the Common Stock pursuant to the Series A Preferred Stock
Conversion) to such employees. The Company received no cash consideration from
such issuance. Company believes that the issuance of such shares to such
employees was exempt from registration under Section 4(2) of the Securities
Act. See "Ownership of Voting Securities."
In addition, pursuant to Mr. Mancuso's employment agreement, Mr. Mancuso
receives a monthly payment of $250,000, out of the after tax proceeds of which
he is required to purchase shares of the Common Stock at a price of $1,000 per
share until December 31, 1997 and, thereafter, at the fair market value of
such shares. As of July 31, 1997, Mr. Mancuso had purchased 1,058 shares of
the Common Stock for aggregate consideration of $1,058,000. See "Management--
Employment Agreements--Frank G. Mancuso." The Company believes that the
issuance of such shares to Mr. Mancuso was exempt from registration under
Section 4(2) of the Securities Act.
INVESTORS SHAREHOLDER AGREEMENT AND SHAREHOLDERS AGREEMENT
Seven, Tracinda, Mr. Mancuso, the Company and MGM Studios are parties to the
Investors Shareholder Agreement and the Shareholders Agreement, each of which
contains certain provisions relating to the corporate governance of the
Company and provide for certain rights relating to the shares of the Common
Stock, including registration rights and transfer restrictions. See "Ownership
of Voting Securities--Investors Shareholder Agreement" and "--Shareholders
Agreement."
OTHER TRANSACTIONS WITH TRACINDA AND ITS AFFILIATES
In 1980 Old MGM granted to Grand Hotel an exclusive open-ended royalty-free
license to use certain trademarks and tradenames that include the letters
"MGM," as well as logos consisting of a stylized depiction
76
<PAGE>
of a lion in its hotel/gaming business and other businesses that are not
entertainment-related. In 1986 MGM/UA granted Grand Air an exclusive open-
ended royalty-free license to use one of its logos consisting of a stylized
depiction of a lion in Grand Air's airline business. See "Business--Trademarks
and Consumer Products." Tracinda owns a majority of the outstanding common
stock of Grand Hotel, and Grand Air was a subsidiary of Grand Hotel.
Additionally, the Company and affiliates of Tracinda occasionally conduct
cross-promotional campaigns, in which the Company's motion pictures and the
affiliates' hotels are promoted together; however, the Company believes that
the amounts involved are immaterial.
Home Entertainment has granted to Grand Hotel, or certain of its affiliates,
limited short-term, nonexclusive licenses to key art, still photographs of
artwork and one minute film clips from certain MGM Pictures and UA Pictures
releases for use in an "in-room" only publication for the MGM Grand
Hotel/Casino in Las Vegas, a clip reel program for the benefit of Make-a-Wish
foundation and promoting the sale of videocassettes containing such releases
at the MGM Grand Hotel/Casino in Las Vegas.
The Company sells to Grand Hotel, and certain of its affiliates, on a
wholesale basis merchandise such as baseball caps, clothing, keychains and
watches bearing the Company's trademarks and logos for resale to consumers in
retail shops located within Grand Hotel's hotels. Grand Hotel currently is the
Company's largest wholesale customer of the Company's merchandise and,
consequently, receives pricing discounts from the Company.
From time to time, the Company charters airplanes from Tracinda for use in
the Company's business. The Company believes that the terms of the charter
arrangements are no less favorable to the Company than those that could be
obtained from unrelated parties. From October 10, 1996 to June 30, 1997, the
aggregate of the payments made to Tracinda for such charters was approximately
$10,000.
In January 1997 MGM Studios entered into an agreement with Tracinda and
certain former directors of MGM/UA (including Kirk Kerkorian) (the "Insurance
Allocation Agreement") to allocate the proceeds of directors and officers
liability insurance policies relating to litigation filed prior to 1991
against MGM/UA, Tracinda and such former directors. The Insurance Allocation
Agreement provides for the proceeds of such policies (and certain legal fees
incurred to obtain such proceeds) to be allocated 65 percent to MGM Studios
and 35 percent to Tracinda (on behalf of such former directors). The Company
believes that the terms of the Insurance Allocation Agreement were fair and
equitable to the respective parties and were the result of arm's-length
negotiations between MGM Studios and Tracinda (on behalf of such former
directors). The total proceeds of such policies aggregated $8 million as of
August 1, 1997, of which $5.2 million was allocated to MGM Studios.
STOCK OPTION GRANTS AND REIMBURSEMENT OF FEES TO TRACINDA AND CELSUS IN
CONNECTION WITH THE MGM ACQUISITION
The Company and Tracinda entered into a Stock Option Agreement dated October
10, 1996 pursuant to which Tracinda was granted an option by the Company to
purchase 3,750 shares of the Common Stock, at a price per share of $267.00.
The option becomes exercisable on October 10, 1997 and expires on October 10,
2002.
The Company and Celsus, an entity wholly-owned by Michael R. Gleason,
entered into a Stock Option Agreement dated October 10, 1996 pursuant to which
Celsus was granted an option by the Company to purchase 3,750 shares of the
Common Stock at a price per share of $267.00. The option becomes exercisable
on October 10, 1997 and expires on October 10, 2002.
In connection with the MGM Acquisition, the Company also reimbursed each of
Tracinda and Celsus for certain out-of-pocket and other expenses incurred in
the agreed-upon amount of $4,750,000 each.
77
<PAGE>
OTHER TRANSACTIONS WITH SEVEN AND ITS AFFILIATES
In 1995 the Company licensed to a subsidiary of Seven the right to
distribute certain motion picture and television product in the Australian
free television market. This agreement was amended on September 9, 1997. The
product licensed includes certain Library pictures and theatrical motion
pictures and television series, miniseries and made-for-television movies
produced or distributed by the Company during the term of the agreement. The
license fees for the Library product are at a rate which the Company believes
is arm's-length. The term of the output portion of the agreement is 20 years,
subject to reduction to 10 years if there is a change of control of Seven or
Seven no longer beneficially owns shares of the Common Stock having a value of
at least $185 million. The license fees for output product television series,
television movies and television mini-series are on a "most favored nations"
basis with prices paid by the Seven subsidiary for comparable programming.
In 1994, in connection with the formation of MovieVision, a joint venture in
which the Company and a subsidiary of Seven are both equity partners, the
Company licensed to the joint venture certain of its current theatrical and
television motion pictures, as well as a number of Library pictures, for
distribution on Australian pay and basic cable television. The agreement
expires on June 30, 2000, with all motion pictures covered by the agreement
reverting to the Company within one year after that date, but both the Company
and MovieVision have the right to extend the license for a further five years.
The Company receives a license fee for each picture that is based on the
number of MovieVision's subscribers. The Company believes that the terms of
the agreement are no less favorable to the Company than those contained in its
licenses with unaffiliated licensees. See "Business--Pay and Free Television."
Seven has agreed to reimburse the Company for losses that the Company may
incur in connection with the distribution of Joey, an Australian film with
respect to which the Company has acquired distribution rights from an
unrelated third party.
OTHER
The Company has an exclusive producer overhead arrangement with Frank
Mancuso, Jr., the son of Mr. Mancuso, which expires on July 31, 2002. Mr.
Mancuso, Jr. receives $400,000 each year, subject to five to ten percent
annual increases, for overhead expenses, as well as a development fund and a
production fund to pay for the costs of developing and producing projects. Mr.
Mancuso, Jr. must submit all projects that he wishes to produce or develop to
the Company. Mr. Mancuso, Jr. receives a producing fee, as well as certain
participations and royalties, for each picture that is produced under the
arrangement. From January 1, 1996 to July 31, 1997 these fees, participations
and royalties (for movies produced by Mr. Mancuso, Jr. such as Species, Fled
and Hoodlum) have totalled approximately $2.2 million. The Company has the
right to acquire the domestic or worldwide rights to each picture produced
under the arrangement and controls all remake, sequel and television rights.
78
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have of the
Common Stock outstanding. The shares sold in the Offering will be
freely tradable without restriction under the Securities Act, except for any
such shares held at any time by an "affiliate" of the Company, as such term is
defined under Rule 144 promulgated under the Securities Act.
The shares of the Common Stock outstanding immediately prior the
consummation of the Offering were issued in private transactions and may be
publicly sold only if registered under the Securities Act or sold in
accordance with an applicable exemption from registration, such as Rule 144.
In general, under Rule 144, as currently in effect, a person who has
beneficially owned shares for at least one year, including an "affiliate," as
that term is defined in Rule 144, is entitled to sell, within any three-month
period, a number of "restricted" shares that does not exceed the greater of
one percent of the then outstanding shares of the Common Stock ( shares
immediately after the Offering) and the average weekly trading volume during
the four calendar weeks preceding such sale. Sales under Rule 144 are subject
to certain manner of sale limitations, notice requirements and the
availability of current public information about the Company. Rule 144(k)
provides that a person who is not deemed an "affiliate" and who has
beneficially owned shares for at least two years is entitled to sell such
shares at any time under Rule 144 without regard to the limitations described
above.
The Company has outstanding employee stock options to purchase an aggregate
of 124,936 shares of the Common Stock as of July 31, 1997. The shares issuable
upon the exercise of such options will be "restricted" shares for Rule 144
purposes until such time as the Company registers such shares under the
Securities Act. The Company has undertaken to register the shares of the
Common Stock issuable upon exercise of employee stock options within six
months following completion of the Offering. See "Management--Incentive and
Bonus Plans--1996 Incentive Plan" and "Ownership of Voting Securities--
Shareholders Agreement--Form S-8." The Company also has outstanding options to
purchase an aggregate of 7,500 shares of the Common Stock, which options are
held by Tracinda and Celsus. See "Certain Transactions--Stock Option Grants
and Reimbursement of Fees to Tracinda and Celsus in Connection with the MGM
Acquisition."
The parties to the Shareholders Agreement, who in the aggregate held all of
the outstanding shares of Common Stock as of July 31, 1997, have been granted
certain registration rights with respect to shares of the Common Stock in
connection with this Offering by the Company and in connection with certain
future public offerings effected by the Company, Seven, Tracinda and each of
the Executives have waived their registration rights with respect to the
Offering. See "Ownership of Voting Securities--Shareholders Agreement."
The Company, Tracinda, Seven and each of the Executives will agree with the
Underwriters not to sell or otherwise dispose of any shares of the Common
Stock for a period of 180 days from the date of this Prospectus without the
prior written consent of Merrill Lynch.
The Company is unable to estimate the number of shares that may be sold in
the future by the existing stockholders or the effect, if any, that sales of
shares by such stockholders will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of the Common Stock
by such stockholders could adversely affect prevailing market prices. See
"Risk Factors--Shares Eligible for Future Sale."
79
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"U.S. Purchase Agreement"), the Company has agreed to sell to each of the
Underwriters named below (the "U.S. Underwriters"), and each of the U.S.
Underwriters, for whom Merrill Lynch and J.P. Morgan Securities Inc. are
acting as representatives (the "U.S. Representatives"), severally has agreed
to purchase, the number of shares of the Common Stock set forth opposite its
name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Merrill Lynch, Pierce Fenner & Smith
Incorporated.......................................................
J.P. Morgan Securities Inc. .......................................
-------
Total.........................................................
=======
</TABLE>
The Company has also entered into a purchase agreement (the "International
Purchase Agreement" and, together with the U.S. Purchase Agreement, the
"Purchase Agreements") with certain Underwriters outside the United States and
Canada (the "International Underwriters"), for whom Merrill Lynch
International and J.P. Morgan Securities Ltd. are acting as representatives
(the "International Representatives" and, together with the U.S.
Representatives, the "Representatives"). Subject to the terms and conditions
set forth in the International Purchase Agreement, the Company has agreed to
sell to the International Underwriters, and the International Underwriters
have severally agreed to purchase from the Company, an aggregate of
shares of the Common Stock.
In each Purchase Agreement, the Underwriters named therein have agreed,
subject to the terms and conditions set forth in such Purchase Agreement, to
purchase all of the shares of the Common Stock being sold pursuant to such
Purchase Agreement if any of the shares of the Common Stock being sold
pursuant to such Purchase Agreement are purchased. Under certain circumstances
under the Purchase Agreements, the purchase commitments of non-defaulting
Underwriters may be increased. Each Purchase Agreement provides that the
Company is not obligated to sell, and the Underwriters named therein are not
obligated to purchase, the shares of the Common Stock under the terms of such
Purchase Agreement unless all of the shares of the Common Stock to be sold
pursuant to such Purchase Agreement are contemporaneously sold. The sale of
shares of the Common Stock to the U.S. Underwriters and the sale of shares of
the Common Stock to the International Underwriters are conditioned on each
other.
The U.S. Representatives have advised the Company that the U.S. Underwriters
propose to offer the shares of the Common Stock to the public initially at the
public offering price set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of $ per
share of the Common Stock, and that the U.S. Underwriters may allow, and such
dealers may reallow, a discount not in excess of $ per share of the Common
Stock on sales to certain other dealers. After the initial public offering,
the public offering price, concession and discount may be changed.
80
<PAGE>
The initial public offering price per share of the Common Stock and the
underwriting discount per share of Common Stock are identical under the U.S.
Purchase Agreement and the International Purchase Agreement.
The Company has been informed that the Underwriters have entered into an
agreement (the "Intersyndicate Agreement") providing for the coordination of
their activities. Pursuant to the Intersyndicate Agreement, the U.S.
Underwriters and the International Underwriters are permitted to sell shares
of the Common Stock to each other.
Each of the Company, Tracinda, Seven and each of the Executives has agreed
not to sell, offer to sell, grant any options for the sale of, or otherwise
dispose of, any shares of the Common Stock or securities convertible into or
exchangeable or exercisable for the Common Stock (other than, in the case of
the Company, sales pursuant to the exercise of the outstanding options) for a
period of 180 days after the date of this Prospectus without the prior written
consent of Merrill Lynch, subject to certain limited exceptions included in
the Purchase Agreements.
The Company has been informed that, under the terms of the Intersyndicate
Agreement, the U.S. Underwriters and any dealer to whom they sell shares of
the Common Stock will not offer to sell or resell shares of the Common Stock
to persons who are non-U.S. or non-Canadian persons, or to persons they
believe intend to resell to persons who are non-U.S. or non-Canadian persons,
and the International Underwriters and any bank, broker, or dealer to whom
they sell shares of the Common Stock will not offer to sell or resell shares
of the Common Stock to U.S. persons or to Canadian persons or to persons they
believe intend to resell to U.S. persons or to Canadian persons, except in the
case of transactions pursuant to the Intersyndicate Agreement which, among
other things, permits the Underwriters to purchase from each other and to
offer to resell such number of shares of the Common Stock as the selling
Underwriter or Underwriters and the purchasing Underwriter or Underwriters may
agree.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Underwriters may be required to make in respect thereof.
Application will be made to list the Common Stock for quotation on the NYSE
under the symbol "MGM."
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Common Stock. As
an exception to these rules, the Underwriters are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering, i.e., if they sell more shares of the Common
Stock than are set forth on the cover page of this Prospectus, the
Underwriters may reduce that short position by purchasing shares of the Common
Stock in the open market.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of the Common Stock in the open market to reduce the Underwriters'
short position or to stabilize the price of the Common Stock, they may reclaim
the amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offering.
In general, purchases of shares of the Common Stock for the purpose of
stabilization or to reduce a short position could cause the price of the
Common Stock to be higher than it might be in the absence of such purchases.
The imposition of a penalty bid might also have an effect on the price of the
Common Stock to the extent that it were to discourage resales of the Common
Stock.
81
<PAGE>
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
Prior to the Offering, there has been no public market for the shares of the
Common Stock. The initial public offering price of the Common Stock will be
determined through negotiations between the Company and the Representatives.
Among the factors that will be considered in such negotiations, in addition to
prevailing market conditions, will be the current market valuations of
publicly traded companies that the Company and Representatives believe to be
reasonably comparable to the Company, certain financial information of the
Company, the history of, and the prospects for, the Company and the industry
in which the Company will compete, an assessment of the Company's management,
the past and present operations of the Company, the prospects for, and timing
of, future revenues of the Company, the present state of the Company's
development, and the above factors in relation to market values and various
valuation measures of other companies engaged in activities similar to the
Company. There can be no assurance that an active trading market will develop
for the Common Stock or that the Common Stock will trade in the public market
subsequent to the Offering at or above the initial public offering price.
The U.S. Underwriters and the International Underwriters have informed the
Company that they do not intend to confirm sales of the shares of the Common
Stock offered hereby to any accounts over which they exercise discretionary
authority.
Certain affiliates of J.P. Morgan Securities Inc. and Merrill Lynch have
been engaged from time to time (including, in the case of J.P. Morgan
Securities Inc., at the present time), and may in the future be engaged, to
perform banking, advisory-related and/or other services to the Company and its
affiliates in the ordinary course of business. In connection with rendering
such services, such Underwriters receive customary compensation, including
reimbursement of related expenses.
82
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of the Common Stock offered
hereby will be passed upon for the Company by Gibson, Dunn & Crutcher LLP, Los
Angeles, California. Certain matters in connection with the offering will be
passed upon for the Underwriters by O'Melveny & Myers LLP, Los Angeles,
California, which represents the Company with respect to unrelated matters,
and may continue to do so in the future.
EXPERTS
The Audited Consolidated Financial Statements of the Company for the period
from October 11 to December 31, 1996 and the Consolidated Financial Statements
of MGM Studios for the period from January 1 to October 10, 1996 included in
this prospectus and elsewhere in the registration statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports. The Consolidated
Financial Statements of MGM Studios for the years ended December 31, 1994 and
1995 were audited by Price Waterhouse LLP, independent public accountants, as
stated in their report appearing herein. The Consolidated Financial Statements
of MGM for the years ended December 31, 1992 and 1993 were audited by KPMG
Peat Marwick LLP, independent auditors. The consolidated financial statements
of Orion Pictures Corporation and subsidiaries as of December 31, 1996 and for
the year then ended have been included herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (of which
this Prospectus is a part) on Form S-1 under the Securities Act, with respect
to the Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the content
of any contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference and the exhibits and schedules
thereto. The Registration Statement, including the exhibits and schedules
thereto, as well as reports, proxy and information statements and other
information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Commission at its principal office
located at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549,
the New York Regional Office located at 75 Park Place, New York, New York
10007, and the Chicago Regional Office located at Northwest Atrium Center, 500
West Madison Street, Room 1204, Chicago, Illinois 60661-2511, and copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Electronics filings made by the Company through the Commission's
Electronic Data Gathering, Analysis and Retrieval System are publicly
available through the Commission's World Wide Web site (http://www.sec.gov),
which contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. Upon
listing on the NYSE, reports and other information concerning the Company can
also be inspected at the offices of the NYSE, 20 Broad Street, New York, New
York 10005.
83
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
METRO-GOLDWYN-MAYER INC.
SUCCESSOR CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and June 30, 1997
(Unaudited)............................................................ F-3
Consolidated Statements of Operations for the Period From October 11,
1996 to December 31, 1996 and for the Six Months Ended June 30, 1997
and 1996 (Unaudited)................................................... F-4
Consolidated Statements of Stockholders' Equity for the Period From
October 11, 1996 to December 31, 1996 and for the Six Months Ended June
30, 1997 (Unaudited)................................................... F-5
Consolidated Statements of Cash Flows for the Period From October 11,
1996 to December 31, 1996 and for the Six Months Ended June 30, 1997
and 1996 (Unaudited)................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
METRO-GOLDWYN-MAYER STUDIOS INC.
PREDECESSOR CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants................................ F-23
Report of Independent Public Accountants................................ F-24
Consolidated Balance Sheets as of October 10, 1996 and December 31,
1995................................................................... F-25
Consolidated Statements of Operations for the Period From January 1,
1996 to October 10, 1996 and for the Years Ended December 31, 1995 and
1994................................................................... F-26
Consolidated Statements of Stockholder's Equity for the Period From
January 1, 1996 to October 10, 1996 and for the Years Ended December
31, 1995 and 1994...................................................... F-27
Consolidated Statements of Cash Flows for the Period From January 1,
1996 to October 10, 1996 and for the Years Ended December 31, 1995 and
1994................................................................... F-28
Notes to Consolidated Financial Statements.............................. F-29
ORION PICTURES CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants................................ F-41
Consolidated Balance Sheets as of December 31, 1996 and June 30, 1997
(Unaudited)............................................................ F-42
Consolidated Statements of Operations for the Year Ended December 31,
1996 and the Six Months Ended June 30, 1997 and 1996 (Unaudited)....... F-43
Consolidated Statements of Shareholder's Equity (Capital Deficiency) for
the Year Ended December 31, 1996 and for the Six Months Ended June 30,
1997 (Unaudited)....................................................... F-44
Consolidated Statements of Cash Flow for the Year Ended December 31,
1996 and for the Six Months Ended June 30, 1997 and 1996 (Unaudited)... F-45
Notes to Consolidated Financial Statements.............................. F-46
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
[To Metro-Goldwyn-Mayer Inc.:
After the recapitalization transactions discussed in Note 15 to the
Company's consolidated financial statements are effected, we expect to be in a
position to render the following audit report.
Arthur Andersen LLP
Los Angeles, California
February 25, 1997]
"REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Metro-Goldwyn-Mayer Inc.:
We have audited the accompanying consolidated balance sheet of Metro-
Goldwyn-Mayer Inc. (formerly known as P&F Acquisition Corp.) (a Delaware
corporation) and subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the period from October 11, 1996 (date of commencement of principal
operations) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Metro-
Goldwyn-Mayer Inc. and subsidiaries as of December 31, 1996, and the results
of their operations and their cash flows for the period from October 11, 1996
(date of commencement of principal operations) to December 31, 1996 in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Los Angeles, California
February 25, 1997 (except with
regard to the matters discussed
in Note 15, as to which the date
is )"
F-2
<PAGE>
METRO-GOLDWYN-MAYER INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents............................. $ 16,381 $ 20,255
Accounts and contracts receivable (net of allowance
for doubtful accounts of $11,728 and $11,730,
respectively)........................................ 271,106 150,920
Film and television costs, net........................ 1,099,201 1,263,073
Investments and advances to affiliates................ 16,107 7,858
Property and equipment, net........................... 27,347 29,411
Excess of cost over net assets of acquired businesses,
net.................................................. 302,741 298,920
Other assets.......................................... 41,785 36,137
---------- ----------
$1,774,668 $1,806,574
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Bank and other debt................................. $ 444,427 $ 566,258
Accounts payable and accrued liabilities............ 90,933 63,006
Accrued participants' share......................... 173,094 150,035
Income taxes payable................................ 29,269 37,749
Advances and deferred revenues...................... 104,516 83,548
Other liabilities................................... 29,307 29,270
---------- ----------
Total liabilities................................. 871,546 929,866
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value, 25,000,000 shares
authorized, 501,006 and 502,588 shares issued and
outstanding........................................ 5 5
Common Stock, $.01 par value, 50,000,000 shares
authorized, 400,805 and 402,070 shares issued and
outstanding........................................ 4 4
Additional paid-in capital.......................... 901,802 904,649
Retained earnings (deficit)......................... 166 (28,839)
Cumulative translation adjustment................... 1,145 889
---------- ----------
Stockholders' equity.............................. 903,122 876,708
---------- ----------
$1,774,668 $1,806,574
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-3
<PAGE>
METRO-GOLDWYN-MAYER INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
(SUCCESSOR) (SUCCESSOR) (PREDECESSOR)
OCTOBER 11 TO SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1996 1997 1996
------------- ---------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues...................................................................... $228,686 $351,014 $ 595,132
Expenses:
Film and television production and distribution............................. 195,076 317,912 607,908
General and administrative expenses......................................... 18,319 35,140 29,597
Goodwill amortization....................................................... 1,717 3,821 7,437
-------- -------- ---------
Total expenses............................................................ 215,112 356,873 644,942
-------- -------- ---------
Operating income (loss)....................................................... 13,574 (5,859) (49,810)
Other income (expense):
Interest expense, net of amounts capitalized................................ (9,875) (20,599) (45,086)
Interest and other income, net.............................................. 813 1,388 874
-------- -------- ---------
Total other expense....................................................... (9,062) (19,211) (44,212)
-------- -------- ---------
Income (loss) from operations before provision for income taxes............... 4,512 (25,070) (94,022)
Income tax provision.......................................................... (4,346) (3,935) (9,530)
-------- -------- ---------
Net income (loss)............................................................. $ 166 $(29,005) $(103,552)
======== ======== =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-4
<PAGE>
METRO-GOLDWYN-MAYER INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
PREFERRED
STOCK COMMON STOCK
------------- -------------
NUMBER NUMBER ADDITIONAL CUMULATIVE TOTAL
OF PAR OF PAR PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
SHARES VALUE SHARES VALUE CAPITAL EARNINGS ADJUSTMENT EQUITY
------- ----- ------- ----- ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BEGINNING BALANCE....... -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of Preferred
and Common Stock....... 501,006 5 400,805 4 901,802 -- -- 901,811
Foreign currency
translation adjustment. -- -- -- -- -- -- 1,145 1,145
Net income.............. -- -- -- -- -- 166 -- 166
------- ---- ------- ---- -------- -------- ------ --------
BALANCE DECEMBER 31,
1996................... 501,006 5 400,805 4 901,802 166 1,145 903,122
Issuance of Preferred
and Common Stock....... 1,582 -- 1,265 -- 2,847 -- -- 2,847
Foreign currency
translation adjustment. -- -- -- -- -- -- (256) (256)
Net loss................ -- -- -- -- -- (29,005) -- (29,005)
------- ---- ------- ---- -------- -------- ------ --------
BALANCE JUNE 30, 1997
(UNAUDITED)............ 502,588 $ 5 402,070 $ 4 $904,649 $(28,839) $ 889 $876,708
======= ==== ======= ==== ======== ======== ====== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-5
<PAGE>
METRO-GOLDWYN-MAYER INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
(SUCCESSOR) (PREDECESSOR)
(SUCCESSOR) SIX MONTHS SIX MONTHS
OCTOBER 11 TO ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1996 1997 1996
------------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Operating activities:
Net income (loss)................................................................... $ 166 $ (29,005) $(103,552)
Adjustments to reconcile net income from operations to net cash
provided by operating activities:
Amortization of film and television costs and participants' share................. 83,508 155,938 403,085
Depreciation and amortization of property and equipment........................... 1,418 3,230 2,992
Amortization of goodwill and deferred financing costs............................. 2,761 6,322 12,137
Reduction in goodwill due to realization of tax benefits.......................... 1,206 -- --
Losses (gains) on equity investments, net......................................... (2,592) 13,838 3,485
Decrease in accounts and contracts receivable and other assets.................... 12,895 122,268 40,436
Decrease in accounts payable, accrued and other liabilities, accrued participants'
share and domestic and foreign taxes............................................. (31,542) (92,631) (2,995)
Decrease in advances and deferred revenues........................................ (6,258) (20,968) (26,989)
Foreign currency exchange (gain) loss............................................. (234) 1,064 212
----------- --------- ---------
Net cash provided by operating activities....................................... 61,328 160,056 328,811
----------- --------- ---------
Investing activities:
Acquisition of Metro-Goldwyn-Mayer Studios Inc...................................... (1,331,430) -- --
Additions to film costs, net........................................................ (55,814) (269,722) (272,613)
Additions to property and equipment................................................. (2,079) (5,294) (5,291)
Other investing activities.......................................................... (1,538) (5,588) --
----------- --------- ---------
Net cash used in investing activities........................................... (1,390,861) (280,604) (277,904)
----------- --------- ---------
Financing activities:
Proceeds from issuance of Preferred and Common Stock................................ 901,811 2,847 --
Proceeds from debt issuance......................................................... 475,000 -- --
Net bank advances (repayments)...................................................... (31,417) 121,831 (50,829)
Dividends paid to parent............................................................ -- -- (4,159)
----------- --------- ---------
Net cash provided by financing activities....................................... 1,345,394 124,678 (54,988)
----------- --------- ---------
Net change in cash and cash equivalents from operating, investing and financing
activities........................................................................... 15,861 4,130 (4,081)
Net increase (decrease) in cash due to foreign currency fluctuations.................. 520 (256) (538)
----------- --------- ---------
Net change in cash and cash equivalents............................................... 16,381 3,874 (4,619)
Cash and cash equivalents at beginning of period...................................... -- 16,381 17,128
----------- --------- ---------
Cash and cash equivalents at end of the period........................................ $ 16,381 $ 20,255 $ 12,509
=========== ========= =========
</TABLE>
F-6
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
NOTE 1--BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying consolidated financial statements
include the accounts of Metro-Goldwyn-Mayer Inc. (formerly known as P&F
Acquisition Corp.) ("MGM"), and Metro-Goldwyn-Mayer Studios Inc. and its
majority owned subsidiaries ("MGM Studios") (collectively, the "Company"). MGM
is a Delaware corporation formed on July 10, 1996 specifically to acquire MGM
Studios. The acquisition of MGM Studios by MGM was completed on October 10,
1996 (see Notes 2 & 7), at which time MGM commenced principal operations.
Prior to its acquisition by MGM, MGM Studios was wholly owned by MGM Group
Holdings Corporation, an indirect wholly owned subsidiary of Consortium de
Realisation ("CDR"). CDR is a wholly owned subsidiary of Credit Lyonnais S.A.
and is controlled by the French State.
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.
Unaudited Information as of June 30, 1997 and 1996. The accompanying
consolidated financial statements as of June 30, 1997 and 1996 reflect all
adjustments which are, in the opinion of management, necessary for the fair
presentation of the financial statements for such interim periods. Such
adjustments consist only of normal recurring items. Interim results are not
necessarily indicative of results for a full year.
Business. The Company is engaged primarily in the development, production
and worldwide distribution of theatrical motion pictures and television
programs. The Company also distributes films produced or financed, in whole or
in part, by third parties.
Motion picture and television production and distribution is highly
speculative and inherently risky. There can be no assurance of the economic
success of such motion pictures and television programming since the revenues
derived form the production and distribution (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 a motion picture also depends upon the quality and
acceptance of other competing films 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 theatrical success of a motion picture is a very important
factor in generating revenues from such motion picture in other media.
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 substantial risk that some or all of the Company's motion picture
and television projects will not be commercially successful, resulting in
costs not being recouped or anticipated profits not being realized.
Principles of Consolidation. The consolidated financial statements include
the accounts of MGM, MGM Studios and all of its 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 (see Note 4). All
significant intercompany balances have been eliminated.
Cash and Cash Equivalents. The Company considers all highly liquid debt
instruments, purchased with an initial maturity of three months or less, to be
cash equivalents. Included in other assets at June 30, 1997 and December 31,
1996 is approximately $8,648,000 and $11,357,000, respectively, of cash
restricted by various
F-7
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
escrow agreements. The carrying value of the Company's cash equivalents
approximated cost at each balance sheet date.
Revenue Recognition. Revenues from theatrical distribution of feature films
are recognized on the dates of exhibition. Revenues from direct home video
distribution are recognized, net of an allowance for estimated returns,
together with related costs, in the period in which the product is available
for sale by the Company's customers. Revenues from television licensing,
together with related costs, are recognized when the feature film or
television program is available to the licensee for telecast. Long-term non-
interest-bearing receivables arising from licensing agreements are discounted
to present value.
Accounting for Film and Television Costs. Except for purchase accounting
adjustments, film costs include the costs of production, prints, pre-release
and other advertising expected to benefit future periods and capitalized
overhead and interest. These costs, as well as participations and talent
residuals, are charged against earnings on an individual film basis in the
ratio that the current year's gross film revenues bear to management's
estimate of total remaining ultimate gross film revenues from all sources. The
cost allocated to films revalued in purchase accounting is being amortized
over their estimated economic lives not to exceed 20 years.
Film costs are stated at the lower of cost or estimated net realizable value
on an individual film basis. Revenue and cost forecasts are continually
reviewed by management and revised when warranted by changing conditions. When
estimates of total revenues and costs indicate that a feature film or
television program will result in an ultimate loss, additional amortization is
recognized to the extent required to produce a zero gross margin over the
remaining life of the film or television program.
Property and Equipment. Except for purchase accounting adjustments, property
and equipment are stated at cost. Property and equipment acquired as part of
the acquisition of MGM Studios are 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 five years. Leasehold assets 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.
Goodwill. The excess cost of acquisition over the fair market values of
identifiable net assets acquired (goodwill) is 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 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 and 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. For the period from October 11, 1996 to December
31, 1996, goodwill was reduced by $1,206,000 due to the utilization of certain
tax assets not benefitted at the acquisition date. Accumulated amortization of
goodwill was $1,717,000 and $5,538,000 as of December 31, 1996 and June 30,
1997, respectively.
F-8
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
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 includes the enactment date.
Foreign Currency Translation. Generally, foreign subsidiary assets and
liabilities are translated into United States dollars at the exchange rates in
effect at the balance sheet date. Revenues and expenses of foreign
subsidiaries are translated into United States dollars at the average exchange
rates that prevailed during the period. The gains or losses that result from
this process are included as a component of the cumulative translation
adjustment balance in stockholders' equity. Foreign currency denominated
transactions are recorded at the exchange rate in effect at the time of
occurrence, and the gains or losses resulting from subsequent translation at
current exchange rates are included in the statement of operations.
Financial Instruments. The carrying values of short-term trade receivables
and payables approximate their estimated fair values because of the short
maturity of these instruments. The carrying values of receivables with
maturities greater than one year have been discounted at LIBOR plus 2.75%
(approximately 8.56% at June 30, 1997 and 8.38% at December 31, 1996), which
approximates current market rates.
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to
manage well-defined interest rate risks. The Company enters into interest rate
swaps to lower funding costs, to diversify sources of funding, or to alter
interest rate exposures arising from mismatches between assets and
liabilities. Interest rate swaps allow the Company to raise long-term
borrowings at floating rates and effectively swap them into fixed rates that
are lower than those available to the Company if fixed-rate borrowings were
made directly. Under interest rate swaps, the Company agrees with other
parties to exchange, at specified intervals, the difference between fixed-rate
and floating-rate interest amounts calculated by reference to an agreed
notional principal amount.
Premiums paid for purchased interest rate swap agreements are amortized to
interest expense over the terms of the swaps. Unamortized premiums are
included in other assets in the statement of financial position. Amounts
receivable under swap agreements are accrued as a reduction of interest
expense.
Accounts and Contracts Receivable. At December 31, 1996, accounts and
contracts receivable aggregated $282,834,000 (before allowance for doubtful
accounts), of which approximately $230,000,000 is due within one year.
Concentration of credit and geographic risk with respect to accounts
receivable is limited due to the large number and general dispersion of
accounts which constitute the Company's customer base. The Company performs
credit evaluations of its customers and in some instances requires collateral.
At December 31, 1996, approximately 27% of the Company's accounts and
contracts receivable arose from an exclusive home video servicing agreement
with Warner Home Video.
Use of Estimates in the Preparation of Financial Statements. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities. Management estimates ultimate
revenues and costs for feature films and television programs for each market
based on anticipated release patterns, public acceptance and historical
results for similar products. Actual results could differ from those
estimates.
F-9
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
New Accounting Pronouncements. In February 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 128, "Earnings Per Share" which is
effective for the Company's fiscal year ending December 31, 1997. The new
standard simplifies the computation of earnings per share (EPS) and increases
comparability to international standards. Under SFAS No. 128, primary EPS is
replaced by "Basic" EPS, which excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average number of
common shares outstanding for the period. "Diluted" EPS, which is computed
similarly to fully diluted EPS, reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure", which is effective for the Company's fiscal year
ending December 31, 1997. This statement establishes standards for disclosing
information about an entity's capital structure.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which is effective for the Company's fiscal year ending December 31,
1998. This statement establishes standards for the reporting and display of
comprehensive income and its components in financial statements and thereby
report a measure of all changes in equity of an enterprise that result from
transactions and other economic events other than transactions with owners.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of An
Enterprise and Related Information", which is effective for the Company's
fiscal year ending December 31, 1998. This statement changes the requirements
under which publicly held companies report disaggregated information.
The Company will adopt these statements on their respective effective dates.
The effect of these new accounting pronouncements has not yet been determined
by Management.
NOTE 2--ACQUISITION OF THE COMPANY
On October 10, 1996, MGM completed the acquisition of all the common stock
of MGM Studios (the "Acquisition") for a purchase price of $1,300,000,000 in
cash, plus payment of acquisition related costs of approximately $31,430,000.
In connection with an investment agreement (the "Investment Agreement")
between Mr. Frank Mancuso and an investor group comprised of Tracinda
Corporation ("Tracinda") and Seven Network Limited ("Seven") (collectively,
the "Investors") and MGM, Tracinda acquired $200,000,000 of the common stock
of MGM (the "Common Stock") and $450,000,000 of the Series A Cumulative
Convertible Preferred Stock of MGM (the "Preferred Stock"), and Seven acquired
$200,000,000 of the Common Stock and $50,000,000 of the Preferred Stock,
concurrent with the closing of the Acquisition. Also, in connection with the
acquisition Tracinda and Celsus Financial Corp., an entity wholly-owned by
Michael R. Gleason (a director of the Company), were each granted an option by
the Company to purchase 3,750 shares of the Common Stock at an exercise price
of $267 per share (the options expire on October 10, 2002) and reimbursed an
agreed-upon amount of $4,750,000 each for costs related to the Acquisition. In
addition, Tracinda and Seven may be required to purchase $60,000,000 in the
aggregate of equity of MGM upon the occurrence of certain events stipulated in
the $800,000,000 Senior Secured Credit Facilities established, in part, to
fund a portion of the acquisition of MGM Studios (see Note 6).
F-10
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
The Acquisition has been accounted for as a purchase. MGM Studios' 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>
<S> <C>
Accounts and contracts receivable............................. $ 291,550
Film and television costs..................................... 1,108,768
Other assets.................................................. 73,675
Excess of cost over net assets of acquired businesses......... 305,664
Liabilities assumed........................................... (448,227)
----------
Aggregate purchase price...................................... $1,331,430
==========
</TABLE>
The excess purchase price over the estimated fair value of the net assets
acquired is being amortized on a straight-line basis over 40 years.
The results of operations of MGM Studios have been included in the
consolidated statement of operations from October 11, 1996 (date of
commencement of principal activities) through December 31, 1996. The pro forma
results of operations for the year ended December 31, 1996 and six months
ended June 30, 1996 as if the Acquisition had occurred on January 1, 1996 are
as follows (in thousands, except share data):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
------------ --------
<S> <C> <C>
Revenues........................................... $1,141,392 $595,132
Operating loss..................................... $ (620,165) $(19,509)
Net loss........................................... $ (664,238) $(41,557)
</TABLE>
NOTE 3--FILM AND TELEVISION COSTS
Film and television costs, net of amortization, are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Theatrical productions:
Released....................................... $ 912,216 $ 859,427
Completed not released......................... -- 20,832
In process and development..................... 59,077 208,633
Television programming........................... 127,908 174,181
---------- ----------
$1,099,201 $1,263,073
========== ==========
</TABLE>
Interest costs capitalized to theatrical productions were $524,000 during
the period from October 11, 1996 to December 31, 1996, and $4,241,000 and
$3,437,000 for the six months ended June 30, 1997 and 1996, respectively.
Based on the Company's estimates of projected gross revenues as of December
31, 1996, approximately 60% of unamortized film costs applicable to released
theatrical films and released television programs will be amortized during the
five years ending December 31, 2001.
F-11
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
NOTE 4--INVESTMENTS
Distribution in foreign theatrical and certain pay television markets is
performed by United International Pictures B.V. ("UIP"), in which the Company
has a one-third interest. The Company's investment in UIP, which is included
in investments and advances to affiliates, is stated at cost plus equity in
undistributed earnings. The Company includes in its financial statements the
revenues and related costs associated with its films distributed by UIP. The
distribution fees paid to UIP by the Company are included in film and
television production and distribution expense. Due to timing differences
there are no taxable earnings and, therefore, there is no tax provision on
undistributed earnings. The Company's carrying value of its investment in UIP
at June 30, 1997 and at December 31, 1996 was $4,297,000 and $12,490,000,
respectively.
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Leasehold improvements......................... $ 13,691 $ 14,169
Furniture, fixtures and equipment.............. 15,074 19,890
-------- --------
28,765 34,059
Less accumulated depreciation and amortization. (1,418) (4,648)
-------- --------
$ 27,347 $ 29,411
======== ========
NOTE 6--BANK AND OTHER DEBT
Bank and other debt is summarized as follows (in thousands):
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Revolving Facility............................. $ 94,000 $215,000
Term Loans..................................... 349,750 349,250
Capitalized lease obligations and other
borrowings.................................... 677 2,008
-------- --------
$444,427 $566,258
======== ========
</TABLE>
Revolving Facility. In conjunction with the acquisition of MGM Studios (see
Note 2), on October 10, 1996 the Company obtained from a syndicate of banks a
$450,000,000 revolving credit facility (the "Revolving Facility") expiring on
August 31, 2001, subject to extension under certain conditions. Loans under
the Revolving Facility bear interest at 2.75% over the Adjusted LIBOR rate, as
defined (8.56% at June 30, 1997 and 8.38% at December 31, 1996). A commitment
fee of 0.5% per annum, adjustable under certain conditions, is charged on the
unused portion of the commitment.
Term Loans. In addition to the Revolving Facility, on October 10, 1996 the
Company obtained from the same syndicate of banks two term loans ("Term Loan
A" and "Term Loan B", or, collectively, the "Term Loans") aggregating
$350,000,000, which were used to partially finance the purchase of MGM
Studios. Term Loan A of $250,000,000 expires on September 30, 2002 and bears
interest at 2.75% over the Adjusted LIBOR
F-12
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
rate, as defined (8.56% at June 30, 1997 and 8.38% at December 31, 1996). Term
Loan B of $100,000,000 expires on March 31, 2004 and bears interest at 3.25%
over the Adjusted LIBOR rate, as defined (9.06% at June 30, 1997 and 8.88% at
December 31, 1996). Term Loan A requires quarterly principal payments of
$12,500,000 commencing December 1999 through September 2000, $18,750,000 from
December 2000 through September 2001, and $31,250,000 quarterly thereafter
through maturity. Term Loan B requires quarterly principal payments of
$250,000 commencing in December 1996 through September 2000, $1,750,000 from
December 2000 through September 2002, $10,250,000 from December 2002 through
September 2003, and $20,500,000 quarterly thereafter through maturity.
The Company has entered into three year fixed interest rate swap contracts
in relation to a portion of the Term Loans with a notional value of
$300,000,000 at an average rate of 8.9%. At December 31, 1996, the Company
would have to pay approximately $373,000 to terminate such swap contracts.
The Company's borrowings under the Revolving Facility and the Term Loans are
secured by substantially all the assets of the Company. The Revolving Facility
and Term Loans contain various covenants including limitations on dividends,
capital expenditures and indebtedness, and the maintenance of certain
financial ratios.
Lease and other borrowings. Capitalized lease obligations relate principally
to computer equipment financing at interest rates of approximately 10%.
Maturity schedule. Credit facilities, lease and other borrowings at December
31, 1996 are scheduled to mature as follows (in thousands):
<TABLE>
<S> <C>
1997............................................................ $ 1,637
1998............................................................ 1,021
1999............................................................ 13,519
2000............................................................ 152,750
2001............................................................ 94,500
Thereafter...................................................... 181,000
--------
$444,427
========
</TABLE>
NOTE 7--STOCKHOLDERS' EQUITY
Common Stock. The Company had 402,070 and 400,805 shares of the Common Stock
outstanding at June 30, 1997 and December 31, 1996, of which 400,680 shares
were issued for cash in connection with the initial capitalization of MGM (see
Note 2).
Preferred Stock. The Company had 502,588 and 501,006 shares of the Preferred
Stock outstanding at June 30, 1997 and December 31, 1996, of which 500,850
shares were issued for cash in connection with the initial capitalization of
MGM (see Note 2). The Preferred Stock has no voting rights until October 10,
2000. Thereafter, the holders of the Preferred Stock will vote with the
holders of the common stock, and each share of the Preferred Stock will have a
number of votes equal to the number of shares of the Common Stock into which
such Preferred Stock is convertible. Each share of the Preferred Stock is
convertible into a share of the Common Stock at any time at the election of
the holder, subject to certain limitations. The Preferred Stock is redeemable
at the option of MGM at any time of the earlier of (i) an underwritten initial
public offering of the Company's Common Stock and (ii) October 10, 2001. MGM
may redeem any or all shares of the Preferred Stock (pro rata from each holder
of the Preferred Stock subject to the conversion rights) by payment of the
liquidation value
F-13
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
(the "Liquidation Value"), as defined, plus any accrued but unpaid dividends.
The Preferred Stock accrues dividends beginning after October 1, 2001 at an
annual rate of 14.044% of the stated value of $1,000 per share (the "Stated
Value"), payable quarterly in arrears.
The Preferred Stock has a Liquidation Value per share equal to the greater
of the accreted stated value (the "Accreted Stated Value") plus unpaid
dividends; or 75% of the amount such holder would have been entitled to with
respect to each share of the Preferred Stock in connection with any such
dissolution, liquidation or winding-up of the Company had such holder
converted the Preferred Stock into the Common Stock. The term Accreted Stated
Value with respect to any share of the Preferred Stock is defined as the
Stated Value of $1,000 plus an amount equal to 9% per annum of the Stated
Value compounded quarterly from October 11, 1996 through October 1, 2001.
The Liquidation Value per share of the Preferred Stock was $1,020 as of
December 31, 1996 and $1,066 as of June 30, 1997.
Stock Option & Bonus Plan. The 1996 Management Stock Option and Bonus Plan
(the "Plan") adopted on October 10, 1996 provides for the granting of non-
qualified stock options to purchase shares of MGM capital stock to officers
and executives responsible for the direction and management of the Company.
Each option granted affords the holder the right to acquire 4/9ths of one
share of the Common Stock and 5/9ths of one share of the Preferred Stock,
exercisable only as a unit. All options will be designated as either Series A
Options or Series B Options (the "Options"). Each employee receiving Series A
Options shall also receive an equal number of bonus interests (the "Bonus
Interests") which entitles the holder to $930 per Bonus Interest if the equity
value of the Company exceeds a defined amount. The total potential value of
the available Bonus Interests is approximately $65,000,000. The Company is
accruing the potential value of the available Bonus Interests ratably over the
five years ending October 1, 2001. Compensation expense of $2,921,000 and
$6,500,000 relating to this plan was charged to income for the period from
October 11, 1996 to December 31, 1996 and the six months ended June 30, 1997,
respectively.
The Plan provides that the Options and Bonus Interests vest at a rate of 20%
per year from the date of the grant. The Options expire on October 1, 2006 or,
if a significant public offering has not occurred by October 1, 2006, then the
Options expire on May 15, 2007. The Bonus Interests expire on May 15, 2007. No
Options or Bonus Interests shall be granted after October 1, 2001 or, if
earlier, immediately prior to designated change in control, as defined. Each
vested Option may be exercised on or after October 1, 2001 through their
expiration date, unless a significant public offering occurs prior to October
1, 2001 in which case the Options are exercisable six months from such date,
or earlier as provided in the Plan. If a significant public offering of the
Company's equity has not taken place, participants may exercise vested Options
during the period from April 15 through May 15 of each of the years 2002
through and including 2007 and require the Company to repurchase the
underlying Preferred Stock and Common Stock required from such exercise at
fair market value. Compensation expense based on the increase in the market
value of the Options and the Bonus Interests since the date of grant will be
amortized over the vesting period. No Options or Bonus Interests were vested
as of December 31, 1996.
F-14
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
Stock option transactions as of December 31, 1996 and June 30, 1997 under
the plan were as follows:
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
--------------------- ---------------------
SERIES A SERIES B SERIES A SERIES B
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance as of October 11, 1996. -- -- -- --
Granted...................... 9,311 10,224 11,638 12,781
---------- ---------- ---------- ----------
Balance as of December 31,
1996.......................... 9,311 10,224 11,638 12,781
Granted...................... 11,203 12,303 14,005 15,380
---------- ---------- ---------- ----------
Balance as of June 30, 1997.... 20,514 22,527 25,643 28,161
========== ========== ========== ==========
Number of shares authorized for
grant......................... 31,035 34,081 38,794 42,602
========== ========== ========== ==========
Exercise Price................. $ 1,000 $ 3,268 $ 1,000 $ 3,268
========== ========== ========== ==========
Weighted average remaining
contractual life
As of December 31, 1996...... 5.5 years 5.5 years 5.5 years 5.5 years
========== ========== ========== ==========
As of June 30, 1997.......... 4.86 years 4.86 years 4.86 years 4.86 years
========== ========== ========== ==========
</TABLE>
No Options were exercisable as of December 31, 1996 and June 30, 1997.
The Company applies Accounting Principles Board ("APB") Opinion No. 25,
"Accounting For Stock Issued to Employees," and related interpretations in
accounting for its plans. Had compensation cost for these plans been
determined consistent with FASB Statement No. 123, the Company's net income
(loss) would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
SIX MONTHS
OCTOBER 11 TO ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------- ----------
<S> <C> <C>
Net income (loss):
As reported................................... $166 $(29,005)
Pro forma..................................... (15) (29,955)
</TABLE>
The fair value of each option grant was estimated using the Black-Scholes
model based on the following assumptions: the weighted average fair value of
each of the Series A and Series B Options granted in the six months ended June
30, 1997 was $273 and $0, respectively, and the weighted average fair value of
each of the Series A and Series B Options granted in 1996 was $289 and $0,
respectively. The dividend yield and expected volatility was 0% for both
periods. Also, the calculation uses an expected life of 5.5 years and 5 years
respectively, from the period from October 11, 1996 through December 31, 1996
and the six months ended June 30, 1997, respectively, and an assumed risk-free
interest rate of 6.2% and 6.4%, respectively, from the period from October 11,
1996 through December 31, 1996 and the six months ended June 30, 1997,
respectively.
NOTE 8--INCOME TAXES
The Company's domestic and foreign tax liability balances consist of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Current..................................................... $29,269
Deferred.................................................... --
-------
$29,269
=======
</TABLE>
F-15
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
For tax purposes, the historical tax basis of the assets and liabilities of
MGM Studios has been retained following MGM Studio's acquisition by MGM. The
tax effects of temporary differences between book value and tax basis of
assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
-------------
<S> <C>
Deferred tax assets:
Film and television costs................................. $ 6,594
Film revenue.............................................. 4,444
Participations and residuals payable...................... 15,574
Reserves and investments.................................. 50,521
Net miscellaneous tax assets.............................. 25,368
Operating loss carryforwards.............................. 4,564
---------
Subtotal gross tax assets............................... 107,065
Valuation allowance....................................... (107,065)
---------
Total tax assets...................................... --
Deferred tax liabilities.................................. --
---------
Net deferred tax asset.................................... $ --
=========
As of December 31, 1996, the Company and its subsidiaries had a net operating
loss ("NOL") carryforward of $11,702,000, which expires in 2011. Presently, the
NOL carryforward is not limited in its utilization. However, pursuant to
Internal Revenue Code Section 382, "Limitation on Net Operating Loss
Carryforwards," the NOL may become subject to further limitation on its use
when there is a change of ownership of 50% or more by a 5% or more shareholder
during a three-year period.
At December 31, 1996, management has determined that $107,065,000 of deferred
tax assets do not satisfy the recognition criteria set forth in SFAS No. 109.
Accordingly, a valuation allowance has been recorded by the Company for this
amount. The net decrease in the valuation allowance attributable to activity
occurring after the ownership change described in Note 2 is reflected as an
adjustment to goodwill in accordance with purchase accounting.
Details of the provision for income taxes are as follows (in thousands):
<CAPTION>
OCTOBER 11 TO
DECEMBER 31,
1996
-------------
<S> <C>
Current taxes:
Foreign taxes............................................. $ 3,140
Deferred taxes:
Federal and state taxes................................... 6,055
Adjustment for change in valuation allowance.............. (4,849)
---------
Total tax provision....................................... $ 4,346
=========
</TABLE>
F-16
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
The following is a summary reconciliation of the effective tax rate to the
assumed federal tax rate:
<TABLE>
<CAPTION>
OCTOBER 11 TO
DECEMBER 31,
1996
-------------
<S> <C>
Assumed federal tax rate on pre-tax book income............ 35%
Goodwill and other permanent differences................... 14%
Foreign taxes, net of available federal tax benefit........ 45%
---
Effective tax rate......................................... 94%
===
</TABLE>
The Company has various foreign subsidiaries formed or acquired to produce
or distribute motion pictures outside the United States. In the opinion of
management, the earnings of these subsidiaries are not permanently invested
outside the United States. Pursuant to APB No. 23, "Accounting For Income
Taxes-Special Areas," tax expense has accordingly been provided for these
unremitted earnings.
Federal income tax returns for the periods ended through March 25, 1986 have
been examined by the Internal Revenue Service. In the opinion of management,
any adjustments which may result from the examination of subsequent periods
for which the Company is responsible will not have a material effect on the
Company's consolidated financial position or results of operations.
In accordance with APB No. 28 "Interim Financial Reporting," the provision
for taxes for the six months ended June 30, 1997 and 1996 have been calculated
using an estimated effective tax rate. The effective tax rate is based upon
projected results for a full fiscal year.
NOTE 9--RETIREMENT PLANS
The Company has a non-contributory retirement plan (the "Basic Plan")
covering substantially all regular full-time, non-union employees. Benefits
are based on years of service and compensation, as defined.
The following table summarizes the funded status of the Basic Plan (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Actuarial present value of benefit obligations (including
vested benefits of $7,427)................................... $ 8,469
=======
Projected benefit obligations................................. $ 9,913
Plan assets at fair value (primarily debt securities)......... 8,403
-------
Projected benefit obligations in excess of plan assets........ (1,510)
Unrecognized net asset as of beginning of year................ (180)
Unrecognized net loss......................................... 505
Unrecognized prior service cost............................... (177)
-------
Accrued pension liability..................................... $(1,362)
=======
Key assumptions used in the actuarial computations were as follows:
Discount rate................................................. 7.50%
=======
Long-term rate of return on assets............................ 7.25%
=======
Rate of increase in future compensation levels................ 5.00%
=======
</TABLE>
F-17
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
The unrecognized net asset is being amortized over the estimated remaining
service life of 19.4 years. Domestic pension benefits and expense were
determined under the entry age actuarial cost method.
Pension costs includes the following components (in thousands):
<TABLE>
<CAPTION>
OCTOBER 11 TO
DECEMBER 31,
1996
-------------
<S> <C>
Service cost............................................... $ 244
Interest cost on projected benefit obligation.............. 163
Actual loss on plan assets................................. 224
Net amortization and deferral.............................. (330)
-----
Net periodic pension cost.................................. $ 301
=====
</TABLE>
A significant number of the Company's production employees are covered by
union sponsored, collectively bargained multi-employer pension plans. The
Company contributed approximately $2,824,000 for such plans in the period from
October 11, 1996 to December 31, 1996. Information from the plans'
administrators is not sufficient to permit the Company to determine its share
of unfunded vested benefits, if any.
The Company also provides each of its employees, including its officers, who
have completed one year of service with the Company the opportunity to
participate in the MGM Savings Plan (the "Savings Plan"). Participants in the
Savings Plan may contribute a portion of their pre-tax compensation and after-
tax compensation (subject to certain limitations) into the Savings Plan. The
Company matches 100% of such employee contributions up to 4% of such
employee's eligible compensation. The employee contributions to the Savings
Plan and the earnings thereon are always 100% vested. The Company's matching
contributions and the earnings thereon vest 20% for each full year of service
with the Company and employees become 100% vested (i) after five years of
service with the Company, (ii) upon their total and permanent disability or
(iii) upon their death. The Company contributed approximately $219,000 to the
Savings Plan in the period from October 11, 1996 to December 31, 1996.
NOTE 10--RELATED PARTY TRANSACTIONS
In 1980 MGM Studios granted to MGM Grand, Inc. ("Grand Hotel") an exclusive
open-ended royalty-free license to use certain trademarks, tradenames and
logos in Grand Hotel's hotel/gaming business and other businesses that are not
entertainment-related. Tracinda owns the majority of the outstanding common
stock of Grand Hotel. During the period from October 11, 1996 to December 31,
1996 and for the six months ended June 30, 1997, the Company recognized
revenues of $70,000 and $90,000, respectively, under these agreements.
The Company sells to Grand Hotel, and certain of its affiliates, on a
wholesale basis merchandise such as baseball caps, clothing, keychains and
watches bearing the Company's trademarks and logos for resale to consumers in
retail shops located within Grand Hotel's hotels. Grand Hotel currently is the
Company's largest wholesale customer of the Company's merchandise and,
consequently, receives pricing discounts from the Company.
From time to time, the Company charters airplanes from Tracinda for use in
the Company's business. The Company believes that the terms of the charter
arrangements are no less favorable to the Company than those that could be
obtained from unrelated third parties. From October 10, 1996 to June 30, 1997,
the aggregate of the payments made to Tracinda for such charters was
approximately $10,000.
F-18
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
The Company has entered into various television license agreements with a
subsidiary of Seven providing for broadcast of the Company's films and
television programs in Australia. During the period from October 11, 1996 to
December 31, 1996 and for the six months ended June 30, 1997, the Company
recognized revenues of $1,055,000 and $2,395,000, respectively, under these
agreements. Management believes that the terms of these agreements are
consistent with the terms of comparable television license arrangements with
third parties.
The Company has entered into various agreements to develop and produce
certain films and television programs with Mr. Frank Mancuso, Jr., the son of
the Company's Chairman of the Board and Chief Executive Officer. Pursuant to
these agreements, the Company paid Mr. Mancuso, Jr. approximately $39,000
during the period from October 11, 1996 to December 31, 1996 and approximately
$351,000 for the six months ended June 30, 1997. The agreements provide for
additional producer fees and potential profit participations to be paid in the
future at terms consistent with comparable development and production
agreements with third parties.
On January 14, 1997, MGM Studios and Tracinda entered into an agreement to
share the proceeds from certain insurance claims relating to litigation which
arose prior to October 10, 1996. The potential insurance proceeds (if any) of
up to approximately $15,000,000 will be paid 65% to MGM Studios and 35% to
Tracinda based on the relative value of each company's respective claims, as
determined by the parties.
NOTE 11--FOREIGN OPERATIONS AND EXPORT SALES
The Company's foreign activities are principally motion picture and
television production and distribution in territories outside of the United
States and Canada. Net foreign assets of subsidiaries operating in foreign
countries are not material in relation to consolidated net assets.
Foreign export revenues are revenues earned from motion picture and
television films produced in the United States. Export revenues for the period
from October 11, 1996 to December 31, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
OCTOBER 11 TO
DECEMBER 31,
1996
-------------
<S> <C>
Europe..................................................... $62,298
Western Hemisphere......................................... 12,485
Other...................................................... 16,743
-------
$91,526
=======
</TABLE>
NOTE 12--COMMITMENTS AND CONTINGENCIES
Leases. The Company has operating leases for offices and equipment. Certain
property leases include provisions for increases over base year rents as well
as for escalation clauses for maintenance and other building operations. Rent
expense was approximately $2,936,000 for the period from October 11, 1996 to
December 31, 1996.
Employment Agreements. The Company has employment agreements with several
principal officers and employees. The agreements provide for minimum salary
levels as well as, in some cases, bonuses.
Creative Talent Agreements. The Company has entered into contractual
agreements for creative talent related to future film production. Such amounts
are scheduled to be paid through 1997.
F-19
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
Future minimum annual commitments under non-cancelable operating leases,
employment agreements, and creative talent agreements as of December 31, 1996
are as follows (in thousands):
<TABLE>
<S> <C>
1997......................................................... $ 34,585
1998......................................................... 38,643
1999......................................................... 35,717
2000......................................................... 30,406
2001......................................................... 21,102
Thereafter................................................... 12,291
--------
$172,744
========
</TABLE>
Litigation. The Company, together with other major companies in the filmed
entertainment industry, has been subject to numerous antitrust suits brought
by various motion picture exhibitors, producers and others. In addition,
various legal proceedings involving alleged breaches of contract, antitrust
violations, copyright infringement and other claims are now pending, which the
Company considers routine to its business activities.
In the opinion of Company management, any liability under pending litigation
is not material in relation to the Company's financial condition.
NOTE 13--SUPPLEMENTARY CASH FLOW INFORMATION
The Company paid interest, net of capitalized interest, of $7,103,000 during
the period from October 11, 1996 to December 31, 1996, and $14,743,000 and
$14,442,000 during the six months ended June 30, 1997 and 1996, respectively.
Income taxes paid were $922,000 during the period from October 11, 1996 to
December 31, 1996. The Company received net foreign remittance tax refunds of
$4,845,000 in the six months ended June 30, 1997 and paid income taxes of
$5,052,000 in the six months ended June 30, 1996.
NOTE 14--QUARTERLY FINANCIAL DATA (UNAUDITED)
Certain quarterly information is presented below (in thousands):
<TABLE>
<CAPTION>
FIRST SECOND
QUARTER QUARTER
OF 1997 OF 1997
-------- --------
<S> <C> <C>
Revenues............................................... $197,629 $153,385
Operating income (loss)................................ (1,084) (4,775)
Interest expense, net.................................. 11,016 9,583
Net income (loss)...................................... (14,193) (14,812)
</TABLE>
F-20
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
NOTE 15--RECAPITALIZATION
In , 1997, the Company effected a recapitalization pursuant to which the
Company (i) converted each share of the Preferred Stock into shares of the
Common Stock on a 1:1 basis and (ii) effected a 1: stock split. Share and
per share information have been retroactively restated for all periods
presented to reflect this recapitalization.
Primary earnings per share represents the per share income or loss
applicable to common stockholders and is computed based on the weighted
average number of common shares outstanding. When dilutive, stock options are
included as share equivalents using the treasury stock method. The number of
shares used in computing primary earnings (loss) per share was and
in the period from October 11, 1996 to December 31, 1996 and for the six
months ended June 30, 1997, respectively.
The per share computations for all periods presented reflect the assumed
conversion of the Preferred Stock. Fully dilutive weighted average shares were
in the period from October 11, 1996 to December 31, 1996. The earnings
(loss) per share of the Common Stock reflecting such recapitalization is as
follows:
<TABLE>
<CAPTION>
OCTOBER 11 TO SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------- ----------------
<S> <C> <C>
Primary..................................... $ $
Fully diluted............................... $ $
</TABLE>
NOTE 16--EVENTS SUBSEQUENT TO THE DATE OF THE AUDITORS REPORT (UNAUDITED)
On July 10, 1997, the Company acquired certain entertainment assets of
Metromedia International Group, Inc. (the "Orion Acquisition") for a total
purchase price of $573,000,000, consisting of $560,000,000 in cash and
$13,000,000 in assumed liabilities. In connection with the Orion Acquisition,
MGM issued 321,000 shares of the Common Stock to Tracinda for $321,000,000 and
39,000 shares of the Common Stock to Seven for $39,000,000. In addition, the
Company obtained a new $250,000,000 Senior Secured Credit Facility with a
syndicate of banks, consisting of a $200,000,000 term loan and a $50,000,000
revolving credit facility. The term loan and the revolving credit facility
bear interest at LIBOR plus 2.5% and mature on July 10, 2002. The Orion
Acquisition will be accounted for as a purchase.
In September 1997 the Company changed its name from P&F Acquisition Corp. to
Metro-Goldwyn-Mayer Inc.
In September 1997, the Company and its principal lenders agreed in principle
to amend and restate the Revolving Facility and Term Loans (see Note 6) into a
syndicated facility aggregating $1.3 billion, consisting of a six year $400
million revolving credit facility, increasing to $600 million upon
consummation of an initial public offering (the "Offering") (provided that the
gross proceeds of the Offering are at least $250 million), a $400 million
seven and one-half year term loan and a $300 million eight and one-half year
term loan (the "Amended Credit Facility"). The Amended Credit Facility also
contains provisions allowing, with the consent of the requisite lenders, for
an additional $200 million tranche, raising the amount of the Amended Credit
Facility to $1.5 billion. Proceeds drawn from the Amended Credit Facility will
be used to retire amounts outstanding under the Revolving Facility, Term Loans
and the Orion Credit Facility. Scheduled maturities of the term loans under
the Amended Credit Facility are $0 in 1998, $0 in 1999, $0 in 2000, $33
million in 2001, $73 million in 2002, $103 million in 2003, $103 million in
2004 and $103 million in 2005 with the remaining balance due at maturity. The
revolving facility portion of the Amended Credit Facility matures in October,
2003, subject to extension under certain conditions. The Amended Credit
Facility contains various covenants, including limitations on indebtedness,
dividends, capital expenditures, and maintenance of certain financial ratios.
F-21
<PAGE>
METRO-GOLDWYN-MAYER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 ARE UNAUDITED)
On September 9, 1997, the Company amended and restated (subject to the
consummation of the Offering) its Stock Option Plan (the "Restated Stock
Option Plan") and Bonus Plan (the "Restated Bonus Plan") discussed in Note 7.
The Restated Stock Option Plan will allow the Company to grant options to
purchase up to 195,000 shares of the Common Stock. Awards can be made in the
form of qualified or non-qualified options, incentive stock options,
restricted stock, or stock appreciation rights. The exercise price of the
awards and other terms will be determined by the Compensation Committee of the
Board of Directors.
The Restated Bonus Plan will grant employees previously granted Bonus
Interests under the former plan up to 58,095 Bonus Interests. The Bonus
Interests will entitle the holder to receive up to $1,000 per each Bonus
Interest held. The Bonus Interests will generally vest over a 5-year period
and expire on May 15, 2007. As a general rule, participants will be entitled
to receive an amount per Bonus Interest equal to $1,000 times a fraction, the
numerator of which is the amount by which the current fair market value of the
Common Stock is less than $2,000 per share and the denominator of which is
$1,000. Should the fair market value of the Common Stock be less than $1,000
or greater than $2,000, no amounts will be payable.
F-22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of Metro-Goldwyn-Mayer Studios Inc.
We have audited the accompanying consolidated balance sheet of Metro-
Goldwyn-Mayer Studios Inc. (formerly known as Metro-Goldwyn-Mayer Inc.) and
its subsidiaries (the "Company") as of October 10, 1996, and the related
consolidated statements of operations and equity and cash flows for the period
from January 1, 1996 to October 10, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Company as of October 10, 1996 and the results of their operations and their
cash flows for the period from January 1, 1996 to October 10, 1996 in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Los Angeles, California
December 16, 1996
F-23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Metro-Goldwyn-Mayer Studios Inc.
We have audited the accompanying consolidated balance sheet of Metro-Goldwyn-
Mayer Studios Inc. (formerly known as Metro-Goldwyn-Mayer Inc.), and its
subsidiaries (the "Company") as of December 31, 1995, and the related
consolidated statements of operations, stockholder's equity and of cash flows
for each of the two years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We have not audited the consolidated financial statements of the
Company and its subsidiaries for any period subsequent to December 31, 1995.
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 report dated February 29, 1996, we expressed an opinion that the 1995
financial statements did not fairly present financial position, results of
operations, and cash flows in conformity with generally accepted accounting
principles because the Company did not record executive compensation expense
relating to bonuses payable to certain of the Company's executives. These
bonuses, payable by the Company's sole shareholder, reflect the increase in
value of the Company during the period of these executives' employment, based
upon the amount realized by the sole shareholder upon the sale of the Company
in excess of a defined amount. As described in note 12, the Company has
restated the 1995 financial statements to conform with generally accepted
accounting principles. Accordingly, our present opinion on the 1995 financial
statements, as presented herein, is different from that expressed in our
previous report.
In our opinion, the consolidated financial statements audited by us present
fairly, in all material respects, the financial position of Metro-Goldwyn-
Mayer Studios Inc., and its subsidiaries at December 31, 1995, and the results
of their operations and their cash flows for each of the two years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Price Waterhouse LLP
Century City, California
February 29, 1996, except for the restatement
described in Note 12, as to which the date
is July 31, 1996
F-24
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
OCTOBER 10, DECEMBER 31,
1996 1995
----------- ------------
ASSETS
------
<S> <C> <C>
Cash and cash equivalents........................... $ 24,717 $ 17,128
Accounts and contracts receivable (net of allowance
for doubtful accounts of $12,718 and $18,479 in
1996 and 1995, respectively)....................... 291,550 255,444
Film and television costs, including film distribu-
tion organization, net............................. 1,006,402 1,565,438
Investments and advances to affiliates.............. 26,420 15,238
Property and equipment, net......................... 26,686 32,078
Trademarks, logos and excess of cost over net assets
of acquired businesses, net........................ 349,158 520,199
Other assets........................................ 19,301 34,729
----------- -----------
$ 1,744,234 $ 2,440,254
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Bank and other debt............................... $ 1,229,499 $ 1,217,316
Accounts payable and accrued liabilities.......... 84,379 112,521
Interest payable.................................. 72,079 76,859
Accrued participants' share....................... 170,257 140,316
Income taxes payable.............................. 27,313 58,900
Due to affiliate.................................. 11,900 --
Advances and deferred revenues.................... 110,774 161,973
Other liabilities................................. 38,033 12,870
----------- -----------
Total liabilities............................... 1,744,234 1,780,755
Commitments and contingencies
Stockholder's equity:
Common Stock, $1.00 par value, 1,000 shares
authorized, 10 shares issued and outstanding in
1996 and 1995.................................... 1 1
Additional paid-in capital........................ $ 2,222,133 $ 2,132,694
Cumulative translation adjustment................. (318) (413)
Accumulated deficit............................... (2,221,816) (1,472,783)
----------- -----------
Stockholder's equity............................ -- 659,499
----------- -----------
$ 1,744,234 $ 2,440,254
=========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-25
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED YEAR ENDED
OCTOBER 10, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues................................ $ 912,706 $ 860,971 $ 597,121
Expenses:
Film and television production and
distribution......................... 953,820 894,280 668,516
General and administrative............ 60,056 64,175 49,314
Goodwill amortization................. 11,570 14,876 14,876
Provision for impairment.............. 563,829 -- --
---------- --------- ---------
Total expenses...................... 1,589,275 973,331 732,706
---------- --------- ---------
Operating loss.......................... (676,569) (112,360) (135,585)
Other income (expense):
Interest expense, net of amounts
capitalized.......................... (71,375) (66,386) (33,860)
Interest and other income, net........ 3,179 10,372 2,070
---------- --------- ---------
Total other expense................. (68,196) (56,014) (31,790)
---------- --------- ---------
Loss from operations before provision
for income taxes....................... (744,765) (168,374) (167,375)
Income tax provision.................... (273) (935) (3,877)
---------- --------- ---------
Net loss................................ $ (745,038) $(169,309) $(171,252)
========== ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-26
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
COMMON STOCK
--------------- ADDITIONAL CUMULATIVE TOTAL
NUMBER OF PAR PAID-IN ACCUMULATED TRANSLATION STOCKHOLDER'S
SHARES VALUE CAPITAL DEFICIT ADJUSTMENT EQUITY
--------- ----- ---------- ----------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31,
1993................... 10 $ 1 $2,100,000 $(1,116,774) $ 1,380 $ 984,607
Foreign currency
translation adjustment. -- -- -- -- (1,090) (1,090)
Forgiveness of interest
payable to affiliate... -- -- 16,794 -- -- 16,794
Net loss................ -- -- -- (171,252) -- (171,252)
--- --- ---------- ----------- ------- ---------
BALANCE DECEMBER 31,
1994................... 10 1 2,116,794 (1,288,026) 290 829,059
Contributions received
from affiliate......... -- -- 15,900 -- -- 15,900
Dividends declared...... -- -- -- (15,448) -- (15,448)
Foreign currency
translation adjustment. -- -- -- -- (703) (703)
Net loss................ -- -- -- (169,309) -- (169,309)
--- --- ---------- ----------- ------- ---------
BALANCE DECEMBER 31,
1995................... 10 1 2,132,694 (1,472,783) (413) 659,499
Contributions received
from affiliate......... -- -- 89,439 -- -- 89,439
Dividends declared...... -- -- -- (3,995) -- (3,995)
Foreign currency
translation adjustment. -- -- -- -- 95 95
Net loss................ -- -- -- (745,038) -- (745,038)
--- --- ---------- ----------- ------- ---------
BALANCE OCTOBER 10,
1996................... 10 $1 $2,222,133 $(2,221,816) $ (318) $ --
=== === ========== =========== ======= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-27
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED YEAR ENDED
OCTOBER 10, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net loss.............................. $(745,038) $(169,309) $(171,252)
Adjustments to reconcile net loss from
operations to net cash provided by
operating activities:
Amortization of film and television
costs, film distribution
organization and participants'
share.............................. 608,704 628,420 434,354
Depreciation and amortization of
property and equipment............. 4,645 4,021 5,335
Provision for impairment and
amortization of intangibles........ 575,399 14,876 14,876
(Decrease) increase in bad debt and
other reserves..................... 430 (17,425) 3,266
Losses (gains) on equity
investments........................ (1,967) 1,620 (1,762)
Increase in accounts and contracts
receivable, advances to affiliates
and other assets................... (28,192) (65,454) (32,905)
Increase (decrease) in accounts
payable, accrued and other
liabilities, accrued participants'
share and domestic and foreign
taxes.............................. (19,970) 680 (8,967)
Decrease in advances and deferred
revenues........................... (51,199) (24,597) (27,458)
Foreign currency exchange (gain)
loss and other..................... 325 (1,175) 802
--------- --------- ---------
Net cash provided by operating
activities....................... 343,137 371,657 216,289
--------- --------- ---------
Investing activities:
Additions to film costs, net.......... (369,148) (701,436) (454,932)
Additions to property and equipment... (6,901) (9,376) (9,099)
Other investing activities............ (4,093) -- --
--------- --------- ---------
Net cash used in investing
activities....................... (380,142) (710,812) (464,031)
--------- --------- ---------
Financing activities:
Net bank advances..................... 51,012 340,148 251,918
Contribution received from parent..... -- 5,900 --
Dividends paid........................ (6,160) (13,283) --
Financing costs and other............. -- (4,736) (11,953)
--------- --------- ---------
Net cash provided by financing
activities....................... 44,852 328,029 239,965
--------- --------- ---------
Net change in cash and cash equivalents
from operating, investing and financing
activities............................. 7,847 (11,126) (7,777)
Net decrease in cash due to foreign
currency fluctuations.................. (258) (543) (199)
--------- --------- ---------
Net change in cash and cash equivalents. 7,589 (11,669) (7,976)
Cash and cash equivalents at beginning
of period.............................. 17,128 28,797 36,773
--------- --------- ---------
Cash and cash equivalents at end of the
period................................. $ 24,717 $ 17,128 $ 28,797
========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-28
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 10, 1996
NOTE 1--BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying consolidated financial statements
include the accounts of Metro-Goldwyn-Mayer Studios Inc. (formerly known as
Metro-Goldwyn-Mayer Inc.). and its majority-owned subsidiaries ("MGM Studios"
or "the Company"). The Company is wholly owned by MGM Group Holdings
Corporation ("MGM Group Holdings"), an indirect wholly owned subsidiary of
Consortium de Realisation ("CDR"). CDR is a wholly owned subsidiary of Credit
Lyonnais S.A. ("Credit Lyonnais") and is controlled by the French State. On
October 10, 1996, the Company was sold to an unaffiliated group of investors
(see Note 15). The sale transaction has not been reflected in the accompanying
historical financial statements, except to reduce certain long-lived assets to
their net realizable value (see Note 5).
As permitted by Statement of Financial Accounting Standards ("SFAS") No. 53,
"Financial Reporting by Producers and Distributors of Motion Pictures", the
Company has presented unclassified consolidated balance sheets. Certain
reclassifications have been made to amounts reported in prior periods to
conform with the current presentation.
Business. The Company is engaged in the financing, production and worldwide
distribution of theatrical motion pictures and television programming, as well
as new media and interactive products. The Company also distributes films
produced or financed, in whole or in part, by third parties.
Principles of Consolidation. The consolidated financial statements include
the accounts of MGM Studios and all of its 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 (see Note 4). All
significant intercompany balances and transactions have been eliminated.
Cash and Cash Equivalents. The Company considers all highly liquid debt
instruments, purchased with an initial maturity of three months or less, to be
cash equivalents. Included in other assets at October 10, 1996 and December
31, 1995 is approximately $12,774,000 and $12,354,000, respectively, of cash
restricted by various escrow agreements. The carrying value of the Company's
cash equivalents approximated cost at each balance sheet date.
Revenue Recognition. Revenues from theatrical distribution of feature films
are recognized on the dates of exhibition. Revenues from direct home video
distribution are recognized, net of an allowance for estimated returns,
together with related costs, in the period in which the product is available
for sale by the Company's customers. Revenues from television licensing,
together with related costs, are recognized when the feature film or
television program is available to the licensee for telecast. Generally,
feature films are first made available for home video release in a particular
territory six months after theatrical release in such territory; for pay
television, one year after theatrical release; for initial free television,
two to three years after theatrical release; and for syndication,
approximately three to five years after theatrical release. Long-term non-
interest-bearing receivables arising from licensing agreements are discounted
to present value.
Accounting for Film Costs. Except for purchase accounting adjustments, film
costs include the costs of production, prints, pre-release and other
advertising expected to benefit future periods and capitalized overhead and
interest. These costs, as well as participations and talent residuals, are
charged against earnings on an individual film basis in the ratio that the
current year's gross film revenues bear to management's estimate of total
remaining ultimate gross film revenues from all sources.
F-29
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Film costs are stated at the lower of cost or estimated net realizable value
on an individual film basis. Revenue and cost forecasts are continually
reviewed by management and revised when warranted by changing conditions. When
estimates of total revenues and costs indicate that a feature film or
television program will result in an ultimate loss, additional amortization is
recognized to the extent required to produce a zero gross margin over the
remaining life of the film or television program.
The film distribution organization is an intangible asset reflecting the
estimated value of the Company's investment in its worldwide distribution
organization; these costs are being amortized on a straight-line basis over 40
years. During the period ended October 10, 1996, the Company recorded a charge
of $404,409,000 to write off its remaining investment in the film distribution
organization (see Notes 2 and 5).
Property and equipment. Property and equipment are stated at cost.
Depreciation of property and equipment is computed under the straight-line
method over the expected useful lives of applicable assets, ranging from three
to five years. Amortization of leasehold assets is computed 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 and repairs and minor replacements are charged to expense
when incurred.
Trademarks, Logos and Goodwill. Trademarks, logos and the excess cost of
acquisitions over the fair market values of identifiable net assets acquired
(goodwill) are amortized over an estimated useful life of 40 years using the
straight-line method. During 1996, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for 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 and 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. Accordingly, the Company recorded a charge of
$159,420,000 to reduce the net realizable value of goodwill (see Note 5).
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 includes the enactment date.
From May 7, 1992 to October 10, 1996, the Company has been included in the
consolidated federal income tax return of MGM Holdings. The Company's income
tax provision has been computed on a separate return basis, modified to
allocate to MGM Studios the benefits calculated at the MGM Holdings level
which results from the Company's tax attributes. Foreign subsidiaries file
separate or consolidated returns depending on the statutes and elections
available in each foreign jurisdiction.
Foreign Currency Translation. Generally, foreign subsidiary assets and
liabilities are translated into United States dollars at the exchange rates in
effect at the balance sheet date. Revenues and expenses of foreign
subsidiaries are translated into United States dollars at the average exchange
rates that prevailed during the period. The gains or losses that result from
this process are included as a component of the cumulative translation
adjustment balance in stockholder's equity. Foreign currency denominated
transactions are recorded at the
F-30
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
exchange rate in effect at the time of occurrence, and the gains or losses
resulting from subsequent translation at current exchange rates are included
in the statement of operations.
Financial Instruments. The carrying values of short-term trade receivables
and payables approximate their estimated fair values because of the short
maturity of these instruments. The carrying values of receivables with
maturities greater than one year have been discounted at LIBOR plus 2.25%
(approximately 7.78% at October 10, 1996), which approximates current market
rates.
Accounts and Contracts Receivable. At October 10, 1996, accounts and
contracts receivable aggregated $304,268,000 (before allowance for doubtful
accounts), of which approximately $240,000,000 is due within one year.
Concentration of credit risk with respect to accounts receivable is limited
due to the large number and general dispersion of accounts which constitute
the Company's customer base. The Company performs credit evaluations of its
customers and in some instances requires collateral. At October 10, 1996 and
December 31, 1995, approximately 41% and 18%, respectively, of the Company's
accounts and contracts receivable arose from an exclusive home video
distribution agreement with Warner Home Video.
Use of Estimates in the Preparation of Financial Statements. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities. Management estimates ultimate
revenues and costs for feature films and television programs for each market
based on anticipated release patterns, public acceptance and historical
results for similar products. Actual results could differ from those
estimates.
NOTE 2--FILM AND TELEVISION COSTS, INCLUDING FILM DISTRIBUTION ORGANIZATION
Film costs, net of amortization, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
OCTOBER 10, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Theatrical productions:
Released.......................................... $ 796,715 $ 825,623
Completed not released............................ 25,782 --
In process and development........................ 72,678 210,955
Television programming.............................. 111,227 115,216
Film distribution organization...................... -- 413,644
---------- ----------
$1,006,402 $1,565,438
========== ==========
</TABLE>
Interest costs capitalized to theatrical productions were $4,112,000,
$21,498,000 and $7,022,000 during the period ended October 10, 1996 and the
years ended December 31, 1995 and 1994, respectively.
Based on the Company's estimates of projected gross revenues as of October
10, 1996, approximately 64% of unamortized film costs applicable to released
theatrical films and released television programs will be amortized during the
three years ending September 30, 1999.
NOTE 3--INVESTMENTS
Distribution of foreign theatrical and certain pay television product is
performed by United International Pictures B.V. ("UIP"), in which the Company
has a one-third interest. The Company's investment in UIP, which is included
in investments and advances to affiliates, is stated at cost plus equity in
undistributed earnings. The Company includes in its financial statements the
revenues and related costs associated with its films distributed
F-31
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
by UIP. The distribution fees paid to UIP by the Company are included in film
and television production and distribution expense. Due to timing differences
there are no taxable earnings and, therefore, there is no tax provision on
undistributed earnings. The Company's carrying value of its investment in UIP
at October 10, 1996 and December 31, 1995 was $9,898,000 and $10,008,000,
respectively.
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
OCTOBER 10, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Leasehold improvements.. $ 17,923 $ 22,867
Furniture, fixtures and
equipment.............. 50,490 50,082
---------- ----------
68,413 72,949
Less accumulated depre-
ciation and amortiza-
tion................... (41,727) (40,871)
---------- ----------
$ 26,686 $ 32,078
========== ==========
NOTE 5--IMPAIRMENT OF INTANGIBLE ASSETS
As discussed in Note 15, the Company was sold to an unaffiliated group of
investors effective on October 10, 1996. The proceeds from the sale of
$1,300,000,000 were insufficient to recover the net asset value of the Company
on the date of the disposition, and were insufficient to repay the bank debt
and related accrued interest due to Credit Lyonnais (see Note 6). In accordance
with SFAS No. 121, the Company recorded a charge of $404,409,000 to write off
its remaining investment in the film distribution organization (see Note 2) and
a charge of $159,420,000 to reduce its investment in goodwill to net realizable
value during the period ended October 10, 1996.
NOTE 6--BANK AND OTHER DEBT
Bank and other debt is summarized as follows (in thousands):
<CAPTION>
OCTOBER 10, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Senior Facility......... $ 390,000 $ 339,000
CL Facility............. 298,936 333,926
Term Loan............... 539,760 539,504
Capitalized lease obli-
gations and other
borrowings............. 803 4,886
---------- ----------
$1,229,499 $1,217,316
========== ==========
</TABLE>
Senior Facility. On September 16, 1994, the Company obtained from a
syndicate of banks a $450,000,000 senior secured credit facility, as amended
(the "Senior Facility"). Borrowings under the Senior Facility bear interest at
2.25% over the three-month LIBOR (7.78% at October 10, 1996), subject to
adjustment under certain conditions. Borrowings outstanding under the Senior
Facility prior to extinguishment (see Note 15) as of October 10, 1996 were
$390,000,000.
CL Facility. On September 14, 1994, the Company obtained a $400,000,000
credit facility (the "CL Facility") from Credit Lyonnais, a portion of which
was used to retire a previously outstanding $190,000,000 credit facility with
CLBN. Borrowings under the CL Facility bear interest at 0.25% over the three-
month LIBOR (5.78% at October 10, 1996). The principal amount outstanding at
October 10, 1996 prior to extinguishment (see Note 15) was $298,936,000.
F-32
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Term Loan. Prior to April, 1993, the Company was financed under two credit
facilities with CLBN (the "CLBN Facilities"). As of September 14, 1994, all of
the Company's outstanding borrowings under the CLBN Facilities, together with
accrued interest of $67,290,000, were converted into a term loan (the "Term
Loan"). The Term Loan bears interest at 0.25% over the three-month LIBOR
(5.78% at October 10, 1996). The principal amount outstanding at October 10,
1996 prior to extinguishment (see Note 15) was $539,760,000.
The Company's borrowings under the Senior Facility, the CL Facility and the
Term Loan are secured by all the assets of the Company. The security interests
under the CL Facility and the Term Loan are subordinate to the Senior
Facility. The Senior Facility contains various covenants including limitations
on dividends, capital expenditures and indebtedness, and the maintenance of
certain financial ratios.
The Senior Facility, CL Facility and Term Loan aggregating $1,379,797,000,
including accrued interest, were extinguished on October 10, 1996 upon the
sale of the Company (see Notes 7 and 15). At that time, the Company obtained
$800,000,000 in Senior Secured Credit Facilities to partially finance the
acquisition of the Company and to provide for ongoing operations of the
Company.
Lease and other borrowings. The capitalized lease obligations relate
principally to computer equipment financing at interest rates of approximately
10%.
Maturity schedule. Credit facilities, lease and other borrowings are
scheduled to mature as follows (in thousands):
<TABLE>
<S> <C>
October 10, 1996.................................................. $1,228,696
December 31, 1996................................................. 6
December 31, 1997................................................. 788
December 31, 1998................................................. 9
----------
$1,229,499
==========
</TABLE>
NOTE 7--STOCKHOLDER'S EQUITY
Capital Contributions. Pursuant to the terms of the sale of the Company, the
proceeds from the transaction were insufficient to repay the entire bank debt
and accrued interest due to Credit Lyonnais as of October 10, 1996.
Accordingly, the deficit of $79,798,000 has been accounted for as a
contribution of capital from the parent in the accompanying financial
statements.
Additionally, an affiliate of Credit Lyonnais has agreed to pay bonuses of
$19,641,000 to certain executives of the Company due upon the sale of the
Company (see Note 15). Accordingly, the Company has recorded compensation
expense and a corresponding contribution to capital of $9,641,000 during the
period ended October 10, 1996 and $10,000,000 during the year ended December
31, 1995, respectively.
Upon commencement of the CL Facility in 1994 (see Note 6), CLBN agreed to
waive $16,794,000 in accrued interest charges on the Company's credit
facilities for the period from January 1, 1994 through September 14, 1994.
Accordingly, the Company has included this amount as a contribution to paid-in
capital in the consolidated financial statements.
F-33
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--INCOME TAXES
The Company's domestic and foreign tax liability balances consist of the
following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 10, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Current............................................. $27,313 $58,900
Deferred............................................ -- --
------- -------
$27,313 $58,900
======= =======
</TABLE>
Prior to December 30, 1993, the assets and operations of the Company had
been held by MGM Group Holdings. On that date, pursuant to a financial
restructuring program approved by the Company's Board of Directors,
substantially all the assets and operations of MGM Group Holdings, other than
certain litigation claims and deferred tax assets, were transferred to the
Company. At the same time, the Company assumed all of the liabilities of MGM
Group Holdings other than (i) certain litigation liabilities; (ii) certain
deferred tax liabilities; and (iii) certain of the outstanding indebtedness of
MGM Group Holdings owing to General Bank Nederland N.V. (formerly Credit
Lyonnais Bank Nederland B.V. or "CLBN"), an affiliate of Credit Lyonnais.
Under the tax sharing agreement arising out of the restructuring, the Company
is deemed to have tax basis in the transferred assets and liabilities equal to
the book values at the date of the restructuring. The deferred tax liabilities
and assets for the temporary differences between book value and tax basis of
assets and liabilities transferred to the Company are recorded by MGM Group
Holdings.
Pursuant to the tax sharing agreement, the Company computes its income tax
provision and corresponding deferred tax liabilities and assets, net of a
valuation allowance, on a separate tax return basis, modified as discussed
above with respect to the tax basis of assets transferred in the
restructuring, and further modified to reflect the allocation to the Company
of any tax benefits recognized by the consolidated filing group to the extent
that the Company's losses in the current period reduce the current or deferred
income taxes payable.
Management believes certain of the Company's deferred tax assets are more
likely than not to be realized. For deferred tax assets which do not meet that
standard, a valuation allowance is applied. At October 10, 1996, management
has determined that $69,161,000 of deferred tax assets related to assets and
liabilities existing at the time of restructuring do not satisfy the
recognition criteria set forth in SFAS No. 109. Similarly, deferred tax assets
of $270,427,000 related to the period after the restructuring have been
determined not to satisfy the recognition criteria. Accordingly, a valuation
allowance has been recorded by the Company for these amounts.
F-34
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences between book value and tax bases of
assets and liabilities transferred to the Company in the restructuring (for
which the deferred tax benefits are recorded by MGM Group Holdings) are as
follows (in thousands):
<TABLE>
<CAPTION>
OCTOBER 10, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Deferred tax (assets):
Film revenue...................................... $ (25,678) $ (66,153)
Reserves/investments.............................. (86,872) (121,320)
Participations and residuals payable.............. (6,208) (8,174)
Net miscellaneous assets.......................... (6,707) (17,289)
--------- ---------
Subtotal gross tax (assets)..................... (125,465) (212,936)
Valuation allowance............................... 69,161 61,650
--------- ---------
Total tax (assets).............................. $ (56,304) $(151,286)
--------- ---------
Deferred tax liabilities:
Film distribution system.......................... $ -- $ 161,321
Film and television costs......................... 56,304 67,261
Net miscellaneous liabilities..................... -- --
--------- ---------
Total tax liabilities........................... $ 56,304 $ 228,582
--------- ---------
Net deferred tax liability.......................... $ -- $ 77,296
========= =========
The net operating loss carryforwards of MGM Group Holdings are in excess of
the net deferred tax liabilities for the temporary differences related to
assets and liabilities transferred to the Company.
The tax effects of temporary differences and carryforwards arising after the
restructuring date which give rise to deferred tax assets and liabilities for
1996 and 1995 are as follows (in thousands):
<CAPTION>
OCTOBER 10, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Deferred tax (assets):
Film and television costs......................... $(109,302) $ (33,526)
Miscellaneous liabilities......................... (53,425) (36,185)
Investment tax credit carryforwards............... (12,836) (16,575)
Net operating loss carryforwards.................. (116,417) (50,429)
--------- ---------
Subtotal gross tax (assets)..................... (291,980) (136,715)
Valuation allowance............................... 270,427 36,308
--------- ---------
Total tax (assets).............................. (21,553) (100,407)
Deferred tax liabilities
Film revenue...................................... 17,153 96,007
--------- ---------
Total tax liabilities........................... 17,153 96,007
--------- ---------
Net deferred tax (asset)............................ $ (4,400) $ (4,400)
========= =========
</TABLE>
Under the terms of the tax sharing agreement discussed above, the deductible
temporary differences of the Company which originate after the restructuring
date are available to be used against the deferred tax liability retained by
MGM Group Holdings.
F-35
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of October 10, 1996, the Company and its subsidiaries had net operating
loss carryforwards of $268,888,000, capital loss carryforwards of $29,616,000
and investment tax credit carryforwards of $12,836,000, before adjustments for
the effect of the tax sharing agreement, which expire through 2010. These
carryforwards are available for use in the U.S. consolidated tax return group,
of which the Company is a member, and are subject to the tax sharing agreement
between the Company and MGM Group Holdings. A portion of these losses are
subject to substantial limitations on utilization because of various income
tax rules.
Details of the provision for income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED YEAR ENDED
OCTOBER 10, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Current taxes:
Foreign taxes......................... $ 273 $ 935 $ 8,277
Deferred taxes:
Federal and state taxes (benefit)..... (241,630) 1,997 (26,130)
Adjustment for change in enacted tax
rate................................. -- -- --
Adjustment for change in valuation
allowance............................ 241,630 (1,997) 21,730
--------- ------- --------
Total tax provision................. $ 273 $ 935 $ 3,877
========= ======= ========
</TABLE>
Tax expense for 1994 reflects a $4,400,000 deferred tax benefit arising from
the carryforward and use by MGM Group Holdings of a portion of the Company's
current year net operating losses. As a result, the Company has recorded a
corresponding $4,400,000 receivable from MGM Group Holdings.
The following is a summary reconciliation of the effective tax rate to the
assumed federal tax rate:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED YEAR ENDED
OCTOBER 10, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Assumed federal tax rate on loss........ (35)% (35)% (35)%
Goodwill and other permanent
differences............................ 8 % 3 % 3 %
Foreign taxes, net of available federal
tax benefit............................ 1 % (2)% 5 %
Loss carryforward not benefited......... 27 % 35 % 29 %
--- --- ---
Effective tax rate.................... 1 % 1 % 2 %
=== === ===
</TABLE>
The Company has various foreign subsidiaries formed or acquired to produce
or distribute motion pictures outside the United States. In the opinion of
management, the earnings of these subsidiaries are not permanently invested
outside the United States. Pursuant to APB 23, tax expense has accordingly
been provided for these unremitted earnings.
Federal income tax returns for the periods ended through March 25, 1986 have
been examined by the Internal Revenue Service. In the opinion of management,
any adjustments which may result from the examination of subsequent periods
for which the Company is responsible will not have a material effect on the
Company's consolidated financial position or results of operations.
NOTE 9--RETIREMENT PLANS
The Company has a non-contributory retirement plan (the "Basic Plan")
covering substantially all regular full-time, non-union employees. Benefits
are based on years of service and compensation, as defined.
F-36
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the funded status of the Basic Plan (in
thousands):
<TABLE>
<CAPTION>
OCTOBER 10, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Actuarial present value of benefit obligations
(including vested benefits of $6,880
and $7,348, respectively)............................ $ 7,870 $ 8,030
======= =======
Projected benefit obligations......................... $ 9,182 $ 9,361
Plan assets at fair value (primarily debt securities). 8,700 6,287
------- -------
Projected benefit obligations in excess of plan
assets............................................... (482) (3,074)
Unrecognized net asset as of beginning of year........ (184) (200)
Unrecognized net (gain) loss.......................... (215) 1,359
Unrecognized prior service cost....................... (181) (191)
------- -------
Accrued pension liability............................. $(1,062) $(2,106)
======= =======
</TABLE>
Key assumptions used in the actuarial computations for the reported periods
were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Discount rate.................................................. 7.75% 7.00%
==== ====
Long-term rate of return on assets............................. 7.25% 7.25%
==== ====
Rate of increase in future compensation levels................. 5.00% 5.00%
==== ====
</TABLE>
The unrecognized net asset is being amortized over the estimated remaining
service life of 19.4 years. Domestic pension benefits and expense were
determined under the entry age actuarial cost method.
Pension costs includes the following components (in thousands):
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED YEAR ENDED
OCTOBER 10, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Service cost......................... $ 854 $ 658 $ 805
Interest cost on projected benefit
obligation.......................... 570 630 633
Actual return on plan assets......... (521) (797) 24
Net amortization and deferral........ 148 329 (529)
------ ----- -----
Net periodic pension cost............ $1,051 $ 820 $ 933
====== ===== =====
</TABLE>
A significant number of the Company's production employees are covered by
union sponsored, collectively bargained multi-employer pension plans. The
Company contributed approximately $5,775,000, $11,950,000 and $6,521,000 in
1996, 1995 and 1994, respectively, for such plans. Information from the plans'
administrators is not sufficient to permit the Company to determine its share
of unfunded vested benefits, if any.
NOTE 10--RELATED PARTY TRANSACTIONS
See Note 6 regarding the Company's credit arrangements with CLBN and Credit
Lyonnais (collectively, the "Bank").
Interest of approximately $45,000,000, $58,000,000 and $36,000,000 was
charged by the Bank during the period ended October 10, 1996 and the years
ended December 31, 1995 and 1994, respectively. Of the total
F-37
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
interest charged during 1994, the Bank waived $16,794,000 representing
interest on the Company's credit facilities for the period from January 1,
1994 through September 14, 1994 (see Note 7). Pursuant to the terms of its
credit facilities, the Company also paid to the Bank charges related to
letters of credit and other fees of approximately $19,000, $52,000 and
$278,000, respectively, during these periods.
The Company has entered into various agreements to develop and produce
certain films and television programs with Hometown Films Inc., an entity
controlled by Mr. Frank Mancuso, Jr., who is a relative of the Company's
Chairman of the Board and Chief Executive Officer. Pursuant to these
agreements, the Company paid Hometown Films Inc., approximately $1,582,000
during the period from January 1, 1996 to October 10, 1996 and approximately
$633,000 and $444,000 for the years ended December 31, 1995 and 1994,
respectively. The agreements provide for additional producer fees and
potential profit participations to be paid in the future at terms consistent
with comparable development and production agreements with third parties.
During the period ended October 10, 1996 and the years ended December 31,
1995 and 1994, the Company incurred legal fees of approximately $1,735,000,
$2,737,000 and $802,000, respectively, to White & Case, one of whose partners
is also a director of the Company.
NOTE 11--FOREIGN OPERATIONS AND EXPORT SALES
The Company's foreign activities are principally motion picture and
television production and distribution in territories outside of the United
States and Canada. Net foreign assets and income from subsidiaries operating
in foreign countries are not material in relation to consolidated net assets
or consolidated net loss.
Foreign export revenues are revenues earned from motion picture and
television films produced in the United States. Export revenues for the period
ended October 10, 1996 and the years ended December 31, 1995 and 1994 were as
follows (in thousands):
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED YEAR ENDED
OCTOBER 10, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Europe................................ $215,588 $223,830 $132,003
Western Hemisphere.................... 24,066 29,882 18,745
Other................................. 102,466 90,274 61,706
-------- -------- --------
$342,120 $343,986 $212,454
======== ======== ========
</TABLE>
NOTE 12--COMMITMENTS AND CONTINGENCIES
Leases. The Company has operating leases for offices and equipment. Certain
property leases include provisions for increases over base year rents as well
as for escalation clauses for maintenance and other building operations. Rent
expense was approximately $8,500,000, $8,630,000 and $8,008,000 for the period
ended October 10, 1996 and the years ended December 31, 1995, and 1994,
respectively.
F-38
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum rental commitments under non-cancelable operating leases as
of October 10, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1996.............................................................. $ 2,624
1997.............................................................. 10,242
1998.............................................................. 6,666
1999.............................................................. 10,808
2000.............................................................. 11,314
2001.............................................................. 7,437
Thereafter........................................................ 9,813
-------
$58,904
=======
</TABLE>
Employment Agreements. The Company has employment agreements with several
principal officers and employees. The agreements provide for minimum salary
levels as well as, in some cases, bonuses. In addition, the Company's
shareholder is obligated to pay bonuses to certain executives in the event the
value of the Company is eventually determined to exceed a defined amount.
Based on the sales price of the Company, as described in Note 14, this
incentive bonus amounted to $19,641,000. The Company has recorded compensation
expense and a corresponding contribution to capital of $9,641,000 for the
period ended October 10, 1996 and restated its financial statements for the
year ended December 31, 1995 by recording compensation expense and a
corresponding contribution to capital of $10,000,000. Certain executives are
entitled to terminate their employment agreements upon the sale of the
Company.
Creative Talent Agreements. The Company has entered into contractual
agreements for creative talent related to future film production which
aggregate approximately $9,449,000 at October 10, 1996. Such amounts are
scheduled to be paid through 1997.
Litigation. The Company, together with other major companies in the filmed
entertainment industry, has been subject to numerous antitrust suits brought
by various motion picture exhibitors, producers and others. In addition,
various legal proceedings involving alleged breaches of contract, antitrust
violations, copyright infringement and other claims are now pending, which the
Company considers routine to its business activities.
In the opinion of Company management, any liability under pending litigation
is not material in relation to the Company's results of operations.
NOTE 13--SUPPLEMENTARY CASH FLOW INFORMATION
Total interest paid, net of capitalized interest, was $29,490,000 and
$15,416,000 in the period ended October 10, 1996 and the years ended December
31, 1995, respectively. No interest was paid in 1994. Income taxes paid were
$17,856,000, $5,140,000 and $5,164,000 in the period ended October 10, 1996
and the years ended December 31, 1995 and 1994, respectively.
The Company recorded a non-cash contribution of capital of $9,641,000 during
the period ended October 10, 1996 and $10,000,000 during the year ended
December 31, 1995, respectively, from CDR due to the payment of compensation
expense (see Note 12).
F-39
<PAGE>
METRO-GOLDWYN-MAYER STUDIOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--QUARTERLY FINANCIAL DATA (UNAUDITED)
Certain quarterly information is presented below (in thousands):
<TABLE>
<CAPTION>
FIRST QUARTER OF SECOND QUARTER OF
----------------------------- ----------------------------
1996 1995 1994 1996 1995 1994
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 286,947 $156,804 $150,115 $308,185 $162,029 $106,613
Operating loss.......... (24,724) (27,144) (17,926) (25,086) (29,562) (44,197)
Interest expense, net... 22,361 13,014 5,699 22,725 15,256 6,600
Net loss................ (53,678) (38,716) (25,347) (49,874) (45,814) (50,787)
<CAPTION>
THIRD QUARTER OF FOURTH QUARTER OF
----------------------------- ------------------
1996 1995 1994 1995 1994
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 317,574 $206,239 $139,572 $335,845 $200,821
Operating loss.......... (626,759) (27,114) (34,938) (18,540) (38,524)
Interest expense, net... 26,289 17,281 9,378 20,835 12,183
Net loss................ (641,486) (46,048) (44,429) (28,731) (50,689)
</TABLE>
1996 Quarterly Results. The third quarter of 1996 includes the period from
July 1, 1996 to October 10, 1996, the date of the Acquisition. In the third
quarter of 1996, the Company recorded a charge of $563,829,000 to write off
its remaining investment in the film distribution organization and to reduce
its investment in goodwill to net realizable value (see Note 5).
The 1994 and 1995 interim financial information was not reviewed by the
Company's independent accountants in accordance with standards established for
such review.
NOTE 15--SUBSEQUENT EVENT
On October 10, 1996, CDR completed the sale of all of the Company's
outstanding stock to Metro-Goldwyn-Mayer Inc. (formerly P&F Acquisition Corp.)
an entity formed by Tracinda Corporation, Seven Network Limited and Mr. Frank
G. Mancuso, for $1,300,000,000. In connection with the sale of the Company,
Mr. Mancuso has entered into a new five year employment agreement to remain as
Chief Executive Officer and Chairman of the Board of Directors of the Company.
The acquisition price was financed with equity contributions of $900,000,000
and new bank debt of $400,000,000. The Company obtained $800,000,000 in Senior
Secured Credit Facilities to partially finance the acquisition of the Company
and to provide for ongoing operations of the Company. The Company's existing
bank debt, including the Senior Facility, the CL Facility and the Term Loan
(see Note 6), were extinguished upon the closing of the transaction. The
acquisition will be accounted for as a purchase.
F-40
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholder of Orion Pictures Corporation
We have audited the accompanying consolidated balance sheet of Orion
Pictures Corporation and its subsidiaries as of December 31, 1996, and the
related consolidated statements of operations, stockholder's equity (capital
deficiency) and cash flows for the year 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 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Orion
Pictures Corporation and subsidiaries as of December 31, 1996 and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Los Angeles, California
March 31, 1997
F-41
<PAGE>
ORION PICTURES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
------
Cash and cash equivalents............................. $ 2,922 $ 1,252
Accounts receivable, net.............................. 50,661 45,878
Film and television costs, net........................ 252,299 237,558
Property, plant and equipment, net.................... 38,470 39,287
Goodwill, net......................................... 132,139 129,439
Other assets.......................................... 13,797 12,901
--------- ---------
Total assets...................................... $ 490,288 $ 466,315
========= =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Liabilities:
Bank and other debt................................. $ 269,410 $ 292,434
Accounts payable and accrued expenses............... 35,489 38,082
Participations and residuals payable................ 62,916 56,657
Due to Parent....................................... 84,637 85,168
Deferred revenues................................... 64,912 64,829
--------- ---------
Total liabilities................................. 517,364 537,170
--------- ---------
Commitments and contingencies
Stockholder's equity (capital deficiency):
Common Stock, $.01 par value, authorized, issued and
outstanding 1,000 shares........................... -- --
Additional paid-in capital.......................... 350,774 350,774
Accumulated deficit................................. (377,850) (421,629)
--------- ---------
Total shareholder's equity (capital deficiency)... (27,076) (70,855)
--------- ---------
Total liabilities and shareholder's equity
(capital deficiency)............................. $ 490,288 $ 466,315
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-42
<PAGE>
ORION PICTURES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1996 1997 1996
------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues................................. $165,164 $ 90,910 $62,853
Costs and expenses:
Cost of rentals and operating expenses. 139,307 99,181 54,834
Selling, general, and administrative... 24,709 19,302 9,625
Depreciation and amortization.......... 5,555 4,984 596
-------- -------- -------
Operating loss........................... (4,407) (32,557) (2,202)
Interest expense......................... 17,166 11,019 6,823
Interest income.......................... (286) (197) (208)
-------- -------- -------
Interest expense, net.................. 16,880 10,822 6,615
Loss before extraordinary items and
provision for income taxes.............. (21,287) (43,379) (8,817)
Provision for income taxes............... 1,000 400 400
-------- -------- -------
Loss before extraordinary items.......... (22,287) (43,779) (9,217)
Extraordinary loss on extinguishment of
debt.................................... 4,505 -- --
-------- -------- -------
Net loss................................. $(26,792) $(43,779) $(9,217)
======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements
F-43
<PAGE>
ORION PICTURES CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (CAPITAL DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK
----------------
ADDITIONAL
NUMBER OF PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
--------- ------ ---------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1995........... 1,000 $-- $290,238 $(351,058)
Net loss............................... -- -- -- (26,792)
Contribution by parent of net assets of
Motion Picture Corporation of America. -- -- 20,801 --
Contribution by parent of net assets of
The Samuel Goldwyn Company............ -- -- 39,735 --
----- ---- -------- ---------
Balance at December 31, 1996........... 1,000 -- 350,774 (377,850)
Net loss............................... -- -- -- (43,779)
----- ---- -------- ---------
Balance at June 30, 1997 (unaudited)... 1,000 $-- $350,774 $(421,629)
===== ==== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements
F-44
<PAGE>
ORION PICTURES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1996 1997 1996
------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATIONS:
Net loss............................... $ (26,792) $(43,779) $ (9,217)
Adjustments to reconcile loss to cash
provided by operations:
Amortization of film costs........... 61,472 53,660 29,418
Amortization of discount on notes,
subordinated debt and guarantee..... 2,243 1,039 1,205
Depreciation and amortization........ 5,555 4,984 596
Loss on early extinguishment of debt. 4,505 -- --
Payroll charge due to restricted
stock............................... 528 532 --
(Increase) decrease in accounts
receivable.......................... 16,122 3,793 (499)
Increase (decrease) in accounts
payable............................. 219 (416) (1,047)
Increase (decrease) in accrued
expenses............................ 371 4,145 (2,243)
Accrual of participations and
residuals........................... 34,255 9,192 17,051
Payments of participations and
residuals........................... (27,364) (15,451) (8,141)
Decrease in deferred revenues........ (20,984) (83) (11,514)
--------- -------- --------
Cash provided by operations............ 50,130 17,616 15,609
--------- -------- --------
INVESTING ACTIVITIES:
Investment in film inventories......... (67,176) (38,919) (22,392)
Additions to property, plant and
equipment............................. (3,648) (3,252) (587)
Cash acquired, net of contributions
from parent........................... 843 -- 568
Other investing activities............. (4,370) 193 --
--------- -------- --------
Cash used in investment activities..... (74,351) (41,978) (22,411)
--------- -------- --------
FINANCING ACTIVITIES:
Additions to notes and subordinated
debt.................................. 307,658 36,200 30,400
Payments on notes and subordinated
debt.................................. (275,829) (13,508) (20,914)
Payments of deferred financing costs... (10,700) -- (7,912)
Increase (decrease) in due to/from
parent................................ (270) -- (220)
--------- -------- --------
Cash provided by financing activities.. 20,859 22,692 1,354
--------- -------- --------
Net decrease in cash..................... (3,362) (1,670) (5,448)
Cash and cash equivalents at beginning of
period.................................. 6,284 2,922 6,284
--------- -------- --------
Cash and cash equivalents at end of
period.................................. $ 2,922 $ 1,252 $ 836
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-45
<PAGE>
ORION PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 ARE UNAUDITED)
1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Orion Pictures Corporation, a Delaware corporation, and its subsidiaries, most
of which are wholly-owned (the "Company") and reflect the acquisitions of the
Samuel Goldwyn Company and the Motion Picture Corporation of America each
effective as of July 2, 1996.
As permitted by Statement of Financial Accounting Standards ("SFAS") No. 53,
"Financial Reporting by Producers and Distributors of Motion Pictures", the
Company has presented unclassified consolidated balance sheets as of December
31, 1996 and June 30, 1997. The Company is a wholly-owned subsidiary of
Metromedia International Group Inc. ("MIG").
Unaudited Information as of June 30, 1997 and 1996
The accompanying unaudited consolidated financial statements as of June 30,
1997 and 1996 reflect all adjustments which are, in the opinion of management,
necessary to present fairly the financial position of the Company as of June
30, 1997 and the results of its operations and cash flows for the six months
ended June 30, 1997 and 1996. Such adjustments consist only of normal
recurring items. Interim results are not necessarily indicative of results for
a full year.
DESCRIPTION OF THE BUSINESS
The business activities of the Company constitute a single business segment,
entertainment, which includes the financing, production and distribution of
theatrical motion pictures and television programming as well as the operation
of a theatre circuit. Theatrical motion pictures are produced initially for
exhibition in theaters. Initial theatrical release generally occurs in the
United States and Canada. Foreign theatrical exhibition generally begins
within the first year after initial release. Home video distribution in all
territories usually begins six to twelve months after theatrical release in
that territory, with pay television exploitation beginning generally six
months after initial home video release. Exhibition of the Company's product
on network and on other free television outlets begins generally three to five
years from the initial theatrical release date in each territory.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Orion Pictures Corporation and its subsidiaries, most of which are wholly-
owned. All significant intercompany transactions and accounts have been
eliminated.
Cash and Cash Equivalents
Cash equivalents consists of highly liquid instruments with original
maturities of three months or less.
REVENUE RECOGNITION
Revenue from the theatrical distribution of films is recognized as the films
are exhibited. The Company's home video revenue, less a provision for returns,
is recognized when the video cassettes are shipped. Distribution
F-46
<PAGE>
ORION PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 ARE UNAUDITED)
of the Company's films to the home video markets in foreign countries is
generally effected through subdistributors who control various aspects of
distribution. When the terms of sale to such subdistributors include the
receipt of nonrefundable guaranteed amounts by the Company, revenue is
recognized when the film is available to the subdistributors for exhibition or
exploitation and other conditions of sale are met. When the arrangements with
such subdistributors call for distribution of the Company's product without a
minimum amount guaranteed to the Company, such sales are recognized when the
Company's share of the income from exhibition or exploitation is earned.
Revenue from the licensing of the Company's product to networks, basic and
pay cable companies and independent television stations or groups of stations
in the United States and Canada as well as in foreign territories is
recognized when the license period begins and when certain other conditions
are met. Such conditions include the availability of such product for
broadcast by the licensee.
Film Inventories and Cost of Rentals
Except for purchase accounting adjustments, theatrical and television
program inventories consist of direct production costs, production overhead
and capitalized interest, print and exploitation costs, less accumulated
amortization. Film inventories are stated at the lower of unamortized cost or
estimated net realizable value. Selling costs and other distribution costs are
charged to expense as incurred.
Film inventories and estimated total costs of participations and residuals
are charged to cost of rentals under the individual film forecast method in
the ratio that current period revenue recognized bears to management's
estimate of total gross revenue to be realized. Such estimates are re-
evaluated quarterly in connection with a comprehensive review of the Company's
inventory of film product, and estimated losses, if any, are provided for in
full. Such losses include provisions for estimated future distribution costs
and fees as well as participation and residual costs expected to be incurred.
Property, Plant and Equipment
Except for purchase accounting adjustments, buildings, property, equipment,
furniture and fixtures are carried at cost and depreciated over their
estimated useful lives. Generally depreciation is provided on the straight-
line method. The estimated useful life of buildings is approximately 25 years,
and for equipment, furniture and fixtures approximately three to seven years.
Theatre leasehold interests and leasehold improvements are amortized on a
straight-line basis over the lesser of the estimated useful lives of the
improvements or the terms of the respective leases. Maintenance and repairs
are expensed as incurred.
Goodwill
Goodwill has been recognized for the excess of the purchase price over the
value of the identifiable net assets acquired. Such amount is being amortized
over 25 years using the straight-line method. Accumulated amortization of
goodwill was $2.9 million and $5.7 million at December 31, 1996 and June 30,
1997, respectively.
Management continuously monitors and evaluates the realizability of recorded
intangibles to determine whether their carrying values have been impaired. In
evaluating the value and future benefits of intangible assets, their carrying
value is compared to management's best estimate of undiscounted future cash
flows over the remaining amortization period. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by
which the carrying value of the assets exceeds the fair value of the assets.
The Company believes that the carrying value of the recorded intangibles is
not impaired.
F-47
<PAGE>
ORION PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 ARE UNAUDITED)
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standard No. 109, Accounting for Income Taxes "Statement 109",
whereby deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under Statement
109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Financial Instruments
The estimated fair values of cash, accounts receivable, accounts payable and
accrued expenses approximate their carrying values because of the short
maturity of these instruments. The carrying value of receivables with
maturities greater than one year have been discounted and if such receivables
were discounted based on current market rates, the fair value of these
receivables would not be materially different than their carrying value.
Because the Company's bank debt is a floating interest rate instrument, it is
assumed that the carrying value would approximate fair value.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Significant estimates are primarily related to ultimate revenues and ultimate
costs relating to the Company's film and television properties and the
allowance for doubtful accounts. Actual results may differ from estimated
amounts.
2. ACQUISITIONS
On July 2, 1996 MIG consummated its acquisition (the "Goldwyn Merger") of
The Samuel Goldwyn Company ("Goldwyn"). Upon consummation of the Goldwyn
Merger, Goldwyn was renamed Goldwyn Entertainment Company. Holders of the
Goldwyn common stock received .3335 shares of MIG's common stock (the "Common
Stock") for each share of Goldwyn Common Stock in accordance with a formula
set forth in the Agreement and Plan of Merger relating to the Goldwyn Merger
("the Goldwyn Merger Agreement"). Pursuant to the Goldwyn Merger, MIG issued
3,130,277 shares of Common Stock. Goldwyn is a producer and distributor of
motion pictures and television product and has a film and television library
of over 850 titles. In addition, Goldwyn owns Landmark Theatre Corporation,
which the Company believes is the leading specialized theatre circuit in the
Unites States with 138 screens. The purchase price, including stock options
and transaction costs, related to the Goldwyn Merger was approximately $43.8
million.
Also on July 2, 1996, MIG consummated its acquisition (the "MPCA Merger,"
together with the Goldwyn Merger, the "July 2 Mergers") of Motion Picture
Corporation of America ("MPCA"). In connection with the MPCA Merger, MIG (i)
issued 1,585,592 shares of Common Stock to MPCA's stockholders, and (ii) paid
such stockholders approximately $1.2 million in additional consideration,
consisting of promissory notes. The purchase price, including transaction
costs, related to the acquisition of MPCA was approximately $21.9 million.
The purchases of Goldwyn and MPCA have been recorded by MIG in accordance
with the purchase method of accounting for business combinations. The purchase
price to acquire both Goldwyn and MPCA were allocated
F-48
<PAGE>
ORION PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 ARE UNAUDITED)
to the net assets acquired according to management's estimate of their
respective fair values and resulted in $125.5 million of goodwill. Following
the consummation of the July 2 Mergers, MIG contributed its interests (at
MIG's net book value) in Goldwyn and MPCA to Orion with Goldwyn and MPCA
becoming wholly owned subsidiaries of Orion. The results of those purchased
businesses have been included in the accompanying consolidated financial
statements from July 2, 1996, the date of the acquisition. The following net
assets were contributed by MIG (in thousands):
<TABLE>
<CAPTION>
GOLDWYN MPCA
--------- --------
<S> <C> <C>
Assets acquired....................................... $ 178,352 $ 67,790
Liabilities assumed................................... (133,331) (46,989)
Due to Parent......................................... (5,286) --
--------- --------
Net assets contributed................................ $ 39,735 $ 20,801
========= ========
</TABLE>
The following unaudited proforma information illustrates the effect of the
July 2 Mergers on revenues and net loss for calendar 1996 and assumes that the
July 2 Mergers occurred at the beginning of the period and does not account
for refinancing of certain indebtedness of Goldwyn and MPCA debt as discussed
above (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
YEAR ENDED 1996
---------- ------------
<S> <C>
Revenues...................................................... $230,196
Net loss...................................................... $(37,672)
</TABLE>
3. ACCOUNTS RECEIVABLE, PARTICIPATION AND RESIDUALS PAYABLE, AND DEFERRED
REVENUES
Accounts receivable consists primarily of trade receivables due from film
distribution, including theatrical, home video, basic cable and pay
television, network, television syndication, and other licensing sources which
have payment terms generally covered under contractual arrangements. Of the
total accounts receivable as of December 31, 1996, $30.4 million is expected
to be collected during the twelve months ended December 31, 1997. Accounts
receivable is stated net of an allowance for doubtful accounts of $11.6
million and $13.6 million at December 31, 1996 and June 30, 1997,
respectively.
The Company has entered into contracts for licensing of theatrical and
television product to the pay cable, home video and free television markets,
for which the revenue and the related accounts receivable will be recorded in
future periods when the films are available for broadcast or exploitation.
These contracts, net of advance payments received and recorded in Deferred
revenues, as described below, aggregated approximately $175.0 million at
December 31, 1996. Included in this amount is $61.5 million of license fees
for which the revenue and the related accounts receivable will be recorded
only as if the Company is able to successfully produces or acquires new
product under the restrictions of the Plan.
Approximately $4.8 million and $4.6 million was payable to an officer of a
subsidiary of the Company and was included in participation and residuals
payable as of December 31, 1996 and June 30, 1997, respectively. The executive
is also entitled to future participations (limited to annual maximum payments)
on certain Goldwyn titles.
Deferred revenues consist principally of advance payments received on pay
cable, home video and other television contracts for which the films are not
yet available for broadcast or exploitation.
F-49
<PAGE>
ORION PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 ARE UNAUDITED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Land and buildings................................ $ 7,461 $ 7,461
Theatre leasehold interests....................... 18,633 19,301
Leasehold improvements............................ 7,678 8,685
Equipment, furniture and fixtures................. 8,535 9,916
------- -------
42,307 45,363
Accumulated depreciation.......................... (3,837) (6,076)
------- -------
$38,470 $39,287
======= =======
</TABLE>
4. FILM AND TELEVISION COSTS, NET
Film and television costs, net of amortization, are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Theatrical and television product released........ $193,391 $186,214
Completed not released............................ 8,255 3,730
In process and development........................ 50,653 47,614
-------- --------
$252,299 $237,558
======== ========
</TABLE>
Orion had, in prior years, made substantial write-offs to its released
product. As a result, approximately one-half of the gross cost of film
inventories currently in release are stated at estimated net realizable value
and will not result in the recording of gross profit upon the recognition of
related revenues in future periods. As of December 31, 1996, approximately 62%
of the unamortized balance of film inventories will be amortized within the
next three-year period based upon the Company's revenue estimates at that
date.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Accounts payable.............................................. $ 6,584
Accrued salaries and wages.................................... 2,354
Accrued taxes................................................. 10,128
Accrued interest.............................................. 1,110
Accrued distribution costs.................................... 7,742
Other......................................................... 7,571
-------
$35,489
=======
</TABLE>
F-50
<PAGE>
ORION PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 ARE UNAUDITED)
6. BANK AND OTHER DEBT
Bank and other debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Notes payable to banks under Credit, Security &
Guaranty Agreement.............................. $247,500 $276,200
Capital leases, other guarantees and notes
payable, net of unamortized discounts of $2,699
and $2,346, respectively........................ 21,910 16,234
-------- --------
Total notes payable.............................. $269,410 $292,434
======== ========
</TABLE>
On July 2, 1996, the Company entered into the Orion credit facility with
Chemical Bank ("Chemical"), as agent for a syndicate of lenders, pursuant to
which the lenders provided to Orion and its subsidiaries a $300 million credit
facility ("the Orion Credit Facility"). The $300 million facility consists of
a secured term loan of $200 million (the "Term Loan") and a revolving credit
facility of $100 million, including a $10 million letter of credit
subfacility, (the "Revolving Credit Facility"). Proceeds from the Term Loan
and $24 million of the Revolving Credit Facility were used to refinance
Orion's, Goldwyn's and MPCA's existing indebtedness.
Borrowings under the Orion Credit Facility which do not exceed the
"borrowing base," as defined in the agreement will bear interest at Orion's
option at a rate of LIBOR plus 2 1/2% or Chemical's alternative base rate plus
1 1/2%, and borrowings in excess of the borrowing base, which have the benefit
of the guarantee referred to below, will bear interest at Orion's option at a
rate of LIBOR plus 1% or Chemical's alternative base rate. The Term Loan has a
final maturity date of June 30, 2001 and will amortize in 20 equal quarterly
installments of $7.5 million commencing on September 30, 1996, with the
remaining principal amount due at the final maturity date. If the outstanding
balance under the Term Loan exceeds the borrowing base, the Company will be
required to pay down such excess amount. The Term Loan and the Revolving
Credit Facility are secured by a first priority lien on all of the stock of
Orion and its subsidiaries and on substantially all of Orion's assets,
including its accounts receivable and film and television libraries. Amounts
outstanding under the revolving Credit Facility in excess of the applicable
borrowing base are also guaranteed jointly and severally by Metromedia
Company, and John W. Kluge, its general partner. To the extent the borrowing
base exceeds the amount outstanding under the Term Loan, such excess will be
used to support the Revolving Credit Facility so as to reduce the exposure of
the guarantors under such facility.
The Orion Credit Facility contains customary covenants including limitations
on the issuance of additional indebtedness and guarantees, on the creation of
new liens, development costs and budgets for films, the aggregate amount of
unrecouped print and advertising costs Orion may incur, on the amount of
Orion's leases, capital and overhead expenses (including specific limitations
on Orion's theatrical exhibition subsidiary's capital expenditures),
prohibitions on the declaration of dividends or distributions by Orion (except
as defined in the agreement), limitations on merger or consolidation of Orion
or the sale by Orion of any substantial portion of its assets or stock and
restrictions on Orion's line of business, other than activities relating to
the production, distribution and exhibition of entertainment product. Orion's
Credit Facility also contains financial covenants, including requiring
maintenance by Orion of certain cash flow and operational ratios.
The Revolving Credit Facility contains certain events of default, including
nonpayment of principal or interest on the facility, the occurrence of a
"change of control" (as defined in the agreement) or an assertion by the
guarantors of such facility that the guarantee of such facility is
unenforceable. The Term Loan portion of
F-51
<PAGE>
ORION PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 ARE UNAUDITED)
Orion's Credit Facility also contains a number of customary events of default,
including non-payment of principal and interest and the occurrence of a
"change of management" (as defined in the agreement), violation of covenants,
falsity of representations and warranties in any material respect, certain
cross-default and cross-acceleration provisions, and bankruptcy or insolvency
of Orion or its material subsidiaries.
In connection with the July 2, 1996 refinancing of the Orion Credit
Facility, Orion expensed deferred financing costs associated with old debt and
recorded an extraordinary loss of approximately $4.5 million.
During calendar 1996 and the six months ended June 30, 1997 and 1996, $18.4
million, $12.6 million and $6.8 million, respectively, of interest costs were
incurred of which $1.2 million, $1.6 million and $.2 million, respectively,
were capitalized to film inventories. Cash utilized for the payment of
interest during calendar 1996, and the six months ended June 30, 1997 and
1996, was $16.5 million, $10.0 million and $6.7 million, respectively.
Aggregate annual repayments of long-term debt, excluding capital leases and
debt discounts, over the next five years and thereafter are as follows as of
December 31, 1996 (in thousands):
<TABLE>
<S> <C>
1997.............................................................. $ 38,421
1998.............................................................. 32,489
1999.............................................................. 31,660
2000.............................................................. 31,666
2001.............................................................. 129,423
Thereafter........................................................ 2,679
</TABLE>
7. STOCKHOLDER'S EQUITY
In connection with the July 2 Mergers, MIG contributed $60.5 million (MIG's
net book value, excluding $5.3 million of the purchase price which became
payable to MIG) of assets to the Company including substantially all of the
operations of Goldwyn and MPCA.
8. INCOME TAXES
The provision for income taxes for calendar 1996 and for the six months
ended June 30, 1997 and 1996, all of which is current, consists of the
following (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1996 1997 1996
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Federal............................... $ -- $-- $--
State and local....................... 100 100 100
Foreign............................... 900 300 300
------ ---- ----
Current............................... 1,000 400 400
Deferred.............................. -- -- --
------ ---- ----
Total................................. $1,000 $400 $400
====== ==== ====
</TABLE>
F-52
<PAGE>
ORION PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 ARE UNAUDITED)
Such provision has been allocated to Loss before extraordinary items and
Extraordinary losses as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Loss before extraordinary items............................... $1,000
Extraordinary loss............................................ --
------
$1,000
======
</TABLE>
The federal income tax portion of the provision for income taxes includes
the benefit of state income taxes provided. The Company recognizes investment
tax credits on the flow-through method.
State and local income tax expense for the year ended December 31, 1996
includes an estimate for franchise and other state tax levies required in
jurisdictions which do not permit the utilization of the Company's calendar
1996 operating losses to mitigate such taxes.
Foreign tax expense for the year ended December 31, 1996 reflects estimates
of withholding and remittance taxes. Cash utilized for the payment of income
taxes during 1996, the six months ended June 30, 1997 and 1996, was $0.7
million, $0.3 million and $0.4 million, respectively.
Effective March 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 requires a change to the "assets and liability method" of accounting for
income taxes from the "deferred method" of accounting for income taxes which
was required under Accounting Principles Board Opinion No. 11 ("APB 11").
Under SFAS 109, deferred tax assets and liabilities are recognized with
respect to the tax consequences attributable to differences between the
financial statement carrying values and the tax bases of existing assets and
liabilities. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to the 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 a change in tax rates is
recognized in income in the period that includes the enactment date. Under the
deferred method, deferred taxes were not adjusted for subsequent changes in
tax rates.
F-53
<PAGE>
ORION PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 ARE UNAUDITED)
The Company's results of operations was not impacted by the change in method
of accounting for income taxes resulting from the adoption of SFAS 109 in the
current year. Deferred income taxes at December 31, 1996 reflects the impact
of "temporary differences" between assets and liabilities for financial
reporting purposes and their carrying values as measured by tax laws. The
temporary differences and carryforwards which give rise to deferred tax assets
and (liabilities) as of December 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Net operating loss carryforward............................... $ 180,000
Deferred revenues............................................. 29,183
Investment credit carryforward................................ 25,000
Allowance for doubtful accounts............................... 4,640
Reserves...................................................... 1,020
Depreciation.................................................. (5,505)
Other deferred tax assets..................................... 7,782
Film costs.................................................... (29,412)
Shares payable................................................ 21,228
Other deferred tax liabilities................................ (132)
Notes and debentures.......................................... (1,080)
---------
Subtotal before valuation allowance........................... 232,724
Valuation allowance........................................... (232,724)
---------
Deferred taxes................................................ $ --
=========
</TABLE>
The net change in the total valuation allowance for the year ended December
31, 1996 was a decrease in the allowance of approximately $45 million.
The Company's provision for income taxes for the year ended December 31,
1996 differs from the provision that would have resulted from applying the
federal statutory rates to loss before provision for income taxes. The reasons
for these differences are explained in the following table (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Benefit based upon federal statutory rate of 35%.............. $(7,450)
State taxes, net of federal benefit........................... 65
Foreign taxes in excess of federal credit..................... 900
Non-deductible direct expenses of chapter 11 filing........... 76
Current year operating loss not benefited..................... 6,302
Amortization of goodwill...................................... 1,017
Extraordinary loss on early extinguishment of debt............ (1,577)
Reduction of extraordinary loss not benefited................. 1,577
Other, net.................................................... 90
-------
Provision for income taxes.................................... $ 1,000
=======
</TABLE>
At December 31, 1996, the Company had available net operating loss
carryforwards and unused investment tax credits of approximately $450 million
and $25 million, respectively, which can reduce future federal income taxes.
The Company is included in the consolidated federal income tax return filed by
its parent MIG and
F-54
<PAGE>
ORION PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 ARE UNAUDITED)
utilization of the available net operating loss carryforwards and unused
investment tax credits is limited. If not utilized, these carryforwards and
credits will begin to expire in 2005 and 1997, respectively. Of the $450
million loss carryforward, the amount that can be utilized to offset MIG
consolidated taxable income is limited to $11.9 million per year due to the
change in ownership associated with the merger of the former Orion Pictures
Corporation with The Actava Group Inc. (renamed Metromedia International Group
Inc. ("MIG")), Metromedia International Telecommunications, Inc. and MCEG
Sterling Incorporated ("MCEG") on November 1, 1995. Unused portions of each
year's limitation may be carried forward on a limited basis to increase the
limitation in future years. The utilization of additional federal net
operating loss carryforwards of approximately $6 million arising after the
change in ownership is not limited.
The provision for taxes for the six months ended June 30, 1997 and 1996 are
based, in part, upon estimates of the Company's effective tax rate. The
effective tax rate is based upon projected results for a full fiscal year.
Only a portion of such provision, are offset by losses from operations,
because of certain state and foreign taxes which cannot be mitigated by such
losses. In addition, foreign taxes are provided for certain transactions in
the period in which they occur.
9. REVENUE DATA
The Company derives significant revenues from the foreign distribution of
its theatrical motion pictures and television programming. The following table
sets forth foreign revenues from operations by major geographic area for the
last fiscal year (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Canada........................................................ $ 1,996
Europe........................................................ 32,699
Mexico and South America...................................... 3,151
Asia and Australia............................................ 8,669
-------
$46,515
=======
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
The Company is obligated under various operating and capital leases. Total
rent expense amounted to $4.4 million in calendar 1996.
Minimum rental commitments under noncancellable operating leases is set
forth in the following table (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996 AMOUNT
----------------- -------
<S> <C>
1997............................................................ $ 6,806
1998............................................................ 5,742
1999............................................................ 5,064
2000............................................................ 4,636
2001............................................................ 4,527
Thereafter...................................................... 24,187
-------
Total minimum rental commitments................................ $50,962
=======
</TABLE>
F-55
<PAGE>
ORION PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 ARE UNAUDITED)
Future minimum lease payments under capital leases together with the present
value of minimum lease payments consisted of the following at December 31,
1996 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996 AMOUNT
----------------- -------
<S> <C>
1997............................................................ $ 870
1998............................................................ 869
1999............................................................ 1,384
2000............................................................ 835
2001............................................................ 540
Thereafter...................................................... 8,751
-------
Total minimum rental commitments................................ 13,249
=======
Less amount representing interest............................... (7,476)
-------
Present value of future minimum lease payments.................. $ 5,773
=======
</TABLE>
The Company and certain of its subsidiaries have employment contracts with
various officers with remaining terms of up to four and one half years. The
Company's remaining aggregate commitment at December 31, 1996 under such
contracts is approximately $27.4 million.
The Company and its subsidiaries are contingently liable with respect to
various matters, including litigation in the ordinary course of business and
otherwise wherein substantial amounts are claimed. In the opinion of counsel
and management, the ultimate resolution of these matters will not have a
material adverse effect on the Company's financial condition, results of
operations or liquidity.
11. RETIREMENT AND SAVINGS PLAN
The Company has a 401(k) defined contribution retirement and savings plan
covering all eligible employees who prior to March 1 or September 1, have
completed 1,000 hours of service, as defined. Participants may make pretax
contributions to the plan of up to 15% of their compensation, as defined,
subject to certain limitations as prescribed by the Internal Revenue Code. The
Company matches fifty cents for each dollar contributed up to $1,000 per
participant per plan year. The Company may make discretionary contributions on
an annual basis to the plan. The exact amount of discretionary contributions
is decided each year by the Board of Directors. There have been no
discretionary contributions since the inception of the plan. Total employer
contribution expense for the year ended December 31, 1996 was approximately
$123,000.
12. SUBSEQUENT EVENT
On July 10, 1997, P&F Acquisition Corp. acquired certain entertainment
assets of the Company (the "Acquisition") from Metromedia International Group,
Inc., the Company's parent, for a total purchase price of $573.0 million,
consisting of $560.0 million in cash and $13.0 million in assumed liabilities.
In connection with the Acquisition, the Company obtained a new $200.0 million
term loan and a $50.0 million revolving credit facility. The term loan and the
revolving credit facility will bear interest at LIBOR plus 2.5% and mature on
July 10, 2002. The Acquisition will be accounted for as a purchase, and
therefore, the assets and liabilities of the Company will be adjusted to their
estimated fair market value as of the date of the Acquisition.
F-56
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 3
Risk Factors.............................................................. 7
Background of the Company................................................. 14
Use of Proceeds........................................................... 15
Capitalization............................................................ 16
Dividend Policy........................................................... 17
Selected Consolidated Financial Data...................................... 18
Unaudited Pro Forma Financial Information................................. 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 26
The Industry.............................................................. 36
Business.................................................................. 38
Management................................................................ 54
Description of Capital Stock.............................................. 67
Ownership of Voting Securities............................................ 68
Financing Arrangements.................................................... 74
Certain Transactions...................................................... 76
Shares Eligible for Future Sale........................................... 79
Underwriting.............................................................. 80
Legal Matters............................................................. 83
Experts................................................................... 83
Available Information..................................................... 83
Index to Financial Statements............................................. F-1
</TABLE>
---------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
[MGM LOGO]
METRO-GOLDWYN-MAYER INC.
COMMON STOCK
---------------
PROSPECTUS
---------------
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 11, 1997
PROSPECTUS
SHARES
[MGM LOGO]
METRO-GOLDWYN-MAYER INC.
COMMON STOCK
----------
All of the shares of the common stock, $.01 par value per share (the "Common
Stock"), offered hereby are being sold by Metro-Goldwyn-Mayer Inc. ("MGM" or
the "Company"). Of the shares offered by the Underwriters,
shares will be offered initially outside the United States and Canada (the
"International Offering") by the International Underwriters and
shares will be offered initially in the United States and Canada (the "U.S.
Offering" and, collectively, with the International Offering, the "Offering")
by the U.S. Underwriters (collectively, with the International Underwriters,
the "Underwriters"). The public offering price and the underwriting discount
per share will be identical for the International Offering and the U.S.
Offering. See "Underwriting."
Prior to the Offering, there has been no public market for the Common Stock.
It is currently estimated that the initial offering price per share will be
between $ and $ . See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price. All information in
this Prospectus gives effect to a recapitalization of the Company occurring
concurrent with the closing of the Offering and consisting of (i) the
conversion of each share of the Company's Series A Cumulative Convertible
Preferred Stock (the "Series A Preferred Stock") into one share of the Common
Stock (the "Series A Preferred Stock Conversion") and (ii) a for stock
split of the Common Stock (the "Stock Split").
Application will be made to list the Common Stock on the New York Stock
Exchange (the "NYSE") under the symbol "MGM."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............................. $ $ $
- --------------------------------------------------------------------------------
Total.................................. $ $ $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses estimated at $ payable by the Company.
----------
Merrill Lynch & Co. is acting as book running lead manager for the Offering.
Merrill Lynch & Co. and J.P. Morgan & Co. are acting as joint lead managers.
The shares of the Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by the Underwriters,
subject to approval of certain legal matters by counsel for the Underwriters
and certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that the delivery of the shares will be made in New York, New York on
or about , 1997.
----------
MERRILL LYNCH INTERNATIONAL J.P. MORGAN SECURITIES LTD.
Joint Lead Managers
----------
The date of this Prospectus is , 1997.
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"International Purchase Agreement"), the Company has agreed to sell to each of
the Underwriters named below (the "International Underwriters"), and each of
the International Underwriters, for whom Merrill Lynch International and J.P.
Morgan Securities Ltd. (the "International Representatives"), severally has
agreed to purchase, the number of shares of the Common Stock set forth
opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Merrill Lynch International........................................
J.P. Morgan Securities Ltd. .......................................
------
Total.........................................................
======
</TABLE>
The Company has also entered into a purchase agreement (the "U.S. Purchase
Agreement" and, together with the International Purchase Agreement, the
"Purchase Agreements") with certain Underwriters in the United States and
Canada (the "U.S. Underwriters"), for whom Merrill Lynch and J.P. Morgan
Securities Inc. are acting as representatives (the "U.S. Representatives" and,
together with the International Representatives, the "Representatives").
Subject to the terms and conditions set forth in the U.S. Purchase Agreement,
the Company has agreed to sell to the U.S. Underwriters, and the U.S.
Underwriters have severally agreed to purchase from the Company, an aggregate
of shares of the Common Stock.
In each Purchase Agreement, the Underwriters named therein have agreed,
subject to the terms and conditions set forth in such Purchase Agreement, to
purchase all of the shares of the Common Stock being sold pursuant to such
Purchase Agreement if any of the shares of the Common Stock being sold
pursuant to such Purchase Agreement are purchased. Under certain circumstances
under the Purchase Agreements, the purchase commitments of non-defaulting
Underwriters may be increased. Each Purchase Agreement provides that the
Company is not obligated to sell, and the Underwriters named therein are not
obligated to purchase, the shares of the Common Stock under the terms of such
Purchase Agreement unless all of the shares of the Common Stock to be sold
pursuant to such Purchase Agreement are contemporaneously sold. The sale of
shares of the Common Stock to the International Underwriters and the sale of
shares of the Common Stock to the U.S. Underwriters are conditioned on each
other.
The International Representatives have advised the Company that the
International Underwriters propose to offer the shares of the Common Stock to
the public initially at the public offering price set forth on the cover page
of this Prospectus, and to certain dealers at such price less a concession not
in excess of $ per share of the Common Stock, and that the International
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per share of the Common Stock on sales to certain other dealers. After
the initial public offering, the public offering price, concession and
discount may be changed.
80
<PAGE>
The initial public offering price per share of the Common Stock and the
underwriting discount per share of Common Stock are identical under the U.S.
Purchase Agreement and the International Purchase Agreement.
The Company has been informed that the Underwriters have entered into an
agreement (the "Intersyndicate Agreement") providing for the coordination of
their activities. Pursuant to the Intersyndicate Agreement, the International
Underwriters and the U.S. Underwriters are permitted to sell shares of the
Common Stock to each other.
Each of the Company, Tracinda, Seven and each member of management has agreed
not to sell, offer to sell, grant any options for the sale of, or otherwise
dispose of, any shares of the Common Stock or securities convertible into or
exchangeable or exercisable for the Common Stock (other than, in the case of
the Company, sales pursuant to the exercise of outstanding options) for a
period of 180 days after the date of this Prospectus without the prior written
consent of Merrill Lynch, subject to certain limited exceptions included in the
Purchase Agreements.
The Company has been informed that, under the terms of the Intersyndicate
Agreement, the International Underwriters and any dealer to whom they sell
shares of the Common Stock will not offer to sell or resell shares of the
Common Stock to persons who are U.S. or Canadian persons, or to persons they
believe intend to resell to persons who are U.S. or Canadian persons, and the
U.S. Underwriters and any bank, broker, or dealer to whom they sell shares of
the Common Stock will not offer to sell or resell shares of the Common Stock to
non-U.S. persons or to non-Canadian persons or to persons they believe intend
to resell to non-U.S. persons or to non-Canadian persons, except in the case of
transactions pursuant to the Intersyndicate Agreement which, among other
things, permits the Underwriters to purchase from each other and to offer to
resell such number of shares of the Common Stock as the selling Underwriter or
Underwriters and the purchasing Underwriter or Underwriters may agree.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Underwriters may be required to make in respect thereof.
Application will be made to list the Common Stock for quotation on the NYSE
under the symbol "MGM."
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Common Stock. As
an exception to these rules, the Underwriters are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in connection
with the Offering, i.e., if they sell more shares of the Common Stock than are
set forth on the cover page of this Prospectus, the Underwriters may reduce
that short position by purchasing shares of the Common Stock in the open
market.
The Representatives may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Representatives purchase shares
of the Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offering.
In general, purchases of shares of the Common Stock for the purpose of
stabilization or to reduce a short position could cause the price of the Common
Stock to be higher than it might be in the absence of such purchases. The
imposition of a penalty bid might also have an effect on the price of the
Common Stock to the extent that it were to discourage resales of the Common
Stock.
81
<PAGE>
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
Prior to the Offering, there has been no public market for the shares of
Common Stock. The initial public offering price of the Common Stock will be
determined through negotiations between the Company and the Representatives.
Among the factors that will be considered in such negotiations, in addition to
prevailing market conditions, will be the current market valuations of publicly
traded companies that the Company and Representatives believe to be reasonably
comparable to the Company, certain financial information of the Company, the
history of, and the prospects for, the Company and the industry in which the
Company will compete, an assessment of the Company's management, the past and
present operations of the Company, the prospects for, and timing of, future
revenues of the Company, the present state of the Company's development, and
the above factors in relation to market values and various valuation measures
of other companies engaged in activities similar to the Company. There can be
no assurance that an active trading market will develop for the Common Stock or
that the Common Stock will trade in the public market subsequent to the
Offering at or above the initial public offering price.
The International Underwriters and the U.S. Underwriters have informed the
Company that they do not intend to confirm sales of the shares of Common Stock
offered hereby to any accounts over which they exercise discretionary
authority.
Certain affiliates of J.P. Morgan Securities Inc. and Merrill Lynch have been
engaged from time to time (including, in the case of J.P. Morgan Securities
Inc., at the present time), and may in the future be engaged, to perform
banking, advisory-related and/or other services to the Company and its
affiliates in the ordinary course of business. In connection with rendering
such services, such Underwriters receive customary compensation, including
reimbursement of related expenses.
82
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 3
Risk Factors.............................................................. 7
Background of the Company................................................. 14
Use of Proceeds........................................................... 15
Capitalization............................................................ 16
Dividend Policy........................................................... 17
Selected Consolidated Financial Data...................................... 18
Unaudited Pro Forma Financial Information................................. 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 26
The Industry.............................................................. 36
Business.................................................................. 38
Management................................................................ 54
Description of Capital Stock.............................................. 67
Ownership of Voting Securities............................................ 68
Financing Arrangements.................................................... 74
Certain Transactions...................................................... 76
Shares Eligible for Future Sale........................................... 79
Underwriting.............................................................. 80
Legal Matters............................................................. 83
Experts................................................................... 83
Available Information..................................................... 83
Index to Financial Statements............................................. F-1
</TABLE>
---------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
[MGM LOGO]
METRO-GOLDWYN-MAYER INC.
COMMON STOCK
---------------
PROSPECTUS
---------------
MERRILL LYNCH INTERNATIONAL
J.P. MORGAN SECURITIES LTD.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the Offering are as follows:
<TABLE>
<CAPTION>
EXPENSES AMOUNT
-------- -------
<S> <C>
SEC Registration Fee................................................ $75,758
NASD Fee............................................................ 25,500
NYSE Fee............................................................
Printing Expenses...................................................
Legal Fees and Expenses.............................................
Transfer Agent and Registrar Fees...................................
Accounting Fees and Expenses........................................
Blue Sky Fees and Expenses..........................................
Miscellaneous Expenses..............................................
-------
Total............................................................. *
=======
</TABLE>
- --------
* Estimated
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law ("DGCL") makes provision
for the indemnification of officers and directors in terms sufficiently broad
to indemnify officers and directors of the Company under certain circumstances
from liabilities (including reimbursement for expenses incurred) arising under
the Securities Act. The Certificate of Incorporation and Bylaws of the Company
provide, in effect, that, to the fullest extent and under the circumstances
permitted by Section 145 of the DGCL, the Company will indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, investigative or otherwise, by reason of the fact that he or
she is a director or officer of the Company or is or was serving at the
request of the Company as a director or officer of another corporation,
partnership or other enterprise. In addition, the Company has entered into
indemnification agreements with its directors and certain of its officers
providing, subject to the terms therein, that the Company will indemnify such
individuals for damages suffered by reason of the fact that any such
individual is a director or officer of the Company or is or was serving at the
request of the Company as a director or officer of another corporation or
enterprise. The Certificate of Incorporation and Bylaws of the Company,
together with such indemnification agreements, relieve its directors from
monetary damages for breach of such director's fiduciary duty as directors to
the fullest extent permitted by the DGCL. Consequently, a director or officer
will not be personally liable to the Company or its stockholders for monetary
damages for any breach of their fiduciary duty as directors except (i) for a
breach of the duty of loyalty, (ii) for failure to act in good faith, (iii)
for intentional misconduct or knowing violation of law, (iv) for willful or
negligent violation of certain provisions in the DGCL imposing certain
requirements with respect to stock repurchases, redemption and dividends, or
(v) for any transactions from which the director derived an improper personal
benefit. Depending upon the character of the proceeding, under Delaware law,
the Company may indemnify the officers and directors against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with any action, suit or
proceeding if the person indemnified acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interest of the
Company and, with respect to any criminal action or proceeding, had no cause
to believe his or her conduct was unlawful. Such expenses (including
attorneys, fees), judgments, fines and amounts paid in settlement may, as
permitted by Delaware law, be advanced by the Company prior to the final
disposition of such action upon receipt of an undertaking by or on the behalf
of such director or officer to repay such amounts if it shall ultimately be
determined that he or she is not entitled to be indemnified as authorized in
accordance with Delaware law. To the extent that a director or officer of the
Company has been successful in the defense of any action, suit or proceeding
referred to above, the Company will be obligated to indemnify him or her
against expenses (including
II-1
<PAGE>
attorneys' fees) actually and reasonably incurred in connection therewith. In
addition, prior to the MGM Acquisition certain of the directors and officers
had employment agreements with MGM Studios, and such agreements contained
indemnification provisions. Such indemnification provisions are consistent
with the agreements described above and the obligations of MGM Studios
thereunder are guaranteed by CL. The Company maintains insurance in the
aggregate amount of $25 million on behalf of its officers and directors
against any liability which may be asserted against any such officer or
director, subject to certain customary exclusions. Upon consummation of the
Offering, the Company will be required to renegotiate the terms of such
insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On October 10, 1996, as part of the First Private Placement, the Company
sold 200,000 shares of Common Stock to each of Tracinda and Seven, and 450,000
and 50,000 shares of Series A Preferred Stock to Tracinda and Seven,
respectively, in connection with the MGM Acquisition for aggregate
consideration of $900 million. The Company believes that the First Private
Placement was exempt from registration under Section 4(2) of the Act.
On July 10, 1997, as part of the Second Private Placement, the Company sold
321,000 and 39,000 shares of Common Stock to Tracinda and Seven, respectively,
in connection with the Orion Acquisition for aggregate consideration of $360
million. The Company believes that the Second Private Placement was exempt
from registration under Section 4(2) of the Act.
In connection with MGM Acquisition and the renegotiation of employment
agreements with certain employees of the Company, including certain members of
management, the Company issued an aggregate of 1,600 shares of the Common
Stock and 2,000 shares of the Series A Preferred Stock (which were converted
into 2,000 shares of the Common Stock pursuant to the Series A Preferred Stock
Conversion) to such employees. The Company received no cash consideration from
such issuance. Company believes that the issuance of such shares to such
employees was exempt from registration under Section 4(2) of the Securities
Act.
In addition, pursuant to Mr. Mancuso's employment agreement, Mr. Mancuso
receives a monthly payment of $250,000, out of the after tax proceeds of which
he is required to purchase shares of the Common Stock at a price of $1,000 per
share until December 31, 1997 and, thereafter, at the fair market value of
such shares. As of July 31, 1997, Mr. Mancuso had purchased 1,058 shares of
the Common Stock for aggregate consideration of $1,058,000. The Company
believes that the issuance of such shares to Mr. Mancuso was exempt from
registration under Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
See Exhibit Index attached hereto and incorporated herein by reference.
(b) Financial Statement Schedules. The following financial statement
schedule is filed with Part II of this Registration Statement:
Schedule II--Valuation and Qualifying Accounts and Reserves.
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the applicable instructions or are inapplicable and therefore have been
omitted.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising out of the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Commission, such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense in any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-3
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Santa
Monica, California, on September 11, 1997.
METRO-GOLDWYN-MAYER INC.
By: /s/ Frank G. Mancuso
_____________________________________
Frank G. Mancuso
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Michael G. Corrigan and David G.
Johnson, each of whom may act without the joinder of the other, their true and
lawful attorneys-in-fact and agents, each with full power and substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Registration Statement, and
to file the same, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitution or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Frank G. Mancuso Chairman of the Board of September 11, 1997
____________________________________ Directors and Chief
Frank G. Mancuso Executive Officer
(Principal Executive
Officer)
/s/ Michael G. Corrigan Chief Financial Officer September 11, 1997
____________________________________ (Principal Financial and
Michael G. Corrigan Accounting Officer)
/s/ James D. Aljian Director September 11, 1997
____________________________________
James D. Aljian
/s/ Michael R. Gleason Director September 11, 1997
____________________________________
Michael R. Gleason
/s/ Kirk Kerkorian Director September 11, 1997
____________________________________
Kirk Kerkorian
/s/ Kerry M. Stokes Director September 11, 1997
____________________________________
Kerry M. Stokes
/s/ Jerome B. York Director September 11, 1997
____________________________________
Jerome B. York
</TABLE>
II-4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
[To Metro-Goldwyn-Mayer Inc.:
After the recapitalization transactions discussed in Note 15 to the Company's
consolidated financial statements are effected, we expect to be in a position
to render the following report.
Arthur Andersen LLP
Los Angeles, California
February 25, 1997]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Metro-Goldwyn-Mayer Inc.:
We have audited in accordance with generally accepted auditing standards, the
financial statements of Metro-Goldwyn-Mayer Inc. included in this registration
statement and have issued our report thereon dated February 25, 1997 (except
with regard to the matters discussed in Note 15, as to which the date is
, 1997). Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The accompanying schedule is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states 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
February 25, 1997 (except with Regard to the matters discussed In Note 15, as
to which date Is , 1997)
S-1
<PAGE>
METRO-GOLDWYN-MAYER INC
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF PERIOD EXPENSES ACQUIRED DEDUCTIONS OF PERIOD
---------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
For the Period from
October 11, 1996 to
December 31, 1996:
Reserve for allowances
and doubtful accounts.. $12,718 $ (23) $ -- $ (967) $11,728
======= ======= ====== ======= =======
Reserve for home video
inventory obsolescence,
shrinkage, and
reduplication.......... $ -- $ -- $ -- $ -- $ --
======= ======= ====== ======= =======
For the Period from
January 1, 1996 to
October 10, 1996
(Predecessor):
Reserve for allowances
and doubtful accounts.. $18,479 $ 430 $ -- $(6,191) $12,718
======= ======= ====== ======= =======
Reserve for home video
inventory obsolescence,
shrinkage, and
reduplication.......... $ 1,769 $ -- $ -- $(1,769) $ --
======= ======= ====== ======= =======
For the Year Ended
December 31, 1995
(Predecessor):
Reserve for allowances
and doubtful accounts.. $26,059 $(2,565) $ -- $(5,015) $18,479
======= ======= ====== ======= =======
Reserve for home video
inventory obsolescence,
shrinkage, and
reduplication.......... $ 5,933 $ -- $ -- $(4,164) $ 1,769
======= ======= ====== ======= =======
For the Year Ended
December 31, 1994
(Predecessor):
Reserve for allowances
and doubtful accounts.. $26,276 $ 1,881 $ -- $(2,098) $26,059
======= ======= ====== ======= =======
Reserve for home video
inventory obsolescence,
shrinkage, and
reduplication.......... $ 6,013 $ -- $ -- $ (80) $ 5,933
======= ======= ====== ======= =======
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement*................................
2.1 Stock Purchase Agreement, dated as of July 16, 1996, by and
among the Company (f/k/a P&F Acquisition Corp.), CDR, MGM
Holdings, MGM Group Holdings Corporation and MGM Studios
(f/k/a Metro-Goldwyn-Mayer, Inc.)+............................
2.2 Stock Purchase Agreement, dated as of May 2, 1997, by and among
the Company, Orion and Metromedia International Group, Inc.
("MIG")+......................................................
2.3 Agreement and Plan of Merger, dated as of January 31, 1996, by
and among MIG, SGC Merger Corp. and the Samuel Goldwyn Company
(the "Goldwyn Merger Agreement")+.............................
2.4 Amendment No. 1 to Goldwyn Merger Agreement dated as of May 29,
1996..........................................................
2.5 Amendment and Restated Plan of Merger, dated as of May 17,
1996, between MIG, MPCA Merger Corp., Bradley Krevoy, Steven
Stabler and MPCA+.............................................
3.1 Amended and Restated Certificate of Incorporation of the
Company*......................................................
3.2 Amended and Restated Bylaws of the Company*....................
5.1 Opinion of Gibson, Dunn & Crutcher LLP*........................
10.1 Credit Agreement, dated as of October 10, 1996, among the
Company, MGM Studios, certain lenders and Morgan, as agent+...
10.2 Credit Agreement, dated as of July 10, 1997, among Orion,
certain lenders and Morgan, as agent+.........................
10.3 Amended and Restated Credit Agreement, dated as of October ,
1997, among the Company, MGM Studios, Orion, certain lenders
and Morgan, as agent*.........................................
10.4 Amended and Restated 1996 Stock Option, Restricted Stock, Stock
Appreciation Right and Bonus Plan dated as of October 10, 1996
and form of related agreement*................................
10.5 Senior Management Bonus Plan dated as of , 1997 and form of
related agreement* ...........................................
10.7 Amended and Restated Employment Agreement of Frank G. Mancuso
dated as of
August 4, 1997*...............................................
10.8 Employment Agreement of A. Robert Pisano dated as of October
10, 1996*.....................................................
10.9 Employment Agreement of Michael G. Corrigan dated as of July 1,
1997*.........................................................
10.10 Employment Agreement of David G. Johnson dated as of October
10, 1996*.....................................................
10.11 Employment Agreement of William A. Jones dated as of October
10, 1996*.....................................................
10.12 Indemnification Agreement dated as of October 10, 1996--Frank
G. Mancuso....................................................
10.13 Indemnification Agreement dated as of October 10, 1996--A.
Robert Pisano.................................................
10.14 Indemnification Agreement dated as of , 1997--Michael G.
Corrigan*.....................................................
10.15 Indemnification Agreement dated as of October 10, 1996--David
G. Johnson....................................................
10.16 Indemnification Agreement dated as of October 10, 1996--William
A. Jones......................................................
10.17 Indemnification Agreement dated as of October 10, 1996--James
D. Aljian.....................................................
10.18 Indemnification Agreement dated as of October 10, 1996--Michael
R. Gleason....................................................
10.19 Indemnification Agreement dated as of October 10, 1996--Kirk
Kerkorian.....................................................
10.20 Indemnification Agreement dated as of October 10, 1996--Kerry
M. Stokes.....................................................
10.21 Indemnification Agreement dated as of October 10, 1996--Jerome
B. York.......................................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10.23 Amended and Restated Supplemental Executive Retirement Agreement
of A. Robert Pisano*...........................................
10.24 Amended and Restated Shareholders Agreement dated as of August
4, 1997*.......................................................
10.25 Amended and Restated Investors Shareholder Agreement dated as of
August 4, 1997*................................................
11 Computation of per share earnings*..............................
21 List of Subsidiaries of Metro-Goldwyn-Mayer Inc. ...............
23.1 Consent of Arthur Andersen LLP..................................
23.2 Consent of Price Waterhouse LLP.................................
23.3 Consent of KPMG Peat Marwick LLP................................
23.4 Consent of Gibson, Dunn & Crutcher LLP (to be included in their
opinion filed as Exhibit 5.1)*.................................
24 Power of Attorney (included on page II-4).......................
27 Financial Data Schedule.........................................
99.1 Consent of A. Robert Pisano.....................................
</TABLE>
- --------
*To be filed by amendment.
+To be filed without Schedules.
<PAGE>
EXHIBIT 2.1
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
DATED AS OF July 16, 1996
by and among
P & F ACQUISITION CORP.
CONSORTIUM DE REALISATION,
MGM HOLDINGS CORPORATION,
MGM GROUP HOLDINGS CORPORATION
and
METRO-GOLDWYN-MAYER INC.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I REPRESENTATIONS OF CDR, PARENT AND SELLER........................ 2
Section 1.1 Ownership of Stock........................................ 2
Section 1.2 Authorization and Validity of Agreement................... 2
Section 1.3 Consents and Approvals; No Violations..................... 3
Section 1.4 Broker's or Finder's Fees................................. 3
ARTICLE II REPRESENTATIONS OF THE COMPANY.................................. 4
Section 2.1 Authorization and Validity of Agreement................... 4
Section 2.2 Consents and Approvals, etc .............................. 4
Section 2.3 Existence and Good Standing .............................. 5
Section 2.4 Capital Stock; Indebtedness .............................. 6
Section 2.5 Subsidiaries ............................................. 6
Section 2.6 Financial Statements and No Material Changes.............. 7
Section 2.7 Title to Properties ...................................... 7
Section 2.8 Material Contracts ....................................... 8
Section 2.9 Litigation ............................................... 8
Section 2.10 Intellectual Property .................................... 8
Section 2.11 Taxes .................................................... 8
Section 2.12 Conduct of Business ...................................... 9
Section 2.13 Compliance with Laws; Permits ............................ 10
Section 2.14 Employee Benefit Plans ................................... 10
Section 2.15 Transactions with Affiliates ............................. 11
Section 2.16 Insurance ................................................ 11
ARTICLE III REPRESENTATIONS OF PURCHASER .................................. 12
Section 3.1 Existence and Good Standing of Purchaser; Authorization... 12
Section 3.2 Consents and Approvals; No Violations . .................. 12
Section 3.3 Purchase for Investment .................................. 13
Section 3.4 Available Funds .......................................... 13
Section 3.5 Litigation ............................................... 13
Section 3.6 No Outside Reliance....................................... 14
Section 3.7 Broker's or Finder's Fees ................................ 14
</TABLE>
(i)
<PAGE>
<TABLE>
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Page
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<S> <C>
ARTICLE IV SALE OF STOCK................................................... 14
Section 4.1 Sale of Stock.............................................. 14
Section 4.2 Price...................................................... 14
Section 4.3 Terminating Debt, etc...................................... 14
Section 4.4 Closing.................................................... 15
ARTICLE V CERTAIN AGREEMENTS .............................................. 15
Section 5.1 Conduct of Business of the Company ........................ 15
Section 5.2 Review of the Company; Access to Properties and
Records ................................................... 17
Section 5.3 Reasonable Best Efforts.................................... 17
Section 5.4 Directors' and Officers' Indemnification .................. 18
Section 5.5 Benefit Assurance Programs ................................ 19
Section 5.6 Non-Solicitation of Employees ............................. 19
Section 5.7 Affected Employees ........................................ 20
Section 5.8 Employee Benefits ......................................... 20
Section 5.9 Tax Sharing Agreement...................................... 21
ARTICLE VI CONDITIONS TO PURCHASER'S OBLIGATIONS........................... 21
Section 6.1 Opinion of Seller's Counsel ............................... 21
Section 6.2 Truth of Representations and Warranties ................... 21
Section 6.3 Performance of Agreements ................................. 22
Section 6.4 No Injunction.............................................. 22
Section 6.5 Governmental and Other Approvals .......................... 22
Section 6.6 Resignations............................................... 22
Section 6.7 Purchaser's Financing ..................................... 22
ARTICLE VII CONDITIONS TO SELLER'S OBLIGATIONS............................. 22
Section 7.1 Opinions of Purchaser's Counsel ........................... 23
Section 7.2 Truth of Representations and Warranties.................... 23
Section 7.3 Performance of Agreements.................................. 23
Section 7.4 No Injunction ............................................. 23
Section 7.5 Governmental Approvals . .................................. 23
ARTICLE VIII TAX MATTERS................................................... 23
Section 8.1 Tax Liabilities............................................ 23
Section 8.2 Tax Returns................................................ 24
Section 8.2A Tax Indemnification....................................... 25
Section 8.3 Cooperation; Audits........................................ 26
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 8.4 Section 338................................................ 27
Section 8.5 Valuation and Allocation................................... 28
ARTICLE IX SURVIVAL OF REPRESENTATIONS;
INDEMNIFICATION............................................... 28
Section 9.1 Survival of Representations................................ 28
Section 9.2 Indemnities................................................ 29
Section 9.3 Limits on Indemnification.................................. 33
Section 9.4 Tax Matters................................................ 33
ARTICLE X TERMINATION...................................................... 33
Section 10.1 Events of Termination..................................... 33
Section 10.2 Effect of Termination..................................... 33
ARTICLE X1 MISCELLANEOUS................................................... 34
Section 11.1 Expenses................................................. 34
Section 11.2 Transfer Taxes........................................... 34
Section 11.3 Governing Law; Consent to Jurisdiction................... 34
Section 11.4 Captions................................................. 35
Section 11.5 Publicity................................................ 35
Section 11.6 Business Records......................................... 35
Section 11.7 Memorandum; Disclaimer of Projections.................... 36
Section 11.8 Notices.................................................. 36
Section 11.9 Parties in Interest...................................... 38
Section 11.10 Counterparts............................................. 38
Section 11.11 Entire Agreement......................................... 38
Section 11.12 Amendments............................................... 39
Section 11.13 Third Party Beneficiaries................................ 39
Section 11.14 Selling Group............................................ 39
Section 11.15 Liquidation of Parent.................................... 39
Section 11.16 Names.................................................... 39
</TABLE>
(iii)
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT (this "AGREEMENT") dated as of July 16, 1996
by and between P&F ACQUISITION CORP., a corporation organized under the laws of
the State of Delaware ("PURCHASER"), and CONSORTIUM DE REALISATION, a societe
par actions simplifiee organized under the laws of the Republic of France
("CDR"), MGM HOLDINGS CORPORATION, a corporation organized under the laws of the
State of Delaware ("PARENT"), MGM GROUP HOLDINGS CORPORATION, a corporation
organized under the laws of the State of Delaware ("SELLER"), and METRO-GOLDWYN-
MAYER INC., a corporation organized under the laws of the State of Delaware (the
"COMPANY").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, CDR indirectly owns all of the outstanding capital stock of
Parent; and
WHEREAS, Parent owns all of the outstanding capital stock of Seller;
and
WHEREAS, Seller is the owner of an aggregate of 10 shares of common
stock, par value $1.00 per share (the "STOCK"), of the Company, being all of the
outstanding shares of capital stock of the Company; and
WHEREAS, Seller desires to sell, and Purchaser desires to purchase,
the Stock pursuant to this Agreement; and
WHEREAS, it is the intention of the parties hereto that, immediately
following consummation of the purchase and sale of the Stock pursuant to this
Agreement, Purchaser shall own all of the outstanding shares of capital stock of
the Company.
<PAGE>
NOW, THEREFORE, IT IS AGREED:
ARTICLE I
REPRESENTATIONS OF CDR. PARENT AND SELLER
----------------------------------------
CDR, Parent and Seller (collectively, the "SELLING GROUP" and each,
individually, a "SELLING PERSON" each represents and warrants as follows:
Section 1.1 Ownership of Stock. Seller is the lawful owner of all
------------------
of the shares of Stock, free and clear of all liens, encumbrances, restrictions
and claims of every kind and character ("ENCUMBRANCES") other than a pledge
(the "CL PLEDGE") in favor of Credit Lyonnais, S.A., as Collateral Agent, which
pledge shall be terminated upon the sale of the Stock as contemplated herein
(the "SALE"). The Stock constitutes all of the issued and outstanding shares of
capital stock of the Company. There are no outstanding subscriptions, options,
warrants, rights, calls, commitments, conversion rights, rights of exchange or
other similar agreements providing for the purchase, issuance or sale of any
shares of the capital stock of the Company, other than as contemplated by this
Agreement. At the Closing (as defined below), the Selling Group shall fully
discharge all of the obligations arising under the Company's Senior Executive
Incentive Plan dated September 16, 1994 and Senior Executive Incentive Pool Plan
dated November 27, 1995. The delivery to Purchaser of the Stock pursuant to the
provisions of this Agreement will transfer to Purchaser valid title thereto,
free and clear of any and all Encumbrances; provided that no representation is
--------
made regarding the ability of any Person to subsequently transfer or otherwise
dispose of such Stock without registration or qualification under, or in
compliance with, applicable Federal or state securities laws.
Section 1.2 Authorization and Validity of Agreement. Each Selling
---------------------------------------
Person has full corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by each Selling Person, and the consummation by each of them of
the transactions contemplated hereby, have been duly authorized and approved by
the Board of Directors or other governing body of each such Selling Person and
no other corporate action on the part of any Selling Person is necessary to
authorize the execution, delivery and performance of this Agreement by such
Selling Person and the consummation by such Selling Person of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by each
Selling Person and, assuming the due execution of this Agreement by Purchaser,
is a valid and binding obligation of each such Selling Person, enforceable
-2-
<PAGE>
against such Selling Person in accordance with its terms, except to the extent
that its enforceability may be subject to applicable bankruptcy, insolvency,
reorganization and similar laws affecting the enforcement of creditors' rights
generally and to general equitable principles.
Section 1.3 Consents and Approvals; No Violations. Assuming (i) that
-------------------------------------
filings required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR ACT"), are made and the waiting period thereunder has been
terminated or has expired, (ii) the making of such other antitrust or
competition law filings as are required under applicable law and the termination
and/or expiration of any waiting period or the receipt of any requisite
clearances related thereto, and (iii) the obtaining of such other applications,
registrations, declarations, filings, authorizations, orders, consents and
approvals as are set forth in Schedule 1.3(a) attached hereto, the execution and
delivery of this Agreement by each Selling Person and the consummation by each
Selling Person of the Sale and the other transactions contemplated hereby (a)
will not violate the provisions of the charter, by-laws or other organic
documents of any Selling Person, (b) will not violate any statute, rule,
regulation, order or decree of any public body or authority by which any
Selling Person is bound or by which any of their respective properties or assets
are bound, (c) will not require any filing with, or permit, consent or approval
of, or the giving of any notice to, any governmental or regulatory body, agency
or authority on or prior to the Closing Date (as defined in Section 4.3), and
(d) except as set forth in Schedule 1.3(d) attached hereto, will not result in a
violation or breach of, conflict with, constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation, payment or acceleration) under, or result in the creation of any
Encumbrance upon any of the properties or assets of any Selling Person under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, franchise, permit, agreement, lease, franchise agreement or
any other instrument or obligation to which any Selling Person is a party, or by
which it or any of their respective properties or assets may be bound, excluding
from the foregoing clauses (b), (c) and (d) filings, defaults, conflicts and
liens the existence of which, would not prevent any Selling Person from
performing its obligations hereunder or prevent, or establish any materially
burdensome condition on, the consummation of the Sale and the other transactions
contemplated by this Agreement.
Section 1.4 Broker's or Finder's Fees. No agent, broker, firm or
-------------------------
other Person acting on behalf of any Selling Person or the Company is, or will
be, entitled to any commission or broker's or finder's fees from any of the
parties hereto, or from any Person controlling, controlled by or under common
control with any of the parties hereto, in connection with any of the
transactions contemplated herein, except for
-3-
<PAGE>
Lazard Freres & Co. LLC ("Lazard Freres"), whose fees, expenses and any other
amounts due to Lazard Freres or any of its officers, directors, employees or
affiliates thereunder will be paid by the Selling Group. On or prior to the
Closing the Selling Group shall cause Lazard Freres to release the Company from
any and all indemnities, howsoever, arising, owing by the Company to Lazard
Freres (or if such release is not obtained, the Selling Group shall indemnify
the Company for any such indemnities so paid by the Company).
ARTICLE II
REPRESENTATIONS OF THE COMPANY
------------------------------
The Company represents and warrants as follows:
Section 2.1 Authorization and Validity of Agreement. The Company has
---------------------------------------
full corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution, delivery and performance of
this Agreement by the Company have been duly authorized and approved by the
Board of Directors of the Company and no other corporate action on the part of
the Company is necessary to authorize the execution, delivery and performance of
this Agreement by the Company. This Agreement has been duly executed and
delivered by the Company and, assuming the due execution of this Agreement by
the other parties hereto, is a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except to the
extent that its enforceability may be subject to applicable bankruptcy,
insolvency, reorganization and similar laws affecting the enforcement of
creditors' rights generally and to general equitable principles.
Section 2.2 Consents and Approvals, etc. Assuming (i) that filings
--------------------------
required under the HSR Act are made and the waiting period thereunder has been
terminated or has expired, and (ii) obtaining of such other applications,
registrations, declarations, filings, authorizations, orders, consents and
approvals as are set forth in Schedule 2.2(a) attached hereto, the execution and
delivery of this Agreement by the Company and the consummation by the Company of
the Sale and other transactions contemplated hereby (a) will not violate the
provisions of the Certificate of Incorporation or By-laws of the Company, (b)
will not violate any statute, rule, regulation, order or decree of any public
body or authority by which the Company or any Subsidiary (as hereinafter
defined) is bound or by which any of their respective properties or assets are
bound, (c) will not require any filing with, or permit, consent or approval of,
or the giving of any notice to, any United States governmental or regulatory
body, agency or authority on or prior to the Closing Date and (d) except as
-4-
<PAGE>
set forth in Schedule 2.2(d) attached hereto, will not result in a violation or
breach of, conflict with, constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation,
payment or acceleration) under, or result in the creation of any Encumbrance
upon any of the properties or assets of the Company or any Subsidiary under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, franchise, permit, agreement, lease, franchise agreement or any other
instrument or obligation to which the Company or any Subsidiary is a party, or
by which it or any of their respective properties or assets may be bound,
excluding from the foregoing clauses (b), (c) and (d) filings, notices, permits,
consents and approvals the absence of which, and violations, breaches, defaults,
conflicts and liens the existence of which, in the aggregate, would not have a
material adverse effect on the business, financial condition or results of
operations of the Company and the Subsidiaries (as such term is defined herein)
taken as a whole (a "MATERIAL ADVERSE EFFECT").
Section 2.3 Existence and Good Standing. (a) The Company is a
---------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted. The Company is duly qualified or licensed as a foreign corporation to
conduct its business, and, to the extent such concept is applicable, is in good
standing in each jurisdiction in which the character or location of the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to be so duly
qualified or licensed would not have a Material Adverse Effect.
(b) Each Material Subsidiary is a corporation duly organized, validly
existing and, to the extent such concept is applicable, is in good standing
under the laws of its jurisdiction of incorporation and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. Each Subsidiary is duly qualified
or licensed as a foreign corporation to do business and, to the extent such
concept is applicable, is in good standing in each jurisdiction in which the
character or location of the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified or licensed would not have a
Material Adverse Effect. As used in this Agreement, (i) "SUBSIDIARY" shall mean
any Person of which the Company (either alone or together with other
Subsidiaries of the Company) owns, directly or indirectly, more than 50% of the
stock or other equity interests that are generally entitled to vote for the
election of the board of directors or other governing body of such Person, (ii)
"MATERIAL SUBSIDIARY" shall mean any Subsidiary that is a Significant Subsidiary
of the Company within the meaning of Rule 102 of Regulation S-X under the
Securities Exchange Act of 1934, as amended, and (iii)
-5-
<PAGE>
"Person" shall mean and include an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an unincorporated
organization and a government or other department or agency thereof.
Section 2.4 Capital Stock: Indebtedness. (a) The company has an
---------------------------
authorized capitalization consisting of 1,000 shares of common stock, par value
$1.00. a share, of which 10 shares are issued and outstanding. All such
outstanding shares have been duly authorized and validly issued and are fully
paid and nonassessable. There are no outstanding subscriptions, options,
warrants, rights, calls, commitments, conversion rights, rights of exchange,
plans or other agreements providing for the purchase, issuance or sale of any
shares of the capital stock of the Company, other than as contemplated by this
Agreement.
(b) Schedule 2.4(b) attached hereto sets forth in the aggregate all
Indebtedness of the Company and its Subsidiaries which will remain outstanding
after the Closing Date and, in the case of any issue of such Indebtedness of
$500,000 or more, specifically identifies the agreements pertaining to such
Indebtedness and the principal amount thereof outstanding on the date hereof
under each such agreement. As used in this Agreement, "INDEBTEDNESS" shall mean
and include (i) indebtedness for borrowed money, (ii) indebtedness representing
reimbursement obligations for outstanding letters of credit, (iii) capitalized
lease obligations and (iv) the deferred purchase price of property that is
required under generally accepted accounting principles to be set forth as a
liability on a consolidated balance sheet of the Company.
(c) Schedule 2.4(c) attached hereto sets forth all Indebtedness of the
Company and its Subsidiaries which, assuming payment of the Purchase Price as
provided in Section 4.2, will be repaid in full upon the consummation of the
Sale (the "TERMINATING DEBT") and identifies the agreements pertaining to such
Indebtedness and the principal amount thereof outstanding on the date hereof
under each such agreement.
Section 2.S Subsidiaries. Set forth on Schedule 2.5 attached hereto is
------------
an accurate and complete list of all Material Subsidiaries. The Company is,
directly or indirectly, the record owner of the percentage of the shares of
capital stock of each Material Subsidiary that is listed opposite such
Subsidiary on Schedule 2.5. No capital stock of any Subsidiary is or may become
required to be issued, transferred or sold for any reason and all of the
outstanding shares of capital stock of each Subsidiary are validly issused,
fully paid and nonassessable and are owned free and clear of any Encumbrance
with respect thereto other than Permitted Encumbrances (as defined in Section
2.7).
-6-
<PAGE>
Section 2.6 Financial Statements and No Material Changes. (a) The
--------------------------------------------
Selling Group has heretofore furnished Purchaser with the consolidated balance
sheets of the Company and its Subsidiaries as at December 31, 1995 and 1994 (the
balance sheet as at December 31, 1995 being hereinafter referred to as the
"BALANCE SHEET") and the related consolidated statements of operations, changes
in stockholder's equity and cash flows for the periods then ended, audited by
Price Waterhouse LLP (the "FINANCIAL STATEMENTS"). Such Financial Statements
including the footnotes thereto, except as indicated therein, have been prepared
in accordance with generally accepted accounting principles and fairly present
in all material respects the financial position of the Company and the
Subsidiaries and the results of their operations and cash flows at such dates
and for such periods.
(b) Other than (i) as set forth on schedule 2.6(b) attached hereto,
(ii) any change resulting from general economic, financial or market conditions,
(iii) any change resulting from conditions or circumstances generally affecting
the business in which the Company and/or its Subsidiaries operate (including
losses resulting from the release of films in the ordinary course of business)
or (iv) any change resulting from Purchase's refusal to grant any consent
necessary for Seller to act pursuant to the second sentence of Section 5.1
hereof, since December 31, 1995 (the "BALANCE SHEET DATE"), there has been no
material adverse change in the assets or liabilities or in the business,
financial condition or results of operations of the Company and the Subsidiaries
taken as a whole.
Section 2.7 Title to Properties. Except as set forth on Schedule 2.7
-------------------
attached hereto, and except for properties and assets reflected on the Balance
Sheet, or acquired since the Balance Sheet Date, which have been sold or
otherwise disposed of in the ordinary course of business, each of the Company
and the Subsidiaries has good title to, or holds by valid lease or license, all
its material properties and assets, including, without limitation, all the
material properties and assets reflected on the Balance Sheet, subject to no
Encumbrance except for (1) Encumbrances reflected on the Balance Sheet, (2)
Encumbrances arising by operation of law, (3) Encumbrances for current taxes,
assessments or governmental charges or levies on property not yet due and
delinquent or the validity of which are being contested in good faith by
appropriate proceedings, (4) liens consisting of zoning or planning
restrictions, easements, permits and other restrictions or limitations on the
use of real property or irregularities in title thereto which do not materially
detract from the value of, or impair the use of such property by the Company or
its Subsidiaries in the operation of its business, (5) liens securing
Indebtedness that will be terminated concurrently with the consummation of the
Sale, and (6) Encumbrances which do not have a Material Adverse Effect
(Encumbrances of the type described in clauses (1) through (6) above, inclusive,
are hereinafter sometimes referred to as "PERMITTED ENCUMBRANCES").
-7-
<PAGE>
Section 2.8 Material Contracts. Set forth on Schedule 2.8 attached
------------------
hereto are all the agreements, contracts or commitments of the Company and the
subsidiaries that are material to the Company and its Subsidiaries taken as a
whole. Neither the Company nor any Subsidiary has violated any contract or
agreement set forth in Schedule 2.8 in any material respect.
Section 2.9 Litigation. Except as set forth in Schedule 2.9 attached
----------
hereto, there is no claim, action, suit or proceeding or, to the knowledge of
the Company, investigation at law or in equity by any Person or any arbitration
or any administrative or other proceeding by or before any governmental body,
instrumentality or agency, pending or, to the knowledge of the Company,
threatened in writing against the Company or any Subsidiary which is reasonably
likely to have a Material Adverse Effect.
Section 2.10 Intellectual Property. The Company and its Subsidiaries
---------------------
own or possess adequate licenses or other valid rights to use all material
patents, patent rights, trademarks, trademark rights, trade names, trade name
rights, copyrights, service marks, trade secrets, applications for trademarks
and for service marks, know-how and other proprietary rights and information
used or held for use in connection with the business of the Company and its
Subsidiaries as currently conducted or as contemplated to be conducted, and the
Company is unaware of any assertion or claim challenging the validity of any of
the foregoing which, individually or in the aggregate, would have a Material
Adverse Effect. The conduct of the business of the Company and its Subsidiaries
as currently conducted does not conflict in any way with any patent, patent
right, license, trademark, trademark right, trade name, trade name right,
service mark or copyright of any third party that, individually or in the
aggregate, would have a Material Adverse Effect. To the best knowledge of the
Company, there are no infringements of any proprietary rights owned by or
licensed by or to the Company or any Subsidiary which, individually or in the
aggregate, would have a Material Adverse Effect.
Section 2.11 Taxes. (a) Tax Returns. The Company and each of its
----- -----------
Subsidiaries has filed or caused to be filed or will file or cause to be filed
with the appropriate taxing authorization all material returns, statements,
forms and reports ("RETURNS") For Taxes that are required to be filed by, or
with respect to, the Company and its Subsidiaries on or prior to the Closing
Date. As used herein, "TAX" or "TAXES" shall mean all taxes, assessments,
charges, duties, fees, levies or other governmental charges, including, without
limitation, all U.S. federal, state, local and foreign income, franchise,
profits, capital gains, capital stock, transfer, sales, use, value added,
occupation, property, excise, severance, windfall profits, stamp, license,
payroll, social security, withholding and other taxes, or other governmental
assessments, duties, fees,
-8-
<PAGE>
levies or charges of any kind whatsoever, all estimated taxes, deficiency
assessments, additions to tax, penalties and interest.
(b) Payment of Taxes. All material Tax liabilities of the Company and
----------------
its subsidiaries or for which the Company or any of its Subsidiaries may be
liable for all taxable years or other taxable periods (including portions
thereof) ending on or prior to the Closing Date have been paid except for any
such Taxes for which adequate accruals or reserves have been made on thc books
and records of the Company and its Subsidiaries.
(c) Other Tax Matters. (i) Schedule 2.11 attached hereto sets forth (A)
-----------------
each taxable year or other taxable period of the Company and its Subsidiaries
for which an audit or other examination of Taxes by any taxing authority is
currently in progress, (B) the taxable years or other taxable periods of the
Company and its Subsidiaries which, for tax purposes, will not be subject to the
normally applicable sate of limitations because of waivers or agreements given
by Parent, Seller, the company or its Subsidiaries and (C) a list of all written
notices received by Parent, Seller, the Company or its Subsidiaries from any
taxing authority pertaining to the commencement of a Tax audit or asserting
a Tax liability of the Company or its Subsidiaries but, in the case of clauses
(A) and (C) above, only to the extent that if determined adversely to the
Company or its Subsidiaries could result in a material Tax liability of the
Company or its Subsidiaries after the Closing Date.
(ii) Except as provided on Schedule 2.11, neither the Company, nor any
of its Subsidiaries has been included in any "consolidated," "unitary" or
"combined" Return provided for under the laws of any jurisdiction with respect
to Taxes for any taxable period for which the statute of limitations has not
expired.
(iii) Except as disclosed on Schedule 2.11, there are no tax sharing,
tax allocation or tax indemnity agreements in effect between the Company or any
of its Subsidiaries and any other party under which Purchaser, the Company or
any Subsidiary could be liable for any material Taxes or other claims of any
party which could result in a material liability to the Company or any of its
Subsidiaries after the Closing Date.
(iv) Except as provided in Schedule 2.11, since January 1, 1996 neither
the company nor any of its Subsidiaries has made any payments pursuant to the
tax sharing agreement listed on such Schedule.
Section 2.12 Conduct of Business. Since the Balance Sheet Date, except
-------------------
(a) as set forth on Schedule 2.12 attached hereto or (b) as contemplated or
expressly
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<PAGE>
required or permitted by this Agreement, the Company has not taken any action
which, if taken subsequent to the execution of this Agreement and on or prior to
the Closing Date, would constitute a material breach of the Company's agreements
set forth in Section 5.1.
Section 2.13 Compliance with Laws: Permits. (a) The Company and each
-----------------------------
subsidiary are in compliance in all material respects with all material
applicable laws, regulations, orders, judgments and decrees except where the
failure to so comply would not have a Material Adverse Effect.
(b) The Company and each of the Subsidiaries possesses all licenses,
certificates of authority, permits or other authorizations (a "LICENSE")
necessary for the ownership of its properties and the conduct of its business as
presently conducted in each jurisdiction in which the Company and such
Subsidiary is required to possess a License, except where the failure to possess
such a License would not have a Material Adverse Effect. All such Licenses are
in full force and effect and neither the Company nor any Subsidiary has received
any written notice of any event, inquiry, investigation or proceeding
threatening the validity of such Licenses, except where the failure of such
Licenses to be in full force and effect or such event, inquiry, investigation or
proceeding would not have a Material Adverse Effect.
Section 2.14 Employee Benefit Plans. Each "employee benefit plan" (as
----------------------
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), maintained or contributed to by the Company or any of
its Subsidiaries (each, a "PLAN" and collectively, the "PLANS") is listed on
Schedule 2.14 attached hereto. Except as set forth on such Schedule, or to the
extent that any breach of the representations set forth in this sentence would
not have a Material Adverse Effect: (a) each Plan is in compliance with
applicable law and has been administered and operated in accordance with its
terms; (b) each Plan which is intended to be "qualified" (within the meaning of
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code")),
has received a favorable determination letter from the Internal Revenue Service
and, to the knowledge of the Company, no event has occurred and no condition
exists which could reasonably be expected to result in the revocation of any
such determination letter; (c) no "reportable event" (within the meaning of
Section 4043(c) OF ERISA) for which the 30-day notice requirement has not
been waived by the Pension Benefit Guaranty Corporation (the "PBGC") has
occurred with respect to a Plan; (d) no Plan subject to Title IV of ERISA has
been terminated or is or has been the subject of termination proceedings
pursuant to Title IV of ERISA; (e) full payment has been made of all amounts
which the Company or any of its Subsidiaries was required to have paid under the
terms of any Plan as contributions to such Plan on or prior to the date hereof
(excluding any amounts not yet due) and no
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<PAGE>
Plan has incurred an "accumulated funding deficiency" (within the meaning of
Section 302 of ERISA or Section 412 of the Code), whether or not waived; (f)
to the knowledge of the Company, no "disqualified person" or "party in interest"
(as defined in Section 4975(e)(2) of the Code and Section 3(14) of ERISA,
respectively) has engaged in any transaction in connection with a Plan that
could reasonably be expected to result in the imposition of a penalty pursuant
to Section 502(i) of ERISA or a tax pursuant to Section 4975(a) of the Code; (g)
no liability, claim, action or litigation, has been commenced or, to the
knowledge of the Company, threatened with respect to any Plan (other than claims
for benefits payable submitted in the ordinary course and for the payment of
PBGC insurance premiums in the ordinary course); (h) with respect to each Plan
which is subject to Title IV of ERISA, as of the date of the most recent
actuarial valuation performed therefor, the aggregate present value of the
accrued liabilities thereof did not exceed the aggregate fair market value of
the assets allocable thereto; and (i) neither the Company nor any of its
Subsidiaries has, or expects to incur, any withdrawal liability under Section
4201 or 4204 of ERISA with respect to any "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA).
Section 2.15 Transactions with Affiliates. Schedule 2.15 attached
------------------------------
hereto identifies all material contracts, commitments and agreements in effect
as of the date hereof and which will continue in effect after the consummation
of the Sale, by and between the Company or any Subsidiary on the one hand and
Seller or any of its Affiliates (other than the Company and the Subsidiaries) on
the other. As used in this Agreement, an "AFFILIATE" shall mean any Person
directly or indirectly controlling, controlled by or under direct or indirect
common control with another Person, and, with respect to the Purchaser, shall
include in any event Tracinda Corporation and its Affiliates and Seven Network
Limited and its Affiliates.
Section 2.16 Insurance. Schedule 2.16 attached hereto contains a list
---------
of the material policies and contracts for property and casualty insurance
maintained by the Company and its Subsidiaries. All such policies are in full
force and effect. The Company will use its reasonable efforts to keep or cause
to be kept such policies (or substantial equivalents) in such amounts duly in
force until the Closing Date and shall give Purchaser notice of any material
change in such policies.
-11-
<PAGE>
ARTICLE III
REPRESENTATIONS OF PURCHASER
----------------------------
Purchaser represents and warrants as follows:
Section 3.1 Existence and Good Standing of Purchaser: Authorization.
-------------------------------------------------------
(a) Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
(b) Purchaser has full corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. The execution, delivery and performance of
this agreement by Purchaser, and the consummation by it of the transactions
contemplated hereby, have been duly authorized and approved by its Board of
Directors and no other corporate or shareholder action on the part of Purchaser
or its shareholders is necessary to authorize the executed, delivery and
performance of this Agreement by Purchaser and the consummation of the Sale and
the other transactions contemplated hereby. This Agreement has been duly
executed and delivered by Purchaser and, assuming the due execution of this
Agreement by Seller, is a valid and binding obligation of Purchaser enforceable
against Purchaser in accordance with its terms, except to the extent that its
enforceability may be subject to applicable bankruptcy, insolvency,
reorganization and similar laws affecting the enforcement of creditors' rights
generally and to general equitable principles.
Section 3.2 Consents and Approvals: No Violations. Assuming that (i)
-------------------------------------
the filings required under the HSR Act are made and the waiting period
thereunder has been terminated or has expired, (ii) the making of such other
antitrust and competition law filings as are required under applicable law and
the termination and/or expiration of any waiting period or the receipt of any
requisite clearances related thereto and (iii) the making or obtaining of such
other applications, registrations, declarations, filings, authorization, orders,
consents and approvals as are set forth in Schedule 3.2 attached hereto, the
execution and delivery of this Agreement by Purchaser and the consummation
of the transaction contemplated hereby (a) will not violate any provisions of
the Certificate of Incorporation or By-Laws of Purchaser, (b) will not violate
any statute, rule, regulation, order or decree of any public body or authority
by which Purchaser is bound or by which any of its properties or assets are
bound, (c) will not require any filing with, or permit, consent or approval of,
or the giving of any notice to, any governmental or regulatory body, agency or
authority on or prior to the Closing Date and (d) will not result in a
violation or breach of, conflict with, constitute (with or
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<PAGE>
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation, payment or acceleration) under, or result in
the creation of any Encumbrance upon any of the properties or assets of
Purchaser under, any of the terms conditions or provisions of any note, bond,
mortgage, indenture, license, franchise, permit, agreement, lease, franchise
agreement or any other instrument or obligation to which Purchaser is a party,
or by which it or any of its properties or assets may be bound, excluding from
the foregoing clauses (b), (c) and (d) filings, notices, permits, consents and
approvals the absence of which, and violations, breaches, defaults, conflicts
and Encumbrances the existence of which, would not prevent Purchaser from
performing its obligations under this Agreement or prevent, or establish any
materially burdensome condition on, the consummation of the Sale and the other
transactions contemplated by this Agreement.
Section 3.3 Purchase for Investment. Purchaser will acquire the Stock
-----------------------
solely for its own account for investment and not with a view toward any resale
or distribution thereof. Purchaser agrees that the Stock may not be sold,
transferred, offered for sale, pledged, hypothecated or otherwise disposed of
without registration under the Securities Act of 1933, as amended, except
pursuant to an exemption from such registration available under such Act, and
without compliance with foreign securities laws, in each case, to the extent
applicable. Purchaser has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of its
purchase of the Stock. Purchaser confirms that the Company and the Selling Group
have made available to Purchaser the opportunity to ask questions of the
officers and management employees of the Company and to acquire additional
information about the business and financial condition of the Company and its
Subsidiaries.
Section 3.4 Available Funds. Purchaser has provided to the Selling
-----------------
Group true and correct copies of executed commitment letters ("PURCHASER'S
FINANCING COMMITMENTS") pursuant to which the persons named therein
have agreed to provide S900 million of equity financing, $450 million of term
debt financing and $350 million of revolving credit, in each case on the terms
and subject to the conditions set forth therein, which financing will provide
Purchaser with sufficient funds to perform all of its obligations under this
Agreement, including, without limitation, to make the payments specified in
Sections 4.2 and 4.3(a) hereof.
SECTION 3.5 Litigation. There is no action, suit or proceeding, at law
----------
or in equity by any Person or any arbitration or any administrative or other
proceeding before any governmental body or instrumentality or agency, pending
or, to the knowledge of the Purchaser, threatened in writing, which is
reasonably likely to have
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<PAGE>
a material adverse effect on Purchaser's ability to consummate the Sale and the
other transactions contemplated by this Agreement.
Section 3.6 No Outside Reliance. Purchaser has not relied and is not
-------------------
relying upon any statement or representation not made in this Agreement or a
Schedule hereto or in any certificate or document required to be provided by the
Company or the Seller pursuant to this Agreement.
Section 3.7 Broker's or Finder's Fees. No agent, broker, firm or other
-------------------------
Person acting on behalf of Purchaser is, or will be, entitled to any commission
or broker's or finder's fees from any of the parties hereto, or from any Person
controlling, controlled by or under common control with any of the parties
hereto, in connection with any of the transactions contemplated herein, except
for J.P. Morgan, whose fees, expenses and any other amounts due to J.P. Morgan
or any of its officers, directors, employees or affiliates thereunder will be
paid by Purchaser and no Selling Person shall be liable for any thereof.
ARTICLE IV
SALE OF STOCK
-------------
Section 4.1 Sale of Stock. Subject to the terms and conditions herein
-------------
stated, Seller agrees to sell, assign, transfer and deliver to Purchaser on the
Closing Date, and Purchaser agrees to purchase from Seller on the Closing Date,
all of the shares of Stock owned by Seller. The certificate representing the
Stock shall be duly endorsed in blank, or accompanied by stock powers duly
executed in blank, by Seller.
Section 4.2 Price. In consideration for the purchase by Purchaser of
-----
the Stock, on the Closing Date, Purchaser shall pay to Seller the aggregate
amount (the "PURCHASE PRICE") of $100,000 (with such amount to be increased to
the extent that the amount paid by the Purchaser on the Closing Date pursuant to
Section 4.3(a) is less than $1,299,900,000), such payment to be made by wire
transfer of immediately available funds to an account of Seller designated in
writing to Purchaser not later than two business days prior to the Closing Date.
Section 4.3. Terminating Debt. etc. (a) As a condition to the
---------------------
consummation of the Sale, on the Closing Date and simultaneously with the
payment by Purchaser of the Purchase Price pursuant to Section 4.2, Purchaser
shall wire transfer directly to the accounts of those creditor banks designated
in writing to Purchaser not less than two business days prior to the Closing
Date an amount equal
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<PAGE>
to the lesser of (x) $1,299,900,000 and (y) the principal amount of the
Terminating Debt on the Closing Date plus all interest accrued and unpaid
thereon as of the Closing Date other than interest accrued and unpaid under the
Credit Agreement dated as of September 16, 1994 with The Chase Manhattan Bank as
Agent (the "CMB AGREEMENT"), allocated among such creditor banks as specified
in such writing (provided that the principal debt under the CMB Agreement shall
be repaid first) in satisfaction of the Terminating Debt so paid (with the
accrued and unpaid interest under the CMB Agreement to be paid on the Closing
Date directly by the Company), and any Terminating, Debt remaining unpaid after
giving effect to such payment will be satisfied, cancelled and/or extinguished
at or before the Closing on a mutually satisfactory basis; provided, however,
that in no event shall the aggregate amount required to be paid by Purchaser
pursuant to Section 4.2 and this Section 4.3(a) exceed $1.3 billion.
(b) On the Closing Date and simultaneously with the payment of the
Purchase Price pursuant to Section 4.2, all obligations (direct, indirect and/or
contingent but not including any obligation owing under this Agreement or any
Terminating Debt) owing by the Company or its Subsidiaries to the Selling
Persons, Credit Lyonnais S.A. or their affiliates (collectively the "SELLING
PARTIES") shall be set-off against all obligations (direct, indirect and/or
contingent but not including any obligation owing under this Agreement) owing by
the Selling Parties to the Company or its Subsidiaries and all such obligations
that remain after such set-off shall be cancelled and of no further effect.
Section. 4.4 Closing. The closing of the Sale referred to in Section
-------
4.1 (the "CLOSING") shall take place at 10:00 A.M. at the offices of White &
Case, 633 West Fifth Street, Los Angeles, CA 90071-2007 on September 17, 1996,
or at such other time, date and place (not later than October 30, 1996) as the
parties hereto shall by written instrument designate. Such time and date are
herein referred to as the "CLOSING DATE". The parties hereby agree that the
effective time of the Closing for Federal income tax purposes shall be at 12:01
a.m. on the Closing Date.
ARTICLE V
CERTAIN AGREEMENTS
------------------
Section 5.1 Conduct of Business of the Company. During the period from
----------------------------------
the date of this Agreement to the Closing Date, the Company will conduct its
operations and will cause the Subsidiaries to conduct their respective
operations in the ordinary course of business. Notwithstanding the immediately
preceding sentence,
-15-
<PAGE>
pending the Closing Date and except as may be first approved by Purchaser (such
approval not to be unreasonably withheld) or as is otherwise permitted,
contemplated or required by this Agreement or set forth on Schedule 5.1 hereto,
(a) the Company's and the Subsidiaries' respective Certificates of Incorporation
and By-Laws will be maintained in their respective forms on the date of this
Agreement, (b) the compensation payable or to become payable by the Company and
the Subsidiaries to any of their directors, officers or employees being paid
$1,000,000 per year or more will be maintained at the amount existing on the
date of this Agreement except for normal periodic increases in the ordinary
course of business consistent with past practice, (c) the Company and the
Subsidiaries will refrain from making any bonus, pension, retirement or
insurance payment or arrangement to or with any such Persons except those that
have been accrued or accrue in the ordinary course of business (including,
without limitation, any payments to employees under the MGM Savings Plan, the
MGM Retirement Plan, the MGM Retirement Plan for Canadian Employees, the MGM
Management Incentive Plan, the MGM Group Insurance Plan, the MGM Dependent Care
Plan and each of the Benefit Assurance Programs referred to in Section 5.5), (d)
the Company and the Subsidiaries will refrain from entering into any material
contract or commitment except material contracts and commitments in the ordinary
course of business, (e) the Company and the Subsidiaries will refrain from
increasing their indebtedness for borrowed money, except borrowings in the
ordinary course of business, (f) the Company and the Subsidiaries will refrain
from cancelling or waiving any claim or right of substantial value which
individually or in the aggregate is material to the Company and the Subsidiaries
taken as a whole, other than in the ordinary course of business, (g) the Company
will refrain from declaring or paying any dividends in respect of any capital
stock of the Company or redeem, purchase or otherwise acquire any of the
Company's capital stock (except for dividends described on Schedule 5.1 attached
hereto), (h) the Company and the Subsidiaries will refrain from making any
material change in accounting methods or practices, except as required by law or
generally accepted accounting principles, (i) the Company and the Subsidiaries
will refrain from issuing or selling any shares of their capital stock or any
other securities, or issuing any securities convertible into, or options,
warrants or rights to purchase or subscribe to, or entering into any arrangement
or contract with respect to the issue and sale of, any shares of their capital
stock or any other securities, or making any other changes in their capital
structures, except for issuances or commitments by any Subsidiary to issue any
such securities to the Company or any other Subsidiary, (j) the Company and the
Subsidiaries will refrain from settling any pending litigation, other than any
settlement which will not have a Material Adverse Effect, (k) except as required
by, or to give effect to, any liquidation of Parent as provided for in Section
ll.15, Parent and Seller, as applicable, and the Company and its Subsidiaries
will refrain from (i) the making or changing of any material Tax election with
respect to the Company or any of its Subsidiaries or the filing of any Tax
Return which is not
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<PAGE>
consistent with the prior practice of the Company and its Subsidiaries, as
applicable, and (ii) the settling of any material liability for Taxes of the
Company or any of its Subsidiaries, and (1) the Company and the Subsidiaries
will not agree, whether or not in writing, to do any of the foregoing.
Section 5.2 Review of the Company: Access to Properties and Records.
-------------------------------------------------------
(a) Purchaser may, prior to the Closing Date, through its representatives,
review the properties, books and records of the Company and the Subsidiaries to
familiarize itself with such properties and the business of the Company and the
Subsidiaries. The Company will permit Purchaser and its representatives to have
reasonable access to the premises and to the books and records of the Company
and the Subsidiaries during normal working hours and upon reasonable notice to
conduct such review; provided, however, that such investigation shall not
--------
unreasonably disrupt the personnel and operations of the Company or its
Subsidiaries. The parties hereto acknowledge that PurchaSer (or an Affiliate of
Purchaser) and Lazard Freres (on behalf of CDR and the Company) have entered
into a Confidentiality Agreement dated as of July 16, 1996 (the "CONFIDENTIALITY
AGREEMENT") and Purchaser confirms that it and its Affiliates will
comply with their respective obligations thereunder and that information
obtained during any such review will be subject to the terms of the
Confidentiality Agreement.
(b) Until the Closing Date, Purchaser shall promptly inform CDR and
the Company in writing of any material variances discovered by Purchaser or its
representatives in the representations and warranties of the Selling Group and
the Company contained in this Agreement.
Section 5.3 Reasonable Best Efforts. Each of the parties hereto
-----------------------
agrees to use its reasonable best efforts to take, or cause to be taken, all
action to do or cause to be done, and to assist and cooperate with the other
company hereto in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement, including, but not limited to, (a) compliance
with the HSR Act in all respects (including the filing of a notification and
report form), (b) compliance with other applicable antitrust or competition laws
or statutes, if any, (c) the obtaining of all necessary waivers, consents and
approvals from governmental or regulatory agencies or authorities and the making
of all necessary registrations and filings and the taking of all reasonable
steps as may be necessary to obtain any approval or waiver from, or to avoid any
action or proceeding by, any governmental agency or authority, (d) the obtaining
of all necessary consents, approvals or waivers from third parties and (e) the
defending of any lawsuits or any other legal proceedings whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions con-
-17-
<PAGE>
templated hereby including, without limitation, seeking to have any temporary
restraining order entered by any court or administrative authority vacated or
reversed.
Section 5.4 Directors' and Officers' Indemnification. (a) The
----------------------------------------
provisions of the Certificate of Incorporation and By-laws of the Company and of
each Subsidiary concerning elimination of liability and indemnification of
directors and officers shall not be amended in any manner that would adversely
affect the rights thereunder of any Person that is as of the date hereof an
officer or director of the Company or of any such Subsidiary. Upon the
consummation of the Sale, Purchaser shall assume and become liable for, jointly
and severally with the Company and each Subsidiary, any liability and all
obligations of the Company and each Subsidiary under such provisions.
(b) For six years from the Closing Date, the Company (and each
Subsidiary) shall maintain, and Purchaser shall cause the Company and each
Subsidiary to maintain, officers' and directors' liability insurance covering
the Persons who are presently covered by the Company's (and any Subsidiary's)
officers' and directors' liability insurance policies (copies of which have
heretofore been delivered to Purchaser) with respect to actions and omissions
occurring prior to the Closing Date, on terms which are not materially less
favorable than the terms of such current insurance in effect for the Company on
the date hereof; provided, however, that in no event shall the Company be
required to expend more than an amount per year equal to 150% of the current
annual premiums paid by the Company (the "PREMIUM AMOUNT") to maintain or
procure insurance coverage pursuant hereto, and further provided that if the
Company is unable to obtain the insurance called for by this Section 5.4(b), the
Company will obtain as much comparable insurance as is available for the Premium
Amount per year.
(c) Notwithstanding the foregoing, the Selling Group shall be liable
to indemnify the Company's officers and directors as, and to the extent,
provided in Section 9.2(a) and, to the extent such officers and/or directors are
entitled to such indemnification, the Company and the Purchaser shall have no
duty to make payments to such directors and officers under this Section 5.4,
provided that it is understood that the Selling Group will not have to make
indemnity payments under Section 9.2(a) to the extent any director or officer
has actually been paid pursuant to any insurance maintained pursuant to Section
5.4(b) with respect to the Damages (as defined in Section 9.2(a)) being
indemnified. To obtain the benefits of any such indemnification by the Selling
Group with respect to any claim or action covered by any liability insurance
policy, a claim must be made under such insurance policy by the Company and/or
the relevant director and/or officer. To the extent a claim under any such
insurance policy has been made and not yet paid the Selling Group will make any
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indemnification payment under Section 9.2(a) when due and payable pursuant to
such Section provided that such claim will be pursued by the Company and/or the
indemnified director or officer at the expense and sole risk, of the Selling
Group (or, if possible, such claim will be assigned to a Selling Person to be
pursued by it) which actions shall include commencing, at CDR's request and
expense and sole risk, a lawsuit to collect any such claim to the extent the
Company and/or such director or officer is required to be party to such lawsuit.
Section 5.5 Benefit Assurance Programs. The provisions of the
--------------------------
Employee Benefit Assurance Program, the Management Benefit Assurance Program and
the Senior Management Benefit Assurance Program (collectively the "BENEFIT
ASSURANCE PROGRAMS"), each adopted by the Company as of March 12, 1996 shall not
be amended in any manner that would adversely affect the rights thereunder of
any Person that is as of the date hereof an employee covered by such program
without such affected person's consent. Upon the consummation of the Sale,
Purchaser shall assume and become liable for, jointly and severally with the
Company, all obligations under such program.
Section 5.6 Non-Solicitation of Employees. (a) For a period
-----------------------------
commencing on the date hereof through the third anniversary of the Closing Date,
(i) none of the Selling Group or any of their Affiliates (other than the Company
or any Subsidiary) shall affirmatively seek to hire any officer of the Company
or any Subsidiary in any capacity whatsoever without the express written consent
of Purchaser.
(b) To the extent this Agreement is terminated pursuant to Section
10.1 (b) (to the extent CDR terminates) or (d), for a period commencing on the
date hereof through the third anniversary of such termination, neither Purchaser
nor any of its Affiliates (other than Frank Mancuso) shall (x) affirmatively
seek to hire any officer of the Company in any capacity whatsoever or (y) while
any such officer is employed by the Company or any of its Affiliates in a
position having greater or substantially the same level of compensation and
responsibility as the position with the Company held by such officer on the date
hereof, hire any officer in any capacity whatsoever without, in either case (x)
or (y), the express written consent of the CDR.
(c) The Selling Group recognizes that the provisions of clause (a) of
this Section 5.6 are reasonable and necessary for Purchaser's protection and
Purchaser recognizes at the provisions of clause (b) of this Section 5.6 are
reasonable and necessary for the protection of the Selling Group. Accordingly,
each of the parties hereto agrees that they each shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of clauses (a)
and (b) of this Section 5.6 and to enforce specifically the terms and provisions
hereof in any action instituted in any court of the
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United States or any state thereof having subject matter jurisdiction in
addition to any other remedy to which such party may be entitled at law or
equity. If it is ever held that the restriction placed on Purchaser or the
Selling Group by this Section 5.6 is too onerous and is not necessary for the
protection of the Company, Purchaser and the Selling Group agree that any court
of competent jurisdiction may impose lesser restrictions which such court may
consider to be necessary or appropriate to properly protect the Company.
Section 5.7 Affected Employees. It is the intention of the parties
------------------
hereto that the employees of the Company and the Subsidiaries (including
employees on vacation leave of absence, disability or layoff) (the "AFFECTED
EMPLOYEES") at the Closing Date will remain employees of the Company and the
Subsidiaries immediately following the Closing Date at the salary levels (or
higher) that were in effect immediately prior to the Closing Date.
Section 5.8 Employee Benefits. (a) Purchaser will, and will cause the
-----------------
Company and the Subsidiaries to, give to each Affected Employee the same service
credit with Purchaser, the Company and the Subsidiaries as each such Affected
Employee previously earned up to the Closing Date for purposes of determining
the Affected Employee's eligibility to participate in, vesting under, benefit
accrual under, eligibility for early distribution of benefits from and
eligibility for early retirement or any subsidized benefit provided for in any
employee benefit plan, practice or policy established, maintained or contributed
to by Purchaser (a "PURCHASER'S PLAN") and shall where appropriate cause each
Purchaser's Plan to reflect the foregoing requirement.
(b) Immediately after the Closing Date, the Affected Employees will be
provided such pension and other employee benefits, which are comparable in all
material respects to and no less favorable in the aggregate than such benefits
provided by the Company or any Subsidiary immediately prior to the Closing Date.
Purchaser shall, effective as of the Closing Date, provide or cause to be
provided, for the Affected Employees medical and dental benefits pursuant to an
employee welfare benefit plan (a "WELFARE PLAN") which Welfare Plan shall not
have any pre-existing condition exclusions. For purposes of computing deductible
amounts (or like adjust adjustments or limitations on coverage under any
Purchaser's Plan which is an "employee welfare benefit plan," as defined in
Section 3(1) of ERISA (a "SUCCESSOR WELFARE PLAN"), including the Welfare Plan,
expenses and claims previously recognized for similar poses under plans of the
Company or any Subsidiary providing similar benefits prior to the Closing Date
shall be credited or recognized under the applicable Successor Welfare Plan.
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(c) Notwithstanding the foregoing, Purchaser will, or will cause the
Company and the Subsidiaries to, perform the obligations of the Company or any
Subsidiary under the Benefit Assurance Programs, as in effect on the date of
this Agreement. Purchaser shall be solely responsible for and shall pay, or
shall cause the Company or a Subsidiary to pay, when due all direct and indirect
damages, costs, expenses and other liabilities in respect of any claim of any
Affected Employee that such Affected Employee's employment has been terminated,
either voluntarily or involuntarily, in conjunction with the transactions
contemplated hereby or otherwise, including, without limitation, any claim for
severance pay, unemployment benefits or any other liabilities, claims, costs,
interest, penalties and fees of legal counsel, asserted against, imposed upon or
incurred by Seller, CDR, Parent or the Company, or any Subsidiary, arising from
or relating in any way to such claims.
Section 5.9. Tax Sharing Agreement. The tax sharing agreement listed
---------------------
on Schedule 2.11 shall be cancelled as of the Closing Date, and the Company and
its Subsidiaries shall thereafter not be bound by, and shall have no obligation
to make any payments pursuant to, such tax sharing agreement, including without
limitation any payments in respect of amounts due with respect to taxable
periods or portions thereof ending on or prior to the Closing Date.
ARTICLE VI
CONDITIONS TO PURCHASER'S OBLIGATIONS
-------------------------------------
The purchase of the Stock by Purchaser on the Closing Date is
conditioned upon the satisfaction or waiver, at or prior to the consummation of
the Sale, of the following conditions:
Section 6.1 Opinion of Seller's Counsel. Purchaser shall have received
---------------------------
an opinion, dated the Closing Date, of White & Case in form and substance to be
agreed upon.
Section 6.2 Truth of Representations and Warranties. The
---------------------------------------
representations and warranties of the Selling Group and of the Company contained
in this Agreement or in any Schedule delivered pursuant hereto shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date (except to the extent that any such representation and warranty is
stated in this Agreement to be made as of a specific date, in which case such
representation and warranty shall be true and correct as of such specified
date), and each of Seller and the Company, shall have
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delivered to Purchaser a certificate, dated the Closing Date and addressing,
respectively, the status of the representations and warranties of the Selling
Group and the Company to such effect.
Section 6.3 Performance of Agreements. Each and all of the agreements
-------------------------
of the Selling Group and/or the Company to be performed at or prior to the
C1osing Date pursuant to the terms hereof shall have been duly performed in all
material respects, and each of Seller and the Company shall have delivered to
Purchaser a certificate, dated the Closing Date and addressing, respectively,
the status of the agreements of the Selling Group and the Company, to such
effect.
Section 6.4 No Injunction. No court or other government body or public
-------------
authority shall have issued an order which shall then be in effect restraining
or prohibiting the completion of the transactions contemplated hereby.
Section 6.5 Governmental and Other Approvals. All of the governmental
--------------------------------
and other consents and approvals set forth on Schedules 1.3(a) and 2.2 shall
have been received and such approvals shall be in full force and effect. All
waiting periods under the HSR Act and other relevant antitrust or competition
laws or statutes shall have been terminated or expired.
Section 6.6 Resignations. All Persons who are directors of the Company
------------
whose principal employment is not as an officer and/or employee of the Company
and/or any of the Subsidiaries shall have resigned such directorships.
Section 6.7 Purchaser's Financing. At the Closing the Purchaser shall
---------------------
have available to it not less than $900 million of equity financing, $450
million of term debt financing and $350 million of revolving credit on
substantially the terms set forth in the Purchaser's Financing Commitments
heretofore provided to the Selling Group by thc Purchaser.
Section 6.8 Terminating Debt. At Closing and after giving effect to
----------------
the payments made pursuant to Section 4.3(a), no Terminating Debt shall be
outstanding.
ARTICLE VII
CONDITIONS TO SELLER'S OBLIGATIONS
----------------------------------
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The sale of the Stock by Seller on the Closing Date is conditioned
upon satisfaction or waiver, at or prior to the consummation of the Sale of the
following conditions:
Section 7.1 Opinions of Purchaser's Counsel. Purchaser shall have
-------------------------------
furnished Seller with an opinion, dated the Closing Date, of counsel
satisfactory to CDR and in form and substance to be agreed upon.
Section 7.2 Truth of Representations and Warranties. The
---------------------------------------
representations and warranties of Purchaser contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of such date, and Purchaser shall have delivered to Seller a certificate,
dated the Closing Date, to such effect.
Section 7.3 Performance of Agreements. Each and all of the agreements
-------------------------
of Purchaser to be performed at or prior to the Closing Date pursuant to the
terms hereof shall have been duly performed in all material respects, and
Purchaser shall have delivered to Seller a certificate, dated the Closing Date,
to such effect.
Section 7.4 No Injunction. No court or other government body or public
-------------
authority shall have issued an order which shall then be in effect restraining
or prohibiting the completion of the transactions contemplated hereby.
Section 7.5 Governmental Approvals. All of the governmental and other
----------------------
consents and approvals set forth on Schedule 3.2 and such approvals shall be in
full force and effect. All waiting periods under the HSR Act and other relevant
antitrust or competition laws or statutes shall have been terminated or expired.
ARTICLE VIII
TAX MATTERS
-----------
Section 8.1 Tax Liabilities. (a) All income Tax liabilities imposed on
---------------
the Company and its Subsidiaries for all taxable years or other taxable periods
or portions thereof ending on or before the Closing Date ("PRE-CLOSING
Periods") shall be for the account of the Selling Group and income tax
liabilities shown on Schedule 8.1(a) shall be for the account of Purchaser,
provided, however, that Purchaser's liability for such Taxes shall be limited to
the amounts set forth in Schedule 8.1(a). The amount paid by the Selling Group
pursuant to the immediately preceding sentence shall
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include all income Taxes imposed on the Company and its Subsidiaries, or for
which the Company and its Subsidiaries may be liable, as a result of any
election to be made by Parent and Purchaser pursuant to Sections 338(g) and
338(h)(10) of the Code and (to the extent such election does not result in the
Selling Group being obligated (directly or as a result of indemnities given
hereunder) for any tax liability in excess of the amount they would be liable
for in the absence of any such election) any analogous provisions of foreign and
United States state and local laws and regulations (collectively "SECTION 338
ELECTIONS") with respect to the purchase of the Stock pursuant to this
Agreement. For this purpose, such income Tax liabilities with respect to a
taxable year or other taxable period which begins on or before and ends after
the Closing Date shall be apportioned between the portion of such period ending
on the Closing Date and the portion beginning on the day after the Closing Date
as though the taxable year or other taxable period of the group terminated at
the close of business on the Closing Date and shall utilize accounting methods,
elections and conventions that do not have the effect of distorting the
allocation of income and expenses within a taxable year or other taxable period.
Except to the extent accounted for as an asset on the Balance Sheet, any refund
of income Taxes for any Pre-Closing Period attributable to the payment of income
Tax liabilities for which the Selling Group is liable pursuant to the first
sentence of this Section 8.1(a) that is received by Purchaser, the Company or
any of its subsidiaries shall be remitted to Parent net of any income Taxes of
the Company or any of its Subsidiaries arising from the receipt of such refund,
within five days of the receipt thereof.
(b) Except as otherwise provided in Section 8.i(a), all Tax
liabilities imposed on the Company and its Subsidiaries and all refunds of Taxes
received by the Company and its Subsidiaries shall be for the account of and
paid by Purchaser and/or the Company, as applicable. In addition, Purchaser
agrees to pay or discharge when due, all liabilities for Taxes described on
Schedule 8.1(a), provided, however, that the Purchaser's obligation with respect
to such Taxes shall not exceed the amounts set forth in such schedule.
Section 8.2 Tax Returns. (a) Parent shall, consistent with past
-----------
practices, include the Company and all eligible Subsidiaries in the consolidated
U.S. federal income tax returns filed by Parent for all Pre-Closing Periods.
Parent shall also prepare, or shall cause to be prepared, and thereafter file
all state, local and foreign income Tax Returns of the Company and its
Subsidiaries that are filed on a consolidated, combined or unitary basis with
the Seller or its Affiliates (other than the Company and its Subsidiaries) to
the extent that such Tax Returns have been filed on a consolidated, combined or
unitary basis in the preceding taxable year. All such Tax Returns shall be
prepared, and all elections with respect to such Tax Returns shall be made, to
the extent permitted by applicable law, in compliance with all applicable laws
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and in a manner consistent with the prior practice with respect to the Company
and its Subsidiaries, as applicable. Parent shall timely pay when due all Taxes
shown as due on all such Tax Returns. In order to facilitate the preparation of
such consolidated, combined and unitary Tax Returns, Purchaser shall, within a
reasonable period of time after Parent's request, provide or cause the Company
and/or its Subsidiaries to provide Parent with such information as Parent shall
identify that is reasonably necessary for preparing the income Tax Returns
described in this Section 8.2(a). Such information shall be submitted in a form
consistent with prior practice which may include the preparation of final draft
of such Tax Returns or portions thereof. Parent and Seller shall not file any
amended Tax Returns with respect to Pre-Closing Periods without the prior
written consent of Purchaser, which consent shall not be unreasonably withheld.
(b) Except as provided in Section 8.2(a), Purchaser shall, or shall
cause the Company and its Subsidiaries to, prepare and file all Tax Returns
required to be filed by the Company and/or its Subsidiaries after the Closing
Date for all taxable years or other taxable periods; provided, however, that no
later than 30 days prior to the extended due date for the filing of any income
Tax Return with respect to any taxable year or other taxable period of the
Company or any of the Subsidiaries beginning on or before the Closing Date and
ending after the Closing Date, the Purchaser shall (a) provide Parent with
written notice, which notice shall set forth Purchaser's calculations regarding
the amount of income Taxes, if any, for which Purchaser determines the Selling
Group is liable pursuant to Section 8.1(a) in sufficient detail and
particularity to enable Parent to verify the amount of such income Taxes, (b)
provide Parent with the draft of such income Tax Return and (c) provide Seller
access to all records of the Company and its Subsidiaries reasonably necessary
to enable Parent and its representatives to evaluate the draft income Tax
Returns provided with such notice. No later than 10 days prior to the extended
due date for the filing of such income Tax Returns, Parent shall notify
Purchaser of any objections Parent may have to Purchaser's calculations
regarding the amount of such income Taxes and to any items set forth in such
draft income Tax Return Purchaser and Parent agree to consult and resolve in
good faith any such objection, it being understood and agreed that in the
absence of any such resolution, any and all such objections shall be resolved by
an independent accounting firm mutually acceptable to Parent and Purchaser by
the due date (including extensions) for such income Tax Returns. If such
resolution is not reached on or prior to such date, Purchaser shall initially
file or cause the Company and its Subsidiaries to initially file such income Tax
Returns based on Purchaser's position with respect to the issues in dispute. The
amount of income Taxes for which the Selling Group is liable pursuant to Section
8.1(a) shall be paid by the Selling Group to Purchaser (for payment over to the
Taxing authority) at least two days prior to the date the corresponding payment
to the Taxing authority is due.
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Section 8.2A. Tax Indemnification. The Selling Group will indemnify
-------------------
and hold harmless Purchaser, the Company and its Subsidiaries from and against
any and all liabilities for:
(i) income Taxes for which the Selling Group is liable pursuant to
Section 8.1(a); and
(ii) income Taxes imposed under Treasury Regulations Section 1.1502-6
(or any analogous provision of foreign, state or local law) with respect to
members of the Selling Group (excluding the Company and its Subsidiaries) or,
imposed with respect to Pre-Closing Periods as a transferee or successor, under
Section 6901 of the Code (or any analogous provision of foreign, state or local
law), by contract, or otherwise;
in each case, together with any related expenses incurred (including, without
limitation, attorneys' and accountants' fees).
Section 8.3 Cooperation: Audits. In connection with the preparation of
-------------------
Tax Returns, audit examinations and any administrative or judicial proceedings
relating to the income Tax liabilities imposed on the Company and its
Subsidiaries for all Pre-Closing Periods, Purchaser, the Company and its
Subsidiaries on the one hand, and Parent and the Seller on the other hand, will
cooperate fully with each other, including, but not limited to, the furnishing
or making available on a timely basis of records, personnel (as reasonably
required), books of account, powers of attorney or other materials necessary or
helpful for the preparation of such income Tax Returns, the conduct of audit
examinations or the defense of claims by taxing authorities as to the imposition
of such income Taxes. Without limiting the generality of the foregoing, Parent
(and its representatives) shall be entitled to examine books and records of the
Company and its Subsidiaries, and Purchaser and the Company (and their
representatives) shall be entitled to examine the books and records of Parent
and Seller, in each case with respect to any Pre-Closing Period, and shall have
reasonable access to personnel of the Company and its Subsidiaries to the extent
necessary or helpful for purposes of preparing or amending any income Tax
Returns (including previously filed income Tax Returns) or obtaining income Tax
refunds with respect to all Pre-Closing Periods.
Parent shall control the conduct of all stages of any audit or other
administrative or judicial proceeding with respect to the income Tax liability
for all Pre-Closing Periods, including such income Tax liability reflected on
all income Tax Returns for any consolidated, combined or unitary group of which
Seller or its Affiliates (other than the Company and its Subsidiaries) and the
Company or any of its
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Subsidiaries are members with respect to any taxable year or taxable period
which, with respect to the Company and its Subsidiaries, ends on or before the
Closing Date but which, with respect to any other member of such consolidated,
combined or unitary group, ends after the Closing Date other than income Tax
liability with respect to Taxes for which accruals are set forth in Schedule
8.l(a); provided, however, that neither the Parent nor its representatives
shall, without the prior written consent of Purchaser, which consent shall not
be unreasonably withheld, enter into any settlement of any contest or otherwise
compromise any issue that affects or may affect the income Tax liability of the
Purchaser, the Company or any Subsidiary for any taxable year or other taxable
period (or portion thereof) after the Closing Date. Purchaser shall control the
conduct of all other audits or other administrative or judicial proceedings with
respect to the Tax liability of the Company and its Subsidiaries; provided,
however, that none of Purchaser, the Company, any of the Subsidiaries nor any of
their representatives shall, without the prior written consent of Parent, which
consent shall not be unreasonably withheld, enter into any settlement of any
contest or otherwise compromise any issue that affects or may affect the income
Tax liability of the Selling Group, the Company or any of its Subsidiaries for
any taxable year or other taxable period (or portion thereof) ending on or prior
to the Closing Date. Purchaser and Parent shall promptly forward to the other
all written notifications and other communications from any taxing authority
received by it or its Affiliates which could be expected to give rise to any Tax
audit or other proceeding relating to the Tax liability of the other Person
and/or its affiliates. Purchaser and Parent shall also promptly forward to the
other all written notifications and other written communications from any taxing
authority received by it and its Affiliates relating to any income Tax audit or
other proceeding relating to the income Tax liability of or with respect to the
Company or any of its Subsidiaries for any Pre-Closing Period. The failure of
Purchaser to forward to Parent such written notifications or written
communications shall not excuse the Selling Group from its obligations under
Sections 8.1 and 8.2A with respect to any increased income Tax liability
directly or indirectly attributable to any such written notification or other
communication except to the extent the Selling Group is materially prejudiced by
such failure.
Section 8.4 Section 338. To the extent Purchaser has given CDR
-----------
written notice at least 21 days prior to the Closing Date of its decision to
effect one or more Section 338 Elections, Parent and Purchaser shall jointly
complete and make such Section 338 Elections as specified in such notice with
respect to the Company and its Subsidiaries included in Parent's affiliated
group on Form 8023A and/or in such other manner as may be required by rule or
regulation of the Internal Revenue Service and/or any applicable foreign, state
or local Taxing authority provided, however, that none of Purchaser, the Company
or any of its Subsidiaries shall make an election under (i) Section 338 of the
Code with respect to any non-U.S. Subsidiaries of the Company or
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(ii) any provisions analogous to Code Section 338 under any foreign or United
States state and/or local laws and regulations if such election would result in
any Tax liability to thc Selling Group in excess of the amount of such Taxes
that would result if no such election were made, it being understood that if the
Company or any of its Subsidiaries has the ability to elect out of such
treatment and does not so elect, such failure shall constitute an affirmation
election. Notwithstanding the foregoing, Purchaser, the Company and its
Subsidiaries shall be entitled to make a Section 338 election with respect to
non-U.S. Subsidiaries of the Company and/or under the analogous provision of
foreign, State and local law if Purchaser shall provide to Selling Group an
indemnity in form and substance satisfactory to Parent, for all increased
liabilities resulting to Selling Group from such elections. Parent shall, with
the assistance and cooperation of Purchaser, prepare on a reasonable basis and
in a manner consistent with this Agreement all such Section 338(g) and Section
338(h)(10) election forms and required attachments to Form 8023A in accordance
with applicable law, Parent shall deliver such forms and related documents to
Purchaser at least 90 days prior to the due date of filing. Purchaser shall
deliver to Parent, at least 45 days prior to the due date of filing, such
completed forms as are required to be filed under Section 338 of the Code.
Section 8.5 Valuation and Allocation. To the extent Section 338
------------------------
Elections are to be made as provided in Section 8.4, Parent and Purchaser will
act reasonably and in good faith to reach an agreement promptly after the
Closing Date on an allocation of the "adjusted grossed-up basis" of the Stock
(within the meaning of Treasury Regulations Section 1.338(h)(10)-lT(e)) for the
Company and its Subsidiaries to categories of assets as required for purposes of
Section 338 under the Code. Neither Parent nor Purchaser shall unreasonably
withhold consent to the manner of valuation or allocation employed. If Parent
and Purchaser are unable to reach a mutually acceptable valuation of assets and
allocation of the "adjusted grossed-up basis" within 120 days after the Closing
Date, they shall submit the issue to arbitration by a nationally recognized
accounting firm as shall be mutually acceptable to each of them for resolution
of the disagreement within thirty days, it being agreed that Parent and
Purchaser will jointly share the fees and expenses of such accounting firm. The
valuations and allocations determined pursuant to this Section 8.5 shall be used
for purposes of all relevant Tax Returns, reports and filings, but shall not be
relevant or have any effect on any other provision of this Agreement, except
insofar as these other provisions relate to or affect Taxes or Tax Returns.
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ARTICLE IX
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
--------------------------------------------
Section 9.1 Survival of Representations. Except for the
---------------------------
representations and warranties set forth in Section 1.1, 1.2, 1.3, 1.4, 3.3, 3.6
and 3.7, which shall survive until expiration of the applicable statute of
limitations, the representations and warranties of the Selling Group, the
Company and Purchaser contained in this Agreement shall not survive the Closing
Date.
Section 9.2 Indemnities. (a) Each member of the Selling Group, jointly
-----------
and severally, hereby agrees to indemnify and hold harmless Purchaser, the
Company and/or its Subsidiaries and each of their respective officers,
directors, employees, agents, affiliates and stockholders from and against any
and all liabilities, damages, claims, losses or Expenses ("DAMAGES") suffered or
incurred by any such indemnified party to the extent arising from or
attributable to any (u) breach of any representation or warranty made by a
Selling Person in Section 1.1, 1.2, 1.3 or 1.4, (v) any breach of any covenant
or agreement made or given by any Selling Person in Section 5.6, or Article XI,
(w) any dispute, claim, cause of action or proceeding (including the litigation
listed as Item 1 of Schedule 2.9), at law or in equity or in any arbitration or
other administrative, investigative or other proceeding, wherever initiated,
whether currently pending or threatened or hereafter arising or threatened by or
on behalf of Mr. Giancarlo Parretti (or his successors and heirs and/or any
family member and/or any corporation or business entity controlled by or
affiliated with him or them) or by any creditor of (in such capacity) or any
person claiming through any of the foregoing or any present or former
securityholder or creditor (in each case in such capacity) of Pathe
Communications Corporation or any successor thereto (collectively, the "PARRETTI
LITIGATION") to the extent such Parretti Litigation is based on (i) any action
or activity (other than of the Purchaser and its Affiliates to the extent not
related to the sale of the Stock hereunder) occurring on or prior to the Closing
Date or (ii) any action or activity by Credit Lyonnais SA. or any of its
Affiliates (including any Selling Person) occurring after the Closing Date, (x)
the ownership, operation and/or disposition of the Company's French laboratory
and real estate assets (including SNGTC S.A., SCI la Cite du Cinema and
Participations Immobiliere Europe SARL), (y) the litigation referred to in Items
2, 3 and 4 of Schedule 2.9 (the "SCHEDULED LITIGATION") or any dispute, claim,
cause of action or proceeding, wherever initiated, whether currently pending or
threatened or hereafter arising or threatened by or on behalf of any party to
the Scheduled Litigation (or any successor or heir thereto or any family member
thereof or any corporation or business entity controlled by or affiliated with
any such party) or by any of their respective creditors (in such capacity) or
any person claiming through any of the foregoing to the extent such dispute,
claim, cause of action or
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proceeding is based on or arises out of any activity or action that forms in
whole or in any material part the basis of any of the Scheduled Litigation, and
(z) any liability, claim, cause of action or obligation reserved to Seller or
any of its Affiliates (other than the Company and its Subsidiaries) under the
Contribution Agreement, dated as of December 30, 1993, between Seller and the
Company and all amendments thereto. To the extent that the Selling Group's
undertakings set forth in this Section 9.2(a) may be unenforceable, the Selling
Group shall contribute the maximum amount that it is permitted to contribute
under applicable law to the payment and satisfaction of all Damages incurred by
the parties entitled to indemnification hereunder and the balance of such
indemnification shall be effected by way of a cash refund of a portion of the
consideration paid by Purchaser equal to such balance. The term "EXPENSES" shall
include without limitation, for purposes of this Article IX, all direct and
indirect costs of any type or nature whatsoever (including, without limitation,
any fees and disbursements of an Indemnified Party's counsel, accountants and
other experts) actually and reasonably incurred by the Indemnified Party in
connection with such matter, including the investigation, preparation, defense
or appeal of a third party Claim (as defined below).
(b) Purchaser hereby agrees to indemnify and hold harmless each
Selling Party and each of their respective officers, directors, employees,
agents, affiliates and stockholders against any and all Damages suffered or
incurred by any such indemnified party to the extent arising from or
attributable to any breach of any representation or warranty made by the
Purchaser in Section 3.3, 3.6 or 3.7 of this Agreement. To the extent that the
Purchaser's undertakings set forth in this Section 9.2(b) may be unenforceable,
the Purchaser shall contribute the maximum amount that it is permitted to
contribute under applicable law to the payment and satisfaction of all Damages
incurred by the parties entitled to indemnification hereunder and the balance of
such indemnification shall be effected by way of a cash addition to the Purchase
Price in the amount of such balance.
(c) Any party seeking indemnification under this Article IX (an
"INDEMNIFIED PARTY") shall give each party from whom indemnification is being
sought (each, an "INDEMNIFYING PARTY") notice of any matter which such
Indemnified Party has determined has given or could reasonably give rise to a
right of indemnification under this Agreement, within 60 days of such
determination, stating the amount of the Damages, if known, and method of
computation thereof, and containing a reference to the provisions of this
Agreement in respect of which such right of indemnification is claimed or arises
provided, that the failure to provide such timely notice shall not release the
Indemnifying Party from any of its obligations under this Article IX except to
the extent the Indemnifying Party is materially prejudiced by such failure. The
obligations of an Indemnifying Party under this Article IX with respect to
Damages
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arising from any Parretti Litigation and/or any claims of any other third party
which are subject to the indemnification provided for in this Article IX
(collectively, "THIRD PARTY CLAIMS") shall be governed by and contingent upon
the following additional terms and conditions: if an Indemnified Party shall
receive, after the Closing Date, initial notice of any Third Party Claim, the
Indemnified Party shall give the Indemnifying Party notice of such Third Party
Claim within such time frame as necessary to allow for a timely response and in
any event within 45 days (20 days in the case of any Parretti Litigation) of the
receipt by the Indemnified Party of such notice; provided, that the failure to
--------
provide such timely notice shall not release the Indemnifying Party from any of
its obligations under this Article IX except to the extent the Indemnifying
Party is materially prejudiced by such failure. If the Indemnifying Party
acknowledges in writing its obligation to indemnify and hold harmless the
Indemnified Party hereunder against any Damages that may result from such Third
Party Claim, then the Indemnifying Party shall be entitled to assume and control
the defense of such Third Party Claim at its expense and through White & Case
(if the Selling Group are the Indemnifying Party) or, in any case, other counsel
of its choice reasonably satisfactory to the Indemnified Party if it gives
notice of its intention to do so to the Indemnified Party within ten Business
Days of the receipt of such notice from the Indemnified Party; provided,
--------
however, that if there exists or is reasonably likely to exist a conflict of
- -------
interest that would make it inappropriate in the judgment of the Indemnified
Party (upon advice of counsel) for the same counsel to represent both the
Indemnified Party and the Indemnifying Party, then the Indemnified Party shall
be entitled to retain its own counsel, in each jurisdiction for which the
Indemnified Party determines counsel is required, at the expense of the
Indemnifying Party, provided that the Indemnified Party and such counsel shall
contest such Third Party Claims in good faith. In respect of all Parretti
Litigation listed on Schedule 9.2, or first commenced after the date hereof and
on or prior to the Closing Date and specified in a supplement to Schedule 9.2
delivered by CDR to Purchaser on the Closing Date, the Selling Group hereby
acknowledges its obligation to indemnify and hold harmless Purchaser, the
Company and its Subsidiaries from all Damages arising therefrom and has elected
to assume and control the defense of such Parretti Litigation subject to the
provisions set forth herein. In the event the Indemnifying Party exercises the
right to undertake any such defense against any such Third Party Claim as
provided above, the Indemnified Party shall cooperate with the Indemnifying
Party in such defense and make available to the Indemnifying Party, at the
Indemnifying Party's expense, all witnesses, pertinent records, materials and
information in the Indemnified Party's possession or under the Indemnified
Party's control relating thereto as is reasonably required by the Indemnifying
Party. Similarly, in the event the Indemnified Party is, directly or indirectly,
conducting the defense against any such Third Party Claim, the Indemnifying
Party shall cooperate with the Indemnified Party in such defense and make
available to the Indemnified Party, at the Indemnifying Party's expense, all
such witnesses, records,
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<PAGE>
materials and information in the Indemnifying Party's possession or under the
Indemnifying Party's control relating thereto as is reasonably required by the
Indemnified Party. The Indemnifying Party shall not, without the written consent
of the Indemnified Party, (i) settle or compromise any Third Party Claim or
consent to the entry of any judgment which does not include as an unconditional
term thereof the delivery by the claimant or plaintiff to the Indemnified Party
of unconditional written release from all liability in respect of such Third
Party Claim or (ii) (except in the case of any Parretti Litigation) settle or
compromise any Third Party Claim in any manner that may adversely affect the
Indemnified Party other than as a result of money damages or other money
payments (so long as the Indemnifying Party has acknowledged in writing its
obligation to indemnify and provides the Indemnified Party evidence (reasonably
satisfactory to the Indemnified Party) that the Indemnifying Party will be able
to satisfy such obligations timely). Finally, no Third Party Claim which is
being defended in good faith by the Indemnifying Party or which is being
defended by the Indemnified Party as provided above in this Section 9.2(c) shall
be settled by the Indemnified Party without the written consent of the
Indemnifying Party, which consent will not be unreasonably withheld or delayed.
The failure to satisfy the foregoing terms and conditions shall not release the
Indemnifying Party from its obligations hereunder except to the extent such
failure has materially prejudiced the Indemnifying Party.
(d) The expenses incurred by any Indemnified Party in defending and/or
investigating any Third Party Claim, together with any interest that may accrue
on any such unpaid expenses if not reimbursed when due hereunder, shall be paid
by the Indemnifying Party prior to the final disposition of such Third Party
Claim within 30 days after receiving from the Indemnified Party copies of
invoices presented to the Indemnified Party for such expenses and an undertaking
by or on behalf of the Indemnified Party to repay such amount to the extent it
is ultimately determined that the Indemnified Party is not entitled to
indemnification. Any other Damages, in the form of judgments, fines, penalties,
awards or otherwise, to which an Indemnified Party may become subject in
connection with any Third Party Claim, together with any interest that may
accrue thereon, shall be paid within 30 days after any judgment is rendered or
order is issued (whether or not appealable) imposing such Damages or 30 days
after a settlement is reached in which such Damages are specified, as
applicable. The Indemnifying Party shall be entitled to defer the payment of any
Damages imposed upon an Indemnified Party pursuant to an appealable judgment or
order until a final, non-appealable judgment or order is rendered, provided that
the Indemnified Party posts any appeal bond or other security required in
connection with any such appeal. Any Damages in the nature of severance
payments, legal and financial advisory fees, contractual termination payments or
other contractual obligations incurred by Purchaser, the Company and/or its
Subsidiaries or any of their respective officers, directors, employees and
agents in connection with the matters described in Section 9.2(a)(x),
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<PAGE>
together with any interest that may accrue on any such unpaid amounts, shall be
paid by the Selling Group, without the requirement of any judgment, order or
decree of any court, arbitrator or other adjudicating body, within 30 days after
receiving from Purchaser or the Company copies of invoices presented to
Purchaser, the Company or its Subsidiaries covering such Damages provided that
the Selling Group shall not be required to pay such invoice if the Selling Group
disagrees with the contents thereof provided that in such case the Selling Group
shall indemnify the Purchaser, the Company and its Subsidiaries from all Damages
arising from any such rejection or delay in payment.
Section 9.3 Limits on Indemnification. Notwithstanding anything to the
-------------------------
contrary contained in this Agreement, the maximum amount of indemnifiable
Damages which may be recovered from the Selling Group, on the one hand, or the
Purchaser, on the other hand, arising out of or resulting from the causes
enumerated in Section 9.2 shall be $1.3 billion, provided that this limitation
shall not be applicable to amounts payable under Section 9.2(a)(w), which
amounts shall be payable without limitation.
Section 9.4 Tax Matters. Anything in this Article IX to the contrary
-----------
notwithstanding, the rights and obligations of the parties with respect to
indemnification for any and all Tax matters shall be governed by Article VIII.
ARTICLE X
TERMINATION
-----------
Section 10.1 Events of Termination. This Agreement may be terminated
---------------------
(a) by mutual written agreement of Purchaser and CDR or (b) either Purchaser or
CDR, to the extent that the Closing Date has not occurred prior to October 30,
1996, provided that the party exercising its right to so terminate this
Agreement shall not have materially breached any of the representations,
warranties, covenants or agreements contained herein (x) of Purchaser, if
Purchaser is terminating or (y) of the Selling Group and the Company, if CDR is
terminating, (c) by Purchaser by written notice to the CDR, if the conditions
set forth in Article VI hereof shall not have been complied with or performed on
or prior to the Closing Date in any material respect and Purchaser shall not
have materially breached any of its representations, warranties, covenants or
agreements contained herein, or (d) by CDR by written notice to Purchaser, if
the conditions set forth in Article VII shall not have been complied with or
performed on or prior to the Closing Date in any material respect and neither
any Selling Person nor the Company shall have materially breached any of their
representations, warranties, covenants or agreements contained herein, and, in
the case of both clauses (c) and (d),
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<PAGE>
such noncompliance or nonperformance shall not have been cured or eliminated (or
by its nature cannot be cured or eliminated) on or before October 30, 1996.
Section 10.2 Effect of Termination. In the event that this Agreement
---------------------
shall be terminated pursuant to Section 10.1, all further obligations of the
parties hereto under this Agreement (other than pursuant to Sections 5.6(b),
11.1 and 11.6 and as provided in the third sentence of Section 5.2(a), which
shall continue in full force and effect) shall terminate without further
liability or obligation of either party to the other party hereunder; provided,
--------
however, that no party shall be released from liability hereunder if this
Agreement is terminated and the transactions abandoned by reason of (i) willful
failure of such party to have performed its obligations hereunder or (ii) any
knowing misrepresentation made by such party of any matter set forth herein.
ARTICLE XI
MISCELLANEOUS
-------------
Section 11.1 Expenses. The parties hereto shall pay all of their own
--------
expenses relating to the transactions contemplated by this Agreement, including,
without limitation, the fees and expenses of their respective counsel, financial
advisors and accountants; provided, however, that Purchaser and CDR each shall
--------
pay all of its respective filing fees under the HSR Act and any other applicable
antitrust or competition laws or statutes. The Selling Group shall be
responsible for paying and shall indemnify Purchaser, the Company and the
Subsidiaries against any and all out-of-pocket costs and expenses of third
parties (including the fees and disbursements of White and Case and other legal
counsel) incurred by the Company or any Subsidiary in connection with the Sale.
Section 11.2 Transfer Taxes. All stamp, transfer, documentary, sales,
--------------
use, registration and other such taxes and fees (including any penalties and
interest) incurred in connection with this Agreement and the transactions
contemplated hereby (collectively, the "TRANSFER TAXES") shall be paid 50% by
Purchaser and 50% by the Selling Group and Seller shall, at the 50/50 expense of
the Purchaser and the Selling Group, procure any stock transfer stamps required
by, and properly file on a timely basis all necessary tax returns and other
documentation with respect to, any Transfer Tax and provide to Purchaser
evidence of payment of all Transfer Taxes.
Section 11.3 Governing Law; Consent to Jurisdiction. (a) The
--------------------------------------
interpretation and construction of this Agreement, and all matters relating
hereto, shall
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<PAGE>
be governed by the laws of the State of New York applicable to contracts made
and to be performed entirely within the State of New York.
(b) Each of the parties agrees that any legal action or proceeding
with respect to this Agreement may be brought in the Courts of the State of New
York or the United States District Court for the Southern District of New York
and, by execution and delivery of this Agreement, each party hereto hereby
irrevocably submits itself in respect of its property, generally and
unconditionally to the non-exclusive jurisdiction of the aforesaid courts in any
legal action or proceeding arising out of this Agreement. Each of the parties
hereto hereby irrevocably waives any objection which it may now or hereafter
have to the laying of venue of any of the aforesaid actions or proceedings
arising out of or in connection with this Agreement brought in the courts
referred to in the preceding sentence. Each party hereto hereby consents to
process being served in any such action or proceeding by the mailing of a copy
thereof to the address set forth opposite its name below and agrees that such
service upon receipt shall constitute good and sufficient service of process or
notice thereof. Nothing in this paragraph shall affect or eliminate any right to
serve process in any other matter permitted by law.
(c) CDR hereby (x) consents to the commencement of any suit or
proceeding against it under this Agreement, (y) to the fullest extent permitted
by law waives any right, if any, it has to assert governmental or sovereign
immunity from suit or liability hereunder, and (z) agrees that it will not
dissolve or liquidate so long as it has any indemnification obligations
remaining under this Agreement except to the extent it has first had such
indemnification obligations assumed (to the reasonable satisfaction of
Purchaser) by a creditworthy entity reasonably satisfactory to Purchaser.
Section 11.4 Captions. The Article and Section captions used herein
--------
are for reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 11.5 Publicity. Except as otherwise required by law or
---------
regulation as advised by counsel in writing, neither of the parties hereto shall
issue any press release or make any other public statement, in each case
relating to or connected with or arising out of the Sale, this Agreement or the
matters contained herein, without obtaining prior approval of the other party
to the contents and the manner of presentation and publication thereof.
Section 11.6 Business Records. After the Closing Date, Purchaser shall
----------------
afford the Selling Group and their attorneys, accountants, officers and other
representatives reasonable access, during normal business hours, to the books
and
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records of the Company and the Subsidiaries to the extent they relate to a
period prior to the Closing Date (and shall permit such Persons to examine and
copy such books and records to the extent reasonably requested by such party)
and shall cause the directors, officers and employees of the Company and the
Subsidiaries to furnish all information requested by the Selling Group in
connection with financial reporting and tax matters (including financial and tax
audits and tax contests), third party litigation and other similar business
purposes. Purchaser shall cause the Company and the Subsidiaries to maintain all
such books and records in the country in which such books and records were
located prior to the Closing Date if required by applicable law and shall not
destroy or dispose of any such books and records without the prior written
consent of CDR; provided, however, that Purchaser shall be entitled to destroy
--------
any of such books and records after the seventh anniversary of the Closing Date
with the prior written consent of CDR; provided further, however, that if the
-------- -------
CDR does not consent to the destruction of such books and records, Purchaser may
deliver them to the CDR. After the Closing Date, the Selling Group shall afford
Purchaser and its attorneys, accountants, officers and other representatives
reasonable access, during normal business hours, to the books and records of the
Selling Group to the extent they relate to the operations of the Company or the
Subsidiaries prior to the Closing Date (and shall permit such Persons to examine
and copy such books and records to the extent reasonably requested by such
party); provided, however, that Purchaser and its representatives shall only be
--------
entitled to review the tax returns of the any Selling Person that relate to the
Company or the Subsidiaries. Each party shall promptly reimburse any other
party's reasonable costs and expenses in providing such party and its attorneys,
accountants, officers and other representatives access to the other party's
books and records under this Section 11.6.
Section 11.7 Memorandum; Disclaimer of Projections. Neither any
-------------------------------------
Selling Person nor the Company makes any representation or warranty to Purchaser
except as specifically made in this Agreement. In particular, the Selling Group
and the Company make no representation or warranty to Purchaser with respect to
(a) the information set forth in the Confidential Memorandum distributed by
Lazard Freres in connection with the Sale or (b) any financial projection or
forecast relating to the Company. With respect to any such projection or
forecast delivered by or on behalf of the Selling Group or the Company to
Purchaser, Purchaser acknowledges that (i) there are uncertainties inherent in
attempting to make such projections and forecasts, (ii) it is familiar with such
uncertainties, (iii) it is taking full responsibility for making its own
evaluation of the adequacy and accuracy of all such projections and forecasts so
furnished to it and (iv) it shall have no claim against any Selling Person,
the Company or Lazzard Freres with respect thereto.
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<PAGE>
Section 11.8 Notices. Any notice or other communications required or
-------
permitted hereunder shall be sufficiently given if delivered in person or sent
by telecopy or by registered or certified mail, postage prepaid, addressed as
follows:
if to Purchaser, to it at:
P & F Acquisition Corp.
c/o Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, California 90071
Attention: Bruce Meyer, Esq.
Tel: (213) 229-7171
Fax: (213) 229-7520
with a copy to:
F. Richard Bernasek, Esq.
Kelly, Hart & Hallman
201 Main Street, Suite 2500
Ft. Worth, Texas 76102
Tel: (817) 332-2500
Fax: (817) 878-9280
and
Phillip R. Mills, Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Tel: (212) 450-4000
Fax: (212) 450-4800
and
Stephen Fraidin, Esq.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
27th Floor
New York, New York 10004
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<PAGE>
Tel: (212) 859-8140
Fax: (212) 859-6140
and if any of the Selling Group, to them at:
Consortium de Realisation
c/o White & Case
1155 Avenue of the Americas
New York, New York 10036
Attention: Sean Geary, Esq.
Tel: (212) 819-8300
Fax: (212) 354-8113
and a copy to the Company at:
Metro-Goldwyn-Mayer Inc.
2SOO Broadway Street
Santa Monica, California 90404-3061
Attention: David Johnson, Esq.
Tel: (310) 449-3993
Fax: (310) 449-3011
or such other address or number as shall be furnished in writing by any such
party, and such notice or communication shall be deemed to have been given as of
the date so delivered, sent by telecopy or mailed.
Section 11.9 Parties in Interest. This Agreement may not be
-------------------
transferred, assigned, pledged or hypothecated by any party hereto, other than
by operation of law. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
Section 11.10 Counterparts. This Agreement may be executed in two or
------------
more counterparts, all of which taken together shall constitute one instrument.
Section 11.11 Entire Agreement. This Agreement, including the
----------------
Schedules and other documents referred to herein which form a part hereof, and
the
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Confidentiality Agreement, contains the entire understanding of the parties
hereto with respect to the subject matter contained herein and therein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter other than the Confidentiality Agreement.
Section 11.12 Amendments. This Agreement may not be changed orally,
----------
but only by an agreement in writing signed by the parties hereto. Any provision
of this Agreement can be waived, amended, supplemented or modified by written
agreement of the parties hereto.
Section 11.13 Third Party Beneficiaries. Each party hereto intends
-------------------------
that this Agreement shall not benefit or create any right or cause of action in
or on behalf of any Person other than the parties hereto; provided, however,
--------
that notwithstanding this Section 11.13, the provisions of Section 5.4, 5.5, 5.7
and 5.8 of this Agreement, to the extent applicable, shall inure to the benefit
of officers and directors of the Company and each of the Subsidiaries and the
employees of the Company and each of its Subsidiaries and may be enforced by
such officers, directors and employees and their respective heirs and
personal representatives.
Section 11.14 Selling Group. All amounts required to be paid by the
-------------
Selling Group hereunder shall be owed by each of the Selling Group on a joint
and several basis.
Section ll.15 Liquidation of Parent. If Purchaser gives notice as
---------------------
provided in Section 8.4 that it desires to make one or more Section 338
Elections, CDR shall have the right, notwithstanding any other provision of this
Agreement, to cause Parent to be liquidated under the provisions of Delaware Law
prior to the Closing and if such liquidation is effected all references herein
to Parent with respect to any event, circumstance, occurrence or otherwise
occurring on or after such liquidation shall be deemed to be and shall become
references to Seller.
Section 11.16 Names. Promptly following the Closing, Seller and Parent
-----
(if it still exists) shall change their respective names to delete therefrom all
references to "MGM" and on and after Closing the Selling Group shall no longer
have any right to, and shall not, use any reference to MGM and/or Metro-Goldwyn-
Mayer in any of their names.
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<PAGE>
IN WITNESS WHEREOF, each of the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, all as of the
day and year first above written.
P & F ACQUISITION CORP.
By: /s/ Frank G. Mancuso
---------------------------
Name: Frank G. Mancuso
Title: Chairman and Chief Executive
Officer
CONSORTIUM DE REALISATION
By: /s/ Michael Renger
----------------------------
Name: Michael Renger
Title: President
By: /s/ Francois LeMasson
-----------------------------
Name: Francois LeMasson
Title: Directeur General
MGM HOLDINGS CORPORATION
By: /s/ Rens-Claure Joannet
-----------------------------
Name: Rens-Claure Joannet
Title: President and Treasurer
MGM GROUP HOLDINGS CORPORATION
By: /s/ Michael S. Hope
---------------------------
Name: Michael S. Hope
Title: Executive Vice President
METRO-GOLDWYN-MAYER INC.
By: /s/ Michael S. Hope
----------------------------
Name: Michael S. Hope
Title: Executive Vice President
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EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
AMONG
METROMEDIA INTERNATIONAL GROUP, INC.,
ORION PICTURES CORPORATION
AND
P&F ACQUISITION CORP.
DATED AS OF MAY 2, 1997
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I. DEFINITIONS.............................................................................. 1
1.01. Definitions................................................................................. 1
1.02. Index of Other Defined Terms................................................................ 9
ARTICLE II. TRANSFER OF ASSETS...................................................................... 11
2.01. Sale of Stock............................................................................... 11
2.02. Closing..................................................................................... 11
2.03. Purchase Price.............................................................................. 11
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER............................................... 13
3.01. Ownership of Stock.......................................................................... 13
3.02. Corporate Existence and Power............................................................... 13
3.03. Corporate Authorization of Seller........................................................... 13
3.04. Subsidiaries................................................................................ 13
3.05. Entertainment Group......................................................................... 14
3.06. Corporate Authorization..................................................................... 14
3.07. Governmental Authorization.................................................................. 14
3.08. Non-Contravention........................................................................... 14
3.09. Financial Statements; Undisclosed Liabilities............................................... 15
3.10. Absence of Certain Changes.................................................................. 15
3.11. Properties; Tangible Assets................................................................. 17
3.12. Affiliates.................................................................................. 17
3.13. Litigation.................................................................................. 18
3.14. Contracts................................................................................... 18
3.15. Permits; Required Consents.................................................................. 20
3.16. Compliance with Applicable Laws............................................................. 20
3.17. Employment Agreements; Change in Control; and Employee Benefits............................. 20
3.18. Labor and Employment Matters................................................................ 23
3.19. Intellectual Property....................................................................... 24
3.20. Library Films............................................................................... 25
3.21. Films In Progress........................................................................... 27
3.22. Development Projects........................................................................ 30
3.23. Advisory Fees............................................................................... 30
</TABLE>
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<TABLE>
<S> <C>
3.24. Environmental Compliance.................................................................... 30
3.25. Insurance................................................................................... 31
3.26. Tax Matters................................................................................. 31
3.27. SEC Documents............................................................................... 31
3.28. Disclosure.................................................................................. 31
3.29. Financial Statements of Landmark............................................................ 32
3.30. No Contract With Landmark................................................................... 32
3.31. Board Recommendations....................................................................... 32
3.32. Bankruptcy.................................................................................. 33
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER................................................. 33
4.01. Corporate Existence and Power............................................................... 33
4.02. Corporate Authorization..................................................................... 33
4.03. Governmental Authorization.................................................................. 33
4.04. Non-Contravention........................................................................... 34
4.05. Advisory Fees............................................................................... 34
4.06. Litigation.................................................................................. 34
4.07. Purchase for Investment..................................................................... 34
4.08. Ownership of MGM............................................................................ 34
ARTICLE V. COVENANTS OF SELLER AND ORION............................................................ 34
5.01. Conduct of the Business..................................................................... 35
5.02. Access to Information....................................................................... 38
5.03. Compliance with Terms of Required Governmental Approvals and Required Contractual Consents.. 38
5.04. Maintenance of Insurance Policies........................................................... 38
5.05. Confidentiality............................................................................. 39
5.06. Specific Performance........................................................................ 40
5.07. Bankruptcy Cases............................................................................ 40
5.08. No Solicitations............................................................................ 40
5.09. Transfer of Assets.......................................................................... 41
5.10. Use of Trade Names.......................................................................... 42
ARTICLE VI. COVENANTS OF BUYER...................................................................... 42
6.01. Compliance with Terms of Required Governmental Approvals and Required Contractual Consents.. 42
6.02. Confidentiality............................................................................. 42
6.03. Specific Performance........................................................................ 42
</TABLE>
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<TABLE>
<S> <C>
6.04. Use of Metromedia Name...................................................................... 43
6.05. Bank Waivers................................................................................ 43
ARTICLE VII. COVENANTS OF ALL PARTIES............................................................... 43
7.01. Further Assurances.......................................................................... 43
7.02. Certain Filings............................................................................. 43
7.03. Public Announcements........................................................................ 43
7.04. Administration of Accounts.................................................................. 44
7.05. Specific Performance........................................................................ 44
7.06. Right of First Negotiation.................................................................. 44
7.07. Proxy Consent Solicitation.................................................................. 44
7.08. Refinancing of Debt......................................................................... 45
ARTICLE VIII. CONDITIONS TO CLOSING................................................................. 46
8.01. Conditions to Obligation of Buyer........................................................... 46
8.02. Conditions to Obligation of Seller.......................................................... 47
ARTICLE IX. INDEMNIFICATION......................................................................... 49
9.01. Indemnification of Buyer.................................................................... 49
9.02. Indemnification of Seller................................................................... 49
9.03. Survival of Representations, Warranties and Covenants....................................... 50
9.04. Claims for Indemnification.................................................................. 50
9.05. Defense of Claims........................................................................... 51
9.06. Nature of Payments.......................................................................... 52
9.07. Taxes........................................................................................ 52
ARTICLE X. TERMINATION.............................................................................. 52
10.01. Grounds for Termination.................................................................... 52
10.02. Effect of Termination...................................................................... 54
10.03. Commitment Fee............................................................................. 54
ARTICLE XI. TAX MATTERS............................................................................. 57
11.01. Tax Returns and Payments................................................................... 57
11.02. Section 338(h)(10)......................................................................... 58
11.03. Indemnification............................................................................ 59
11.04. Procedures for Indemnification............................................................. 59
ARTICLE XII. MISCELLANEOUS.......................................................................... 60
</TABLE>
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<TABLE>
<S> <C>
12.01. Notices.................................................................................... 60
12.02. Amendments; No Waivers..................................................................... 62
12.03. Construction............................................................................... 62
12.04. Expenses................................................................................... 63
12.05. Successors and Assigns..................................................................... 63
12.06. Governing Law.............................................................................. 63
12.07. Counterparts; Effectiveness................................................................ 63
12.08. Entire Agreement........................................................................... 63
12.09. Captions................................................................................... 63
12.10. Severability............................................................................... 63
12.11. Forum; Attorneys' Fees..................................................................... 63
12.12. Cumulative Remedies........................................................................ 64
12.13. Third Party Beneficiaries.................................................................. 64
12.14. Knowledge.................................................................................. 64
</TABLE>
iv
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SCHEDULES
---------
Schedule 1.01 Permitted Liens
Schedule 1.02 Statement of Assumptions
Schedule 3.04 Subsidiaries
Schedule 3.08(c) Conflicts
Schedule 3.09 Financial Statements; Undisclosed Liabilities
Schedule 3.10(e) Absence of Certain Changes
Schedule 3.10(h) Distributions
Schedule 3.11(a) Liens
Schedule 3.11(c) Leases
Schedule 3.11(d) Real Property Owned
Schedule 3.12 Affiliates
Schedule 3.13 Litigation
Schedule 3.14(a) Scheduled Contracts
Schedule 3.14(b) Valid and Binding Contracts
Schedule 3.14(c) Participations
Schedule 3.15(a) Permits
Schedule 3.15(b) Required Consents
Schedule 3.16 Compliance with Applicable Laws
Schedule 3.17(a) Certain Employment Agreements
Schedule 3.17(b) Other Employment Agreements
Schedule 3.17(c) Benefit Plans
Schedule 3.17(d) Employee Pension Benefit Plans
Schedule 3.17(e) Multiemployer Plans
Schedule 3.17(f) Entertainment Plans
Schedule 3.18(a) Labor and Employment Matters
Schedule 3.18(b) Labor Disputes
Schedule 3.19(a) Owned Intellectual Property Rights
Schedule 3.19(b) Licensed Intellectual Property Rights
Schedule 3.19(c) Licenses
Schedule 3.19(d) Claims
Schedule 3.19(e) Royalties
Schedule 3.20(a) Library Films
Schedule 3.20(a)(i) Availability Dates
Schedule 3.20(a)(ii) Film Rights
Schedule 3.20(a)(iii) Dormant Films
Schedule 3.20(a)(iv) Film Liens
Schedule 3.20(b) Ratings
Schedule 3.20(c) Elements
Schedule 3.20(f) Copyrights
Schedule 3.20(g) Music
Schedule 3.20(i) Insurance Claims
Schedule 3.20(j) Rights
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<PAGE>
Schedule 3.20(l) Participations
Schedule 3.21(a) Films In Progress
Schedule 3.21(b) Ownership
Schedule 3.21(c) Ratings
Schedule 3.21(d) Elements
Schedule 3.21(i) Copyrights
Schedule 3.21(j) Music
Schedule 3.21(l) Insurance Claims
Schedule 3.21(m) Rights
Schedule 3.21(o) Participations
Schedule 3.22 Development Projects
Schedule 3.24(a) Environmental Permits
Schedule 3.24(b) Compliance with Environmental Laws
Schedule 3.24(c) Continuing Compliance with Environmental Laws
Schedule 3.25 Insurance
Schedule 3.26 Tax Matters
Schedule 3.29(a) Landmark Financial Statements
Schedule 3.29(b) Landmark Transferred Assets
Schedule 3.30 Contracts with Landmark
Schedule 3.32(c) Plan Liens
Schedule 5.01(a)(ix) Budgets
Schedule 7.06 First Negotiation Territories
Schedule 9.01(c) Indemnified Litigation
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<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
This STOCK PURCHASE AGREEMENT (the "Agreement") dated as of May 2,
1997 is by and among METROMEDIA INTERNATIONAL GROUP, INC., a Delaware
corporation ("Seller"), ORION PICTURES CORPORATION, a Delaware corporation
("Orion" and, together with all of its direct and indirect subsidiaries other
than the Landmark Theater Group and its subsidiaries ("Landmark"), the
"Entertainment Companies"), and P&F ACQUISITION CORP., a Delaware corporation
("Buyer").
R E C I T A L S
A. The Entertainment Companies are engaged in the business of
the production and worldwide distribution and exploitation in all media of
motion pictures, television programming and other filmed entertainment,
including the exploitation of a library of motion pictures, television
programming and other filmed entertainment;
B. Seller owns all of the issued and outstanding stock of Orion
(the "Shares"); and
C. Seller desires to sell and Buyer desires to purchase all of
the Shares on the terms and conditions set forth herein.
A G R E E M E N T
NOW, THEREFORE, in consideration of the premises, and the mutual
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereto agree as follows.
ARTICLE I
DEFINITIONS
1.01. Definitions. The following terms, as used herein, have the following
-----------
meanings:
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such Person.
"Alternative Proposal" shall mean a proposal or offer (other than by
Buyer) for a stock purchase, asset acquisition, merger, consolidation or other
business combination involving any Entertainment Company or any proposal to
acquire in any manner a direct or indirect substantial equity interest in, or
all or any substantial part of the assets of, any Entertainment Company, but
shall not include a proposal or offer to acquire an equity interest in Seller by
a Person that agrees for the benefit of Buyer to cause Seller to comply with the
terms of this Agreement and to vote all shares of Seller's common stock or other
equity securities beneficially
1
<PAGE>
owned by such Person in favor of approval of this Agreement and the transactions
contemplated hereby.
"Applicable Law" means, with respect to any Person, any domestic or
foreign, federal, state or local statute, law, ordinance, rule, administrative
interpretation, regulation, order, writ, injunction, directive, judgment, decree
or other requirement of any Governmental Authority (including any Environmental
Law) applicable to such Person or any of its Affiliates or Plan Affiliates or
any of their respective properties, assets, officers, directors, employees,
consultants or agents (in connection with such officer's, director's,
employee's, consultant's or agent's activities on behalf of such Person or any
of its Affiliates or Plan Affiliates).
"Associate" or "Associated With" means, when used to indicate a
relationship with any Person, (a) any other Person of which such Person is an
officer or partner or is, directly or indirectly, the beneficial owner of ten
percent (10%) or more of any class of equity securities issued by such other
Person, (b) any trust or other estate in which such Person has a substantial
beneficial interest or as to which such Person serves as trustee or in a similar
fiduciary capacity, and (c) any relative or spouse of such Person, or any
relative of such spouse who has the same home as such Person or who is a
director or officer of such Person or any Affiliate thereof.
"Bankruptcy Cases" means the bankruptcy cases of In re Orion Pictures,
Inc., a Delaware Corporation, et. al., Debtors, jointly administered under case
number 91 B 15635 (BRL) commenced in the Bankruptcy Court under title 11 of the
United States Bankruptcy Code.
"Bankruptcy Court" means the United States Bankruptcy Court for the
Southern District of New York acting in any of the Bankruptcy Cases.
"Benefit Arrangement" means any material benefit arrangement that is
not an Employee Benefit Plan, including, without limitation, (i) each employment
or consulting agreement, (ii) each arrangement providing for insurance coverage
or workers' compensation benefits, (iii) each incentive bonus or deferred bonus
arrangement, (iv) each arrangement providing termination allowance, severance or
similar benefits, (v) each equity compensation plan, (vi) each deferred
compensation plan and (vii) each compensation policy and practice maintained by
Seller or any Entertainment Company or any ERISA Affiliate of any of the
foregoing covering the employees, former employees, directors and former
directors thereof and the beneficiaries of any of them.
"Benefit Plan" means an Employee Benefit Plan or Benefit
Arrangement.
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in New York, New York are authorized or required by
law to close.
"Buyer Affiliated Group" shall mean Buyer and members of the
affiliated group, within the meaning of Section 1504 of the Code, of which Buyer
is the common parent.
"Code" means the Internal Revenue Code of 1986, as amended.
2
<PAGE>
"Confirmation Documents" means the Plan of Reorganization and the
Order Confirming Plan, and any other orders of the Bankruptcy Court entered in
the Bankruptcy Cases, which modifies the treatment of the claims of creditors or
of equity security holders or that limits the power or authority of any
Entertainment Company to use, sell or lease its property as authorized by
applicable non-bankruptcy law, or that requires any Entertainment Company to
give notice to or obtain the approval of the Bankruptcy Court in connection with
the conduct of its business and affairs.
"Contracts" means all contracts, agreements, options, leases, License
Agreements, output agreements, distribution contracts, sales and purchase
orders, commitments, instruments and other obligations of any kind, whether
written or oral, inclusive of amendments, to which any Entertainment Company is
a party on the Closing Date, including the Scheduled Contracts and the
Subsequent Material Contracts.
"Consolidated Returns" shall mean federal Income Tax Returns that
Seller has elected to file on a consolidated basis.
"Damages" means all demands, claims, actions or causes of action,
assessments, losses, damages, costs, expenses, liabilities, judgments, awards,
fines, sanctions, penalties, charges and amounts paid in settlement net of
insurance proceeds actually received, including without limitation (i) interest
on cash disbursements in respect of any of the foregoing at the Reference Rate
in effect from time to time, compounded quarterly, from the date each such cash
disbursement is made until the Person incurring the same shall have been
indemnified in respect thereof and (ii) reasonable costs, fees and expenses of
attorneys, accountants and other agents of such Person.
"Debt" means any indebtedness of any Entertainment Company, whether or
not contingent, in respect of borrowed money or evidenced by bonds, notes,
debentures or other similar instruments or letters of credit (or reimbursement
obligations in respect thereof) or banker's acceptances or representing
capitalized lease obligations or the balance deferred and unpaid of the purchase
price of any property, except any such balance that constitutes an accrued
expense or account payable, in each case incurred in the ordinary course of
business, as well as all indebtedness of others secured by a Lien on any asset
of any Entertainment Company (whether or not such indebtedness is assumed by an
Entertainment Company) and, to the extent not otherwise included, any Guaranty
by any Entertainment Company of any indebtedness of any other Person (other than
another Entertainment Company).
"Elements" means negative and positive film, soundtracks, music
tracks, effects tracks, optical, audio, video and advertising materials and
supplies associated with any Film.
"Employee Benefit Plan" means any employee benefit plan, as defined in
Section 3(3) of ERISA, that is sponsored or contributed to by Seller or any
Entertainment Company or any ERISA Affiliate thereof covering employees or
former employees of any Entertainment Company.
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<PAGE>
"Employee Pension Benefit Plan" means any employee pension benefit
plan, as defined in Section 3(2) of ERISA, that is subject to Title IV of ERISA,
other than a Multiemployer Plan.
"Environmental Laws" means all Applicable Laws relating to the
protection of the environment or human health including, without limitation, (i)
all requirements pertaining to reporting, licensing, permitting, controlling,
investigating or remediating emissions, discharges, releases or threatened
releases of Hazardous Substances, chemical substances, pollutants, contaminants
or toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature, into the air, surface water, groundwater or land; (ii) all requirements
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Substances, chemical substances,
pollutants, contaminants or toxic substances, materials or wastes, whether
solid, liquid or gaseous in nature; and (iii) the Resource Conservation and
Recovery Act ("RCRA"), the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA"), the Clean Air Act, the Water Pollution Control
Act, the Safe Drinking Water Act, the Toxic Substances Control Act ("TSCA") and
all regulations promulgated pursuant to any of these or analogous state or local
statutes.
"Environmental Liabilities" means Liabilities of a Person that
arise under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" of any Person means any other Person that, together
with such Person as of the relevant measuring date under ERISA, was or is
required to be treated as a single employer under Section 414 of the Code.
"Existing Orion Credit Facility" means the Amended and Restated
Credit, Guaranty and Security Agreement, dated as of June 27, 1996, by and among
Orion, the lenders listed therein and The Chase Manhattan Bank, as agent.
"Films" means motion pictures (including feature films), shorts,
television programming, animated programming or other filmed entertainment, and
the components thereof (whether or not now known or recognized) as to which any
Entertainment Company owns any right, title or interest including, without
limitation, Library Films, Films In Progress and Development Projects and
including, without limitation: (i) completed, delivered and released projects;
(ii) works in progress comprising projects in development, principal photography
and/or post-production, projects complete but not yet released, and unreleased
or completed but undelivered pick-ups; (iii) underlying rights in and to the
literary, musical and dramatic and other material associated with or related to
or necessary to the exploitation of the works or projects referred to in clauses
(i) or (ii) including, without limitation, copyrights pertaining thereto; (iv)
to the extent related to the works or projects referred to in clauses (i) or
(ii), sequel, prequel and remake rights, all rights to novelization,
merchandising, character, serialization, games and interactive video; (v) all
other ancillary and subsidiary rights throughout the universe related to such
works and projects; (vi) all Elements; and (vii) all contractual and other
rights associated
4
<PAGE>
with or related to such works or projects and the related ancillary and
subsidiary rights whether in any media now known or hereafter developed.
"GAAP" means generally accepted accounting principles,
consistently applied.
"Governmental Authority" means any foreign, domestic, federal,
territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court (including, without limitation, the Bankruptcy
Court), government or self-regulatory organization, commission, tribunal or
organization or any regulatory, administrative or other agency, or any political
or other subdivision, department or branch of any of the foregoing.
"Group Health Plan" means any group health plan, as defined in
Section 5000(b)(1) of the Code.
"Guaranty" means, as to any Person (the "guaranteeing person"), any
-------------------
obligation of (a) the guaranteeing person or (b) another Person (including,
without limitation, any bank under any letter of credit) to induce the creation
of which the guaranteeing person has made or issued a guaranty, reimbursement,
counterindemnity or similar obligation, in any case guaranteeing or in effect
guaranteeing any Debt, lease, dividend or other obligation (the "primary
-------
obligation") of any other Person (the "primary obligor"), in any manner, whether
- ---------- ---------------
directly or indirectly, including, without limitation, any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such primary
obligation or any property constituting direct or indirect security therefor,
(ii) to advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
payment thereof including, without limitation, any negative pick-up obligation,
or (iv) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided, however, that the term
-------- -------
Guaranty shall not include (A) endorsements of instruments for deposit or
collection in the ordinary course of business, (B) commitments to produce Films,
(C) minimum guaranteed payments in License Agreements with respect to Films, or
(D) obligations in respect of Participations payable to others, which
Participations were created in connection with the development, production,
acquisition, distribution, exhibition, exploitation or financing of Films. The
amount of any obligation in respect of a Guaranty shall be deemed to be the
lower of (a) an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Guaranty is made and (b) the maximum amount
for which such guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guaranty, unless such primary obligation and the
maximum amount for which such guaranteeing person may be liable are not stated
or determinable, in which case the amount of such Guaranty shall be such
guaranteeing person's maximum reasonably anticipated liability in respect
thereof as determined by Buyer in good faith.
"Hazardous Substance" means any substance, waste or material: (i) the
presence of which requires investigation or remediation under any Environmental
Law; or (ii) the
5
<PAGE>
generation, storage, treatment, transportation, disposal, remediation, removal,
handling or management of which is regulated by any Environmental Law; or (iii)
that is defined as a "hazardous waste" or "hazardous substance" under any
Environmental Law; or (iv) that is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic or mutagenic or otherwise hazardous and is
regulated by any Governmental Authority; or (v) the presence of which poses a
hazard to the health or safety of Persons; or (vi) the presence of which
constitutes a nuisance, trespass or other tortious condition for which a Seller
could be or is alleged to be liable; or (vii) without limitation, that contains
gasoline, diesel fuel or other petroleum hydrocarbons, polychlorinated biphenols
(PCBs) or asbestos.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Income Tax" shall mean all Taxes based upon, measured by or
calculated with respect to net income or profits, including any interest,
penalty or addition thereto.
"Indemnifying Party" means: (i) with respect to any Buyer Indemnitee
asserting a claim under Sections 9.01 or 12.12, Seller; and (ii) with respect to
any Seller Indemnitee asserting a claim under Sections 9.02 or 12.12, Buyer.
"Indemnitee" means: (i) each of Buyer and its Affiliates with respect
to any claim for which Seller is an Indemnifying Party under Sections 9.01 or
12.12; and (ii) Seller and its Affiliates with respect to claims for which Buyer
is an Indemnifying Party under Sections 9.02 or 12.12.
"IRS" means the Internal Revenue Service.
"Liability" means, with respect to any Person, any liability or
obligation of such Person of any kind, character or description, whether known
or unknown, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, secured or unsecured, joint or several, due or to become due,
vested or unvested, executory, determined, determinable or otherwise and whether
or not the same is required to be accrued on the financial statements of such
Person.
"License Agreements" means agreements to which any Entertainment
Company is a party or by which any Entertainment Company is otherwise bound,
pursuant to which an Entertainment Company grants or licenses to or acquires
from a third party any right, title or interest relating to the distribution,
exhibition or other exploitation of one or more Films.
"Lien" means, with respect to any asset, any mortgage, title defect or
objection, lien, pledge, charge, security interest, hypothecation, restriction,
encumbrance or charge of any kind in respect of such asset.
"LIBOR" shall mean, with respect to each day during any applicable one
month period, the one month London interbank offered rate for Dollar deposits as
of 11:00 a.m. (London time) on the day which is two Business Days prior to the
first day of such period, as quoted on Telerate page 3750 or on such replacement
system as is then customarily used to quote
6
<PAGE>
the London interbank offered rate. If two or more such rates appear on Telerate
page 3750 or associated pages, the rate in respect of such period shall be the
arithmetic mean of such offered rates (rounded upwards, if necessary, to the
nearest 1/100th of one percent).
"Material Adverse Effect" means a material change in, or material
adverse effect on, the assets, liabilities, business, operations or financial
condition of the Entertainment Companies taken as a whole.
"MGM Credit Facility" means the $800 Million Credit Agreement, dated
as of October 10, 1996, among Metro-Goldwyn-Mayer Inc., the Lenders listed
therein, the L/C issuers named therein and Morgan Guaranty Trust Company of New
York, as agent, and all related documents.
"Multiemployer Plan" means a multiemployer plan, as defined in
Section 3(37) and 4001(a)(3) of ERISA.
"New Orion Credit Facility" means a revolving credit facility, naming
Orion as borrower, that is to take effect concurrent with the Closing and that
in all respects is in form and substance satisfactory to Buyer.
"Order Confirming Plan" means the order of the Bankruptcy Court
entitled "Order Confirming the Debtors' Modified Third Amended Joint
Consolidated Plan of Reorganization," dated October 20, 1992, entered in the
Bankruptcy Cases.
"Participations" means, with respect to any Film, all amounts (whether
described as a deferment, a gross participation or otherwise) which any
Entertainment Company may be contractually obligated to pay to any person, for
rights or services in connection with any Film and which are based on or
dependent on all or any percentage of the proceeds of the Film (irrespective of
the manner in which such proceeds are defined or computed), including royalties,
residuals and guild payments, whether or not such payment has then become due or
been made.
"Permitted Liens" means (i) Liens for Taxes or governmental
assessments; charges or claims the payment of which is not yet due, or for Taxes
the validity of which are being contested in good faith by appropriate
proceedings; (ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Persons and other Liens
imposed by Applicable Law incurred in the ordinary course of business for sums
not yet delinquent or being contested in good faith; (iii) Liens relating to
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security or to
secure the performance of leases, trade contracts or other similar agreements;
(iv) Liens securing executory obligations under any Lease that constitutes an
"operating lease" under GAAP; (v) guild Liens; (vi) customary Liens (a) granted
in the ordinary course to secure a licensee's ability to retain distribution
rights under a License Agreement to which the licensee is a party and (b) which
Liens, if enforced, in the aggregate would not have a Material Adverse Effect;
and (vii) other Liens set forth on Schedule 1.01 hereto. Notwithstanding the
-------------
foregoing, no Lien arising under the Code or ERISA with respect to the
operation, termination, restoration or funding of any Benefit Plan sponsored by,
maintained by or
7
<PAGE>
contributed to by Seller or any Entertainment Company or by any of their ERISA
Affiliates or arising in connection with any material excise tax or penalty tax
with respect to such Benefit Plan shall be a Permitted Lien.
"Person" means an individual, corporation, partnership, association,
trust, estate or other entity or organization, including a Governmental
Authority.
"Plan Affiliate" means, with respect to any Person, any employee
benefit plan or arrangement sponsored by, maintained by or contributed to by
such Person, and with respect to any employee benefit plan or arrangement, any
Person sponsoring, maintaining or contributing to such plan or arrangement.
"Plan of Reorganization" means the "Debtors' Third Amended Joint
Consolidated Plan of Reorganization," dated September 3, 1992, filed in the
Bankruptcy Cases.
"Post-Closing Period" shall mean any Taxable period that begins
after the Closing Date.
"Pre-Closing Period" shall mean any Taxable period that ends on
or before the Closing Date.
"Proceeding" means an action, suit, hearing, arbitration, proceeding
(public or private) or, to Seller's knowledge, governmental investigation, that
has been brought by or against any Governmental Authority or any other Person.
"Prohibited Transaction" means a transaction that is prohibited under
Section 4975 of the Code or Section 406 of ERISA and not exempt under Section
4975 of the Code or Section 408 of ERISA, respectively.
"Reference Rate" means LIBOR as in effect from time to time plus
1.00%. The party to whom interest is payable hereunder shall determine LIBOR
for successive one month periods until the obligation bearing interest is paid
in full.
"Seller Affiliated Group" shall mean Seller and members of the
affiliated group, within the meaning of Section 1504 of the Code, of which
Seller is the common parent.
"Share Encumbrances" means, with respect to any of the Shares, any
lien, charge, claim, option, pledge, right of other parties, voting trust,
proxy, stockholder or similar agreement, restriction, adverse claim or any other
encumbrance of any nature whatsoever.
"Statement of Assumptions" means the statement of assumptions derived
by Buyer from information made available to it in its due diligence
investigation of the Entertainment Companies prior to the date of this Agreement
that is attached as Schedule 1.02 hereto.
-------------
"Straddle Period" shall mean any Taxable period that begins
before and ends after the Closing Date.
8
<PAGE>
"Subsidiary" means, with respect to any Person, (i) any corporation as
to which more than 10% of the outstanding stock having ordinary voting rights or
power (and excluding stock having voting rights only upon the occurrence of a
contingency unless and until such contingency occurs and such rights may be
exercised) is owned or controlled, directly or indirectly, by such Person and/or
by one or more of such Person's Subsidiaries, and (ii) any partnership, joint
venture or other similar relationship between such Person (or any Subsidiary
thereof) and any other Person (whether pursuant to a written agreement or
otherwise), if such Person has a 10% or more equity interest therein.
"Tax" shall mean all federal, state, local and foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs, duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto, irrespective of whether imposed directly or indirectly, as a successor
or transferee liability, as a joint and several liability pursuant to Section
1.1502-6 of the Treasury Regulations or comparable or similar provisions of
state, local or foreign law, or whether by reason of any tax sharing, tax
reimbursement or tax indemnification agreement, or by reason of a tax treaty.
"Taxes" and "Taxable" shall have the correlative meanings.
"Tax Return" means all returns, reports, statements, forms or other
materials or information required to be filed with respect to any Tax.
"Union Bank Loan" means the loan in the amount of Seven Million
Dollars ($7,000,000) from Union Bank of California on the Film entitled "Music
From Another Room" which is secured solely by the assets of such Film and which
is otherwise without recourse against any Entertainment Company.
1.02. Index of Other Defined Terms. In addition to those terms defined
----------------------------
above, the following terms shall have the respective meanings given thereto in
the sections indicated below:
<TABLE>
<CAPTION>
DEFINED TERM SECTION
<S> <C>
"1996 Balance Sheet" 3.09
"A Films" 3.20(a)
"Annual Statements" 3.09
"ASCAP" 3.20(g)
"B Films" 3.20(a)
"BMI" 3.20(g)
"Buyer" Preamble
"Closing" 2.02
"Closing Date" 2.02
"Commitment Fee" 10.03
"Development Projects" 3.22
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
"Distributions" 3.10(h)
"Employment Agreements" 3.17(a)
"Entertainment Companies" Preamble
"Entertainment Plan" 3.17(c)
"Equity Securities" 3.01
"Essential Consents" 3.15(b)
"Film Rentals" 5.09
"Films In Progress" 3.21(a)
"Final Statement" 2.03(c)
"Financial Statements" 3.09
"Insurance Policies" 3.25
"Intellectual Property Rights" 3.19(b)
"Interim Statements" 3.09
"Landmark" Preamble
"Landmark Financial Statements" 3.29
"Leases" 3.11(c)
"Library Films" 3.20(a)
"Licensed Intellectual Property Rights" 3.19(b)
"MPAA" 3.20(b)
"Orion" Preamble
"Overpayment" 2.03(e)
"Owned Intellectual Property Rights" 3.19(a)
"P&A" 5.01(a)(ix)
"Permits" 3.15(a)
"Personal Property Leases" 3.11(c)
"Preliminary Purchase Price" 2.03(b)
"Preliminary Statement" 2.03(b)
"Proceedings" 3.13
"Pro Forma Statements" 3.09
"Purchase Price" 2.03(a)
"Real Property Leases" 3.11(c)
"Required Consents" 3.15(b)
"Required Contractual Consent" 3.15(b)
"Required Governmental Approval" 3.15(b)
"Scheduled Contracts" 3.14(a)
"SEC" 3.05
"SEC Documents" 3.27
"Section 338 Elections" 11.02(a)
"Section 338 Taxes" 11.02(c)
"Securities Act" 7.07(a)
"Selected Firm" 2.03(c)
"Seller" Preamble
"Seller Indemnitees" 9.02
"Shares" Recitals
"Subsequent Material Contract" 5.01(b)(v)
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
"Tax Claim" 11.04(a)
"Tax Indemnitee" 11.04(a)
"Tax Indemnitor" 11.04(a)
"Unaffiliated Production Company" 3.21(b)
"Unpaid Balance" 2.03(d)
</TABLE>
ARTICLE II
SALE OF STOCK
2.01. Sale of Stock. Upon the terms and subject to the conditions of this
-------------
Agreement and in reliance upon the representations, warranties and agreements
herein set forth, Buyer agrees to purchase from Seller and Seller agrees to sell
to Buyer all of the Shares on the Closing Date. At the Closing, Seller shall
deliver to Buyer a certificate evidencing the Shares duly endorsed for transfer
and with all transfer stamps attached and such other instruments as may be
reasonably requested by Buyer to transfer full legal and beneficial ownership of
the Shares to Buyer, free and clear of all Share Encumbrances.
2.02. Closing. The closing (the "Closing") of the transactions contemplated
-------
by this Agreement shall take place at the offices of Gibson, Dunn & Crutcher
LLP, 333 South Grand Avenue, Los Angeles, California 90071 on the date on which
the last of the conditions to Closing set forth in Sections 8.01 and 8.02 have
been satisfied or waived by the party or parties entitled to waive the same or
such other date as to which Buyer and Seller may agree (the "Closing Date"). At
the Closing, Buyer shall deliver to Seller the Purchase Price.
2.03. Purchase Price.
--------------
(a) As consideration for the Shares and the covenants and agreements
of Seller set forth herein, Buyer shall deliver to Seller at the Closing in
immediately available funds to be delivered by wire transfer (to a bank account
designated at least three business days prior to the Closing Date in writing by
Seller) an amount (the "Purchase Price") equal to Five Hundred Seventy Three
Million Dollars ($573,000,000) less the sum of: (i) the greater of (A) all Debt
and other amounts outstanding under the Existing Orion Credit Facility on
December 31, 1996, net of cash on hand of the Entertainment Companies on
December 31, 1996, or (B) all Debt and other amounts outstanding under the
Existing Orion Credit Facility on the Closing Date, net of cash on hand of the
Entertainment Companies on the Closing Date; plus (ii) unpaid interest on Debt
under the Existing Orion Credit Facility accrued to, but not including, the
Closing Date; plus (iii) the greater of (A) Thirteen Million Dollars
($13,000,000) or (B) all Debt of the Entertainment Companies (other than Debt
outstanding under the Existing Orion Credit Facility on the Closing Date)
outstanding on the Closing Date; plus (iv) unpaid interest on such Debt (other
than the Existing Orion Credit Facility) accrued to, but not including, the
Closing Date.
(b) Not later than three Business Days prior to the Closing Date,
Seller shall prepare and deliver to Buyer a statement (the "Preliminary
Statement") containing (i) a schedule of total Debt anticipated to be
outstanding on the Closing Date and an estimate of
11
<PAGE>
unpaid interest to be accrued thereon as of the Closing Date and other amounts
that then will be payable with respect thereto, and (ii) an estimate of cash
that would be reflected on a consolidated balance sheet of Orion and its
Subsidiaries prepared as of the Closing Date (adjusted, if necessary, to give
pro forma effect to distribution to Seller of all capital stock of Landmark on
the Closing Date). Based upon the Preliminary Statement, a preliminary
determination of the Purchase Price shall be made (the "Preliminary Purchase
Price"), which Preliminary Purchase Price shall be subject to adjustment as
provided in Sections 2.03(d) and (e).
(c) Within thirty (30) days after the Closing Date, Buyer shall
prepare and deliver to Seller a statement (the "Final Statement") containing (i)
a schedule of total Debt outstanding on the Closing Date and accrued and unpaid
interest thereon, and other amounts payable with respect thereto, as of the
Closing Date (assuming that such Debt was repaid in full on that date), (ii) a
calculation of cash on hand that would be reflected on a consolidated balance
sheet of Orion and its Subsidiaries prepared as of the Closing Date (adjusted,
if necessary, to give pro forma effect to distribution to Seller of all capital
stock of Landmark on the Closing Date), and (iii) a calculation of the Purchase
Price. The Final Statement and the calculation of the Purchase Price shall be
binding upon the parties to this Agreement unless Seller gives written notice of
disagreement therewith to Buyer within thirty (30) days after its receipt of the
Final Statement, specifying in reasonable detail the nature and extent of such
disagreement. If Buyer and Seller mutually agree upon the Final Statement and
the calculation of the Purchase Price within thirty (30) days after Seller's
receipt of such notice from Buyer, such agreement shall be binding upon the
parties to this Agreement. If Buyer and Seller are unable to resolve any such
disagreement within such period, the disagreement shall be referred for final
determination to an independent accounting firm of national reputation selected
by the mutual agreement of Buyer and Seller (the "Selected Firm"), and the
resolution of that disagreement and the calculation of the total Debt, cash on
hand resulting therefrom and the Purchase Price shall be final and binding upon
the parties hereto for purposes of this Agreement. The fees and disbursements
of the Selected Firm shall be paid by Buyer and Seller as the Selected Firm
shall determine based upon its assessment of the relative merits of the
positions taken by each in any disagreement presented to such firm. Buyer will
grant Seller full access to the books and records of the Entertainment Companies
and its relevant personnel in order for it to make its evaluations under this
Section 2.03.
(d) If the Preliminary Purchase Price is less than the Purchase Price
(such difference being referred to herein as the "Unpaid Balance"), then, in
addition to the amount payable to Seller under Section 2.01(a) of this
Agreement, within five (5) Business Days after the final determination of the
Final Statement and the Purchase Price, Buyer shall deliver to Seller an amount
equal to the Unpaid Balance, together with interest thereon at the Reference
Rate in effect from time to time from the Closing Date until the date of such
payment, in cash in immediately available funds by wire transfer to a bank
account designated in writing by Seller prior to the due date thereof.
(e) If the Preliminary Purchase Price is greater than the Purchase
Price (such difference being referred to herein as an "Overpayment"), then
within five (5) Business Days after the final determination of the Final
Statement and the Purchase Price, Seller shall
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<PAGE>
reimburse to Buyer an amount equal to the Overpayment, together with interest
thereon at the Reference Rate in effect from time to time from the Closing Date
until the date of such reimbursement, in cash in immediately available funds by
wire transfer to a bank account designated in writing by Buyer prior to the due
date thereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
3.01. Ownership of Stock. Seller is the legal and beneficial owner of all
------------------
of the Shares, free and clear of all Share Encumbrances. The delivery to Buyer
of the Shares pursuant to the provisions of this Agreement will transfer to
Buyer valid title thereto, free and clear of any and all Share Encumbrances.
All of the Shares have been duly authorized and were validly issued and are
fully paid and nonassessable and were not issued in violation of any preemptive
rights. The Shares represent all of the issued and outstanding shares of
capital stock of Orion. There are not, and on the Closing Date there will not
be, outstanding (i) any options, warrants, rights of first refusal or other
rights to purchase from Seller or Orion any capital stock of Orion, (ii) any
securities convertible into or exchangeable for shares of such stock or (iii)
any other commitments of any kind for the issuance of additional shares of
capital stock or options, warrants or other securities of Orion (such options,
warrants, rights of first refusal or other rights, convertible securities,
exchangeable securities or other commitments are referred to herein collectively
as "Equity Securities"). There is no contract, right or option outstanding to
require Seller or Orion to redeem, purchase or otherwise reacquire any Equity
Securities of Orion, and there are no preemptive rights with respect to any
Equity Securities of Orion.
3.02. Corporate Existence and Power. Each of Seller and Orion is a
-----------------------------
corporation duly incorporated, validly existing and in good standing under the
laws of the state of its incorporation, and has all corporate power and
authority to enter this Agreement and consummate the transactions contemplated
hereby. Orion is duly qualified to do business as a foreign corporation in each
jurisdiction where the character of the property owned or leased by it or the
nature of its activities makes such qualification necessary to carry on its
business as now conducted, except for those jurisdictions where the failure to
be so qualified has not been, and could not reasonably be expected to be,
material.
3.03. Corporate Authorization of Seller. This Agreement has been duly and
---------------------------------
validly executed by Seller and constitutes the legal, valid and binding
agreement of Seller, enforceable against it in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally; provided,
--------
however, that the legality, validity, binding effect and enforceability of this
- -------
Agreement against Seller is not limited by the Bankruptcy Cases; and provided,
--------
further, that the consummation by Seller of the Closing and the transfer of the
- -------
Shares are subject to the approval of Seller's stockholders.
13
<PAGE>
3.04. Subsidiaries. Schedule 3.04 sets forth a complete list of each direct
------------ -------------
or indirect Subsidiary of Orion, its jurisdiction of organization, the
authorized capital stock of each such Subsidiary, the number of shares of
outstanding capital stock of each such Subsidiary and the owners thereof. All
such issued and outstanding shares of capital stock of each such Subsidiary have
been duly authorized and validly issued and are fully paid and nonassessable and
were not issued in violation of any preemptive rights. Each Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has all corporate power and all
material governmental licenses, governmental authorizations, governmental
consents and governmental approvals required to carry on the business as now
conducted by such Subsidiary and to own and operate the business as now owned
and operated by such Subsidiary. Except as disclosed in Schedule 3.04, no
-------------
Subsidiary holds any of its issued and outstanding shares of capital stock in
its treasury, and there are not, and on the Closing Date there will not be,
outstanding any Equity Securities of or with respect to such Subsidiary. Except
as otherwise disclosed in Schedule 3.04, Orion or a wholly-owned Subsidiary of
-------------
Orion owns, directly or indirectly, free and clear of all Share Encumbrances,
all of the outstanding capital stock or other Equity Securities of each of its
Subsidiaries identified in Schedule 3.04. No Subsidiary is required to be
-------------
qualified to conduct business in any state other than: (a) the states set forth
in Schedule 3.04, in which states the relevant Subsidiary is duly qualified and
-------------
in good standing, and (b) such states where the failure to be so qualified,
whether singly or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
3.05. Entertainment Group. Other than the assets of Landmark reflected in
-------------------
the Landmark Financial Statements, Orion and its Subsidiaries together own all
of the assets of the "Entertainment Group" as described in Seller's most recent
report filed with the Securities and Exchange Commission (the "SEC") on Form
10-K.
3.06. Corporate Authorization of Orion. The execution, delivery and
--------------------------------
performance by Orion of this Agreement and the consummation by Orion of the
transactions contemplated hereby are within Orion's corporate powers and have
been duly authorized by all necessary corporate action on the part of Orion.
This Agreement has been duly and validly executed by Orion and constitutes the
legal, valid and binding agreement of Orion, enforceable against it in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally; provided, however, that the legality, validity, binding effect
-------- -------
and enforceability of this Agreement against Orion is not limited by the
Bankruptcy Cases.
3.07. Governmental Authorization. The execution, delivery and performance
--------------------------
by Seller and Orion of this Agreement requires no action by, consent or approval
of, or filing with, any Governmental Authority other than (a) compliance with
any applicable requirements of the HSR Act, (b) the filing of a preliminary and
definitive proxy statement with the SEC and (c) any actions, consents, approvals
or filings otherwise expressly referred to in Section 3.15 hereof.
3.08. Non-Contravention. The execution, delivery and performance by Seller
-----------------
and Orion of this Agreement, and consummation of the transactions contemplated
hereby,
14
<PAGE>
including without limitation, the transfer of the Shares to Buyer, do
not and will not (a) contravene or conflict with the articles or certificate of
incorporation or bylaws of Seller or any Entertainment Company, true and correct
copies of all of which have been delivered to Buyer by Seller; (b) assuming
receipt of the Required Consents, contravene or conflict with or constitute a
violation of any provision of any material Applicable Law binding upon or
applicable to Seller or any Entertainment Company; (c) except as set forth on
Schedule 3.08(c), constitute a default under or give rise to any right of
- ----------------
termination, cancellation or acceleration of, or to a loss of any benefit to
which Seller or any Entertainment Company is entitled under, any material
Contract to which it is a party or any material Permit or similar authorization;
or (d) except as set forth on Schedule 3.08(c), result in the creation or
----------------
imposition, under any Contract of any Entertainment Company or Applicable Law,
or any Lien on the Shares or on any asset of any Entertainment Company or of
Buyer or any Subsidiary of Buyer, or impose any contractual obligation or
restriction under such Contract on Buyer or any Subsidiary of Buyer (other than
Orion and its Subsidiaries).
3.09. Financial Statements; Undisclosed Liabilities. Schedule 3.09 contains
--------------------------------------------- -------------
true and complete copies of (i) the audited balance sheets and related
statements of operations and retained earnings and of cash flows for Orion and
its consolidated Subsidiaries for the years ended December 31, 1995 and December
31, 1996 (the "Annual Statements"), (ii) the pro forma balance sheets for Orion
and its consolidated Subsidiaries as at December 31, 1996 and March 31, 1997
(which March 31, 1997 balance sheet shall be delivered on or before May 8,
1997), adjusted to reflect distribution of the capital stock of Landmark to
Seller as if it had occurred on the date thereof (the "Pro Forma Statements")
and (iii) the balance sheets and related statements of operations for the three
month periods ended March 31, 1996 and March 31, 1997 which shall be delivered
on or before May 8, 1997 (collectively, the "Interim Statements" and, together
with the Annual Statements and the Pro Forma Statements, the "Financial
Statements"). The December 31, 1996 balance sheet referred to in clause (i)
above is referred to herein as the "1996 Balance Sheet." Each of the Financial
Statements has been prepared based on the books and records of Orion and its
Subsidiaries in accordance with GAAP and their normal accounting practices,
consistent with past practice and with each other, and present fairly the
financial condition, results of operations and cash flows of Orion and its
Subsidiaries as of the dates indicated or for the periods indicated, subject in
the case of the Interim Statements to normal year-end audit adjustments, which
adjustments in the aggregate are not material. The adjustments made to the
balance sheet included in the Annual Statements and Interim Statements in the
preparation of the Pro Forma Statements were reasonable in all material
respects. Except as set forth on Schedule 3.09, there are no Liabilities of any
-------------
Entertainment Company other than: (i) any Liability accrued as a Liability on
the 1996 Balance Sheet; (ii) Liabilities specifically disclosed and identified
as such in the schedules to this Agreement; (iii) Liabilities incurred since the
date of the 1996 Balance Sheet that do not, and will not, individually or in the
aggregate, have a Material Adverse Effect; and (iv) Liabilities incurred since
the date of the 1996 Balance Sheet that have been incurred in the ordinary
course of business of any of the Entertainment Companies.
15
<PAGE>
3.10. Absence of Certain Changes. Since the date of the 1996 Balance Sheet,
--------------------------
each Entertainment Company has conducted its business in the ordinary course
consistent with past practice, and without limitation, there has not been:
(a) any event, occurrence, development or state of circumstances or
facts or change in the assets, liabilities, business, operations or financial
conditions of any Entertainment Company that has had or that could reasonably be
expected to have, either alone or together with all such events, occurrences,
developments, states of circumstances or facts or changes, a Material Adverse
Effect;
(b) any incurrence, assumption or guarantee of any Debt by any
Entertainment Company other than drawdowns under the Existing Orion Credit
Facility and the Union Bank Loan;
(c) any creation, assumption or sufferance of the existence of any
Lien other than Permitted Liens created, assumed or suffered to exist in the
ordinary course of business consistent with past practice;
(d) any transaction or commitment made, or any Contract entered into,
by any Entertainment Company (including the acquisition or disposition of any
assets), or any waiver, amendment, termination or cancellation of any Contract
by any Entertainment Company, or any relinquishment of any rights thereunder by
any Entertainment Company, or of any other right or debt owed to any
Entertainment Company, other than in each such case actions taken in the
ordinary course of business consistent with past practice;
(e) except as set forth in Schedule 3.10(e), any (i) grant of any
----------------
severance, continuation or termination pay to any director, officer, stockholder
or employee of any Entertainment Company or any Associate of any of the
foregoing, (ii) entering into of any employment, deferred compensation or other
similar agreement (or any amendment to any such existing agreement) with any
director, officer, stockholder or employee of any Entertainment Company or any
Associate of any of the foregoing, (iii) increase in benefits payable or
potentially payable under any severance, continuation or termination pay
policies or employment agreements with any director, officer, stockholder or
employee of any Entertainment Company or any Associate of any of the foregoing,
(iv) increase in compensation, bonus or other benefits payable or potentially
payable to directors, officers, stockholders or employees of any Entertainment
Company or any Associate of any of the foregoing, other than in the ordinary
course of business consistent with past practice or pursuant to existing
Contracts, or (v) change in the terms of any bonus, pension, insurance, health
or other Benefit Plan of Seller or any of its Affiliates applicable to any
Entertainment Company or of any Entertainment Company;
(f) any loan to or guarantee or assumption of any loan or obligation
on behalf of any stockholder, director, officer or employee of Seller or any of
its Affiliates or of any Associate of any of the foregoing, except business
expense advances to employees of any Entertainment Company occurring in the
ordinary course of business consistent with past practice;
16
<PAGE>
(g) except as required by GAAP, any material change by any
Entertainment Company in its accounting principles, methods or practices or in
the manner it keeps its books and records or any material change by any
Entertainment Company of its current practices with regards to inventory, sales,
receivables, payables or accrued expenses which would affect the timing of
collection of receivables or the payment of payables;
(h) any distribution, dividend, bonus or other payment by any
Entertainment Company to Seller or any Affiliate of Seller (other than any
Entertainment Company) or any officer, director, stockholder or Affiliate of
Seller or any Entertainment Company or any of their respective Affiliates or
Associates (collectively, "Distributions"), except for the distribution of
Landmark as set forth in Schedule 3.10(h) or occurring in the ordinary course of
----------------
business consistent with past practice;
(i) any payment, discharge or satisfaction of any Liabilities of any
Entertainment Company, other than payments, discharges or satisfactions in the
ordinary course of business consistent with past practice; or
(j) (i) any payment, discharge or other satisfaction of any claim,
liability or obligation owed to any Entertainment Company by Seller or any of
its Affiliates (other than any Entertainment Company) or owed to Seller or any
of its Affiliates (other than any Entertainment Company) by any Entertainment
Company or (ii) any prepayment of any Debt (other than payments of revolving
loans made under the Existing Orion Credit Facility).
3.11. Properties; Leases; Tangible Assets.
-----------------------------------
(a) Except for Permitted Liens and those Liens identified on Schedule
--------
3.11(a), the Entertainment Companies own all of the assets (real, personal or
- -------
mixed, tangible or intangible (including the Intellectual Property Rights))
reflected in the 1996 Balance Sheet (except those assets disposed of in the
ordinary course of business after the date thereof and the Films), free and
clear of all Liens.
(b) All tangible properties and assets (other than the Films) and
premises owned or leased by the Entertainment Companies are in good condition
and repair and are adequate in all material respects for the uses to which they
are put, and no tangible properties or assets necessary for the conduct of the
business of any Entertainment Company in substantially the same manner as it has
heretofore been conducted are in need of replacement, maintenance or repairs,
except for routine and not materially deferred replacement, maintenance and
repair.
(c) Schedule 3.11(c) sets forth a true and complete list of all
----------------
material personal property leases (the "Personal Property Leases") and all
leases of real property (the "Real Property Leases" and collectively with the
Personal Property Leases, the "Leases") to which any Entertainment Company is a
party or by which any Entertainment Company is bound. With respect to the
Leases, except as set forth on Schedule 3.11(c), there exist no defaults by any
----------------
Entertainment Company, or, to the knowledge of Seller, any default or threatened
default by any lessor or third party thereunder, that has affected or could
reasonably be expected to materially
17
<PAGE>
affect the rights and privileges thereunder of any Entertainment Company.
Assuming the Required Consents are obtained, the sale of the Shares to Buyer
will not adversely affect any Leases with non-Affiliates to which any
Entertainment Company is a party or by which any Entertainment Company is bound.
(d) No real property is owned by any Entertainment Company
except as set forth on Schedule 3.11(d).
----------------
3.12. Affiliates. Except as set forth in Schedule 3.12, to the knowledge of
---------- -------------
Seller, no stockholder of Seller or any officer or director of Seller or any
Entertainment Company (or any immediate family member of any such officer or
director):
(a) now has or at any time subsequent to January 1, 1996 had, directly
or indirectly, an equity interest in, or holds debt of, any Person which
furnishes or sells or during such period furnished or sold services or products
to any Entertainment Company or purchases or during such period purchased from
any Entertainment Company any goods or services, or otherwise does or during
such period did business with any Entertainment Company; provided, however, that
-------- -------
no stockholder of Seller or any Entertainment Company or any of their respective
officers, directors or other Affiliates shall be deemed to have such an interest
(A) solely by virtue of the ownership of less than five percent (5%) of the
outstanding voting stock or debt securities of any publicly held company, the
stock or debt securities of which are traded on a national stock exchange or
quoted on the National Association of Securities Dealers Automated Quotation
System or (B) by reason of having such an interest in Seller or such
Entertainment Company; or
(b) now is or at any time subsequent to January 1, 1996 was, directly
or indirectly, a party to any contract, commitment or agreement to which any
Entertainment Company is or during such period was a party or under which any
Entertainment Company is or was obligated or bound or to which any Entertainment
Company's properties may be or may have been subject.
3.13. Litigation. Except as disclosed in Schedule 3.13, (i) there are no
---------- -------------
actions, claims, suits, hearings, arbitrations, proceedings (public or private)
or, to Seller's knowledge, governmental investigations, that have been brought
by or against any Governmental Authority or any other Person (collectively,
"Proceedings") pending or, to the knowledge of Seller, threatened, against or by
any Entertainment Company or against Seller with respect to or relating to any
Entertainment Company other than collection actions by any Entertainment Company
involving claims of amounts less than Twenty Five Thousand Dollars ($25,000), or
which seek to enjoin or rescind the transactions contemplated by this Agreement
or otherwise seek to prevent Seller or any Entertainment Company from complying
with the terms and provisions of this Agreement, and (ii) there are no existing
orders, judgments or decrees of any Governmental Authority affecting any of the
Entertainment Companies. All matters identified on Schedule 3.13 in the
-------------
aggregate will not have a Material Adverse Effect.
18
<PAGE>
3.14. Contracts.
---------
(a) Schedule 3.14(a) sets forth a complete list of all material
----------------
Contracts (collectively with the Leases and the Employment Agreements, the
"Scheduled Contracts") including, without limitation:
(i) each Contract (other than License Agreements) between any
Entertainment Company and (A) except as disclosed in Schedule 3.12 and
-------------
Schedule 3.17(a), each present or former director, officer or other member
----------------
of management or other personnel of any Entertainment Company, (B) any
supplier of services or products (other than Films) to the Entertainment
Companies whose dollar volume of sales to the Entertainment Companies taken
as a whole exceeded in 1996 Five Hundred Thousand Dollars ($500,000), and
(C) any Person in which the aggregate payments made to the Entertainment
Companies taken as a whole under such Contract exceeded in 1996 Five
Hundred Thousand Dollars ($500,000);
(ii) each other agreement or arrangement of any Entertainment Company
that requires the payment or incurrence of Liabilities, or the rendering of
services, by any Entertainment Company, subsequent to the date hereof of
more than Five Hundred Thousand Dollars ($500,000) or that is reasonably
expected to require payment of more than Five Hundred Thousand Dollars
($500,000) in the aggregate;
(iii) all Contracts relating to, and evidences of or guarantees of,
or providing security for, Debt or the deferred purchase price of property
(whether incurred, assumed, guaranteed or secured by any asset);
(iv) all partnership, joint venture or other similar Contracts,
arrangements or agreements, excluding those Contracts which relate to
partnerships or joint ventures formed for the purpose of producing one or
more Films;
(v) all License Agreements to which any Entertainment Company is a
party or by which any Entertainment Company is otherwise bound in which the
aggregate payments to be made to or by any Entertainment Company under such
License Agreement subsequent to the date hereof are more than Seven Hundred
Fifty Thousand Dollars ($750,000) or are reasonably expected to require
payment of more than Seven Hundred Fifty Thousand Dollars ($750,000) in the
aggregate; and
(vi) all License Agreements or other Contracts that constitute output
deals or similar arrangements.
(b) Except as disclosed in Schedule 3.14(b), each Scheduled Contract
----------------
relating to any Entertainment Company is a legal, valid and binding obligation
of each Entertainment Company that is party thereto and, to the knowledge of
Seller, each other party thereto, enforceable against each such Entertainment
Company that is party thereto and, to the knowledge of Seller, each such other
party thereto, in accordance with its terms, except to the extent that
unenforceability would not adversely affect any Entertainment Company's rights
19
<PAGE>
thereunder or as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, and neither any Entertainment Company that is party thereto nor, to
the knowledge of Seller, any other party thereto, is in material default or has
failed to perform any material obligation thereunder. Complete and correct
copies of each Scheduled Contract have been delivered or made available to
Buyer. There is no default or failure to perform under other Contracts which
could reasonably be expected to have a Material Adverse Effect.
(c) Except as disclosed in Schedule 3.14(c), each Entertainment
----------------
Company has paid all material Participations due and payable by it as of the
date hereof in accordance with past practice as such practice relates to the
timing of such payments, and no Entertainment Company is in default or has
failed to perform any obligation with respect to the payment of any such
material Participations.
3.15. Permits; Required Consents.
--------------------------
(a) Schedule 3.15(a) sets forth all material approvals,
----------------
authorizations, certificates, consents, licenses, orders and permits or other
similar authorizations of all Governmental Authorities (and all other Persons)
necessary for the operation of the Entertainment Companies in substantially the
same manner as currently operated or affecting or relating in any way to the
Entertainment Companies (the "Permits").
(b) Schedule 3.15(b) lists (i) each governmental or other
----------------
registration, filing, application, notice, transfer, consent, approval, order,
qualification and waiver (each, a "Required Governmental Approval") required
under Applicable Law to be obtained by Seller or any Entertainment Company by
virtue of the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby to avoid the loss of any material Permit or
otherwise, (ii) each Scheduled Contract with respect to which the consent of the
other party or parties thereto must be obtained by Seller or any Entertainment
Company by virtue of the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby to avoid the invalidity of
the transfer of such Contract, the termination thereof, a breach or default
thereunder or any other change or modification to the terms thereof (each, a
"Required Contractual Consent") and (iii) each Required Contractual Consent
which Seller and Buyer have mutually agreed is critical to the consummation of
the transactions contemplated hereby as set forth on Schedule 3.15(b) (each, an
----------------
"Essential Consent" and collectively with the Required Governmental Approvals
and the Required Contractual Consents, the "Required Consents"). Except as set
forth in Schedule 3.15(b), each Permit is valid and in full force and effect in
----------------
all material respects and, assuming the related Required Consents have been
obtained prior to the Closing, are or will be transferable by Seller, and
assuming the related Required Consents have been obtained prior to the Closing,
none of the Permits will be terminated or become terminable or impaired in any
material respect as a result of the transactions contemplated hereby. To the
knowledge of Seller, there are no facts relating to the identity or
circumstances of Seller that would prevent or materially delay obtaining any of
the Required Consents.
20
<PAGE>
3.16. Compliance with Applicable Laws. Except as set forth in Schedule
------------------------------- --------
3.16, the operation of the respective business of each Entertainment Company has
- ----
not violated or infringed, and does not violate or infringe, any Applicable Law
in a manner that could reasonably be expected to have, either alone or together
with all such violations or infringements, a Material Adverse Effect.
3.17. Employment Agreements; Change in Control; and Employee Benefits.
---------------------------------------------------------------
(a) Except as set forth on Schedule 3.17(a), there are no employment,
----------------
consulting, severance pay, continuation pay, termination pay or indemnification
agreements or other similar agreements of any nature whatsoever (collectively,
"Employment Agreements") between or binding upon any Entertainment Company, on
the one hand, and any current or former stockholder, officer, director, employee
or Affiliate of any Entertainment Company or any of their respective Associates
or any consultant or agent of any Entertainment Company, on the other hand, that
are currently in effect other than any such Employment Agreement that does not
provide for the payment of more than One Hundred Thousand Dollars ($100,000) in
the aggregate in any year.
(b) Except as set forth on Schedule 3.17(b), there are no Employment
----------------
Agreements or any other similar agreements to which any Entertainment Company is
a party or by which it is bound under which the transactions contemplated by
this Agreement (i) will require any payment by any Entertainment Company or
Buyer, or any consent or waiver from any stockholder, officer, director,
employee or Affiliate of any Entertainment Company or any of their respective
Associates or any consultant or agent of any Entertainment Company, or Buyer or
(ii) will result in any increase, acceleration, vesting or other change in the
compensation, benefits or other rights of any stockholder, officer, director,
employee or Affiliate of any Entertainment Company or any of their respective
Associates or any consultant or agent of any Entertainment Company under any
such Employment Agreement or other similar agreement.
(c) Schedule 3.17(c) sets forth all Benefit Plans of Seller, in which
----------------
any employees or former employees and their beneficiaries of any Entertainment
Company participate ("Entertainment Plans"). Seller has made available to Buyer
true and correct copies of all governing instruments and related agreements
pertaining to such Entertainment Plans.
(d) Except as set forth in Schedule 3.17(d), neither Seller nor any
-----------------
Entertainment Company nor any Affiliate or ERISA Affiliate of Seller or any
Entertainment Company sponsors or has ever sponsored, maintained, contributed
to, or incurred an obligation to contribute to, any Employee Pension Benefit
Plan. In connection with any Employee Pension Benefit Plan currently maintained
by any Entertainment Company or any ERISA Affiliate, (i) there have been no
accumulated funding deficiencies (within the meaning of Code Section 412),
whether or not waived, (ii) there have been no reportable events (within the
meaning of ERISA Section 4043(b)) other than any reportable event that may arise
in connection with the transactions contemplated by this Agreement, and (iii) no
circumstances exist that would warrant a termination of any such plan by the
Pension Benefit Guaranty Corporation pursuant to ERISA Section 4042. No
Employee Pension Benefit Plan has been terminated within the last five (5)
21
<PAGE>
years in other than a standard termination under Section 4041(b) of ERISA and
all liabilities under such plans have been adequately and properly discharged.
The foregoing applies only to the extent any of the events results in a material
Liability of any Entertainment Company.
(e) Except as set forth in Schedule 3.17(e), neither Seller nor any
----------------
Entertainment Company nor any Affiliate or ERISA Affiliate of Seller or any
Entertainment Company sponsors or has ever sponsored, maintained, contributed
to, or incurred an obligation to contribute to any Multiemployer Plan. Neither
Seller nor any Entertainment Company nor any of their ERISA Affiliates has at
any time withdrawn from a Multiemployer Plan in a complete withdrawal or a
partial withdrawal, as such terms are defined in ERISA Sections 4203 and 4205,
respectively, so as to result in any liability, contingent or otherwise, to
Seller, any Entertainment Company or any of their ERISA Affiliates. All
contributions required to be made by Seller, any Entertainment Company or any of
their ERISA Affiliates to each Multiemployer Plan have been made when due. To
the best knowledge of Seller, with respect to each Multiemployer Plan, (i) no
such plan has been terminated or has been in reorganization under ERISA so as to
result, directly or indirectly, in any liability, contingent or otherwise, of
Seller, any Entertainment Company or any of their ERISA Affiliates under Title
IV of ERISA; (ii) no proceeding has been initiated by any Person (including the
PBGC) to terminate any such plan; (iii) Seller, any Entertainment Company and
any of their ERISA Affiliates have no reason to believe that any Multiemployer
Plan will be terminated or reorganized; and (iv) Seller, each Entertainment
Company and their ERISA Affiliates do not expect to withdraw from any
Multiemployer Plan.
(f) Except as set forth in Schedule 3.17(f), no agreement, commitment
----------------
or obligation exists to increase benefits under any Entertainment Plan or to
adopt any new Entertainment Plan. Further, no individual shall accrue or
receive additional benefits, service or accelerated rights to payments of
benefits under any Benefit Plan, including the right to receive any parachute
payment, as defined in Section 280G of the Code, or become entitled to
severance, termination allowance or similar payments as a direct result of the
transactions contemplated hereby, and neither Seller nor any Entertainment
Company is a party to any agreement or arrangement that could result in the
payment of any such benefits or payments.
(g) No Entertainment Plan has participated in, engaged in or been a
party to any non-exempt Prohibited Transaction, and none of Seller, any
Entertainment Company or any Affiliate or ERISA Affiliate of Seller or any
Entertainment Company has had asserted against it any material claim for taxes
under Chapter 43 of Subtitle A of the Code and Section 5000 of the Code, or for
material penalties under ERISA Section 502(c), (i) or (l), with respect to any
Employee Benefit Plan nor, to the knowledge of Seller, is there a material basis
for any such claim. No officer, director or employee of Seller or any
Entertainment Company has committed a material breach of any responsibility or
obligation imposed upon fiduciaries by Title I of ERISA with respect to any
Entertainment Plan, with respect to which breach Seller or any Entertainment
Company is or could be directly or indirectly liable.
(h) Other than routine claims for benefits, there is no claim pending,
or to the knowledge of Seller, threatened, involving any Entertainment Plan by
any Person against such plan or Entertainment Company. There is no pending, or
to the knowledge of Seller,
22
<PAGE>
threatened, proceeding involving any Employee Benefit Plan before the IRS, the
United States Department of Labor or any other Governmental Authority that
affects any Entertainment Plan.
(i) There is no material violation of any reporting or disclosure
requirement imposed by ERISA or the Code with respect to any Entertainment Plan.
(j) Each Entertainment Plan has at all times prior hereto been
maintained in all material respects, by its terms and in operation, in
accordance with ERISA and the Code. Seller, each Entertainment Company and
their respective Affiliates and ERISA Affiliates have made full and timely
payment of all amounts required to be contributed under the terms of each
Entertainment Plan and Applicable Law or required to be paid as expenses under
such Entertainment Plan, and Seller and each Entertainment Company and their
respective Affiliates and ERISA Affiliates shall continue to do so through the
Closing. Each Entertainment Plan that is intended to be qualified under Section
401(a) of the Code is and has always been so qualified, and either has received
a favorable determination letter with respect to such qualified status from the
IRS or has filed a request for such a determination letter with the IRS within
the remedial amendment period such that such determination of qualified status
will apply from and after the effective date of any such Entertainment Plan.
(k) With respect to any Group Health Plans maintained by Seller, any
Entertainment Company or any Affiliates or ERISA Affiliates of Seller or any
Entertainment Company, whether or not for the benefit of the employees of
Seller, any Entertainment Company, Affiliates or its ERISA Affiliates, Seller,
the Entertainment Companies and their respective Affiliates and ERISA Affiliates
have complied in all material respects with the provisions of Part 6 of Title I
of ERISA and 4980B of the Code. No Entertainment Company is obligated to
provide health care benefits of any kind to any retired employees pursuant to
any Employee Benefit Plan, including without limitation any Group Health Plan,
or pursuant to any agreement or understanding, other than as required by
applicable law.
(l) Seller and the Entertainment Companies have made available to
Buyer a copy of the three (3) most recently filed Federal Form 5500 series and
accountant's opinion, if applicable, for each Entertainment Plan.
3.18. Labor and Employment Matters.
----------------------------
(a) Except as set forth on Schedule 3.18(a), no collective bargaining
----------------
agreement exists that is binding on any Entertainment Company and, except as
described on Schedule 3.18(a), no petition has been filed or proceedings
----------------
instituted by an employee or group of employees with any labor relations board
seeking recognition of a bargaining representative at any time subsequent to
January 1, 1993. Schedule 3.18(a) describes any organizational effort currently
----------------
being made or threatened by or on behalf of any labor union to organize any
employees of any Entertainment Company.
(b) Except as set forth on Schedule 3.18(b), (i) there is no labor
-----------------
strike, dispute, slow down or stoppage pending or, to the knowledge of Seller,
threatened, against or directly affecting any Entertainment Company, (ii) no
grievance or arbitration proceeding arising
23
<PAGE>
out of or under any collective bargaining agreement is pending, and no claims
therefor exist, and (iii) no Entertainment Company nor any Affiliate of any
Entertainment Company has received any notice or has any knowledge of any
threatened labor, employment or civil rights dispute, controversy or grievance
or any other unfair labor practice proceeding or breach of contract claim or
action with respect to claims of, or obligations to, any employee or group of
employees of any Entertainment Company.
(c) Each of the Entertainment Companies has complied and are currently
complying, in respect of all employees of any Entertainment Company, with any
Applicable Law respecting employment and employment practices and the protection
of the health and safety of employees, from whatever source such law may be
derived, including, without limitation, statutes, ordinances, laws, rules,
regulations, policies, standards, judicial or administrative precedents,
judgments, orders, decrees, awards, citations, licenses, official
interpretations and guidelines, except for instances of noncompliance which
could not be reasonably expected to have, alone or in the aggregate, a Material
Adverse Effect.
(d) All individuals who are performing or have performed services for
any Entertainment Company or any Affiliate thereof and are or during 1995 or
1996 were classified by any of the Entertainment Companies as "independent
contractors" qualify for such classification under Section 530 of the Revenue
Act of 1978 or Section 1706 of the Tax Reform Act of 1986, as applicable, except
for such instances which are not, in the aggregate, material.
3.19. Intellectual Property.
---------------------
(a) Other than copyright registrations, applications and claims
relating to the Films and common law trademark rights in the titles of the
Films, Schedule 3.19(a) sets forth a complete and correct list of all (i)
----------------
foreign and United States federal and state patent, trademark, trade name,
service mark and copyright registrations, (ii) foreign and United States federal
and state patent, trademark, trade name, service mark and copyright applications
for registration, (iii) common law claims to trademarks, service marks and trade
names, (iv) claims of copyright which exist although no registrations have been
issued with respect thereto, (v) fictitious business name filings with any state
or local Governmental Authority and (vi) inventions, discoveries, concepts,
ideas, drawings, designs, original works of authorship, computer programs, know-
how, research and development, techniques, data, trade secrets and other
proprietary and intellectual property rights owned by any of the Entertainment
Companies (collectively, the "Owned Intellectual Property Rights").
----------------------------------
(b) Other than copyright registrations, applications and claims
relating to the Films and common law trademark rights in the titles of the
Films, Schedule 3.19(b) sets forth a complete and correct list of all (i)
----------------
foreign and United States federal and state patent, trademark, trade name,
service mark and copyright registrations, (ii) foreign and United States federal
and state patent, trademark, trade name, service mark and copyright applications
for registration, (iii) common law claims to trademarks, service marks and trade
names, (iv) claims of copyright which exist although no registrations have been
issued with respect thereto, (v) fictitious business name filings with any state
or local Governmental Authority and
24
<PAGE>
(vi) inventions, discoveries, concepts, ideas, drawings, designs, original works
of authorship, computer programs, know-how, research and development,
techniques, data, trade secrets and other proprietary and intellectual property
rights which any of the Entertainment Companies has a valid license to use,
including a description of all Persons from whom any of the Entertainment
Companies have obtained such rights and the material terms of such licenses
(collectively, the "Licensed Intellectual Property Rights"). The Owned
-------------------------------------
Intellectual Property Rights and the Licensed Intellectual Property Rights are
collectively referred to herein as the "Intellectual Property Rights."
-----------------------------
(c) Schedule 3.19(c) lists all licenses pursuant to which any of the
----------------
Entertainment Companies have licensed any Person to use any Intellectual
Property Rights. No Person is in default in any material respect with respect
to its obligations under any of the licenses set forth in Schedule 3.19(c).
----------------
(d) Except as set forth in Schedule 3.19(d), (i) no claim is pending
----------------
or, to Seller's knowledge, threatened to the effect that the present or past use
of the Intellectual Property Rights by any of the Entertainment Companies
infringes upon or conflicts with or violates any patent, patent license, patent
application, trademark, tradename, trademark or tradename registration,
copyright, copyright registration, service mark or any pending application
relating thereto, or any trade secret, know-how, program or process, or common
law rights in respect of any of the foregoing, or any similar rights, of any
Person, (ii) use, sale or licensing of the Intellectual Property Rights by the
relevant Entertainment Company does not infringe upon or violate any rights of
any other Person, (iii) to the knowledge of Seller, no Person is infringing in
any material respect upon the rights of any of the Entertainment Companies in
and to the Intellectual Property Rights and (iv) the Intellectual Property
Rights are not subject to any Lien other than Permitted Liens and Liens granted
in connection with the Existing Orion Credit Facility which shall be
extinguished on or before the Closing. Except as set forth on Schedule 3.19(d),
----------------
no Intellectual Property Right of any of the Entertainment Companies is subject
to any outstanding order, judgment, decree, stipulation or agreement restricting
the use thereof by the relevant Entertainment Company or, in the case of any
Intellectual Property Right licensed to others, restricting the sale, transfer,
assignment or licensing thereof by the relevant Entertainment Company to any
Person.
(e) Except for Participations or as set forth on Schedule 3.19(e), no
----------------
Entertainment Company is obligated to make royalty or other payments to any
owner of, licensor of, other claimant to, or any other Person regarding any
Intellectual Property Rights.
3.20. Library Films.
-------------
(a) Ownership. All Films set forth on Schedule 3.20(a) are designated
--------- ----------------
therein as "A Films" and "B Films," and all of such A Films and B Films shall be
referred to collectively herein as the "Library Films." Schedule 3.20(a)(i)
-------------------
identifies the availability dates of those A Films and B Films which are
currently being exploited by Seller, in each media, in the territories
indicated. Schedule 3.20(a)(ii) identifies all distribution rights owned or
--------------------
controlled by the Entertainment Companies with respect to each Library Film.
Schedule 3.20(a)(iii) identifies
- ---------------------
25
<PAGE>
all Films which Seller deems to be "dormant." Except as set forth on
Schedule 3.20(a)(iv), the Library Films are free and clear of all Liens
- --------------------
other than Permitted Liens and Liens disclosed on Schedule 3.11(a).
----------------
(b) Ratings. Except as disclosed in Schedule 3.20(b), each A Film
------- ----------------
that is a feature-length motion picture was produced in color on either 35MM or
70MM film, was submitted to the Motion Picture Association of America ("MPAA")
for rating, was released theatrically in the United States with a rating that is
not more restrictive than the current rating equivalent to an "R" under the
present system or its equivalent rating under any successor system and was
produced primarily in the English language.
(c) Elements. Schedule 3.20(c) identifies all available Elements
-------- ----------------
owned or controlled by the Entertainment Companies relating to the Library Films
listed therein. The Entertainment Companies have laboratory access letters with
respect to those Elements which the Entertainment Companies do not own. With
respect to each such Library Film identified, the Elements identified are
sufficient to produce copies, prints, video products and other reproductions for
exploitation in the theatrical, non-theatrical, television and video and audio
markets that are of such quality as is consistent with past practice of the
Entertainment Companies. Schedule 3.20(c) identifies the correct identification
----------------
and location of each laboratory and other place which holds any of the foregoing
Elements relating to such Library Films.
(d) No Violation of Third Party Rights. No A Film, nor any B Film
----------------------------------
that is currently being exploited by Seller, nor any part thereof, nor any of
the literary, dramatic or musical material contained therein or upon which any
such Film is based, nor the exercise by any authorized person or entity of any
right granted to any of the Entertainment Companies in connection therewith will
violate or infringe upon the trademark, service mark, tradename, copyright,
literary, dramatic, music, artistic, personal, private, civil, contract or
property right or rights of privacy or any other right, whether tangible or
intangible, of any Person.
(e) Clearances. The relevant Entertainment Company has obtained
----------
proper and effective licenses or grants of authority to use the results and
proceeds of the services of performers and other Persons connected with the
production of the A Films to the extent reasonably necessary or desirable to
exercise all rights of such Entertainment Company therein.
(f) Copyrights. Except as specified on Schedule 3.20(f), good and
---------- ----------------
sufficient copyright notice is affixed to each A Film. Except as set forth in
Schedule 3.20(f), each A Film has been registered with the United States
- ----------------
Copyright Office.
(g) Music. Except as set forth in Schedule 3.20(g), all non-dramatic
----- ----------------
music rights (so-called "small rights") contained in the A Films are (i)
available by license from American Society for Composers, Authors and Publishers
("ASCAP"), Broadcast Music Inc. ("BMI") or SESAC, Inc., (ii) in the public
domain, or (iii) controlled by Orion or another Entertainment Company directly
or through licenses.
(h) Credits. The credits contained in the main and end titles of the
-------
A Films comply in all material respects with all obligations with respect
thereto, including without
26
<PAGE>
limitation, contractual obligations to third parties who rendered services in
connection with the A Films and all applicable guild agreements.
(i) Insurance Claims. Except as set forth on Schedule 3.20(i), no
---------------- ----------------
insurance claims have been made and are currently outstanding and unsettled as
of the date of this Agreement on the producer's errors and omissions policies
that Orion or another Entertainment Company or any of its predecessors
maintained with respect to the A Films.
(j) Rights. Except as set forth on Schedule 3.20(j), which Schedule
------ ----------------
sets forth any limitations out of the ordinary course with respect to the use of
performers' names and likenesses, editing rights and credit rights and
obligations with respect to the A Films, each relevant Entertainment Company
has, and has the right to grant to its Affiliates, agents, subdistributors and
licensees, the following rights on a non-exclusive basis to the extent
reasonably necessary or desirable to exploit the A Films:
(i) Use of Performers' Names: To disseminate, reproduce,
print and publish the name, likeness and biography of each performer,
director, producer, author and writer who rendered services in or in
connection with the production of each A Film, for the purpose of
advertising, promoting and exploiting such A Film, except that no use
may be made so as to indicate or imply that any such person or
performer is endorsing a commercial product or service; and
(ii) Editing Rights: To make such cuts, alterations,
additions and variations of and in any part of the A Films (including
the dubbing-in of languages) as may be deemed necessary or appropriate
by such Entertainment Company in its sole discretion excluding,
however, any right to delete any logo, copyright notice or credit
other than such rights which would not adversely impact the value of
each such A Film.
(k) Compliance with Section 507. Each Entertainment Company has
---------------------------
conformed to the requirements of Section 507 of the Federal Communications Act
of 1934, as it may be amended or replaced in a more or less restrictive version,
concerning broadcast matter and disclosures required thereunder, insofar as that
section applies to persons furnishing program material for television
broadcasting. The following is an illustration of the parties' understanding of
Section 507, but in case of conflict the terms of Section 507 will control. The
Library Films do not include any matter for which any money, service or other
valuable consideration is directly or indirectly paid, or promised to, or
charged or accepted by Seller or any Entertainment Company or to Seller's
knowledge by any producer or independent contractor connected with the Library
Films. As used in this paragraph, the term "service or other valuable
consideration" shall not include any service or property furnished without
charge or at a nominal charge for use in, or in connection with the Library
Films, "unless it is so furnished in consideration for an identification in a
broadcast of any person, product, service, trademark or brand name beyond an
identification which is reasonably related to the use of such service or
property on the broadcast," as such terms are used in said Section 507. The
provisions of this clause shall not apply to
27
<PAGE>
feature motion pictures produced initially and primarily for theater exhibition
to the extent the Federal Communications Commission continues to waive the
requirements of Section 317(b) of the Communications Act with respect to such
motion pictures.
(l) Schedule 3.20(l) sets forth all Participations as of
----------------
March 31, 1997 with respect to each A Film.
3.21. Films In Progress.
-----------------
(a) Costs. Schedule 3.21(a) sets forth for each Entertainment Company
----- ----------------
a complete list of all Films currently in principal photography, post-production
or that have been completed but not delivered (collectively, the "Films In
Progress"), together with (i) a complete summary of all costs and expenses paid
by the relevant Entertainment Company in connection with each Film In Progress
to the date set forth therein, and (ii) Seller's good-faith estimate of the cost
to complete and deliver each Film In Progress.
(b) Ownership. Except as set forth on Schedule 3.21(b), the relevant
--------- ----------------
Entertainment Company, or an unaffiliated production company from whom an
Entertainment Company has the right to acquire such rights pursuant to a
Contract disclosed on a schedule to this Agreement (an "Unaffiliated Production
Company"), owns all right, title and interest of every kind and nature,
worldwide, in all media, whether now known or hereafter devised, in and to the
Films In Progress. Except as set forth on Schedule 3.21(b), the Films In
----------------
Progress are, or will be when acquired by any Entertainment Company, free and
clear of all Liens other than Permitted Liens and those Liens which are
customarily incurred in connection with production financing.
(c) Ratings. Except as disclosed in Schedule 3.21(c), each Film In
------- ----------------
Progress that is a feature-length motion picture is being produced in color on
either 35MM or 70MM film, will be submitted to the MPAA for rating, will be
released theatrically in the United States with a rating that is not more
restrictive than the current rating equivalent to an "R" under the present
system or its equivalent rating under any successor system and is being produced
primarily in the English language.
(d) Elements. Schedule 3.21(d) identifies all available Elements
-------- ----------------
owned or controlled by the Entertainment Companies relating to the Films In
Progress listed therein. The Entertainment Companies have laboratory access
letters with respect to those Elements which the Companies do not own. With
respect to each such Film In Progress identified, the Elements identified are
sufficient to produce copies, prints, video products and other reproductions for
exploitation in the theatrical, non-theatrical, television and video and audio
markets that are of such quality as is consistent with past practice of the
Entertainment Companies. Schedule 3.21(d) sets forth the correct identification
----------------
and location of each laboratory and other place which holds any of the foregoing
Elements relating to such Films In Progress.
(e) Insurance Policies. The relevant Entertainment Company or
------------------
Unaffiliated Production Company has in effect errors and omissions insurance
coverage relating to each Film In Progress.
28
<PAGE>
(f) Completion Bond. The relevant Entertainment Company or
---------------
Unaffiliated Production Company has in effect a completion bond guaranteeing the
completion and delivery of each Film In Progress according to its terms.
(g) No Violation of Third Party Rights. No Film In Progress, nor any
----------------------------------
part thereof, nor any of the literary, dramatic or musical material contained
therein or upon which any such Film In Progress is based, nor the exercise by
any authorized person or entity of any right granted to any of the Entertainment
Companies in connection therewith will violate or infringe upon the trademark,
service mark, tradename, copyright, literary, dramatic, music, artistic,
personal, private, civil, contract or property right or rights of privacy or any
other right, whether tangible or intangible, of any Person.
(h) Clearances. The relevant Entertainment Company or Unaffiliated
----------
Production Company has obtained proper and effective licenses or grants of
authority to use the results and proceeds of the services of performers and
other Persons connected with the production of the Films In Progress to the
extent reasonably necessary or desirable to exercise all rights of such
Entertainment Company therein.
(i) Copyrights. Good and sufficient copyright notice will be affixed
----------
to each Film In Progress in each case where such affixation is possible. Except
as set forth in Schedule 3.21(i), all screenplay materials relating to each Film
----------------
In Progress have been registered with the United States Copyright Office.
(j) Music. Except as set forth in Schedule 3.21(j), all non-dramatic
----- ----------------
music rights (so-called "small rights") contained in the Films In Progress are
(i) available by license from ASCAP, BMI or SESAC, Inc., (ii) in the public
domain, or (iii) controlled by Orion or another Entertainment Company directly
or through licenses.
(k) Credits. The credits contained in the main and end titles of the
-------
Films In Progress, if any, comply in all material respects with all obligations
with respect thereto, including without limitation, contractual obligations to
third parties who rendered services in connection with the Films In Progress and
all applicable guild agreements.
(l) Insurance Claims. Except as set forth on Schedule 3.21(l), no
---------------- ----------------
insurance claims have been made and are currently outstanding and unsettled as
of the date of this Agreement on the producer's errors and omissions policies
that Orion or another Entertainment Company or any of its predecessors
maintained with respect to the Films In Progress.
(m) Rights. Except as set forth in Schedule 3.21(m), which Schedule
------ ----------------
sets forth any limitations out of the ordinary course with respect to the use of
performers' names and likenesses, editing rights and credit rights and
obligations with respect to the Films In Progress, each relevant Entertainment
Company has, and has the right to grant to its Affiliates, agents,
subdistributors and licensees the following rights on a non-exclusive basis to
the extent reasonably necessary or desirable to exploit the Films In Progress:
29
<PAGE>
(i) Use of Performers' Names: To disseminate, reproduce, print and
publish the name, likeness and biography of each performer, director,
producer, author and writer who rendered services in or in connection with
the production of each Film In Progress, for the purpose of advertising,
promoting and exploiting such Film In Progress, except that no use may be
made so as to indicate or imply that any such person or performer is
endorsing a commercial product or service; and
(ii) Editing Rights: To make such cuts, alterations, additions and
variations of and in any part of the Films In Progress (including the
dubbing-in of languages) as may be deemed necessary or appropriate by the
relevant Entertainment Company in its sole discretion excluding, however,
any right to delete any logo, copyright notice or credit other than such
rights which would not adversely impact the value of each such Film In
Progress.
(n) Compliance with Section 507. Each Entertainment Company has
---------------------------
conformed to the requirements of Section 507 of the Federal Communications Act
of 1934, as it may be amended or replaced in a more or less restrictive version,
concerning broadcast matter and disclosures required thereunder, insofar as that
section applies to persons furnishing program material for television
broadcasting. The following is an illustration of the parties' understanding of
Section 507, but in case of conflict the terms of Section 507 will control. The
Films In Progress do not include any matter for which any money, service or
other valuable consideration is directly or indirectly paid, or promised to, or
charged or accepted by Seller or any Entertainment Company or to Seller's
knowledge by any producer or independent contractor connected with the Films In
Progress. As used in this paragraph, the term "service or other valuable
consideration" shall not include any service or property furnished without
charge or at a nominal charge for use in, or in connection with the Films In
Progress "unless it is so furnished in consideration for an identification in a
broadcast of any person, product, service, trademark or brand name beyond an
identification which is reasonably related to the use of such service or
property on the broadcast," as such terms are used in said Section 507. The
provisions of this clause shall not apply to feature motion pictures produced
initially and primarily for theater exhibition to the extent the Federal
Communications Commission continues to waive the requirements of Section 317(b)
of the Communications Act with respect to such motion pictures.
(o) Schedule 3.21(o) identifies all Participations as of
----------------
March 31, 1997 with respect to each Film In Progress.
3.22. Development Projects. Schedule 3.22 identifies all projects in
-------------------- -------------
development by or on behalf of each Entertainment Company (the "Development
Projects") and all material Contracts relating thereto. The relevant
Entertainment Company owns all right, title and interest in and to such
Development Projects to the extent described therein.
3.23. Advisory Fees. Except for Donaldson, Lufkin & Jenrette Securities
-------------
Corporation (whose fees and expenses will be paid by Seller), there is no
investment banker, broker, finder or other intermediary or advisor that has been
retained by or is authorized to act on behalf of Seller or any Entertainment
Company who might be entitled to any fee, commission or
30
<PAGE>
reimbursement of expenses from Buyer or any of its Affiliates or any of their
respective Associates or any Entertainment Company upon consummation of the
transactions contemplated by this Agreement.
3.24. Environmental Compliance.
------------------------
(a) Except as disclosed in Schedule 3.24(a), the Entertainment
-----------------
Companies have obtained all approvals, authorizations, certificates, consents,
licenses, orders and permits or other similar authorizations of all Governmental
Authorities, or from any other Person, that are required under any Environmental
Law. Schedule 3.24(a) also sets forth all permits, licenses and other
----------------
authorizations issued under any Environmental Law to any Entertainment Company.
(b) Except as disclosed in Schedule 3.24(b), the Entertainment
----------------
Companies are in compliance in all material respects with all terms and
conditions of all approvals, authorizations, certificates, consents, licenses,
orders and permits or other similar authorizations of all Governmental
Authorities (and all other Persons) required under all Environmental Laws and
are in compliance in all material respects with all other limitations,
restrictions, conditions, standards, requirements, schedules and timetables
required or imposed under all Environmental Laws.
(c) Except as disclosed in Schedule 3.24(c), there are no past or
----------------
present events, conditions, circumstances, activities, practices, incidents,
actions, omissions or plans relating to or in any way affecting any
Entertainment Company that could reasonably be expected to interfere with or
prevent continued compliance with any Environmental Law by any Entertainment
Company or Buyer after the Closing, or that may give rise to any Environmental
Liability, or otherwise form the basis of any claim, action, demand, suit,
Proceeding, hearing, study or investigation (i) under any Environmental Law,
(ii) based on or related to the manufacture, processing, distribution, use,
treatment, storage (including without limitation underground storage tanks),
disposal, transport or handling, or the emission, discharge, release or
threatened release of any Hazardous Substance, or (iii) resulting from exposure
to workplace hazards.
3.25. Insurance. Schedule 3.25 sets forth a complete and correct list of
--------- -------------
all insurance policies of any kind or nature whatsoever currently in force or in
force at any time subsequent to January 1, 1995 with respect to the
Entertainment Companies (the "Insurance Policies"), including without limitation
all "occurrence based" liability policies, all errors and omissions policies and
all production package policies. For each Insurance Policy, Schedule 3.25
-------------
indicates the type of coverage, the name of the insureds, the insurer, the
expiration date, the period to which it relates, the deductibles and loss
retention amounts and the amounts of coverage. The Insurance Policies described
as being material on Schedule 3.25 and currently in effect are in full force and
-------------
effect and are valid, outstanding and enforceable, and all premiums due thereon
have been paid. Except as set forth on Schedule 3.25, no insurance claims of
-------------
more than Fifty Thousand Dollars ($50,000) have been made and are currently
outstanding and unsettled.
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3.26. Tax Matters.
-----------
(a) Except as set forth on Schedule 3.26, Seller and each
-------------
Entertainment Company (i) have accurately prepared and timely filed or caused to
be filed with the appropriate Tax authorities all material Tax Returns required
to have been filed by them under applicable law, and (ii) have paid or caused to
be paid to the appropriate Tax authorities all material Taxes required to have
been paid by them. No Tax liens or assessments have been filed by any Tax
authority against the Entertainment Companies or any of their properties or
assets.
(b) The Entertainment Companies are not and have not been required to
be included in any state, local or foreign combined, unitary or consolidated Tax
Return filed by Seller or any of Seller's Subsidiaries (other than the
Entertainment Companies).
3.27. SEC Documents. Seller has made available to Buyer a true and complete
-------------
copy of each form, report, schedule, registration statement and definitive proxy
statement filed by Seller with the SEC since January 1, 1995 (as such documents
have since the time of their filing been amended or supplemented, the "SEC
Documents"), which constitute all of the documents (other than preliminary
material) that Seller was required to file with the SEC since such date.
3.28. Disclosure. The Statement of Assumptions, taken as a whole, does not
----------
contain an untrue statement of a material fact. None of (x) this Agreement and
the schedules (other than the Statement of Assumptions) delivered pursuant
hereto or certificates or other documents delivered to Buyer by or on behalf of
Seller or any Entertainment Company pursuant hereto, (y) any of the SEC
Documents or (z) any other document or written statement or other written
information which has been, or at any time prior to the Closing Date will be,
provided to Buyer by or on behalf of Seller or any Entertainment Company in
connection with this Agreement or the transactions contemplated hereby (taken as
a whole, with respect to such documents, statements or other information
relating to the same subject matter) contains or will contain an untrue
statement of a material fact or omits or will omit any information or statement
of a material fact necessary in order to make the information or statements
herein or therein not misleading. After reasonable investigation, including,
without limitation, consultation with the appropriate directors, officers and
employees of Seller and the Entertainment Companies, there is no fact or
condition within the knowledge of Seller which materially and adversely affects
the assets, liabilities, business, operations or financial condition of the
Entertainment Companies, taken as a whole, which has not been set forth in this
Agreement or any schedule hereto or certificate or other document delivered in
accordance with the terms hereof or any other written statement or other
document delivered to Buyer by or on behalf of Seller or any Entertainment
Company.
3.29. Financial Statements of Landmark.
--------------------------------
(a) Schedule 3.29(a) sets forth true and complete copies of the
----------------
unaudited balance sheet and related statement of operations for Landmark for the
year ended December 31, 1996 and the three-month period ended March 31, 1997
(the "Landmark Financial Statements"). The Landmark Financial Statements have
been prepared based on the books and
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records of Landmark in accordance with GAAP and its normal accounting practices,
consistent with past practice, and present fairly the financial condition and
results of operations of Landmark as of the date and for the periods indicated,
subject to normal year-end adjustments.
(b) Since December 31, 1996, no Entertainment Company has transferred
any asset or property to Landmark (whether in payment of indebtedness, as a
contribution to capital or otherwise) except for (i) transfers of cash to
Landmark in the ordinary course of business in an aggregate amount (net of cash
returned to the Entertainment Companies) not exceeding Three Million Dollars
($3,000,000) and (ii) transfer of those assets identified in Schedule 3.29(b).
-----------------
3.30. No Contract With Landmark. Except as set forth on Schedule 3.30, none
------------------------- -------------
of the Entertainment Companies is a party to or is bound by any Contract with
Landmark other than exhibition contracts with Orion negotiated on an arms-length
film-by-film basis relating to Films the theatrical distribution rights to which
are owned or controlled by Orion.
3.31. Board Recommendations. By the unanimous vote of the directors present
---------------------
at a meeting of Seller's Board of Directors (which meeting was duly called and
held and at which a quorum was present), the Board of Directors of Seller (a)
duly and validly approved this Agreement and the transactions contemplated
hereby, and (b) resolved to recommend approval and adoption of this Agreement
and the transactions contemplated hereby by the stockholders of Seller.
Seller's financial advisor, Donaldson, Lufkin & Jenrette Securities Corporation,
has delivered to Seller's Board of Directors an oral opinion on the date hereof
(and has committed to deliver a written opinion not later than ten (10) days
after the date hereof) to the effect that on such date, the Purchase Price is
fair to Seller's stockholders from a financial point of view.
3.32. Bankruptcy.
----------
(a) On or about November 5, 1992, all property of the bankruptcy
estate of each Entertainment Company that was a debtor in the Bankruptcy Cases
revested in such Entertainment Company.
(b) The use, sale or lease of property of each Entertainment Company,
whether or not such use, sale or lease is in the ordinary course of its business
and consistent with past practice, does not require any notice to or approval of
the Bankruptcy Court, the United States Trustee or any committee of creditors or
other representative of creditors appointed in the Bankruptcy Cases or pursuant
to the Confirmation Documents.
(c) Except for the claims set forth on Schedule 3.32(c), all claims of
----------------
the creditors of each Entertainment Company that arose prior to the effective
date of the Plan of Reorganization (as defined therein) have been paid in full
or otherwise fully satisfied in accordance with the terms of the Confirmation
Documents.
33
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Seller to enter into this Agreement and to
consummate the transactions contemplated herein, Buyer hereby represents and
warrants to Seller that:
4.01. Corporate Existence and Power. Buyer is a corporation duly
-----------------------------
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and has all corporate power to carry out its business as now
conducted. Buyer is duly qualified to do business as a foreign corporation in
each jurisdiction where the character of the property owned or leased by it or
the nature of its activities makes such qualification necessary to carry on its
business as now conducted, except for those jurisdictions where the failure to
be so qualified has not been, and could not reasonably be expected to be,
material.
4.02. Corporate Authorization. The execution, delivery and performance by
-----------------------
Buyer of this Agreement and the consummation by Buyer of the transactions
contemplated hereby are within its corporate powers and have been duly
authorized by all necessary corporate action on its part. This Agreement has
been duly and validly executed by Buyer and constitutes the legal, valid and
binding agreement thereof, enforceable in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally.
4.03. Governmental Authorization. The execution, delivery and performance
--------------------------
by Buyer of this Agreement require no action by, consent or approval of, or
filing with, any Governmental Authority other than (i) compliance with any
applicable requirements of the HSR Act or (ii) any actions, consents, approvals
or filings otherwise expressly referred to in this Agreement.
4.04. Non-Contravention. The execution, delivery and performance by Buyer
-----------------
of this Agreement, and consummation of the transactions contemplated hereby, do
not and will not (a) contravene or conflict with the articles or certificate of
incorporation or bylaws of Buyer, true and correct copies of all of which have
been delivered to Seller by Buyer; (b) contravene or conflict with or constitute
a violation of any provision of any material Applicable Law binding upon or
applicable to Buyer; (c) constitute a default under any material contract,
agreement or understanding to which Buyer is a party or any material
authorization, license or permit of any Governmental Authority; or (d) result in
the creation or imposition of any Lien on the assets of Buyer.
4.05. Advisory Fees. Except for J.P. Morgan & Co., Inc. (whose fees and
-------------
expenses will be paid by Buyer), there is no investment banker, broker, finder
or other intermediary or advisor that has been retained by or is authorized to
act on behalf of Buyer who might be entitled to any fee, commission or
reimbursement of expenses from Seller or any of their respective Affiliates or
Associates upon consummation of the transactions contemplated by this Agreement.
34
<PAGE>
4.06. Litigation. There is no Proceeding pending against, or to the
----------
knowledge of Buyer, threatened against or affecting, Buyer before any court or
arbitrators or any governmental body, agency or official that in any matter
challenges or seeks to prevent, enjoin, alter or materially delay the
transactions contemplated by this Agreement.
4.07. Purchase for Investment. Buyer will acquire the Shares solely for its
-----------------------
own account for investment and not with a view toward any resale or distribution
thereof. Buyer agrees that the Shares may not be sold, transferred, offered for
sale, pledged, hypothecated or otherwise disposed of without registration under
the Securities Act of 1993, as amended, except pursuant to an exemption from
such registration available under such Act, and without compliance with foreign
securities laws, in each case, to the extent applicable. Buyer has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of its purchase of the Shares. Buyer confirms
that Seller has made available to Buyer the opportunity to ask questions of the
officers and management employees of the Entertainment Companies and to acquire
additional information about the business and financial condition of the
Entertainment Companies.
4.08. Ownership of MGM. Buyer owns all of the issued and outstanding
----------------
capital stock of Metro-Goldwyn-Mayer Inc., a Delaware corporation.
ARTICLE V
COVENANTS OF SELLER AND ORION
Each of Seller and Orion hereby agree that:
5.01. Conduct of the Business. From the date hereof until the Closing Date,
-----------------------
it shall cause each Entertainment Company to conduct its business operations in
the ordinary course of business consistent with past practice. Without limiting
the generality of this Section 5.01, from the date hereof until the Closing
Date:
(a) Seller and Orion, as applicable, will:
(i) (A) cause each Entertainment Company to maintain its
assets in the ordinary course of business consistent with past practice in
good operating order and condition, reasonable wear and tear, damage by
fire and other casualty excepted, other than through the transfer of all of
the issued and outstanding capital stock of Landmark to an Affiliate of
Seller that is not an Entertainment Company, (B) promptly repair, restore
or replace assets in the ordinary course of business consistent with past
practice, and (C) upon any damage, destruction or loss to any of its
assets, apply any and all insurance proceeds received with respect thereto
to the prompt repair, replacement and restoration thereof to the condition
of its assets before such event;
(ii) cause each of the Entertainment Companies to comply
with all Applicable Laws;
35
<PAGE>
(iii) file all foreign, Federal, state and local Tax
Returns required to be filed and make timely payment of all applicable
Taxes when due;
(iv) use reasonable commercial efforts to obtain, prior
to the Closing Date, all Required Consents;
(v) cause each of the Entertainment Companies to take
all reasonable actions necessary to be in compliance with, and to maintain
the effectiveness of, all material Permits;
(vi) promptly notify Buyer in writing of any action,
event, condition or circumstance, or group of actions, events, conditions
or circumstances, that results in, or could reasonably be expected to
result in, a Material Adverse Effect, other than changes in general
economic conditions;
(vii) promptly notify Buyer in writing of the
commencement of any Proceeding by or against Seller which relates to this
Agreement or any of the Entertainment Companies or by or against any
Entertainment Company, or Seller becoming aware of any threat, claim,
action, suit, inquiry, proceeding, notice of violation, demand letter,
subpoena, government audit or disallowance that could reasonably be
expected to result in such a Proceeding;
(viii) promptly notify Buyer in writing of the
occurrence of any breach by Seller of any representation or warranty, or by
Seller or Orion of any covenant or agreement, contained in this Agreement;
and
(ix) cause each Entertainment Company to continue to
make expenditures as required by and in accordance with the budget for each
Film In Progress including, without limitation, all such expenditures
required for prints and advertising ("P&A"), as contained in Schedule
--------
5.01(a)(ix).
-----------
(b) without Buyer's prior written consent, Seller and Orion
will not permit any Entertainment Company to:
(i) purchase or otherwise acquire assets from any other Person other
than in the ordinary course of business consistent with past practice;
(ii) sell, assign, lease, license, transfer or otherwise dispose of,
or mortgage, pledge or encumber any of its assets other than in the
ordinary course of business consistent with past practice or pursuant to
existing obligations of Seller as set forth in Schedule 3.11(a);
----------------
(iii) make or commit to make any expenditures of amounts in excess of
the amounts set forth on Schedule 5.01(a)(ix) with respect to each Film In
--------------------
Progress including the budgeted expenditures for P&A; provided, however,
-------- -------
that the
36
<PAGE>
amount expended for P&A may be increased above that budgeted in
the event Buyer provides all of such excess amounts;
(iv) enter any agreement or arrangement that requires or
allows payment, acceleration of payment or incurrence of Liabilities, or
the rendering of services by any Entertainment Company outside the ordinary
course of business or unless expressly contemplated by the terms of this
Agreement;
(v) enter into, amend or modify in any material respect
or terminate any Scheduled Contract or any other Contract entered into by
any Entertainment Company after the date hereof which, if in existence on
the date hereof, would be required to be set forth in Schedule 3.14(a) as a
----------------
Scheduled Contract (each, a "Subsequent Material Contract");
(vi) except in the ordinary course of business, waive,
cancel or take any other action materially impairing any of its rights;
(vii) make or commit to make any capital expenditure
(other than capital expenditures expressly required under any Scheduled
Contract) if, after giving effect thereto, the aggregate of capital
expenditures made or committed to be made after the date of this Agreement
would exceed Two Hundred Fifty Thousand Dollars ($250,000);
(viii) enter into or commit or propose to enter into
any Subsequent Material Contract;
(ix) (A) create, incur, assume, or guarantee any
indebtedness for borrowed money other than drawdowns under the Existing
Orion Credit Facility or the Union Bank Loan or (B) incur any Liability
relating to a documentary or standby letter of credit, other than in each
such case referred to in this clause (ix) in the ordinary course of
business where the aggregate dollar amount of all of the foregoing by the
Entertainment Companies does not exceed Fifty Thousand Dollars ($50,000);
(x) (A) increase the rate or terms of compensation
payable or to become payable to its directors, officers or employees except
in the ordinary course of business consistent with past practice, (B) pay
or agree to pay any pension, retirement allowance or other employee benefit
not provided for by any Employee Benefit Plan, Benefit Arrangement or
Employment Agreement set forth in the schedules hereto, (C) commit itself
to any additional pension, profit sharing, bonus, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right, group
insurance, severance pay, continuation pay, termination pay, retirement or
other employee benefit plan, agreement or arrangement, or increase the rate
or terms of any Employee Benefit Plan or Benefit Arrangement, (D) enter
into any employment agreement with or for the benefit of any Person, or (E)
increase the rate of compensation under or otherwise change the terms of
any Employment Agreement identified in Schedule 3.17(a);
----------------
37
<PAGE>
(xi) make any change in its accounting methods or in the
manner of keeping its books and records or any change in its current
practices with respect to inventory, sales, receivables, payables or
accrued expenses, except as required by GAAP;
(xii) declare or pay any dividend or make any
distribution in respect of any of its capital stock, options, warrants,
rights of first refusal or other rights to purchase capital stock of any
Entertainment Company or, directly or indirectly, redeem, purchase or
otherwise acquire any of its Equity Securities or the Equity Securities of
any of its Affiliates or make any other payments of any kind to the holders
of any of its Equity Securities in respect thereof or to the holders of any
Equity Securities of any of its Affiliates in respect thereof, or enter
into any commitment agreement to do any of the foregoing other than the
dividend or distribution of the capital stock of Landmark;
(xiii) amend its charter or Bylaws;
(xiv) organize any new Subsidiary or acquire any capital
stock or other equity securities or ownership interest of any corporation
or business entity;
(xv) pay, discharge or satisfy any claim, liability or
obligation (absolute, accrued, contingent or otherwise), other than the
payment, discharge or satisfaction for fair and equivalent value in the
ordinary course of business consistent with past practice of liabilities or
obligations reflected or reserved against in the 1996 Balance Sheet or
incurred in the ordinary course of business since the date of the 1996
Balance Sheet;
(xvi) (A) pay, discharge or satisfy any claim, liability
or obligation (absolute, accrued, contingent or otherwise) owed to any
Entertainment Company by Seller or any of its Affiliates (other than any
Entertainment Company) or owed to Seller or any of its Affiliates (other
than any Entertainment Company) by any Entertainment Company or (B) prepay
any Debt (other than payments of revolving loans made under the Existing
Orion Credit Facility);
(xvii) write down the value of any inventory or write-
off as uncollectible any notes or accounts receivable, except for write-
downs and write-offs in accordance with GAAP and in the ordinary course of
business consistent with past practice which are not material to the
Entertainment Companies, taken as a whole;
(xviii) dispose of or permit to lapse any rights to the
use of any Intellectual Property Rights or dispose of or disclose any
Intellectual Property Rights not a matter of public knowledge other than in
the ordinary course of business consistent with past practice and which
collectively are not material to the business of the Entertainment
Companies, taken as a whole; or
(xix) merge or consolidate with any other corporation,
acquire control of all or substantially all of the assets of any other
corporation or business entity,
38
<PAGE>
or take any steps incident to, or in furtherance of, any of such actions,
whether by entering into an agreement or otherwise.
5.02. Access to Information. Subject to compliance with Applicable Laws,
---------------------
from the date of this Agreement until Closing, Seller and Orion will promptly:
(a) give Buyer and its counsel, financial advisors, auditors and other
authorized representatives reasonable access to the offices, properties, books
and records of each Entertainment Company upon reasonable prior notice in order
to conduct its due diligence investigation of the Entertainment Companies, (b)
furnish to Buyer, its counsel, financial advisors, auditors and other authorized
representatives such information relating to the Entertainment Companies as
Buyer may reasonably request in order to conduct its due diligence investigation
of the Entertainment Companies, and (c) instruct the directors, officers,
employees, counsel, auditors and financial advisors of each Entertainment
Company to cooperate with Buyer and its counsel, financial advisors, auditors
and other authorized representatives in their due diligence investigation of the
Entertainment Companies and their preparation of all necessary certificates or
similar documents required to be prepared and delivered by Buyer to Seller
pursuant to this Agreement.
5.03. Compliance with Terms of Required Governmental Approvals and Required
---------------------------------------------------------------------
Contractual Consents. On and after the Closing Date, Seller shall comply at its
- --------------------
own expense with all conditions and requirements set forth in (i) all Required
Governmental Approvals as necessary to keep the same in full force and effect
assuming continued compliance with the terms thereof by Buyer and (ii) all
Required Contractual Consents and Essential Consents as necessary to keep the
same effective and enforceable against the Persons giving such Required
Contractual Consents and Essential Consents assuming continued compliance with
the terms thereof by Buyer.
5.04. Maintenance of Insurance Policies. On and after the date hereof
---------------------------------
(including after the Closing Date), neither Seller nor Orion shall take or fail
to take or permit any Entertainment Company to fail to take any action if such
action or inaction, as the case may be, would adversely affect the applicability
of any insurance in effect on the date hereof that covers all or any part of the
assets of any Entertainment Company. Notwithstanding the foregoing, Seller
shall not have any obligation to make any monetary payment to maintain the
effectiveness of any such insurance policy after the Closing Date.
5.05. Confidentiality.
---------------
(a) Seller and Orion will, and will cause their representatives to,
treat any data and information obtained with respect to Buyer or any of its
Affiliates from any representative, officer, director, or employee of Buyer, or
from any books or records of Buyer in connection with this Agreement,
confidentially and with commercially reasonable care and discretion, and will
not disclose any such information to third parties; provided, however, that the
-------- -------
foregoing shall not apply to (i) information in the public domain or that
becomes public through disclosure by any party other than Seller or any
Affiliate or representative of Seller or any such Affiliate, so long as such
other party is not in breach of a confidentiality obligation,
39
<PAGE>
(ii) information that may be required to be disclosed by Applicable Law or (iii)
information required to be disclosed to obtain any Required Consents.
(b) In the event that the Closing fails to take place and this
Agreement is terminated, Seller and Orion, upon the written request of Buyer,
will, and will cause their respective representatives to, promptly deliver to
Buyer any and all documents or other materials furnished by Buyer or any of its
Affiliates to Seller or Orion in connection with this Agreement without
retaining any copy thereof. In the event of such request, all other documents,
whether analyses, compilations or studies, that contain or otherwise reflect the
information furnished by Buyer to Seller or Orion, shall be destroyed by Seller
or Orion or shall be returned to Buyer, and Seller or Orion, as the case may be,
shall confirm to Buyer in writing that all such materials have been returned or
destroyed. No failure or delay by Buyer in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any right, power or privilege hereunder.
(c) From and after the Closing, Seller will, and will cause its
Subsidiaries and the representatives of Seller and its Subsidiaries to, treat
any data and information obtained with respect to any Entertainment Company from
any representative, officer, director, or employee of Seller or any
Entertainment Company, or from any books or records of Seller or any
Entertainment Company (whether or not obtained in connection with this
Agreement) confidentially and with commercially reasonable care and discretion,
and will not disclose any such information to third parties; provided, however,
-------- -------
that the foregoing shall not apply to (i) information in the public domain or
that becomes public through disclosure by any party other than Seller or any
Affiliate of Seller or representative of Seller or any such Affiliate, so long
as such other party is not in breach of a confidentiality obligation, (ii)
information that may be required to be disclosed by the rules of the American
Stock Exchange, Inc. or Applicable Law, or (iii) information required to be
disclosed to obtain any Required Consents. To the extent permitted by the terms
of any confidentiality agreements to which Seller or any of its Affiliates
(other than any Entertainment Company) is a party relating to any of the
Entertainment Companies or their respective businesses, Seller will assign to
Buyer at Closing all right, title and interest of Seller under such
confidentiality agreements. To the extent that Seller or any such Affiliate is
prohibited from assigning any of its right, title and interest under any such
confidentiality agreement by the terms thereof, Seller or such Affiliate shall
use its reasonable commercial efforts to enforce its rights and remedies
thereunder, and Buyer agrees to advance Seller or such Affiliate for all actual
out-of-pocket expenses incurred in connection with or arising out of such
enforcement (including, without limitation, reasonable attorneys' fees and
costs), if Buyer shall provide Seller with an indemnification agreement
reasonably acceptable to Seller that indemnifies Seller from and against all
counterclaims asserted or other losses incurred by Seller as a result of such
attempted enforcement of rights or assertion of remedies thereunder.
5.06. Specific Performance. The parties hereto recognize and agree that in
--------------------
the event of a breach by Seller or Orion of this Article V, money damages would
not be an adequate remedy to Buyer or its Affiliates for such breach and, even
if money damages were adequate, it would be impossible to ascertain or measure
with any degree of accuracy the damages sustained
40
<PAGE>
by Buyer or its Affiliates therefrom. Accordingly, if there should be a breach
or threatened breach by Seller or Orion of provisions of this Article V, Buyer
and its Affiliates shall be entitled to an injunction restraining Seller and
Orion from any breach without showing or proving actual damage sustained by
Buyer or its Affiliates, as the case may be. Nothing in the preceding sentence
shall limit or otherwise affect any remedies that Buyer may otherwise have under
Applicable Law.
5.07. Bankruptcy Cases. Between the date hereof and the Closing Date,
----------------
Seller and Orion shall use commercially reasonable efforts to have the
Bankruptcy Cases closed in conformity with Applicable Law (it being understood
that this covenant shall not be a condition to Closing).
5.08. No Solicitations. From and after the date hereof, Seller, without the
----------------
prior written consent of Buyer, will not, and will not authorize any of its or
any of its Subsidiaries' officers, employees, directors, stockholders or other
representatives to, directly or indirectly, solicit, initiate or encourage
(including by way of furnishing information) or take any other action to
facilitate knowingly any inquiries or the making of any proposal that
constitutes or could be reasonably expected to lead to an Alternative Proposal
from any Person, or engage in any discussions or negotiations relating thereto
or accept any Alternative Proposal or make or authorize any statement,
recommendation or solicitation in support of any Alternative Proposal; provided,
--------
however, that notwithstanding any other provision hereof, Seller may (a) at any
- -------
time prior to the time Seller's stockholders shall have voted to approve this
Agreement and the transactions contemplated hereby, engage in discussions or
negotiations with a third party who (without any solicitation, initiation,
encouragement, discussion or negotiation, directly or indirectly, by or with
Seller or any of its Subsidiaries or any officer, employee, director,
stockholder or other representative of Seller or any of its Subsidiaries after
the date hereof) seeks to initiate such discussions or negotiations and may
furnish such third party information concerning the Entertainment Companies if,
and only to the extent that, (i) (x) such third party has first made, after the
date hereof, an Alternative Proposal in writing the terms of which reflect a
superior transaction than the transactions contemplated by this Agreement and
has demonstrated that the funds necessary for the Alternative Proposal are
reasonably likely to be available (as determined in good faith in each case by
Seller's Board of Directors after consultation with its financial advisors) and
(y) Seller's Board of Directors shall have determined in good faith, on the
basis of advice of Paul, Weiss, Rifkind, Wharton & Garrison or other outside
counsel of similar stature, that such action is necessary for the Board of
Directors to comply with its fiduciary duties to stockholders under Applicable
Law and (ii) prior to furnishing information to or entering into discussions or
negotiations with such Person, Seller receives from such Person an executed
confidentiality agreement in reasonably customary form and containing terms not
in the aggregate materially more favorable to such Person than the terms
contained in Section 6.02 or in any confidentiality agreement previously
executed by Seller and Buyer or any of its Subsidiaries; or (b) comply with Rule
14e-2 promulgated under the Securities and Exchange Act of 1934 with regard to a
tender or exchange offer. Seller shall immediately cease and terminate any
existing solicitation, initiation, engagement, activity, discussion or
negotiation with any Persons conducted heretofore by Seller or any officer,
employee, director, stockholder or other representative of Seller or any of its
Subsidiaries with respect to the foregoing. Seller
41
<PAGE>
shall not release any third party from, or waive any provision of, any
standstill agreement to which it is a party or any confidentiality agreement
between it and another Person who has made, or who may reasonably be considered
likely to make, an Alternative Proposal, unless its Board of Directors shall
determine in good faith, on the basis of the advice of Paul, Weiss, Rifkind,
Wharton & Garrison or other outside counsel of similar stature, that such action
is necessary for the Board of Directors to comply with its fiduciary duties to
stockholders under Applicable Law. Seller shall notify Buyer orally and in
writing of any such inquiries (that are or appear to be serious or legitimate),
offers or proposals (including the terms and conditions of any such offer or
proposal, the identity of the Person making it and a copy of any written
Alternative Proposal), as promptly as practicable and in any event within forty-
eight (48) hours after the receipt thereof, shall keep Buyer informed of the
status and details of any such inquiry, offer or proposal, and shall give Buyer
five (5) days advance written notice of any agreement to be entered into with,
or any information to be supplied to, any Person making such inquiry, offer or
proposal.
5.09. Transfer of Assets. Between the date hereof and the Closing Date,
------------------
neither Orion nor any other Entertainment Company will transfer to Landmark any
assets of Orion or any other Entertainment Company other than (a) transfers of
cash to Landmark in the ordinary course of business consistent with past
practice in an aggregate amount (net of cash returned to the Entertainment
Companies) not exceeding Five Million Dollars ($5,000,000) as long as all such
amounts are funded from the Existing Orion Credit Facility (and Seller shall
provide Buyer with reasonably satisfactory evidence of such funding upon Buyer's
request) and (b) transfer of those assets identified in Schedule 3.29(b).
----------------
Immediately prior to the Closing, Seller and Orion will cause (i) Landmark to
offset against any amounts owing by Landmark to any Entertainment Company any
amounts owed by Landmark to such Entertainment Company (other than Film rentals
payable by Landmark with respect to the theatrical exhibition of Films ("Film
Rentals")), and (ii) any balance owed to Landmark by any Entertainment Company
shall be forgiven and any balance owed by Landmark to any Entertainment Company
shall be contributed to the capital of Landmark. Since December 31, 1996,
Landmark has paid, and between the date hereof and the Closing Date Landmark
will pay, Film Rentals only in the ordinary course of business consistent with
past practice.
5.10. Use of Trade Names. From and after the Closing, neither Seller nor
------------------
any Affiliate of Seller shall use the tradename of any Entertainment Company in
the conduct of Seller's or such Affiliate's business without Buyer's prior
written consent.
ARTICLE VI
COVENANTS OF BUYER
6.01. Compliance with Terms of Required Governmental Approvals and Required
---------------------------------------------------------------------
Contractual Consents. On and after the Closing Date, Buyer shall comply at its
- --------------------
own expense with all conditions and requirements set forth in (i) all Required
Governmental Approvals as necessary to keep the same in full force and effect
assuming continued compliance with the terms thereof by Seller and (ii) all
Required Contractual Consents as necessary to keep
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the same effective and enforceable against the Persons giving such Required
Contractual Consents assuming continued compliance with the terms thereof by
Seller.
6.02. Confidentiality.
---------------
(a) Buyer will, and will cause its representatives to, treat any data
and information obtained with respect to Seller from any representative,
officer, director or employee of Seller, or from any books or records of Seller
in connection with this Agreement, confidentially and with commercially
reasonable care and discretion, and will not disclose any such information to
third parties; provided, however, that the foregoing shall not apply to (i)
-------- -------
information in the public domain or that becomes public through disclosure by
any party other than Buyer, or its Affiliates or representatives, so long as
such other party is not in breach of a confidentiality obligation, (ii)
information that may be required to be disclosed by Applicable Law, (iii)
information required to be disclosed to obtain any Required Consents, or (iv)
any information that is disclosed by Buyer or its Affiliates to any of their
actual or prospective lenders or investors in connection with financing the
transactions contemplated by this Agreement.
(b) In the event that the Closing fails to take place and this
Agreement is terminated, Buyer, upon the written request of Seller, will, and
will cause its representatives to, promptly deliver to Seller any and all
documents or other materials furnished by Seller to Buyer in connection with
this Agreement without retaining any copy thereof and without using any
confidential information of Seller to solicit any customers of Seller. In the
event of such request, all other documents, whether analyses, compilations or
studies, that contain or otherwise reflect the information furnished by Seller
to Buyer, shall be destroyed by Buyer or shall be returned to Seller, and Buyer
shall confirm to Seller in writing that all such materials have been returned or
destroyed. No failure or delay by Seller in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any right, power or privilege hereunder.
6.03. Specific Performance. The parties hereto recognize and agree that in
--------------------
the event of a breach by Buyer of this Article VI, money damages would not be an
adequate remedy to Seller for such breach and, even if money damages were
adequate, it would be impossible to ascertain or measure with any degree of
accuracy the damages sustained by Seller therefrom. Accordingly, if there
should be a breach or threatened breach by Buyer of provisions of this Article
VI, Seller shall be entitled to an injunction restraining Buyer from any breach
without showing or proving actual damage sustained by Seller. Nothing in the
preceding sentence shall limit or otherwise affect any remedies that Seller may
otherwise have under Applicable Law.
6.04. Use of Metromedia Name. Neither Buyer nor any Affiliate of Buyer
----------------------
shall use the "Metromedia" tradename in the conduct of its business after the
Closing without Seller's prior written consent.
6.05. Bank Waivers. Buyer shall use reasonable commercial efforts to obtain
------------
the requisite consents of the lenders under the MGM Credit Facility.
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ARTICLE VII
COVENANTS OF ALL PARTIES
7.01. Further Assurances. Subject to the terms and conditions of this
------------------
Agreement, each party will use all reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary or
reasonably desirable under Applicable Law to consummate the transactions
contemplated by this Agreement. Buyer and Seller agree to execute and deliver
such other documents, certificates, agreements and other writings and to take
such other actions as may be reasonably necessary or desirable in order to
consummate or implement expeditiously the transactions contemplated by this
Agreement.
7.02. Certain Filings. The parties hereto shall cooperate with one another
---------------
in determining whether any action by or in respect of, or filing with, any
Governmental Authority is required or reasonably appropriate, or any action,
consent, approval or waiver from any party to any Contract is required or
reasonably appropriate, in connection with the consummation of the transactions
contemplated by this Agreement. Subject to the terms and conditions of this
Agreement, in taking such actions or making any such filings, the parties hereto
shall furnish information required in connection therewith and seek timely to
obtain any such actions, consents, approvals or waivers. Without limiting the
foregoing, the parties hereto shall each promptly complete and file all reports
and forms, and respond to all requests or further requests for additional
information, if any, as may be required or authorized under the HSR Act.
7.03. Public Announcements. Up to (and including) the Closing Date, each
--------------------
party agrees that, without the consent of the other party, it will not, except
as may be required by the rules of the American Stock Exchange, Inc. or
Applicable Law, issue any press release or make any public statement with
respect to this Agreement or the transactions contemplated hereby. For a period
of ten (10) days after the Closing Date, the parties agree to consult with each
other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby, and, except
as may be required by the rules of the American Stock Exchange, Inc. or
Applicable Law, will not issue any such press release or public statement prior
to such consultation. Neither Seller nor any officer, employee, director,
stockholder or other representative shall, at any time from and after the
Closing, issue any press release or make any public statement that is critical,
disparaging or otherwise could reasonably be interpreted as being negative with
respect to any of the Entertainment Companies or their respective businesses or
financial condition or officers, employees or directors.
7.04. Administration of Accounts. All payments and reimbursements made in
--------------------------
the ordinary course by any third party in the name of or to Seller or any
Affiliate thereof in connection with or arising out of the business of any
Entertainment Company shall be held by Seller or such Affiliate in trust for the
benefit of the relevant Entertainment Company and, immediately upon receipt by
Seller or such Affiliate of any such payment or reimbursement, Seller shall pay,
or cause to be paid, over to the relevant Entertainment Company the amount of
such payment or reimbursement without right of set off.
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7.05. Specific Performance. The parties hereto recognize and agree that in
--------------------
the event of a breach by one party hereto of this Article VII, money damages
would not be an adequate remedy to the other party for such breach and, even if
money damages were adequate, it would be impossible to ascertain or measure with
any degree of accuracy the damages sustained by the non-breaching party
therefrom. Accordingly, if there should be a breach or threatened breach by one
party of provisions of this Article VII, the non-breaching party shall be
entitled to an injunction restraining the breaching party from any breach
without showing or proving actual damage sustained by the non-breaching party.
7.06. Right of First Negotiation. For a period of five (5) years following
--------------------------
consummation of the Closing, Buyer will afford Seller a right of first
negotiation to obtain the right to distribute by wired or wireless cable, in the
territories noted on Schedule 7.06, all Films owned by Buyer or any of its
-------------
Subsidiaries, all Library Films and all Films hereafter produced by Buyer or any
of its Subsidiaries, including without limitation, the Entertainment Companies,
to the extent Buyer owns such rights in the territories specified and subject to
any existing licenses or other agreements to which Buyer or any of its
Subsidiaries is a party or by which Buyer or any of its Subsidiaries is bound.
In the event Buyer elects to dispose of any rights covered by the first
negotiation described herein to any third party, Buyer and Seller shall
negotiate in good faith for a period of fifteen (15) days following written
notice by Buyer to Seller of its desire to dispose of such rights for the
purposes of agreeing upon the terms under which said rights may be conveyed to
Seller. In the event the parties are unable to agree on terms within said
fifteen (15) day period, Buyer shall be free to dispose of said rights without
any further obligation of any kind to Seller.
7.07. Proxy Consent Solicitation.
--------------------------
(a) In connection with any proxy statement or consent solicitation
that may be distributed to stockholders of Seller with respect to the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby, Buyer will furnish to Seller in writing such information
and documents concerning Buyer and its Subsidiaries as Seller reasonably
requests for use in connection with any such proxy statement or consent
solicitation and, to the extent permitted by law, will indemnify and hold
harmless Seller, its directors and officers and each other Person who controls
Seller (within the meaning of the Securities Act of 1933 (the "Securities Act"))
against any losses, claims, damages, liabilities, joint or several, to which
Seller or any such director or officer or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon (i) any untrue statement of a
material fact contained in the proxy statement or consent solicitation or any
amendment thereof or supplement thereto or (ii) any omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission is
made in such proxy statement or consent solicitation or any amendment or
supplement thereto in reliance upon and in conformity with written information
concerning Buyer or any of its Affiliates prepared and furnished to Seller by
Buyer expressly for use therein, and Buyer will reimburse Seller and each such
director, officer
45
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and controlling person for any legal or any other expenses incurred by them in
connection with defending any such loss, claim, liability, action or proceeding.
(b) To the extent permitted by law, Seller will indemnify and hold
harmless Buyer, its directors and officers and each other Person who controls
Buyer (within the meaning of the Securities Act) against any losses, claims,
damages, liabilities, joint or several, to which Buyer or any such director or
officer or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon (i) any untrue statement of a material fact contained in the
proxy statement or consent solicitation or any amendment thereof or supplement
thereto or (ii) any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to the extent
that such untrue statement or omission is not made in such proxy statement or
consent solicitation or any amendment or supplement thereto in reliance upon and
in conformity with written information concerning Buyer or any of its Affiliates
prepared and furnished to Seller by Buyer expressly for use therein, and Seller
will reimburse Buyer and each such director, officer and controlling person for
any legal or any other expenses incurred by them in connection with defending
any such loss, claim, liability, action or proceeding.
7.08. Refinancing of Debt.
-------------------
(a) Concurrent with the Closing, Seller will (i) offset against any
amounts owing to Seller or any Affiliate of Seller (other than any Entertainment
Company) from any Entertainment Company all payables owed from Seller or any
Affiliate of Seller (other than any Entertainment Company) to such Entertainment
Company on the Closing Date and (ii) if following the offset provided for in
(i), (A) there are any remaining amounts owing to Seller or any Affiliate of
Seller (other than any Entertainment Company) by any Entertainment Company,
contribute all such amounts to the capital of such Entertainment Company, or (B)
there are any remaining amounts owing to any Entertainment Company, pay all such
amounts.
(b) Seller and Orion shall cooperate with Buyer, between the date
hereof and the Closing Date, in order to assist Buyer in arranging for the New
Orion Credit Facility to be executed and become effective concurrent with the
Closing, such that funds may be drawn thereunder to be utilized, along with
other funds to be made available to Orion by Buyer concurrent with the Closing,
to satisfy all of Orion's obligations under the Existing Orion Credit Facility.
Buyer covenants to deliver to Orion concurrent with the Closing an amount of
cash such that such cash, together with funds available at such time under the
New Orion Credit Facility, will be sufficient to permit Orion to satisfy all its
obligations under the Existing Orion Credit Facility and cause Seller and its
Affiliates to be released of all obligations thereunder.
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<PAGE>
ARTICLE VIII
CONDITIONS TO CLOSING
8.01. Conditions to Obligation of Buyer. The obligations of Buyer to
---------------------------------
consummate the Closing are subject to the satisfaction on or prior to the
Closing Date of each of the following conditions:
(a) (i) Each of Seller and Orion shall have performed and satisfied
each of its obligations hereunder required to be performed and satisfied by it
on or prior to the Closing Date, (ii) each of the representations and warranties
of Seller contained in this Agreement shall be true and correct, at and as of
the Closing Date with the same force and effect as if made as of the Closing
Date (except that representations and warranties made as of a specific date
(other than the date of this Agreement) shall continue to be true and correct in
all material respects as of such specific date), except for any breach of any
such representations or warranties which, when combined with all other breaches
of such representations and warranties, could not be reasonably expected to
result in a Material Adverse Effect, and (iii) Buyer shall have received
certificates signed by a duly authorized executive officer of Seller to the
foregoing effect and to the effect that, to the knowledge of such executive
officer, the conditions specified in this Section 8.01 have been satisfied.
(b) All Required Governmental Approvals and Essential Consents shall
have been obtained without the imposition of any conditions that are or would
become applicable to any Entertainment Company or Buyer (or any of its
Affiliates) after the Closing that Buyer in good faith determines would be
materially burdensome upon the Entertainment Companies taken as a whole or Buyer
(or any of its Affiliates) or the businesses of the Entertainment Companies
taken as a whole and Buyer substantially as such businesses have been conducted
prior to the Closing Date or as said businesses, as of the date hereof, would
reasonably be expected to be conducted after the Closing Date. All such
Required Governmental Approvals and Essential Consents shall be in effect. All
conditions and requirements prescribed by any Required Governmental Approval and
Essential Consent (or any such other consent) to be satisfied on or prior to the
Closing Date shall have been satisfied allowing all such Required Governmental
Approvals and Essential Consents (and all such other consents) to be effective
and enforceable, and to remain effective and enforceable against the Persons
giving such Required Governmental Approvals and Essential Consents (and such
other consents) assuming continued compliance with the terms thereof.
(c) The transactions contemplated by this Agreement and the
consummation of the Closing shall not violate any Applicable Law. No temporary
restraining order, preliminary or permanent injunction, cease and desist order
or other order issued by any court of competent jurisdiction or any competent
Governmental Authority or any other legal restraint or prohibition preventing
the transfer and exchange contemplated hereby or the consummation of the
Closing, or imposing Damages in respect thereto, shall be in effect, and there
shall be no pending or threatened actions or proceedings (i) by any Governmental
Authority (or determinations by any Governmental Authority) challenging or in
any manner seeking to
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restrict or prohibit the transactions contemplated hereby or the consummation of
the Closing, (ii) or by any Governmental Authority (or determinations by any
Governmental Authority) or by any other person or to impose conditions that
Buyer reasonably determines would be materially burdensome upon the
Entertainment Companies taken as a whole, the Shares or Buyer (or any of its
Affiliates) or the businesses of the Entertainment Companies taken as a whole
and Buyer substantially as such businesses have been conducted prior to the
Closing Date or as said businesses, as of the date hereof, could be reasonably
expected to be conducted after the Closing Date.
(d) Since the date hereof, there shall not have been any change in any
Entertainment Company, its assets or the Shares (including any damage,
destruction or other casualty loss, but excluding any event, occurrence,
development or state of circumstances or facts or change resulting from changes
in general economic conditions) that has had or that could be reasonably
expected to have, either alone or together with all such events, occurrences,
developments, states of circumstances or facts or changes, a Material Adverse
Effect.
(e) Buyer shall have received an opinion of counsel from Paul, Weiss,
Rifkind, Wharton & Garrison in form and substance reasonably satisfactory to
Buyer.
(f) Buyer and its Subsidiaries shall have obtained in writing all
consents, approvals and waivers required to be obtained by Buyer and its
Subsidiaries by virtue of the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby under the MGM Credit
Facility.
(g) All Persons who are directors of any Entertainment Company whose
principal employment is not as an officer and/or employee of an Entertainment
Company shall have resigned such directorships.
(h) Seller shall have provided to Buyer written evidence satisfactory
to Buyer of the consummation of the transfer of the ownership of all issued and
outstanding stock of Landmark to an Affiliate of Seller that is not an
Entertainment Company.
8.02. Conditions to Obligation of Seller. The obligations of Seller to
----------------------------------
consummate the Closing are subject to the satisfaction on or prior to the
Closing Date of each of the following conditions:
(a) (i) Buyer shall have performed and satisfied each of its
obligations hereunder required to be performed and satisfied by it on or prior
to the Closing Date; (ii) the representations and warranties of Buyer contained
in this Agreement shall be true, complete and accurate in all material respects
at and as of the Closing Date, as if made at and as of the Closing Date (except
that representations and warranties made as of a specific date (other than the
date of this Agreement) shall continue to be true and correct in all material
respects as of such specific date) except for any breach of any such
representations and warranties which, when combined with all other breaches of
such representations and warranties, would not be materially adverse to Seller
and (iii) Seller shall have received a certificate signed by a duly authorized
senior officer
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of Buyer to the foregoing effect and to the effect that, to such senior
officer's knowledge, the conditions specified in this Section 8.02 have been
satisfied.
(b) All Required Governmental Approvals and Essential Consents shall
have been obtained without the imposition of any conditions that are or would
become applicable to Seller (or any of its Affiliates) after the Closing that
Seller in good faith determines would be materially burdensome upon Seller (or
any of its Affiliates) or the businesses of Seller taken as a whole and Buyer
substantially as such businesses have been conducted prior to the Closing Date
or as said businesses, as of the date hereof, would reasonably be expected to be
conducted after the Closing Date. All such Required Governmental Approvals and
Essential Consents shall be in effect. All conditions and requirements
prescribed by any Required Governmental Approval and Essential Consent (or any
such other consent) to be satisfied on or prior to the Closing Date shall have
been satisfied allowing all such Required Governmental Approvals and Essential
Consents (and all such other consents) to be effective and enforceable, and to
remain effective and enforceable against the Persons giving such Required
Governmental Approvals and Essential Consents (and such other consents) assuming
continued compliance with the terms thereof.
(c) The transactions contemplated by this Agreement and the
consummation of the Closing shall not violate any Applicable Law. No temporary
restraining order, preliminary or permanent injunction, cease and desist order
or other order issued by any court of competent jurisdiction or any competent
Governmental Authority or any other legal restraint or prohibition preventing
the transfer and exchange contemplated hereby or the consummation of the
Closing, or imposing Damages in respect thereto, shall be in effect, and there
shall be no pending or threatened actions or proceedings (i) by any Governmental
Authority (or determinations by any Governmental Authority) challenging or in
any manner seeking to restrict or prohibit the transactions contemplated hereby
or the consummation of the Closing, (ii) or by any Governmental (or
determinations by any Governmental Authority) or by any other person or to
impose conditions that Seller reasonably determines would be materially
burdensome upon Seller (or any of its Affiliates) or the businesses of Seller
substantially as such businesses have been conducted prior to the Closing Date
or as said businesses, as of the date hereof, could be reasonably expected to be
conducted after the Closing Date.
(d) Seller shall have received an opinion of counsel from Gibson, Dunn
& Crutcher LLP in form and substance reasonably satisfactory to Seller.
(e) Seller shall have obtained the approval of its stockholders
required to be obtained by Seller by virtue of the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
under its Certificate of Incorporation, its Bylaws or Applicable Law.
(f) Seller shall have been released of all obligations as guarantor of
that certain Lease pertaining to the real property located at 1888 Century Park
East, Los Angeles, California, occupied by the Entertainment Companies on the
date hereof.
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(g) Seller and its Affiliates shall have been released from all
obligations thereof in connection with the Existing Orion Credit Facility.
ARTICLE IX
INDEMNIFICATION
9.01. Indemnification of Buyer. From and after the Closing Date and subject
------------------------
to the terms and conditions of this Section 9.01, Buyer and its Affiliates
(collectively, the "Buyer Indemnitees") shall each be indemnified and held
harmless to the extent set forth in this Article IX by Seller in respect of any
and all Damages actually incurred by any Buyer Indemnitee:
(a) as a result of any misrepresentation in or breach of or failure to
perform any representation, warranty, covenant and/or agreement made by
Seller in this Agreement; provided, however, that Seller, with respect to
-------- -------
Damages incurred by any Buyer Indemnitee as a result of any such
misrepresentation, breach or failure other than those described in clauses
(i) or (ii) of Section 9.03(c) (as to which the limits described in this
proviso shall not apply), shall have no obligation under this clause (i) of
Section 9.01(a) unless and until the aggregate amount of Damages so
incurred by all Buyer Indemnitees collectively exceeds Fifteen Million
Dollars ($15,000,000), whereupon Seller shall be liable to indemnify the
Buyer Indemnitees for all such Damages in excess of such amount up to a
maximum amount equal to the Purchase Price;
(b) as a result of any violations or infringements of any material
Applicable Law, or any order, writ, injunction or decree of any
Governmental Authority, but only to the extent that such violation or
infringement occurs prior to the Closing Date; or
(c) as a result of any liability arising out of or in connection with
the litigation described in Schedule 9.01(c) or by or among one or more of
----------------
the parties to such litigation identified therein or arising out of the
facts giving rise to the matters described therein, and all counter-claims,
cross-claims and other actions relating thereto.
Any indemnity arising with respect to Taxes shall be governed by the provisions
of Article XI below.
9.02. Indemnification of Seller. From and after the Closing Date, Seller
-------------------------
and its Affiliates (collectively, the "Seller Indemnitees") shall each be
indemnified and held harmless to the extent set forth in this Article IX by
Buyer in respect of any and all Damages actually incurred by any Seller
Indemnitee (i) as a result of any misrepresentation in or breach of or failure
to perform any representation, warranty, covenant or agreement made by Buyer in
this Agreement and (ii) resulting from Buyer's operation of the Entertainment
Companies or ownership of the Shares after the Closing Date.
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9.03. Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
(a) Except as otherwise provided in this Article IX, all
representations, warranties, covenants, agreements and obligations of each
Indemnifying Party contained herein and all claims of any Buyer Indemnitee or
Seller Indemnitee in respect of any breach of any representation, warranty,
covenant, agreement or obligation of any Indemnifying Party contained in this
Agreement, shall survive the Closing and any due diligence examination or
investigation by Buyer, regardless of when it is conducted, and shall expire on
the first anniversary of the Closing Date.
(b) Notwithstanding Section 9.03(a), each of the representations and
warranties of Seller set forth in Sections 3.20 and 3.21 shall survive the
Closing Date and shall expire on the second anniversary of the Closing Date.
(c) Notwithstanding Section 9.03(a), each of the following
representations, warranties, covenants, agreements and obligations of Seller as
Indemnifying Party shall survive the Closing Date until the expiration of thirty
(30) days following any applicable statute of limitations, including extensions
thereof: (i) any misrepresentation in or breach of any representation or
warranty made in Sections 3.01, 3.02, 3.03, 3.04, 3.17, 3.23, 3.24 or 3.26 and
(ii) the breach or failure to perform by Seller after the Closing Date of any of
the covenants, agreements or obligations contained in this Agreement or in the
Exhibits attached hereto required to be performed after the Closing Date,
including those contained in Section 7.07 and Article XI.
(d) Notwithstanding Section 9.03(a), each of the following
representations, warranties, covenants, agreements and obligations of Buyer as
an Indemnifying Party shall survive the Closing Date until the expiration of
thirty (30) days following the applicable statute of limitations, including
extensions thereof: (i) any misrepresentation in or breach of any
representation or warranty made in Sections 4.01, 4.02 or 4.05 and (ii) the
breach or failure to perform by Buyer after the Closing Date of any of the
covenants, agreements or obligations of Buyer contained in this Agreement or in
the Exhibits attached hereto required to be performed after the Closing Date.
9.04. Claims for Indemnification.
--------------------------
(a) If any Indemnitee shall believe that such Indemnitee is entitled
to indemnification pursuant to this Article IX in respect of any Damages, such
Indemnitee shall promptly give the appropriate Indemnifying Party notice of such
claim (a "Notice of Claim") (but such Notice of Claim must be delivered within
the time periods specified in Sections 9.03(a), (b) and (c)). Any such Notice
of Claim shall set forth in reasonable detail and to the extent then known the
basis for such claim for indemnification and the amount of the claim, to the
extent specified or otherwise known. The failure of such Indemnitee to give the
Notice of Claim for indemnification promptly shall not adversely affect such
Indemnitee's right to indemnity hereunder except to the extent that the defense
of any claim is prejudiced by such failure.
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(b) No Person shall have any claim or cause of action as a result of
any misrepresentation in or breach of or failure to perform any representation,
warranty, covenant, agreement or obligation of any Indemnifying Party referred
to in this Article IX against any Affiliate, stockholder, director, officer,
employee, consultant or agent of such Indemnifying Party unless any of the
foregoing is a successor or assign of such Indemnifying Party. Nothing set
forth in this Article IX shall be deemed to prohibit or limit any Buyer
Indemnitee's or Seller Indemnitee's right at any time before, on or after the
Closing Date, to seek injunctive or other equitable relief for the failure of
any Indemnifying Party to perform any covenant or agreement contained herein.
9.05. Defense of Claims.
-----------------
(a) In connection with any claim which may give rise to indemnity
under this Article IX resulting from or arising out of any claim or Proceeding
against an Indemnitee by a Person that is not a party hereto, the Indemnifying
Party may (unless such Indemnitee elects not to seek indemnity hereunder for
such claim), upon written notice to the relevant Indemnitee, assume the defense
of any such claim or Proceeding if all Indemnifying Parties with respect to such
claim or Proceeding jointly acknowledge to the Indemnitee its right to indemnity
pursuant hereto in respect of the entirety of such claim (as such claim may have
been modified through written agreement of the parties) and provide assurances,
reasonably satisfactory to such Indemnitee, that the Indemnifying Parties will
be financially able to satisfy such claim in full if such claim or Proceeding is
decided adversely. If the Indemnifying Parties assume the defense of any such
claim or Proceeding, the Indemnifying Parties shall select counsel reasonably
acceptable to such Indemnitee to conduct the defense of such claim or
Proceeding, shall take all steps necessary in the defense or settlement thereof
and shall at all times reasonably diligently and promptly pursue the resolution
thereof. If the Indemnifying Parties shall have assumed the defense of any
claim or Proceeding in accordance with this Section 9.05, the Indemnifying
Parties shall be authorized to consent to a settlement of, or the entry of any
judgment arising from, any such claim or Proceeding, with the consent of the
Indemnitee, which consent will be not unreasonably withheld or delayed;
provided, that no such consent shall be required from such Indemnitee if the
- --------
Indemnifying Parties shall pay or cause to be paid all amounts arising out of
such settlement or judgment concurrently with the effectiveness thereof;
provided, further, that the Indemnifying Parties shall not be authorized to
- -------- -------
encumber any of the assets of any Indemnitee or to agree to any restriction that
would apply to any Indemnitee or to its conduct of business; and provided,
--------
further, that a condition to any such settlement shall be a complete release of
- -------
such Indemnitee and its Affiliates, officers, employees and if named as a
defendant, consultants and agents with respect to such claim. Each Indemnitee
shall be entitled to participate in the defense of any such action at its own
cost and expense. Each Indemnitee shall, and shall cause each of its
Affiliates, officers, employees, consultants and agents to, cooperate fully with
the Indemnifying Parties in the defense of any claim or Proceeding being
defended by the Indemnifying Parties pursuant to this Section 9.05.
(b) If the Indemnifying Parties do not assume the defense of any claim
or Proceeding resulting therefrom in accordance with the terms of this Section
9.05(a), such Indemnitee may defend against such claim or Proceeding in the
manner as it may deem
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appropriate, including settling such claim or Proceeding after giving notice of
the same to the Indemnifying Parties, on such terms as such Indemnitee may deem
appropriate. If the Indemnifying Parties seek to question the manner in which
such Indemnitee defended such claim or Proceeding or the amount of or nature of
any such settlement, the Indemnifying Parties shall have the burden to prove by
a preponderance of the evidence that such Indemnitee did not defend such claim
or Proceeding in a reasonably prudent manner.
(c) Although the indemnification rights provided in this Article IX
shall extend to the respective Affiliates of Buyer and Seller, for the purpose
of the procedures set forth in this Section 9.05, any claims for indemnification
shall be made by and through Buyer or Seller, as the case may be.
9.06. Nature of Payments. Any payment under this Article IX shall be
------------------
treated for tax purposes as an adjustment of the Purchase Price to the extent
such characterization is proper and permissible under relevant Tax authorities,
including court decisions, statutes, regulations and administrative
promulgations.
9.07. Taxes The provisions of this Article IX shall not be applicable to
-----
Taxes, which shall be governed by Article XI.
ARTICLE X
TERMINATION
10.01. Grounds for Termination. This Agreement may be terminated at any time
-----------------------
(except with respect to clauses (h), (i), (j) and (k) which contain certain time
limitations) prior to the Closing:
(a) by mutual written agreement of all of the parties hereto;
(b) by Buyer after written notice to Seller of any one or more
misrepresentations in or breaches of the representations or warranties made by
Seller contained herein that, if not cured on or prior to the Closing Date,
could be reasonably expected to give Buyer grounds not to close under Section
8.01 when taken into account with all other uncured misrepresentations in or
breaches of such representations or warranties as to which Buyer shall have
given notice to Seller as provided in this paragraph (b). A termination
pursuant to this paragraph (b) shall become effective (i) fifteen (15) days
after such notice with respect to such a misrepresentation or breach that is not
capable of being cured on or prior to the Closing Date, or (ii) immediately
prior to the Closing with respect to such a misrepresentation or breach that is
capable of being cured, but is not cured, on or prior to the Closing Date;
(c) by Buyer after written notice to Seller of the failure by Seller
or any Entertainment Company to perform and satisfy any of its obligations under
this Agreement required to be performed and satisfied by Seller or such
Entertainment Company on or prior to the Closing Date, if the aggregate of all
such failures shall be material. A termination pursuant to this paragraph (c)
shall become effective (i) fifteen (15) days after such notice with respect to
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such a failure that is not capable of being cured on or prior to the Closing
Date, or (ii) immediately prior to the Closing with respect to such a failure
that is capable of being cured, but is not cured, on or prior to the Closing
Date;
(d) by Seller after written notice to Buyer of any one or more
misrepresentations in or breaches of the representations or warranties made by
Buyer herein which, if not cured on or prior to the Closing Date, could be
reasonably expected to give Seller grounds not to close under Section 8.02 when
taken into account with all other uncured misrepresentations in or breaches of
such representations or warranties as to which Seller shall have given notice to
Buyer as provided in this clause (d). A termination pursuant to this paragraph
(d) shall become effective (i) fifteen (15) days after such notice with respect
to such a misrepresentation or breach that is not capable of being cured on or
prior to the Closing Date, or (ii) immediately prior to the Closing with respect
to such a misrepresentation or breach that is capable of being cured, but is not
cured, on or prior to the Closing Date;
(e) by Seller after written notice to Buyer of Buyer's failure to
perform and satisfy any of its obligations under this Agreement required to be
performed and satisfied by Buyer on or prior to the Closing Date, if the
aggregate of all such failures shall be material. A termination pursuant to
this paragraph (e) shall become effective (i) fifteen (15) days after such
notice with respect to such a failure that is not capable of being cured on or
prior to the Closing Date, or (ii) immediately prior to the Closing with respect
to such a failure that is capable of being cured, but is not cured, on or prior
to the Closing Date;
(f) by Buyer or by Seller, if the Closing shall not have been
consummated by September 30, 1997; provided, however, that neither Buyer nor
-------- -------
Seller may terminate this Agreement pursuant to this clause (f) if the Closing
shall not have been consummated within such time period by reason of the failure
of such party or any of its Affiliates to perform in all material respects any
of its or their respective covenants or agreements contained in this Agreement;
(g) by any party hereto if any Federal, state or foreign law or
regulation thereunder shall hereafter be enacted or become applicable that makes
the transactions contemplated hereby or the consummation of the Closing illegal
or otherwise prohibited, or if any judgment, injunction, order or decree
enjoining either party hereto from consummating the transactions contemplated
hereby is entered, and such judgment, injunction, order or decree shall become
final and nonappealable;
(h) by Buyer by written notice delivered to Seller at any time prior
to 5:00 p.m. (Los Angeles time) on May 9, 1997, if at any time prior to such
time Buyer discovers any fact, occurrence or circumstance relating to any
Entertainment Company not known to Buyer on or before the date of this Agreement
that is materially adverse to the assets, liabilities, business, operations or
financial condition of the Entertainment Companies taken as a whole.
(i) by Buyer or Seller if Seller shall have convened a meeting of its
stockholders to vote upon this Agreement and the transactions contemplated
hereby and at such meeting shall have failed to obtain in writing all consents
and approvals of its stockholders
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required to be obtained by Seller by virtue of the execution and delivery of
this Agreement or the transactions contemplated hereby under its Certificate of
Incorporation, its Bylaws or Applicable Law.
(j) by Seller at any time after submission of this Agreement and the
transactions contemplated herein by the stockholders of Seller in accordance
with Applicable Law, if (i) Seller's financial advisors shall have withdrawn
(either before or after such meeting) their opinion to the effect that the
Purchase Price is fair to Seller's stockholders from a financial point of view
or (ii) Seller's Board of Directors shall have withdrawn, modified or amended in
any material respect its approval or recommendation of this Agreement or the
transactions contemplated hereby and Seller receives a legal opinion of Delaware
counsel that is reasonably acceptable to Buyer to the effect that submission of
this Agreement and the transactions contemplated hereby would be unlawful under
Delaware law.
(k) by Seller at any time prior to the approval of this Agreement
and the transactions contemplated herein by the stockholders of Seller in
accordance with Applicable Law, if Seller's Board of Directors determines in
good faith, on the basis of the advice of Paul, Weiss, Rifkind, Wharton &
Garrison or other outside counsel of comparable stature, that the approval and
adoption of this Agreement and the transactions contemplated hereby would be
inconsistent with the compliance by the Board of Directors with its fiduciary
duties to stockholders under Applicable Law.
The party desiring to terminate this Agreement pursuant to clauses (b)
through (k) shall give written notice of such termination to the other party.
10.02. Effect of Termination. If this Agreement is terminated as permitted
---------------------
by Section 10.01, such termination shall be without liability of any party to
any other party to this Agreement except as hereinafter expressly provided in
this Section 10.02. If such termination shall result from the breach by any
party of its representations, warranties or covenants contained in this
Agreement, such party shall be fully liable for any and all Damages incurred or
suffered by the other parties as a result of such failure or breach. The
provisions of Sections 5.05, 6.02, 12.04, 12.06 and 12.12 shall survive any
termination of this Agreement pursuant to Article X, and each party hereto shall
be fully responsible for any breach of any such provision, whether or not such
breach occurs prior to or after the termination of this Agreement.
10.03. Commitment Fee.
--------------
(a) To compensate Buyer for entering into this Agreement and taking
action to consummate the transactions contemplated hereby and incurring the
costs and expenses related thereto and other losses and expenses, including the
foregoing by Buyer of other opportunities, Seller agrees to pay to Buyer an
aggregate amount equal to Thirty Million Dollars ($30,000,000), less any amount
due pursuant to Section 10.03(c) below (the "Commitment Fee") if this Agreement
is terminated:
(i) by Seller pursuant to Section 10.01(j) or (k);
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(ii) by Buyer or Seller pursuant to Section 10.01(i), if, in any such
case specified in this clause (ii), prior to the time of Seller's meeting
of stockholders (A) Seller's Board of Directors shall have withdrawn,
modified or amended in any material respect its approval or recommendation
of this Agreement or the transactions contemplated hereby or shall have
resolved to do any of the foregoing, (B) Seller's Board of Directors shall
have recommended acceptance of any Alternative Proposal or shall have
resolved to do so or (C) Seller or any of its Affiliates shall have entered
into an agreement providing for an Alternative Proposal with a party other
than Buyer or shall have resolved to do so; or
(iii) by Buyer or Seller pursuant to Section 10.01(i), if, in any such
case specified in this clause (iii) (A) prior to the time of Seller's
meeting of stockholders an Alternative Proposal shall have been publicly
announced or shall have become publicly known or Seller's financial
advisors shall have withdrawn, modified or amended in any material respect
their opinion to the effect that the Purchase Price is fair to Seller's
stockholders from a financial point of view, (B) Seller's Board of
Directors shall not have withdrawn, modified or amended in any material
respect its approval and recommendation of this Agreement and the
transactions contemplated hereby, Seller's Board of Directors shall not
have recommended acceptance of any Alternative Proposal nor shall Seller's
Board of Directors have resolved to do so, and neither Seller nor any of
its Affiliates shall have entered into an agreement providing for an
Alternative Proposal with a party other than Buyer nor shall any of them
have resolved to do so and (C) during the term of this Agreement or within
one (1) year after the termination of this Agreement, Seller's Board of
Directors recommends an Alternative Proposal with a party other than Buyer,
Seller or any of its Affiliates enters into an agreement providing for an
Alternative Proposal with a party other than Buyer, or an Alternative
Proposal with a party other than Buyer occurs, and, in any such case, the
purchase price in respect of such Alternative Proposal (or the portion
thereof allocable to the Entertainment Companies or their assets, if such
Alternative Proposal relates to Seller or assets and operations of Seller
in addition to the Entertainment Companies) is higher than the Purchase
Price; provided, however, that in determining such purchase price, there
-------- -------
shall be included therein the fair value of any property of any
Entertainment Company transferred to Seller in connection with or in
anticipation of such transaction.
(b) The Commitment Fee and the reimbursement of expenses required
by Section 10.03(c) shall be payable (i) at the time of termination if the
termination is by Seller pursuant to Section 10.01(j) or (k), (ii) on the next
business day following termination if the termination is by Buyer or Seller
pursuant to Section 10.01(i) and is covered by clause (ii) of Section 10.03(a)
and (iii) on the next business day following the earliest of the recommendation
of an Alternative Proposal, the entering into of an agreement providing for an
Alternative Proposal or the occurrence of an Alternative Proposal, if the
termination is by Seller or Buyer pursuant to Section 10.01(i) and such
termination is covered by clause (iii) of Section 10.03(a).
(c) Seller shall reimburse Buyer and its Affiliates for actual out-
of-pocket expenses, not to exceed Ten Million Dollars ($10,000,000), of Buyer
and its Affiliates
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incurred in connection with or arising out of this Agreement and the
transactions contemplated hereby (including, without limitation, amounts paid or
payable to investment bankers, fees and expenses of counsel, accountants and
consultants, and printing expenses), regardless of when those expenses are
incurred, if this Agreement is terminated:
(i) by Seller pursuant to Section 10.01(j) or (k);
(ii) by Buyer or Seller pursuant to Section 10.01(i) or (j), if, in any
such case specified in this clause (ii), prior to the time of Seller's
meeting of stockholders (A) Seller's Board of Directors shall have
withdrawn, modified or amended in any material respect its approval or
recommendation of this Agreement or the transactions contemplated hereby or
shall have resolved to do any of the foregoing, (B) Seller's Board of
Directors shall have recommended acceptance of any Alternative Proposal or
shall have resolved to do so or (C) Seller or any of its Affiliates shall
have entered into an agreement providing for an Alternative Proposal with a
party other than Buyer or shall have resolved to do so; or
(iii) by Buyer or Seller pursuant to Section 10.01(i), if, in any such
case specified in this clause (iii) (A) prior to the time of Seller's
meeting of stockholders an Alternative Proposal shall have been publicly
announced or shall have become publicly known or Seller's financial
advisors shall have withdrawn, modified or amended in any material respect
their opinion to the effect that the Purchase Price is fair to Seller's
stockholders from a financial point of view, (B) Seller's Board of
Directors shall not have withdrawn, modified or amended in any material
respect its approval and recommendation of this Agreement and the
transactions contemplated hereby, Seller's Board of Directors shall not
have recommended acceptance of any Alternative Proposal nor shall Seller's
Board of Directors have resolved to do so, and neither Seller nor any of
its Affiliates shall have entered into an agreement providing for an
Alternative Proposal with a party other than Buyer nor shall any of them
have resolved to do so and (C) during the term of this Agreement or within
one (1) year after the termination of this Agreement, Seller's Board of
Directors recommends an Alternative Proposal with a party other than Buyer,
Seller or any of its Affiliates enters into an agreement providing for an
Alternative Proposal with a party other than Buyer, or an Alternative
Proposal with a party other than Buyer occurs, and, in any such case, the
purchase price in respect of such Alternative Proposal (or the portion
thereof allocable to the Entertainment Companies or their assets, if such
Alternative Proposal relates to Seller or assets and operations of Seller
in addition to the Entertainment Companies) is higher than the Purchase
Price; provided, however, that in determining such purchase price, there
-------- -------
shall be included therein the fair value of any property of any
Entertainment Company transferred to Seller in connection with or in
anticipation of such transaction.
(d) Seller acknowledges that the agreements contained in this
Section 10.03 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Buyer would not enter into this
Agreement. Accordingly, if Seller fails to pay any amounts owing pursuant to
this Section 10.03 when due, Seller shall in addition thereto pay
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<PAGE>
to Buyer all costs and expenses (including attorneys' fees and costs) incurred
in collecting such amounts, together with interest on such amounts (or any
unpaid portion thereof) from the date such payment was required to be made until
the date such payment is received by Buyer at one percentage point in excess of
the Reference Rate as in effect from time to time during such period; provided,
--------
however, that in no event shall such interest rate exceed the maximum rate
- -------
permitted by Applicable Law.
ARTICLE XI
TAX MATTERS
11.01. Tax Returns and Payments.
------------------------
(a) Seller shall be responsible for the preparation and filing of all
Seller's Consolidated Returns with respect to all Pre-Closing Periods, which
shall include the Entertainment Companies, and for the payment of all federal
Income Taxes with respect to such Consolidated Returns. Seller shall be
entitled to any refunds of Income Taxes with respect to such Tax Returns.
(b) (i) Seller shall be responsible for the preparation and filing of all
Tax Returns, other than Consolidated Returns, of the Entertainment Companies
for any Pre-Closing Period, that are required to be filed on or before the
Closing Date, and for the payment of all Taxes with respect to such Tax
Returns. Seller shall be entitled to any refunds of Taxes with respect to
such Tax Returns. Such Tax Returns shall be prepared in a manner consistent
with prior practice, and shall utilize accounting methods, elections and
conventions that do not have the effect of distorting the allocation of
income or expense between Pre-Closing Periods and Post-Closing Periods.
(ii) Buyer shall be responsible for the preparation and filing of all
Tax Returns, other than Consolidated Returns, of the Entertainment Companies
for any Pre-Closing Period, that are required to be filed after the Closing
Date. Seller shall pay Buyer, in immediately available funds, any Taxes that
are required to be paid with such Tax Returns, and shall be entitled to any
refunds of Taxes with respect to such Tax Returns.
(c) Buyer shall be responsible for the preparation and filing of all
Straddle Period Tax Returns with respect to the Entertainment Companies, and for
the payment of all Taxes with respect to such returns. Seller shall reimburse
Buyer, in immediately available funds, for the portion of any Tax relating to a
Straddle Period that is allocable, in accordance with paragraph (f) below, to
the pre-Closing portion of such Straddle Period, less any estimated Taxes paid
by Seller or the Entertainment Companies with respect to such Straddle Period
before the Closing Date. Any refunds of Straddle Period taxes shall be allocated
between the Seller and the Buyer based on the same principles.
(d) Buyer shall be responsible for the preparation and filing of all Tax
Returns and the payment of all other Taxes with respect to the Entertainment
Companies for all Post-
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Closing Periods. Buyer shall be entitled to any refunds of such Taxes. In the
case of any Post-Closing Tax Return where the Taxes payable by an Entertainment
Company are dependent upon the Tax attributes of or are consistent with Tax
accounting methods utilized by such Entertainment Company for a Pre-Closing
Period, without Seller's consent Buyer shall not take a position that (i) is
inconsistent with a position taken by Seller for such Pre-Closing Period and
(ii) will have the effect of increasing the Seller's Tax liability for a Pre-
Closing Period, unless in the opinion of Buyer's independent tax counsel or
accountant, Seller's position is not supported by "substantial authority" within
the meaning of Section 6662 of the Code.
(e) To the extent permitted by law, Seller and Buyer shall use their
best efforts to cause any Taxable period to close on the Closing Date.
(f) Taxes payable with respect to a Straddle Period shall be allocated
to the Pre-Closing Period and Post-Closing Period on the basis of a closing of
the books as of the Closing Date or any other method agreed upon by Buyer and
Seller, except that Taxes imposed on a periodic basis, such as real and personal
property Taxes, shall be prorated based on the number of days before and after
the Closing Date.
(g) Seller, Buyer and the Entertainment Companies shall cooperate in
good faith in (i) preparing and filing all Tax Returns, (ii) maintaining and
making available to each other all records necessary in connection with the
preparation and filing of all Tax Returns and the payment of Taxes, and (iii)
resolving all disputes and audits with respect to any Tax Returns and Taxes.
Buyer and Seller recognize that each may need access, from time to time, after
the Closing Date, to certain accounting and Tax records and information held by
the other; therefore, Buyer and Seller agree (i) to retain and maintain Tax
records relating to the Entertainment Companies for a period of five (5) years
after the Closing Date, (ii) to allow each other and their agents and
representatives, at times and dates mutually acceptable to the parties, to
inspect, review and make copies of such records, such activities to be conducted
during normal business hours and at the requesting party's expense, and (iii)
and to offer the other parties such records before destroying such records.
(h) Seller shall pay any stock transfer taxes due as a result of the
sale of the Shares to Buyer pursuant to the transactions contemplated by this
Agreement.
(i) Seller shall cause the provisions of any tax sharing agreement to
which any of the Entertainment Companies is a party to be terminated on or
before the Closing Date, and the Entertainment Companies shall have no liability
to Seller or its Affiliates under any such agreements.
(j) Seller shall have the sole and exclusive authority to file amended
Consolidated Tax Returns for the Entertainment Companies for any Pre-Closing
Period, and to control any Tax audits, disputes, administrative or judicial
proceedings or settlements with respect to such Consolidated Tax Returns. Buyer
and the Entertainment Companies shall have the sole and exclusive authority to
file any other amended Tax Returns and to control any other Tax audits,
disputes, administrative or judicial proceedings or settlements with respect to
the Entertainment Companies; provided, however, that Buyer shall not without
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Seller's consent file
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an amended Tax Return with respect to a Pre-Closing Period or settle,
compromise, challenge or litigate a Tax dispute with respect to a Pre-Closing
Period, if any such action may materially increase Seller's liability for Taxes.
11.02. Section 338(h)(10).
------------------
(a) Seller shall join Buyer in making elections under Section 338(g) and
Section 338(h)(10) of the Code and any state, local and foreign counterparts
with respect to the Entertainment Companies (the "Section 338 Elections").
Seller and Buyer shall jointly complete and make the Section 338 Elections on
the applicable forms and in accordance with Applicable Law. Seller shall deliver
such forms and related documents to Buyer at least ninety (90) days prior to the
due date for filing such elections or forms. Buyer shall deliver to Seller at
least forty-five (45) days prior to the due date for filing, such completed
forms as are required to be filed with respect to the Section 338 Elections.
Buyer and Seller shall timely file the Section 338 Elections and any required
forms and documents.
(b) Buyer and Seller shall act reasonably and in good faith to reach an
agreement promptly, but in no event later than ninety (90) days after the
Closing Date, on the allocation of the Purchase Price among the assets of the
Entertainment Companies for purposes of the Section 338 Elections. If Buyer and
Seller are unable to reach an agreement within such ninety (90) day period, they
shall submit the issue to arbitration by a nationally recognized accounting firm
mutually acceptable to Buyer and Seller, whose determination shall be final and
binding on both parties, and whose expenses shall be shared equally by Buyer and
Seller. The valuations and allocations determined pursuant to this Section shall
be used for purposes of all relevant Tax Returns, but shall not have any effect
on any other provision of this Agreement, except insofar as these other
provisions relate to or affect Taxes or Tax Returns.
(c) Seller shall be responsible for the payment of any Taxes of Seller
Affiliated Group or the Entertainment Companies that result from the Section 338
Elections (the "Section 338 Taxes").
11.03. Indemnification.
---------------
(a) Seller shall indemnify Buyer and the Entertainment Companies for (i)
all liability for Taxes of the Seller Affiliated Group, including the
Entertainment Companies, for all Pre-Closing Periods and for the portion of all
Straddle Periods that end on the Closing Date, (ii) all Section 338 Taxes, and
(iii) all liability for reasonable legal and accounting fees and expenses
incurred with respect to any item indemnified pursuant to clauses (i) and (ii)
above.
(b) Buyer and the Entertainment Companies shall indemnify Seller for (i)
all liability for Taxes of the Buyer Affiliated Group for any Post-Closing
Taxable period, (ii) all liability for Taxes of the Entertainment Companies for
the portion of all Straddle Periods that commence after the Closing Date, and
(iii) all liability for reasonable legal and accounting expenses incurred with
respect to any item indemnified pursuant to clauses (i) and (ii) above.
11.04. Procedures for Indemnification.
------------------------------
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(a) If a claim is made by any Taxing authority, which, if successful,
might result in an indemnity payment by a party ("Tax Indemnitor") to another
("Tax Indemnitee") pursuant to Section 11.02, Tax Indemnitee shall promptly
notify Tax Indemnitor in writing of such claim (a "Tax Claim"). If notice of a
Tax Claim is not given to Tax Indemnitor within a sufficient period of time to
allow Tax Indemnitor to effectively contest such Tax Claim, or in reasonable
detail to apprise Tax Indemnitor of the nature of the Tax Claim, in each case
taking into account the facts and circumstances with respect to such Tax Claim,
Tax Indemnitor shall not be liable to Tax Indemnitee to the extent that Tax
Indemnitor's ability to effectively contest such Tax Claim is actually
prejudiced as a result thereof.
(b) With respect to any Tax Claim, Tax Indemnitor shall control all
proceedings taken in connection with such Tax Claim (including, without
limitation, selection of counsel) and, without limiting the foregoing, may in
its sole discretion pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with any Taxing authority with respect
thereto and may, in its sole discretion, either pay the Tax claimed and sue for
a refund where Applicable Law permits such refund suits or contest the Tax Claim
in any permissible manner; provided, however, that Tax Indemnitor shall not
settle or compromise a Tax Claim without giving thirty (30) days notice to Tax
Indemnitee and without Tax Indemnitee's consent, which shall not be unreasonably
withheld, if such settlement or compromise would result in a material Tax
Liability of Tax Indemnitee or members of its affiliated group for any Taxable
period. If Tax Indemnitee reasonably withholds its consent, the indemnification
obligation of Tax Indemnitor to Tax Indemnitee under this Article XI shall be
limited to the amount of such settlement or compromise, and Tax Indemnitee shall
have the right to take over the control of any proceedings with respect to such
Tax Claim at its own expense.
(c) Buyer and Seller shall cooperate with each other in contesting any
Tax Claim, which cooperation shall include, without limitation, granting powers
of attorney to the party who is entitled to control the proceedings, retaining
and providing records and information that are reasonably relevant to such Tax
Claim, and making employees available on a mutually convenient basis to provide
additional information or explanation of any material provided hereunder or to
testify at proceedings relating to such Tax Claim.
(d) Any payment under this Article XI shall be treated for tax
purposes as an adjustment of the Purchase Price to the extent such
characterization is proper and permissible under relevant Tax authorities,
including court decisions, statutes, regulations and administrative
promulgations.
(e) The indemnification obligations of the parties set forth in this
Article XI shall survive until the expiration of the applicable statute of
limitations relating to the Taxes that are the subject of the indemnification
obligation.
ARTICLE XII
MISCELLANEOUS
12.01. Notices. All notices, requests, demands, claims and other
-------
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other
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communication hereunder shall be deemed duly given (i) if personally delivered,
when so delivered, (ii) if mailed, two (2) Business Days after having been sent
by registered or certified mail, return receipt requested, postage prepaid and
addressed to the intended recipient as set forth below, (iii) if given by telex
or telecopier, once such notice or other communication is transmitted to the
telex or telecopier number specified below and the appropriate answer back or
telephonic confirmation is received, provided that such notice or other
communication is promptly thereafter mailed in accordance with the provisions of
clause (ii) above or (iv) if sent through an overnight delivery service in
circumstances to which such service guarantees next day delivery, the day
following being so sent:
If to Seller or any Entertainment Company:
Metromedia International Group, Inc.
c/o Metromedia Company
215 East 67th Street
New York, New York 10021
Attention: President
Facsimile: 212-535-3541
with copies to:
Metromedia International Group, Inc.
One Metromedia Plaza
East Rutherford, New Jersey 07073
Attention: General Counsel
Facsimile: 201-531-2803
and
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: James M. Dubin, Esq.
Facsimile: 212-757-3990
If to Buyer:
P&F Acquisition Corp.
2500 Broadway Street
Fifth Floor
Santa Monica, California 90404
Attention: General Counsel
Facsimile: 310-449-3011
with a copy to:
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Gibson, Dunn & Crutcher LLP
333 S. Grand Avenue
Los Angeles, California 90071
Attention: Bruce D. Meyer, Esq.
Facsimile: 213-229-7520
Any party may give any notice, request, demand, claim or other
communication hereunder using any other means (including ordinary mail or
electronic mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any party may
change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other parties notice
in the manner herein set forth.
12.02. Amendments; No Waivers.
----------------------
(a) Any provision of this Agreement may be amended or waived
if, and only if, such amendment or waiver is in writing and signed, in the case
of an amendment, by all parties hereto, or in the case of a waiver, by the party
against whom the waiver is to be effective.
(b) No waiver by a party of any default, misrepresentation or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation or breach
of warranty or covenant hereunder or affect in any way any rights arising by
virtue of any prior or subsequent occurrence. No failure or delay by a party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
12.03. Construction.
------------
(a) The language used in this Agreement will be deemed to be
the language chosen by the parties hereto to express their mutual intent, and no
rule of strict construction shall be applied against either party. Any reference
to any Applicable Law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. Whenever required
by the context, any gender shall include any other gender, the singular shall
include the plural and the plural shall include the singular. The words
"herein," "hereof," "hereunder," and words of similar import refer to the
Agreement as a whole and not to a particular section. Whenever the word
"including" is used in this Agreement, it shall be deemed to mean "including,
without limitation," "including, but not limited to" or other words of similar
import such that the items following the word "including" shall be deemed to be
a list by way of illustration only and shall not be deemed to be an exhaustive
list of applicable items in the context thereof.
(b) The parties hereto intend that each representation,
warranty, and covenant contained herein shall have independent significance. If
any party has breached any
63
<PAGE>
representation, warranty or covenant contained herein in any respect, the fact
that there exists another representation, warranty or covenant relating to the
same subject matter (regardless of the relative levels of specificity) that the
party has not breached shall not detract from or mitigate the fact that the
party is in breach of the first representation, warranty or covenant.
12.04. Expenses. Except as otherwise provided herein, all costs and expenses
--------
incurred in connection with this Agreement shall be paid by the party incurring
such cost or expense.
12.05. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. No party hereto may assign either this Agreement or any of
its rights, interests or obligations hereunder without the prior written
approval of each other party, which approval shall not be unreasonably withheld.
12.06. Governing Law. This Agreement shall be construed in accordance with
-------------
and governed by the internal laws (without reference to choice or conflict of
laws) of the State of New York.
12.07. Counterparts; Effectiveness. This Agreement may be signed in any
---------------------------
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have received a
counterpart hereof signed by the other parties hereto.
12.08. Entire Agreement. This Agreement (including the Schedules and
----------------
Exhibits referred to herein which are hereby incorporated by reference)
constitutes the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to the
subject matter of this Agreement. Neither this Agreement nor any provision
hereof is intended to confer upon any Person other than the parties hereto any
rights or remedies hereunder.
12.09. Captions. The captions herein are included for convenience of
--------
reference only and shall be ignored in the construction or interpretation
hereof. All references to an Article or Section include all subparts thereof.
12.10. Severability. If any provision of this Agreement, or the application
------------
thereof to any Person, place or circumstance, shall be held by a court of
competent jurisdiction to be invalid, unenforceable or void, the remainder of
this Agreement and such provisions as applied to other Persons, places and
circumstances shall remain in full force and effect only if, after excluding the
portion deemed to be unenforceable, the remaining terms shall provide for the
consummation of the transactions contemplated hereby in substantially the same
manner as originally set forth at the later of the date this Agreement was
executed or last amended.
64
<PAGE>
12.11. Forum; Attorneys' Fees. Any action or proceeding commenced under this
----------------------
Agreement shall be brought solely in the federal or state courts located in the
States of New York or California. In any action commenced hereunder, the
prevailing party shall be entitled to recover its attorneys' fees and costs from
the non-prevailing party in such action or proceeding. The parties agree that in
any action or claim for Damages brought by Buyer against Seller for a breach of
any representation or warranty by Seller or Orion in Article III (other than
those representations and warranties set forth in Sections 3.01, 3.02, 3.03,
3.04, 3.17, 3.23, 3.24 and 3.26), Seller shall not be obligated to make any
payments to Buyer until the aggregate amount of Damages so incurred exceeds
Fifteen Million Dollars ($15,000,000), whereupon Seller shall be liable for all
such Damages in excess of Fifteen Million Dollars ($15,000,000) up to a maximum
amount equal to the Purchase Price.
12.12. Cumulative Remedies. The rights, remedies, powers and privileges
-------------------
herein provided are cumulative and not exclusive of any rights, remedies, powers
and privileges provided by law.
12.13. Third Party Beneficiaries. No provision of this Agreement shall
-------------------------
create any third party beneficiary rights in any Person, including any employee
of Buyer or employee or former employee of any Seller or any Affiliate thereof
(including any beneficiary or dependent thereof).
12.14. Knowledge. Whenever "knowledge," "to the knowledge of," "has received
---------
no notice" or "is not aware" (and all variants and derivatives thereof) is used
with respect to any Person, it means the actual knowledge of such Person, after
reasonable inquiry. Notwithstanding the foregoing, the foregoing terms, when
applied to Seller or the Entertainment Companies, shall mean the actual
knowledge, after reasonable inquiry, of any and all officers, shareholders or
directors of Seller or any Entertainment Company.
65
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
METROMEDIA INTERNATIONAL
GROUP, INC.
By: /s/ STUART SUBOTNICK
--------------------------------------------
Name: Stuart Subotnick
--------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
ORION PICTURES CORPORATION
By: /s/ SILVIA KESSEL
-----------------------------------------
Name: Silvia Kessel
-----------------------------------
Title: Senior Executive Vice President
----------------------------------
P&F ACQUISITION CORP.
By: /s/ FRANK G. MANCUSO
-----------------------------------------
Name: Frank G. Mancuso
-----------------------------------
Title: Chairman & Chief Executive Officer
----------------------------------
<PAGE>
EXHIBIT 2.3
====================================================================
AGREEMENT AND PLAN OF MERGER
by and among
METROMEDIA INTERNATIONAL GROUP, INC.,
SGC MERGER CORP.,
and
THE SAMUEL GOLDWYN COMPANY
Dated as of January 31, 1996
====================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE 1 THE MERGER........................................................ 1
Section 1.1 The Merger............................................... 1
Section 1.2 Closing.................................................. 1
Section 1.3 Effective Time........................................... 2
Section 1.4 Certificate of Incorporation and By-laws................. 2
Section 1.5 Officers and Directors................................... 2
ARTICLE 2 EFFECT OF THE MERGER ON THE CAPITAL STOCK AND OPTIONS;
EXCHANGE OF CERTIFICATE........................................... 3
Section 2.1 Effect on Capital Stock of the Company and Options....... 3
(a) Conversion of Shares of Company Common Stock........ 3
(b) Effect on Company Options........................... 4
(c) Treasury Shares..................................... 4
(d) Mergerco Common Stock............................... 4
Section 2.2 Exchange of Certificates................................. 4
(a) Exchange Agent...................................... 4
(b) Exchange Procedures................................. 5
(c) Distributions with Respect to Unexchanged Shares.... 6
(d) Further Ownership Rights............................ 6
(e) No Fractional Shares................................ 7
(f) Termination of Exchange Fund........................ 8
(g) Withholding Rights.................................. 8
(h) No Liability........................................ 8
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................... 8
Section 3.1 Representations and Warranties of the Company............ 8
(a) Organization, Standing and Corporate Power;
Subsidiaries........................................ 8
(b) Certificate of Incorporation and By-laws............ 9
(c) Capitalization...................................... 10
(d) SEC Documents; Financial Statements................. 11
(e) Authority........................................... 11
(f) Compliance with Applicable Laws..................... 12
(g) Government Approvals; Required Consents............. 12
</TABLE>
i
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<TABLE>
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<S> <C>
(h) Non-Contravention................................... 13
(i) Litigation.......................................... 14
(j) Taxes and Related Tax Matters....................... 14
(k) Certain Agreements.................................. 15
(l) Employee Benefits................................... 16
(m) Contracts........................................... 17
(n) Environmental Matters............................... 18
(o) Absence of Certain Changes or Events................ 18
(p) Information Supplied................................ 19
(q) Real Estate......................................... 19
(r) Intellectual Property............................... 21
(s) Investment Company Act.............................. 22
(t) Brokers or Finders.................................. 22
(u) Vote Required....................................... 22
Section 3.2 Representations and Warranties
of Metromedia........................................... 22
(a) Organization, Standing and Corporate
Power; Subsidiaries................................. 23
(b) Certificate of Incorporation and
By-laws............................................. 23
(c) Capitilization...................................... 24
(d) SEC Documents; Financial Statements................. 25
(e) Authority........................................... 25
(f) Compliance with Applicable Laws..................... 26
(g) Government Approvals; Required
Consents............................................ 26
(h) Non-Contravention................................... 27
(i) Litigation.......................................... 28
(j) Taxes and Related Tax Matters....................... 28
(k) Certain Agreements.................................. 29
(l) Employee Benefits................................... 30
(m) Contracts........................................... 31
(n) Environmental Matters............................... 31
(o) Absence of Certain Changes or Events................ 32
(p) Information Supplied................................ 33
(q) Real Estate......................................... 33
(r) Intellectual Property............................... 34
(s) Investment Company Act.............................. 35
(t) Brokers or Finders.................................. 35
ARTICLE 4 COVENANTS...................................................... 35
Section 4.1 Mutual Covenants of Metromedia and the Company.......... 35
(a) Confidentiality..................................... 35
(b) Publicity........................................... 36
(c) Preparation of the Proxy Statement and
the Registration Statement.......................... 36
(d) Satisfaction of Conditions.......................... 37
</TABLE>
ii
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<S> <C>
(e) Other Actions................................... 37
(f) Advice of Changes; SEC Documents................ 37
(g) Compliance with Laws............................ 38
Section 4.2 Covenants of the Company.............................. 39
(a) Access to Information........................... 39
(b) Ordinary Course................................. 39
(c) Meetings; Fiduciary Duties...................... 41
(d) No Solicitation................................. 42
(e) Affiliates...................................... 43
(f) Tax Returns..................................... 43
Section 4.3 Covenants to Metromedia............................... 43
(a) Access to Information........................... 44
(b) Listing......................................... 44
(c) Meeting......................................... 44
(d) S-3; S-8........................................ 44
(e) Directors' & Officers' Indemnification and
Insurance....................................... 44
(f) Tax Returns..................................... 46
(g) Interim Financing............................... 46
(h) Production and Development...................... 46
ARTICLE 5 CONDITIONS PRECEDENT.......................................... 47
Section 5.1 Conditions to the Obligations of Metromedia and the
Company to Effect the Merger.......................... 47
(a) Stockholder Approval............................ 47
(b) Registration Statement.......................... 47
(c) Blue Sky Laws................................... 47
(d) Listing......................................... 47
(e) No Injunctions or Restraints.................... 47
(f) HSR Act......................................... 48
(g) Governmental and Regulatory Consents............ 48
(h) The Company Required Consents................... 48
(i) Metromedia Required Consents.................... 48
(j) Employment Agreement............................ 48
(k) Credit Agreement................................ 48
(l) Interim Financing............................... 49
Section 5.2 Conditions to the Obligations of Metromedia........... 49
(a) Accuracy of Representations and Warranties...... 49
(b) Performance of Agreements....................... 49
(c) No Material Adverse Change...................... 49
(d) Opinions of Counsel............................. 49
</TABLE>
iii
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<S> <C>
(e) Fairness Opinions............................... 49
(f) Affiliate Letters............................... 50
(g) Distribution Agreement.......................... 50
(h) Trademark License............................... 50
(i) Option Agreement................................ 50
(j) Certain Agreement............................... 50
(k) Certain Assets.................................. 50
Section 5.3 Conditions to the Obligations of the Company......... 50
(a) Accuracy of Representations and Warranties...... 51
(b) Performance of Agreements....................... 51
(c) Fairness Opinion................................ 51
(d) No Material Adverse Change...................... 51
(e) Legal Opinions.................................. 51
(f) Forms S-3 and S-8............................... 52
ARTICLE 6 TERMINATION AND AMENDMENT.................................... 52
Section 6.1 Termination.......................................... 52
Section 6.2 Effect of Termination................................ 53
ARTICLE 7 GENERAL PROVISIONS........................................... 53
Section 7.1 Certain Definitions.................................. 53
Section 7.2 Notices.............................................. 55
Section 7.3 Interpretation....................................... 56
Section 7.4 Waivers and Amendments............................... 56
Section 7.5 Expenses and Other Payments.......................... 56
Section 7.6 Assignment........................................... 58
Section 7.7 Entire Agreement; No Third Party Beneficiaries....... 58
Section 7.8 Representations and Warranties....................... 58
Section 7.9 Governing Law........................................ 58
Section 7.10 Counterparts......................................... 58
</TABLE>
EXHIBITS
- --------
Exhibit A -- Voting Agreement
Exhibit B -- [Intentionally Omitted]
Exhibit C -- [Intentionally Omitted]
Exhibit D -- Form of Opinion of Rosenfeld, Meyer & Susman, L.L.P.
Exhibit E -- Distribution Agreement
iv
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Page
----
Exhibit F -- Trademark License Agreement
Exhibit G -- Option Agreement
Exhibit H -- Form of Opinion of Paul, Weiss, Rifkind,
Wharton & Garrison
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER, dated as of January 31, 1996, between
METROMEDIA INTERNATIONAL GROUP, INC., a Delaware corporation ("Metromedia"), SGC
MERGER CORP., a Delaware corporation and a wholly-owned subsidiary of Metromedia
("SGC Mergerco"), and THE SAMUEL GOLDWYN COMPANY, a Delaware corporation ("the
Company").
WHEREAS, upon the terms and subject to the conditions of this Agreement,
the Company has agreed that at the Effective Time (as hereinafter defined) SGC
Mergerco will merge with and into the Company ("the Merger") and the
stockholders of the Company will receive shares of Metromedia in the manner
provided in Section 2; and
WHEREAS, Metromedia and the Company wish to make certain representations,
warranties and agreements in connection with the Merger and also prescribe
various conditions to the Merger.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions set
----------
forth in this Agreement, and in accordance with the Delaware General Corporation
Law (the "DGCL"), SGC Mergerco shall be merged with and into the Company at the
Effective Time. Upon and after the Effective Time, the separate corporate
existence of SGC Mergerco shall cease and the Company shall be the surviving
corporation in the Merger (the "Surviving Corporation"). In accordance with the
DGCL, all of the rights, privileges, powers, immunities, purposes and franchises
of SGC Mergerco and the Company shall vest in the Surviving Corporation and all
of the debts, liabilities, obligations and duties of SGC Mergerco and the
Company shall become the debts, liabilities, obligations and duties of the
Surviving Corporation.
Section 1.2 Closing. The closing of the Merger (the "Closing") will take
-------
place at the offices of Paul, Weiss, Rifkind, Wharton & Garrison at 10:00 a.m.
on a Business Day (as hereinafter defined) mutually agreed to by
<PAGE>
2
Metromedia and the Company prior to the Termination Date (as hereinafter
defined) following the satisfaction or waiver by the party entitled to the
benefit of such condition of each of the conditions set forth in Article 5 or at
such other place, time and date as Metromedia and the Company may agree. The
time and date upon which the Closing occurs is referred to herein as the
"Closing Date."
Section 1.3 Effective Time. On the Closing Date (or on such other date
--------------
as Metromedia and the Company may agree), SGC Mergerco and the Company shall
cause a Certificate of Merger (the "Certificate of Merger") to be executed and
filed with the Secretary of State of the State of Delaware in accordance with
the relevant provisions of the DGCL and shall make all other filings or
recordings required under the DGCL. The Merger shall become effective at such
time as the Certificate of Merger is duly filed with the Secretary of State of
the State of Delaware, or at such later time as is specified in the Certificate
of Merger (the "Effective Time").
Section 1.4 Certificate of Incorporation and By-laws. The Certificate of
-----------------------------------------
Incorporation of SGC Mergerco shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law except that Section 1 of the Certificate of Incorporation of
SGC Mergerco shall be amended and restated in its entirely as follows: "1. The
name of the Corporation is "GOLDWYN ENTERTAINMENT COMPANY (the "Corporation")"
or such section shall be amended to reflect the change to such other name
as the parties may agree. The By-laws of SGC Mergerco shall be the By-laws of
the Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law.
Section 1.5 Officers and Directors.
----------------------
(a) The directors of SGC Mergerco at the Effective Time shall be the
directors of the Surviving Corporation and shall hold office until their
respective successors are duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation.
(b) The officers of the Surviving Corporation at the Effective Time
shall consist of the individuals designated at the Effective Time by Metromedia
and the Company and they shall hold office until their respective successors are
duly elected or appointed and qualified or until the their earlier death,
resignation or
<PAGE>
3
removal in accordance with the Certificate of Incorporation and By-laws of the
Surviving Corporation.
ARTICLE 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK
AND OPTIONS; EXCHANGE OF CERTIFICATE
Section 2.1 Effect on Capital Stock of the Company and Options. At the
--------------------------------------------------
Effective Time, by virtue of the Merger and without any action on the part of
the holder thereof:
(a) Conversion of Shares of Company Common Stock. Each issued and
--------------------------------------------
outstanding share of Common Stock, par value $.20 per share, of the Company (the
"Company Common Stock") shall be converted into the right to receive the Merger
Consideration (as defined herein). At the Effective Time, all such shares of
Company Common Stock shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Company Common Stock shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration to be issued in consideration therefor upon surrender of such
certificate in accordance with Section 2.2, without interest. The term "Merger
Consideration" shall mean, for each share of Company Common Stock, a number of
fully paid and nonassessable shares of Common Stock, par value $1.00 per share,
of Metromedia (the "Metromedia Common Stock") equal to a fraction (rounded to
the fourth decimal point) (the "Exchange Ratio"), the numerator of which is 5
and the denominator of which is the average of the last sale prices for the
Metromedia Common Stock as reported on the American Stock Exchange ("AMEX") for
the last 20 consecutive trading days ending on the date (the "Determination
Date") which is five business days prior to the Metromedia Stockholders' Meeting
(as defined in Section 4.3(c) hereof) including both the day of the Metromedia
Stockholders' Meeting and the day of the Determination Date in such
determination (the "Average Closing Price"); provided, that, if the Average
-------- ----
Closing Price is below $12.50 it shall be deemed to be $12.50 and if the Average
Closing Price is greater than $16.50, it shall be deemed to be $16.50.
Notwithstanding the foregoing, if between the date of this Agreement and the
Effective Time the outstanding shares of Metromedia Common Stock or Company
Common Stock shall have been changed into a different number of shares or a
different class, by reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares, the Exchange Ratio
shall be correspondingly adjusted to reflect such stock
<PAGE>
4
dividend, subdivision, reclassification, recapitalization, split, combination or
exchange of shares.
(b) Effect on Company Options. At the Effective Time, each
-------------------------
holder of an issued and outstanding option exercisable for shares of Company
Common Stock ("Company Options") will receive, by virtue of the Merger and
without any action on the part of the holder thereof, options exercisable for
shares of Metromedia Common Stock with the same terms and conditions as Company
Options immediately prior to the Effective Time except that (i) the exercise
price and the number of shares issuable upon exercise shall be divided and
multiplied, respectively, by the Exchange Ratio and (ii) all Company Options
will become immediately exercisable in accordance with their terms.
(c) Treasury Shares. Each share of Company Common Stock held
---------------
in treasury by the Company immediately prior to the Effective Time shall, by
virtue of the Merger, be canceled and retired and cease to exist, without any
conversation thereof.
(d) Mergerco Common Stock. Each then issued outstanding share of
---------------------
Common Stock, par value $.01 per share ("Mergerco Common Stock"), of SGC
Mergerco shall be converted into one fully paid and non-assessable share of
Common Stock, par value $.20 per share of the Surviving Corporation.
Section 2.2 Exchange of Certificates.
------------------------
(a) Exchange Agent. Prior to the Effective Time, Metromedia
--------------
shall appoint Chemical/Mellon Shareholder Services to act as exchange agent in
the Merger (the "Exchange Agent") for purposes of effecting the exchange for the
Merger Consideration. At the Effective Time, Metromedia shall deposit with the
Exchange Agent, for the benefit of the holders of shares of Company Common
Stock, for exchange in accordance with this Article 2, through the Exchange
Agent, certificates representing a number of shares of Metromedia Common Stock
equal to the product (rounded down to the nearest whole number) of the Exchange
Ratio multiplied by the number of shares of Company Common Stock outstanding
immediately prior to the Effective Time. For purposes of this Agreement, shares
of Metromedia Common Stock, together with any dividends or distributions with
respect thereto, are hereinafter referred to as the "Exchange Fund" and such
shares of Metromedia Common Stock, are hereinafter collectively referred to as
the "Merger Securities." The Exchange Agent shall deliver the Merger Securities
out of the Exchange Fund as directed by Metromedia.
<PAGE>
5
(b) Exchange Procedures. As soon as reasonably practicable
-------------------
after the Effective Time, Metromedia shall instruct the Exchange Agent to mail
to each holder of record of a certificate or certificates which immediately
prior to the Effective Time represented outstanding shares of the Company Common
Stock (collectively, the "Certificates") whose shares were converted into the
right to receive the Merger Consideration pursuant to Section 2.1(a), (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Metromedia may reasonably specify) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for certificates
representing the Merger Securities comprising the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Exchange Agent, together with
such letter of transmittal, duly executed, and such other documents as
reasonably may be required by the Exchange Agent, and acceptance thereof by the
Exchange Agent, each holder of a Certificate shall be entitled to receive in
exchange therefor certificates representing the Merger Securities comprising the
Merger Consideration that such holder has the right to receive pursuant to the
provisions of this Article 2, and the Certificate so surrendered shall forth-
with be canceled. The Exchange Agent shall accept such Certificates upon
compliance with such reasonable terms and conditions as the Exchange Agent may
impose to effect an orderly exchange thereof in accordance with normal exchange
practices. After the Effective Time, there shall be no further transfer on the
books and records of the Company or its transfer agent of Certificates and if
such Certificates are presented to the Company for transfer, they shall be
canceled against delivery of certificates representing the Merger Securities
comprising the Merger Consideration as herein provided. If any certificates for
Merger Securities are to be issued in a name other than that in which the
Certificate surrendered for exchange is registered, it shall be a condition of
such exchange that the Certificate so surrendered shall be properly endorsed,
with the signature guaranteed, or otherwise in proper form for transfer and that
the Person requesting such exchange shall pay to the Company or its transfer
agent any transfer or other taxes required by reason of the issuance of
certificates representing such Merger Securities in the name other than that of
the registered holder of the Certificate surrendered, or establish to the
satisfaction of the Company or its transfer agent that such tax has been paid or
is not applicable. Until surrendered as contemplated by this Section 2.2, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to
<PAGE>
6
receive upon such surrender certificates representing the Merger Securities to
which such holder is entitled and cash and other dividends, distributions or
payments as contemplated by this Section 2.2. Subject to applicable law,
following surrender of any such Certificate, there shall be paid to the record
holder thereof, the certificates representing the shares of Metromedia Common
Stock issued in exchange therefor, as well as, (x) at the time of such surrender
(or as soon thereafter as the cash from the sale of Company Excess Shares (as
hereinafter defined) is obtained by the Exchange Agent), the amount of any cash
payable in lieu of a fractional share of Metromedia Common Stock to which such
holder is entitled pursuant to Section 2.2(e), (y) at the time of such
surrender, the amount of dividends or other distributions or payments with a
record date after the Effective Time theretofore paid with respect to such
shares of Metromedia Common Stock, and (z) at the appropriate payment date, the
amount of dividends or other distributions or payments with a record date after
the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares of Metromedia Common Stock.
In no event shall Persons entitled to receive such dividends, distributions or
payments be entitled to receive any interest thereon.
(c) Distributions with Respect to Unexchanged Shares. No
------------------------------------------------
dividends or other distributions or payments declared or made after the
Effective Time with respect to Metromedia Common Stock with a record date after
the Effective Time shall be paid to the holder of any unsurrendered Certificate,
with respect to the shares of Metromedia Common Stock represented thereby and no
cash payment in lieu of fractional shares shall be paid to any such holder
pursuant to Section 2.2(e) until the holder of record of such Certificate shall
surrender such Certificate.
(d) Further Ownership Rights. The Merger Securities comprising
------------------------
the Merger Consideration issued upon the surrender for exchange of Certificates
in accordance with the terms of this Article 2, together with any dividends,
distributions or payments contemplated by Section 2.2(b) and any cash in lieu
of fractional shares as contemplated by Section 2.2(e), shall be deemed to have
been issued (and paid) in full satisfaction of all rights pertaining to the
shares of Company Common Stock theretofore represented by such Certificates. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation or the Exchange Agent for any reason, they shall be canceled and
exchanged as provided in this Article 2.
<PAGE>
7
(e) No Fractional Shares.
--------------------
(i) No certificates or scrip evidencing fractional shares
of Metromedia Common Stock shall be issued upon the surrender for exchange of
the Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of the Surviving Corporation.
(ii) As promptly as practicable following the Effective
Time, the Exchange Agent shall determine the excess of (x) the number of full
shares of Metromedia Common Stock in the Exchange Fund over (y) the aggregate
number of full shares of Metromedia Common Stock to be distributed to holders of
the Company Common Stock pursuant to Section 2.2(a)(such excess being herein
called the "Company Excess Securities"). As soon after the Effective Time as
practicable, the Exchange Agent, as agent for the holders of Metromedia Common
Stock, shall sell the Company Excess Shares at then prevailing prices in the
manner provided in paragraph (iii) of this Section.
(iii) The sale of the Company Excess Securities by the
Exchange Agent shall be executed on the principal national securities exchange
on which the shares of Metromedia Common Stock are listed or, if such securities
are not listed, on the National Association of Securities Dealers, Inc.
Automated Quotation Systems ("NASDAQ") and shall be executed in round lots to
the extent practicable. Until the net proceeds of such sale or sales have been
distributed to the former stockholders of the Company, the Exchange Agent will
hold such proceeds in trust for the former stockholders of the Company (the
"Company Securities Trust"). Metromedia shall pay all commissions, transfer
taxes and other out-of-pocket transaction costs, including the expenses and
compensation, of the Exchange Agent incurred in connection with such sale of
Company Excess Securities out of the Company Securities Trust. The Exchange
Agent shall determine the portion of the Company Securities Trust to which each
former stockholder of the Company shall be entitled, if any, by multiplying the
amount of the aggregate net proceeds comprising the Company Securities Trust by
a fraction, the numerator of which is the amount of the fractional share
interest to which such former stockholder of the Company is entitled and the
denominator of which is the aggregate amount of fractional share interests to
which all are entitled.
(iv) As soon as practicable after the determination of the
amount of cash, if any, to be paid to former stockholders of the Company in lieu
of any fractional
<PAGE>
8
interests, the Exchange Agent shall make available such amounts to such former
stockholders of the Company.
(f) Termination of Exchange Fund. Any portion of the Exchange
----------------------------
Fund and the Company Securities Trust, which remains undistributed to the former
stockholders of the Company for six months after the Effective Time shall be
delivered to Metromedia, upon demand, and any former stockholders of the Company
who have not theretofore complied with this Article 2 shall thereafter look only
to Metromedia for payment of their claim for any Merger Consideration and any
dividends or distributions or other payments with respect to Company Common
Stock.
(g) Withholding Rights. Metromedia or the Exchange Agent shall
------------------
be entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of Company Common Stock such
amounts as Metromedia or the Exchange Agent is required to deduct and withhold
with respect to the making of such payment under the Internal Revenue Code of
1986, as amended (the "Code"), or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by Metromedia or the Exchange
Agent, such withheld amounts shall be treated for all purposes of this Agreement
as having been paid to the holder of the shares of Company Common Stock in
respect of which such deduction and withholding was made by the Surviving
Corporation or the Exchange Agent.
(h) No Liability. None of Metromedia, the Company, SGC Mergerco
------------
or the Exchange Agent shall be liable to any Person in respect of any Merger
Securities comprising the Merger Consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to Metromedia as follows:
(a) Organization, Standing and Corporate Power; Subsidiaries.
--------------------------------------------------------
Each of the Company and its Subsidiaries (as hereinafter defined) is a
corporation or partnership duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation
<PAGE>
9
or organization, has all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being conducted, and is duly
qualified and in good standing to do business in each jurisdiction in which the
nature of its business or the ownership or leasing of its properties makes such
qualification necessary, other than in such jurisdictions where the failure so
to qualify would not have a Material Adverse Effect (as hereinafter defined)
with respect to the Company. Except as set forth in Section 3.1(a) of the
disclosure schedule delivered to Metromedia by the Company on or prior to the
date hereof (the "Company Disclosure Schedule"), the Company SEC Documents (as
hereinafter defined) set forth a true and complete list of all of Company's
Significant Subsidiaries (as hereinafter defined), including (x) the
jurisdiction of incorporation or organization of each such Subsidiary and (y)
the percentage of each such Subsidiary's outstanding capital stock or other
ownership interest owned by the Company and/or another Subsidiary of the
Company, as the case may be, if less than 100%. All of the outstanding shares of
capital stock or other ownership interests in each of the Significant
Subsidiaries of the Company are duly authorized, validly issued, fully paid and
nonassessable and, except as set forth in Section 3.1(a) of the Company
Disclosure Schedule, are owned (of record and beneficially by the Company and/or
by another Subsidiary of the Company), as the case may be, free and clear of all
pledges, claims, options, rights of first refusal, liens, charges, encumbrances
and security interests of any kind or nature whatsoever (collectively, "Liens"),
and not subject to preemptive rights created by statute, such Subsidiary's
respective Certificate of Incorporation or By-laws or equivalent organizational
documents or any agreement to which such Subsidiary is a party or by which such
Subsidiary is bound. Other than as set forth in Section 3.1(a) of the Company
Disclosure Schedule, the Company does not directly or indirectly own any
material equity interest in any Person.
(b) Certificate of Incorporation and By-laws. Complete and correct
----------------------------------------
copies of the Certificate of Incorporation and By-laws or equivalent
organizational documents, each as amended to date, of the Company and each of
its Significant Subsidiaries shall have been delivered to Metromedia on or
prior to the date hereof. The Certificates of Incorporation, By-laws and
equivalent organizational documents of the Company and each of its Significant
Subsidiaries are in full force and effect. Neither the Company nor any of its
Significant Subsidiaries is in violation of any material provision of its
Certificate of Incorporation, By-laws or equivalent organizational documents.
<PAGE>
10
(c) Capitalization. As of January 15, 1996, the authorized
--------------
capital stock of the Company consists of: (i) 15,000,000 shares of Company
Common Stock of which, (A) 8,489,226 shares are issued and outstanding, all of
which are duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights, (B) 43,448 shares are held in the treasury of the
Company, (C) 1,590,667 shares are reserved for future issuance for the exercise
of stock options with a term, exercise price, vesting schedule and other
material terms set forth separately for each of the Company's stock option plans
in Section 3.1(c) of the Company Disclosure Schedule and (ii) 3,000,000 shares
of Preferred Stock, par value $.20 per share (the "Company Preferred Stock"),
none of which are issued and outstanding. Except as described in this Section
3.1(c) or in Section 3.1(c) of the Company Disclosure Schedule, no shares of the
capital stock or other equity securities of the Company are authorized, issued
or outstanding, or reserved for any other purpose, and there are no options,
warrants or other rights (including registration rights), agreements,
arrangements or commitments of any character (including, without limitation,
obligations to issue shares as the deferred purchase price for acquisitions of
stock or assets of third parties) to which the Company or any of its
Subsidiaries is a party relating to the issued or unissued capital stock or
other equity securities or ownership interests of the Company or any of its
Subsidiaries or obligating the Company or any of its Subsidiaries to grant,
issue or sell any shares of capital stock or other equity securities or
ownership interests of the Company or any of its Subsidiaries, by sale, lease,
license or otherwise. The Company has no outstanding bonds, debentures, notes or
other obligations the holders of which have the right to vote or which are
convertible into or exercisable for securities having the right to vote with the
stockholders of the Company on any matter. Other than as contemplated by this
Agreement or as set forth in Section 3.1(c) of the Company Disclosure Schedule,
there are no outstanding contractual obligations, commitments, understandings or
arrangements of the Company or any of its Subsidiaries to repurchase, redeem or
otherwise acquire or make any payment in respect of any shares of capital stock
or other equity securities or ownership interests of the Company or any of its
Subsidiaries. Since January 15, 1996, the Company has not (i) issued any shares
of its capital stock (except pursuant to the exercise of then outstanding
options in accordance with their terms) or options, warrants or other securities
convertible into shares of its capital stock, or (ii) repurchased any shares of
its capital stock.
<PAGE>
11
(d) SEC Documents; Financial Statements. The Company has made
-----------------------------------
available to Metromedia a true and complete copy of each form, report, schedule,
registration statement and definitive proxy statement filed by the Company with
the SEC since September 30, 1993 (as such documents have since the time of their
filing been amended or supplemented, the "Company SEC Documents"), which are all
the documents (other than preliminary material) that the Company was required to
file with the SEC since such date. As of their respective dates, the Company SEC
Documents (other than preliminary material) complied in all material respects
with the requirements of the Securities Act of 1933, as amended (the "Securities
Act"), or the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
as applicable, and the rules and regulations of the SEC thereunder applicable to
such Company SEC Documents, and none of the Company SEC Documents, as such
documents have been amended to date (including all financial statements included
therein and exhibits and schedules thereto and documents incorporated by
reference therein), contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the Company
SEC Documents (as such documents may have been amended to date) comply as to
form in all material respects with applicable accounting requirements and with
the rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of the unaudited financial statements, as
permitted by Exchange Act Form 10-Q) and fairly present (subject, in the case of
the unaudited financial statements, to normal, recurring audit adjustments that,
individually and in the aggregate, were not material) the consolidated financial
position of the Company and its consolidated Subsidiaries as at the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended. Section 3.1(d) of the Company Disclosure Schedule contains a
description (specifying obligation, obligee and amount) of all Debt (as defined
in Section 7.1) of the Company and its Subsidiaries as of the date hereof.
(e) Authority. The Company has all requisite corporate power and
---------
authority to enter into this Agreement and to perform its obligations hereunder
and to consummate the transactions contemplated hereby, subject, in the case of
the Merger, to the approval of this Agreement by the stockholders of the
Company. The execution and delivery of this Agreement and the consummation of
the transactions
<PAGE>
12
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of the Company and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby, subject, in the case of the
Merger, to the approval of this Agreement by the stockholders of the Company.
This Agreement has been duly and validly executed and delivered by the Company
and constitutes a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, subject, in the case of the
Merger, to the approval of this Agreement by the stockholders of the Company.
(f) Compliance with Applicable Laws. The Company and its
-------------------------------
Subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities (as hereinafter defined) that are
necessary to the operation of the businesses of the Company and its Subsidiaries
taken as a whole (the "Company Permits") except as would not have a Material
Adverse Effect with respect to the Company. The Company and its Subsidiaries are
in compliance with the terms of the Company Permits, except where any such
failure so to comply would not have a Material Adverse Effect with respect to
the Company. Except as would not have a Material Adverse Effect with respect to
the Company, the businesses of the Company and its Subsidiaries are not being
conducted in violation of any law, ordinance or regulation of any Governmental
Entity. No investigation or review by any Governmental Entity with respect to
the Company or any of its Subsidiaries is pending or, to the knowledge of the
Company, threatened, nor, to the knowledge of the Company, has any Governmental
Entity indicated an intention to conduct the same that would, in any such case,
have a Material Adverse Effect with respect to the Company.
(g) Government Approvals; Required Consents.
---------------------------------------
(i) No consent, approval or authorization of, or declaration
or filing with, or notice to, any Governmental Entity on the part of the Company
is required in connection with the execution or delivery by the Company of this
Agreement, the consummation by the Company of the transactions contemplated
hereby or compliance by the Company with the provisions hereof, other than (A)
the filing of the Certificate of Merger with the Secretary of State of the State
of Delaware in accordance with the DGCL, (B) filings with the SEC and any
applicable national securities exchange, (C) filings under state securities or
"Blue Sky" laws, (D) filings under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations promulgated thereunder
(the "HSR Act")
<PAGE>
13
and (E) as otherwise set forth in Section 3.1(g)(i) of the Company Disclosure
Schedule or as would not cause a Material Adverse Effect with respect to the
Company (any such consents, approvals, authorizations, declarations, filings or
notices specified in clauses (A) through (E) being referred to as "Company
Governmental Approvals").
(ii) No consent, approval or action of, or filing with, or
notice to, any Person (other than a Governmental Entity) shall be required in
connection with the execution or delivery by the Company of this Agreement,
consummation by the Company of the transactions contemplated hereby or
compliance by the Company with the provisions hereof, other than as set forth
in Section 3.1(g)(ii) of the Company Disclosure Schedule (the "Company Required
Consents") and other than consents, approvals, actions, filings or notices which
would not have a Material Adverse Effect with respect to the Company.
(h) Non-Contravention. The execution and delivery of this
-----------------
Agreement by the Company do not, and the consummation of the transactions
contemplated hereby and compliance by the Company with the provisions hereof
will not, (i) conflict with or result in any violation of any provision of the
Certificate of Incorporation or By-laws or equivalent organizational documents,
in each case as amended and/or restated, of the Company or any of its
Subsidiaries; (ii) except as set forth in Section 3.1(h)(ii) of the Company
Disclosure Schedule, if the Company Required Consents are obtained, result in
any violation or breach of, or result in a modification of the effect of, or
constitute (with or without notice or lapse of time or both) a default under or
give rise to any right of termination, cancellation or acceleration under, any
contract, agreement, indenture, note, bond, loan, mortgage, lease, instrument,
license, permit, concession, franchise, commitment or other binding arrangement
(collectively, "Contracts") to which the Company or any of its Subsidiaries is a
party or by or to which any of them or any of their properties may be bound or
subject, or result in the creation of any Lien upon the properties of the
Company or any of its Subsidiaries in each case pursuant to the terms of any
such Contract; (iii) if the Company Governmental Approvals are obtained, result
in any violation of any law, statute, regulation, order, writ, judgment or
decree of any Governmental Entity applicable to the Company; or (iv) if the
Company Governmental Approvals and the Company Required Consents are obtained,
result in the violation, revocation or suspension of any Company Permit, other
than with respect to clauses (ii) through (iv) above, any such violations,
breaches, modifications, defaults, terminations, cancellations, accelerations,
Liens, revocations or suspensions that, individually and in the
<PAGE>
14
aggregate, would not have a Material Adverse Effect with respect to the Company.
(i) Litigation. As of the date of this Agreement and as of the
----------
Closing Date, except as disclosed in the Company SEC Documents or in Section
3.1(i) of the Company Disclosure Schedule, there is no suit, action or
proceeding pending, or, to the knowledge of the Company, threatened against the
Company or any Subsidiary of the Company that, individually or in the aggregate
with any other such suits, actions or proceedings, would have a Material Adverse
Effect with respect to the Company, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against the Company or any Subsidiary of the Company that, individually or in
the aggregate, would have a Material Adverse Effect with respect to the Company.
(j) Taxes and Related Tax Matters.
-----------------------------
(i) Other than Taxes and Tax Sharing Agreement Amounts (as
each term is hereinafter defined) that individually and in the aggregate are
not material all federal, state, county, local, foreign and other taxes
(including, without limitation, income, profits, premium, estimated, excise,
sales, use, occupancy, gross receipts, franchise, ad valorem, severance, capital
levy, production, transfer, withholding, employment, unemployment compensation,
payroll related and property taxes, import duties and other governmental charges
and assessments), whether or not measured in whole or in part by net income, and
including deficiencies, interest, additions to tax or interest, and penalties
with respect thereto, (hereinafter "Taxes" or, individually, a "Tax") required
to be paid on or before the date hereof by or with respect to the Company and
its Subsidiaries (or any of them), including amounts, other than amounts being
contested in good faith, required to be paid on or before the date hereof with
respect to Taxes as a result of any tax sharing agreement or similar arrangement
("Tax Sharing Agreement Amounts") of the Company and its Subsidiaries (or any of
them), have been timely paid, except with respect to Taxes and Tax Sharing
Agreement Amounts for which the failure to pay would not have a Material Adverse
Effect with respect to the Company.
(ii) All material returns and reports required to be filed
by or with respect to the Company and its Subsidiaries (or any of them) with
respect to Taxes (hereinafter "Tax Returns" or, individually, a "Tax Return") on
or before the date hereof have been timely filed. No penalties or other charges
in a material amount are or will become due with respect to the late filing of
any Tax Return
<PAGE>
15
of the Company or any of its Subsidiaries or payment of any Tax of the Company
or any of its Subsidiaries, required to be filed or paid on or before the date
hereof.
(iii) With respect to all Tax Returns filed by or with respect
to the Company and any of its Subsidiaries, (A) Section 3.1(j) of the Company
Disclosure Schedule sets forth the periods for which the statute of limitations
for the assessment of federal Taxes have expired; (B) except as set forth in
Section 3.1(j) of the Company Disclosure Schedule, no audit is in progress and
no extension of time has been executed with respect to any date on which any Tax
Return was or is to be filed and no waiver or agreement has been executed for
the extension of time for the assessment or payment of any Tax; and (C) except
as set forth in Section 3.1(j) of the Company Disclosure Schedule, there is no
material unassessed deficiency proposed or threatened against the Company or any
of its Subsidiaries.
(iv) Except as set forth in Section 3.1(j) of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries has been
or is a party to any tax sharing agreement or similar arrangement.
(v) Section 3.1(j) of the Company Disclosure Schedule
identifies (i) the common parent of each group of affiliated corporations that
filed a consolidated federal income tax return, and the period to which such
returns related, that included the Company or any of its Significant
Subsidiaries since 1992, and (ii) all material Tax liabilities, of which the
Company has knowledge, that have been asserted by the Internal Revenue Service
(the "IRS") with respect to any such return and all claims with respect to Taxes
in a material amount that have been asserted against the Company under any tax
sharing agreement to which it is a party.
(k) Certain Agreements. Except as set forth in Section 3.1(k) and/or
------------------
Section 3.1(l) of the Company Disclosure Schedule, and except for this
Agreement, as of the date of this Agreement, neither the Company nor any of its
Subsidiaries is a party to any oral or written (i) agreement with any executive
officer or other key employee of the Company or any Subsidiary of the Company
the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving the Company of the
nature contemplated by this Agreement, or agreement with respect to any
executive officer of the Company providing any term of employment or
compensation guarantee extending for a period longer than three years after the
Closing Date and for the payment of in excess of $200,000 per annum or (ii)
plan, including any
<PAGE>
16
stock option plan, stock appreciation right plan, restricted stock plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting of
the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement. Section 3.1(k) of the Company Disclosure Schedule sets forth
a schedule of assets (other than immaterial assets with a value less than
$25,000) of Samuel Goldwyn Productions, Inc. ("SG Productions") and Nightlife
Productions, Inc. ("Nightlife").
(l) Employee Benefits.
-----------------
(i) Except as set forth in Section 3.1(l) of the Company
Disclosure Schedule, there are no United States or foreign employee benefit
plans or arrangements (collectively, the "Company Benefit Plans") of any type
(including, without limitation, plans described in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), under which the
Company or any corporation, person or trade or business which is a member of a
group which is under common control with the Company within the meaning of
Sections 414(b)-(o) of the Code and, if applicable, Sections 4001(a) (14) and
(b) of ERISA (an "ERISA Affiliate") has incurred any unsatisfied material
liability or could reasonably be expected in the future to incur any direct or
indirect, actual or contingent material liability (including, without
limitation, any liability that might arise indirectly under Section 414 of the
Code or Section 4069 of ERISA).
(ii) With respect to each Company Benefit Plan, the
Company will deliver or make available on or prior to the date hereof to
Metromedia complete and accurate copies (where applicable) of: (A) all plan
texts and agreements; (B) all material employee communications regarding an the
Company Benefit Plan not embodied in plan texts and agreements that could
materially affect the liabilities of the Company or its Subsidiaries with
respect to such plan; (C) the most recent annual report; (D) the most recent
annual and periodic accounting of plan assets; (E) the most recent determination
letter received from the IRS; and (F) the most recent actuarial valuation.
(iii) No event has occurred or might reasonably be expected
to occur as a result of which any Company Benefit Plan or the Company or any of
its ERISA Affiliates could, directly or indirectly (whether through a commonly
controlled entity under Code Section 414 or otherwise), incur material liability
for failure to comply with
<PAGE>
17
the applicable requirements of Title IV of ERISA, section 302 of ERISA, sections
412, 420, 4971 or 4975 of the Code, the continuation coverage requirements of
section 601 et seq. of ERISA and section 4980B of the Code, and corresponding or
similar provisions of foreign laws or regulations, other than routine claims for
benefits in accordance with the terms of such plan except as would not have a
Material Adverse Effect with respect to the Company.
(iv) Each Company Benefit Plan has been operated in all
respects in accordance with its terms and with the requirements of applicable
law and regulations except to the extent any such operation would not have a
Material Adverse Effect with respect to the Company.
(v) With respect to each Company Benefit Plan that is a
defined benefit pension plan, since the most recent financial statements of the
Company there has been no material increase in such plan's liabilities other
than the accrual of benefits in the ordinary course and in accordance with the
terms of such plan.
(vi) Except as set forth in Section 3.1(1) of the Company
Disclosure Schedule, the consummation of the transactions contemplated by this
Agreement will not, with respect to employees or former employees of the Company
or any of its ERISA Affiliates: (A) entitle any individual to severance pay; (B)
accelerate the time of payment or vesting of, increase the amount of, or satisfy
a condition to the compensation due to any individual; and (C) result in the
payment of an amount that would, individually or in combination with any other
such payment, constitute an "excess parachute payment" under Code section
280G(b)(1).
(m) Contracts. There is (i) no contract, agreement or
---------
understanding required to be described in or filed as an exhibit to any Company
SEC Document that is not described in or filed as required by the Securities Act
or the Exchange Act, as the case may be and (ii) except as described in Section
3.1(m) of the Company Disclosure Schedule, no output agreement, material license
agreement or contract providing for the payment by the Company of more than
$100,000 per annum or $500,000 in the aggregate. All such contracts, agreements
and understanding are valid and binding and are in full force and effect and
enforceable in accordance with their respective terms other than contracts,
agreements or understandings which are by their terms no longer in force or
effect. Except for the Company Required Consents and except to the extent any of
the following would not have a Material Adverse Effect with respect to the
Company, (i) no approval or consent of, or notice to, any
<PAGE>
18
Person is needed in order that such contract, agreement or understanding shall
continue in full force and effect in accordance with its terms without penalty,
acceleration or rights of early termination following the consummation of the
transactions contemplated by this Agreement, and (ii) the Company is not in
violation of breach of or default under any such contract, agreement or
understanding nor to the Company's knowledge is any other party to any such
contract, agreement or understanding.
(n) Environmental Matters. Except as set forth in Section
---------------------
3.1(n) of the Company Disclosure Schedule, (i) the Company and each of its
Subsidiaries has obtained and is in material compliance with the terms and
conditions of all permits, licenses and other authorizations required under
applicable federal, state, local and foreign laws, regulations and codes as
currently in effect relating to pollution and protection of the environment
("Environmental Laws"); (ii) no asbestos in a friable condition or equipment
containing polychlorinated biphenyls or leaking underground or above-ground
storage tanks is contained in or located at any facility owned, leased or
controlled by the Company or any of its Subsidiaries; (iii) the Company and each
of its Subsidiaries is in material compliance with all applicable Environmental
Laws, and has fully disclosed all known material past and present non-compliance
with Environmental Laws, and all known past discharges, omissions, leaking or
releases known to the Company of any substance or waste regulated under or
defined by Environmental Laws that could reasonably be expected to form the
basis of any claim, action, suit, proceeding, hearing or investigation under any
applicable Environmental Laws; and (iv) neither the Company nor any of its
Subsidiaries has received notice of any past or present events, conditions,
circumstances, activities, practices, incidents, actions or plans that have
resulted in or threaten to result in any common law or legal liability, or
otherwise form the basis of any claim, action, suit, proceeding, hearing or
investigation under any applicable Environmental Laws; provided, however, that
clauses (i) through (iv) address only those matters that would have a Material
Adverse Effect with respect to the Company.
(o) Absence of Certain Changes or Events. Except as disclosed
------------------------------------
in the Company SEC Documents, or except as contemplated by this Agreement, since
December 31, 1995, the Company and its Subsidiaries have conducted their
respective businesses only in the ordinary and usual course, and, as of the date
of this Agreement, there has not been (i) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of the Company's capital stock; (ii) any return
of any capital or other distribution
<PAGE>
19
of assets to stockholders of the Company; (iii) any material investment by the
Company or any of its Subsidiaries either by the purchase of any property or
assets or by any acquisition (by merger, consolidation or acquisition of stock
or assets) of any corporation, partnership or other business organization or
division thereof; (iv) any sale, disposition, license or other transfer of
assets or properties of the Company or its Subsidiaries (other than the license
of product in the ordinary course of business); (v) any incurrence or guarantee
of any Debt other than in the ordinary course of business consistent with past
practices; or (vi) any change, occurrence or circumstance of any character
(whether or not in the ordinary course of business) that, individually or in the
aggregate, has had or would have a Material Adverse Effect with respect to the
Company.
(p) Information Supplied. None of the information supplied or to
--------------------
be supplied by the Company for inclusion or incorporation by reference in (i)
the registration statement on Form S-4 to be filed with the SEC by Metromedia in
connection with the issuance of the Merger Securities (collectively, the
"Registration Statement") and (ii) the joint proxy statement (the "Proxy
Statement") to be filed with the SEC by Metromedia and the Company in connection
with the Metromedia Stockholders' Meeting and the Company Stockholders' Meeting
(as hereinafter defined) will, at the time the Registration Statement is filed
with the SEC, at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act or at the time the Proxy Statement is
mailed to the Company's stockholders, as the case may be, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
(q) Real Estate.
-----------
(i) Ownership of Premises. The Company or one of its
---------------------
Subsidiaries is the owner of good and insurable fee title to the land described
on Section 3.1(q)(i) of the Company Disclosure Schedule and to all of the
buildings, structures and other improvements located thereon (collectively, the
"Company Owned Real Property") free and clear of all Title Defects (as
hereinafter defined) except as would not have a Material Adverse Effect with
respect to the Company. The Company Owned Real Property constitutes all of the
real property owned by the Company and its Subsidiaries on the date hereof. As
used in this Agreement, "Title Defects" shall mean and include any mortgage,
deed of trust, lien, pledge, security interest, claim, lease, charge, option,
right of first refusal,
<PAGE>
20
easement, restrictive covenant, encroachment or other survey defect,
encumbrance or other restriction or limitation whatsoever.
(ii) Leased Properties. Section 3.1(q)(ii) of the Company
-----------------
Disclosure Schedule sets forth a true, correct and complete schedule of all
leases, subleases, licenses and other agreements (collectively, the "Company
Real Property Leases") under which the Company or any Subsidiary uses or
occupies or has the right to use or occupy, now or in the future, any real
property (the land, buildings and other improvements covered by the Company Real
Property Leases being herein called the "Company Leased Real Property"), which
Section 3.1(q)(ii) of the Company Disclosure Schedule sets forth the date of
and parties to each Company Real Property Lease, the date of and parties to each
amendment, modification and supplement thereto, the term and renewal terms
(whether or not exercised) thereof and a brief description of the Company Leased
Real Property covered thereby. The Company has heretofore delivered to or made
available true, correct and complete copies of all Company Real Property Leases
(including all modifications, amendments and supplements). Each Company Real
Property Lease is valid, binding and in full force and effect, all rent and
other sums and charges payable by the Company or a Subsidiary as tenant
thereunder are current, no notice of default or termination under any Company
Real Property Lease is outstanding, no termination event or condition or uncured
default on the part of the Company or the applicable Subsidiary or, to the
Company's or the applicable Subsidiary's knowledge, the landlord, exists under
any Company Real Property Lease, and no event has occurred and no condition
exists which, with the giving of notice or the lapse of time or both, would
constitute such a default or termination event or condition, which, when
considered individually or in the aggregate with all such other Company Real
Property Leases under which there is such an event or condition has or will have
a Material Adverse Effect with respect to the Company. Except as set forth on
Section 3.1(q)(ii) of the Company Disclosure Schedule, to the Company's or the
applicable Subsidiaries' knowledge, no landlord under any Company Real Property
Lease has notified the Company or the applicable Subsidiary that it does not
intend to renew any such lease following the expiration of its term. Except as
does not have a Material Adverse Effect with respect to the Company, the Company
or a Subsidiary, whichever is applicable, holds the leasehold estate under and
interest in each Company Real Property Lease free and clear of all Title
Defects. The Company and its Subsidiaries have no ownership, financial or other
interest in the landlord under any Company Real Property Lease.
<PAGE>
21
(iii) Entire Premises; Condition. All of the land,
--------------------------
buildings, structures and other improvements used by the Company and its
Subsidiaries in the conduct of their business are included in the Company Owned
Real Property and the Company Leased Real Property. The facilities, machinery,
equipment, furniture, leasehold improvements, fixtures, vehicles, structures,
any related capitalized items and other tangible property material to the
business of the Company located on the Company Owned Real Property and the
Company Leased Real Property including, without limitation, the improvements on
such property and the utility systems serving such properties (collectively, the
"Tangible Property") are in good operating condition and repair, subject to
ordinary wear and tear, and are suitable for their intended use. During the past
three years there has not been any significant interruption of the operations of
the Company due to inadequate maintenance of the Tangible Property or otherwise.
(r) Intellectual Property.
---------------------
Section 3.1(r) of the Company Disclosure Schedule sets forth a list
of all of the Company's and its Subsidiaries' registered trademarks and
registered copyrights, all applications for any of the foregoing and all
permits, grants and licenses or other rights running to the Company and any of
its Subsidiaries relating to any of the foregoing that are material to the
business of the Company and its Subsidiaries taken as a whole. Except as set
forth on Section 3.1(r) of the Company Disclosure Schedule, (i) the Company or
one of its Subsidiaries own, or are licensed to, or otherwise have, the right
to use all registered trademarks and copyrights set forth on Section 3.1(r) of
the Company Disclosure Schedule, and (ii) the Company's rights in the property
set forth on such list are free and clear of any liens or other encumbrances and
the Company and its Subsidiaries have not received written notice of any
adversely-held copyright or trademark of any other person, or notice of any
charge or claim of any person relating to such intellectual property or any
process or confidential information of the Company and its Subsidiaries and to
the Company's knowledge there is no basis for any such charge or claim, and
(iii) the Company, its Subsidiaries and their respective predecessors, if any,
have not conducted business at any time during the period beginning five years
prior to the date hereof under any corporate or partnership, trade or fictitious
names other than their current corporate or partnership names, except in the
case of clauses (i), (ii) and (iii) above, any of the foregoing which do not and
will not have an Material Adverse Effect with respect to the Company.
<PAGE>
22
(s) Investment Company Act. The Company and each of its
----------------------
Subsidiaries either (i) is not an "investment company," or to the Company's
knowledge a company "controlled" by, or to the Company's knowledge an
"affiliated company" with respect to, an "investment company," required to
register under the Investment Company Act of 1940, as amended (the "Investment
Company Act") or (ii) satisfies all conditions for an exemption from the
Investment Company Act, and, accordingly, neither the Company nor any of its
Subsidiaries is required to be registered under the Investment Company Act.
(t) Brokers or Finders. No agent, broker, investment banker,
------------------
financial advisor or other Person retained by or on behalf of the Company is or
will be entitled to any broker's or finder's fee or any other commission or
similar fee in connection with any of the transactions contemplated by this
Agreement except Furman Selz L.L.C., whose fees and expenses will be paid by the
Company in accordance with the Company's agreement with such firm.
(u) Vote Required. The Board of Directors of the Company has
-------------
approved this Agreement, the Merger and the other transactions contemplated
hereby and has recommended that its stockholders vote in favor of the adoption
and approval of this Agreement (the "Recommendation"). The affirmative vote of a
majority of the votes that the holders of the outstanding shares of Company
Common Stock are entitled to cast with respect to the adoption and approval of
this Agreement is the only vote of the holders of any class or series of the
capital stock of the Company necessary to approve the Merger and the other
transactions contemplated hereby. Attached as Exhibit A hereto is a true and
correct copy of the executed Voting Agreement by and among Metromedia and the
Samuel Goldwyn, Jr. Family Trust (the "Trust") pursuant to which the Trust has
agreed to vote its shares of Company Common Stock in favor of the Merger and the
transactions contemplated by this Agreement. As of the date hereof and as of the
Closing Date, the letter and Deal Memo dated December 15, 1995 ("Deal Memo")
between the Company and Polygram Filmed Entertainment Distribution Inc.
("Polygram") has been terminated and is of no further force and effect except to
the extent that the payment of a breakup fee of $2,000,000 payable to Polygram
and the reimbursement of Polygram's fees and expenses pursuant to Section 8 of
the Deal Memo may be applicable.
Section 3.2 Representations and Warranties of Metromedia. Metromedia
--------------------------------------------
represents and warrants to the Company as follows:
<PAGE>
23
(a) Organization, Standing and Corporate Power; Subsidiaries.
--------------------------------------------------------
Each of Metromedia and its Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, has all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being conducted, and is duly
qualified and in good standing to do business in each jurisdiction in which the
nature of its business or the ownership or leasing of its properties makes such
qualification necessary, other than in such jurisdictions where the failure so
to qualify would not have a Material Adverse Effect with respect to Metromedia.
Except as set forth in Section 3.2(a) of the disclosure schedule delivered to
the Company by Metromedia on or prior to the date hereof (the "Metromedia
Disclosure Schedule"), the Metromedia SEC Documents (as hereinafter defined) set
forth a true and complete list of the Significant Subsidiaries of Metromedia,
including (x) the jurisdiction of incorporation or organization of each such
Subsidiary and (y) the percentage of each such Subsidiary's outstanding capital
stock or other ownership interest owned by Metromedia, or a Subsidiary of
Metromedia, as the case may be, if less than 100%. All of the outstanding shares
of capital stock or other ownership interests of each of the Significant
Subsidiaries of Metromedia are duly authorized, validly issued, fully paid and
nonassessable and, except as set forth in Section 3.2(a) of the Metromedia
Disclosure Schedule, are owned (of record and beneficially) by Metromedia,
and/or by a Subsidiary of Metromedia, free and clear of all Liens and not
subject to preemptive rights created by statute, such Subsidiary's respective
Certificate of Incorporation or By-laws or equivalent organizational documents
or any agreement to which such Subsidiary is a party or by which such Subsidiary
is bound. Other than as set forth in Section 3.2(a) of the Metromedia
Disclosure Schedule, Metromedia does not directly or indirectly own any material
equity interest in any Person (other than a Subsidiary) in which Metromedia has
invested more than $5,000,000.
(b) Certificate of Incorporation and By-laws. Complete and
----------------------------------------
correct copies of the Certificate of Incorporation and By-laws or equivalent
organizational documents, each as amended to date, of Metromedia and each
Significant Subsidiary of Metromedia shall have been delivered to the Company no
later than the date hereof. The Certificates of Incorporation, By-laws and
equivalent organizational documents of Metromedia and each Significant
Subsidiary of Metromedia are in full force and effect. Neither Metromedia nor
any Significant Subsidiary of Metromedia is in violation of any provision of its
<PAGE>
24
Certificate of Incorporation, By-laws or equivalent organizational documents.
(c) Capitalization. As of January 15, 1996, (i) the authorized
--------------
capital stock of Metromedia consists of (A) 100,000,000 shares of Metromedia
Common Stock, 42,549,886 of which shares are issued and outstanding, and are
duly authorized, validly issued, fully paid and non-assessable and not subject
to preemptive rights, 1,914,187 shares of Metromedia Common Stock are reserved
for exercise of stock options with a term, exercise price, vesting schedule and
other material terms set forth for each of Metromedia's stock option plans in
Section 3.2(c) of the Metromedia Disclosure Schedule and 1,801,802 shares are
reserved for issuance upon the conversion of convertible debt and (B) 70,000,000
shares of Metromedia Preferred Stock, none of which are issued and outstanding
and (ii) the authorized capital stock of SGC Mergerco consists of 1,000 shares
of Mergerco Common Stock, 1,000 shares of which are issued and outstanding and
are duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights.
Except as described in this Section 3.2(c) or in Section 3.2(c) of
the Metromedia Disclosure Schedule, no shares of the capital stock or other
equity securities of Metromedia are authorized, issued or outstanding, or
reserved for any other purpose, and there are no options, warrants or other
rights (including registration rights), agreements, arrangements or commitments
of any character to which Metromedia or any of its respective Subsidiaries is a
party relating to the issued or unissued capital stock or other equity
securities or ownership interests of Metromedia or any of its Subsidiaries or
obligating Metromedia or any of its Subsidiaries to grant, issue or sell any
shares of capital stock or other equity securities or ownership interests of
Metromedia or any of its Subsidiaries, by sale, lease, license or otherwise.
Except as described in Section 3.2(c) of the Metromedia Disclosure Schedule,
neither Metromedia nor any of its Subsidiaries has any outstanding bonds,
debentures, notes or other obligations the holders of which have the right to
vote or which are convertible into or exercisable for securities having the
right to vote with the stockholders of any such Person on any matter. Other than
as contemplated by this Agreement or as set forth in Section 3.2(c) of the
Metromedia Disclosure Schedule, there are no outstanding contractual
obligations, commitments, understandings or arrangements of Metromedia or any of
its Subsidiaries to repurchase, redeem or otherwise acquire or make any payment
in respect of any shares of capital stock of Metromedia or any of its
Subsidiaries. Except as set forth in Section 3.2(c) of the Metromedia
Disclosure Schedule, since January 15, 1996 Metromedia has not (i) issued
<PAGE>
25
any shares of its capital stock (except pursuant to the exercise of then
outstanding options or warrants in accordance with their terms) or options,
warrants or other securities convertible into shares of its capital stock, or
(ii) repurchased any shares of its capital stock.
(d) SEC Documents; Financial Statements. Metromedia has made
-----------------------------------
available to the Company a true and complete copy of each form, report, schedule
and registration statement filed with the SEC by Metromedia since September 30,
1993 and by Orion Pictures Corporation since September 30, 1993 (as such
documents have since the time of their filing been amended or supplemented, the
"Metromedia SEC Documents"), which are all the documents (other than preliminary
material) that Metromedia or its respective Subsidiaries was required to file
with the SEC since such date. As of their respective dates, the Metromedia SEC
Documents (other than preliminary material) complied in all material respects
with the requirements of the Securities Act or the Exchange Act as applicable,
and the rules and regulations of SEC thereunder applicable to such Metromedia
SEC Documents, and none of the Metromedia SEC Documents, as such documents have
been amended to date (including all financial statements included therein and
exhibits and schedules thereto and documents incorporated by reference therein),
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
financial statements of Metromedia and each Subsidiary of Metromedia included in
the Metromedia SEC Documents (as such documents may have been amended to date)
comply as to form in all material respects with applicable accounting
requirements and with the rules and regulations of the SEC with respect thereto,
have been prepared in accordance with GAAP applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited financial statements, as permitted by Exchange Act Form
10-Q) and fairly present (subject, in the case of the unaudited financial
statements, to normal, recurring audit adjustments that, individually and in the
aggregate, were not material) the consolidated financial position of Metromedia
and/or the applicable Subsidiaries of Metromedia and its consolidated
Subsidiaries as at the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended.
(e) Authority. Metromedia and SGC Mergerco have all requisite
---------
corporate power and authority to enter into this Agreement and to perform their
obligations hereunder and to consummate the transactions contemplated
<PAGE>
26
hereby, subject, in the case of the Merger, to the approval of this Agreement by
the stockholders of Metromedia and the receipt by the Board of Directors of
Metromedia of the opinion of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") referred to in Section 5.2(e) hereof (the "Fairness Opinion"). The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of Metromedia and SGC Mergerco and no
other corporate proceedings on the part of Metromedia and SGC Mergerco are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby, subject, in the case of the Merger, to the approval of this
Agreement by the stockholders of Metromedia and the receipt by the Board of
Directors of Metromedia of the Fairness Opinion. This Agreement has been duly
and validly executed and delivered by Metromedia and SGC Mergerco and
constitutes a valid and binding obligation of Metromedia and SGC Mergerco
enforceable against Metromedia and SGC Mergerco in accordance with its terms,
subject, in the case of the Merger, to the approval of this Agreement by the
stockholders of Metromedia and the receipt by the Board of Directors of
Metromedia of the Fairness Opinion.
(f) Compliance with Applicable Laws. Metromedia and its
-------------------------------
Subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities that are necessary to the operation of
the businesses of Metromedia and its Subsidiaries taken as a whole (the
"Metromedia Permits"), except as would not have a Material Adverse Effect with
respect to Metromedia. Metromedia and its Subsidiaries are in compliance with
the terms of the Metromedia Permits applicable to it, except where any such
failure so to comply would not have a Material Adverse Effect with respect to
Metromedia. Except as would not have a Material Adverse Effect with respect to
Metromedia, the business of Metromedia and its Subsidiaries is not being
conducted in violation of any law, ordinance or regulation of any Governmental
Entity. No investigation or review by any Governmental Entity with respect to
Metromedia or any of its subsidiaries is pending or, to the knowledge of
Metromedia, threatened, nor, to the knowledge of Metromedia, has any
Governmental Entity indicated an intention to conduct the same that would, in
any such case, have a Material Adverse Effect with respect to Metromedia.
(g) Government Approvals; Required Consents.
---------------------------------------
(i) No consent, approval or authorization of, or
declaration or filing with, or notice to, any Governmental Entity on the part of
Metromedia and
<PAGE>
27
its Subsidiaries is required in connection with the execution or delivery by
Metromedia of this Agreement, and the consummation by Metromedia and its
Subsidiaries of the transactions contemplated hereby or compliance by Metromedia
and its Subsidiaries with the provisions hereof, other than (A) the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware
in accordance with the DGCL, (B) filings with the SEC and any applicable
National Security exchange, (C) filings under State securities or "Blue Sky"
laws, (D) filings under the HSR Act and (E) as otherwise set forth in Section
3.2(g)(i) of the Metromedia Disclosure Schedule or as would not cause a Material
Adverse Effect (any such consents, approvals, authorizations, declarations,
filings or notices specified in clauses (A) through (E) being referred to as
"Metromedia Governmental Approvals").
(ii) No consent, approval or action of, or filing with, or
notice to, any Person (other than a Governmental Entity) shall be required in
connection with the execution or delivery by Metromedia of this Agreement, the
consummation by Metromedia and its Subsidiaries of the transactions contemplated
hereby or compliance by Metromedia and its Subsidiaries with the provisions
hereof, other than as set forth in Section 3.2(g)(ii) of the Metromedia
Disclosure Schedule ("Metromedia Required Consents") and other than the
consents, approvals, actions, filings or notices which would not have a Material
Adverse Effect with respect to Metromedia.
(h) Non-Contravention. The execution and delivery of this
-----------------
Agreement by Metromedia and SGC Mergerco does not, and the consummation of the
transactions contemplated hereby and compliance by Metromedia and SGC Mergerco
with the provisions hereof will not, (i) conflict with or result in any
violation of any provision of the Certificate of Incorporation or By-laws or
equivalent organizational documents, in each case as amended and/or restated, of
Metromedia and its Subsidiaries (ii) except as set forth in Section 3.2(h)(ii)
of the Metromedia Disclosure Schedule, if the Metromedia Required Consents are
obtained, result in any violation or breach of, or result in a modification of
the effect of, or constitute (with or without notice or lapse of time or both) a
default under or give rise to any right of termination, cancellation or
acceleration under, any contracts to which Metromedia and its Subsidiaries are a
party or by or to which any of them or any of their properties may be bound or
subject, or result in the creation of any Lien upon the properties of Metromedia
and its Subsidiaries in each case pursuant to the
<PAGE>
28
terms of any such Contract; (iii) if the Metromedia Governmental Approvals are
obtained, result in any violation of any law, statute, regulation, order, writ,
judgment or decree of any Governmental Entity applicable to Metromedia and its
Subsidiaries or (iv) if the Metromedia Governmental Approvals and the Metromedia
Required Consents are obtained, result in the violation, revocation or
suspension of any Metromedia Permit, other than with respect to clauses (ii)
through (iv) above, any such violations, breaches, modifications, defaults,
terminations, cancellations, accelerations, Liens, revocations or suspensions
that, individually and in the aggregate, would not have a Material Adverse
Effect with respect to Metromedia.
(i) Litigation. As of the date of this Agreement and as of the
----------
Closing Date, except as disclosed in the Metromedia SEC Documents, there is no
suit, action or proceeding pending, or, to the knowledge of Metromedia,
threatened against Metromedia and its Subsidiaries that, individually or in the
aggregate with any other such suits, actions or proceedings, would have a
Material Adverse Effect with respect to Metromedia, nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator
outstanding against Metromedia and its Subsidiaries, that, individually or in
the aggregate, would have a Material Adverse Effect with respect to Metromedia.
(j) Taxes and Related Tax Matters.
-----------------------------
(i) Other than Taxes and Tax Sharing Agreement Amounts that
individually and in the aggregate are not material all Taxes required to be paid
on or before the date hereof by or with respect to Metromedia and its
Subsidiaries (or any of them), including amounts, other than amounts being
contested in good faith, required to be paid on or before the date hereof with
respect to Taxes as a result of any Tax Sharing Agreement of Metromedia and its
Subsidiaries (or any of them), have been timely paid, except with respect to
Taxes and Tax Sharing Agreement Amounts for which the failure to pay would not
have a Material Adverse Effect with respect to Metromedia.
(ii) All material Tax Returns required to be filed by or
with respect to Metromedia and its Subsidiaries (or any of them) with respect to
Taxes on or before the date hereof have been timely filed. No penalties or other
charges in a material amount are or will become due with respect to the late
filing of any Tax Return of Metromedia or any of its Subsidiaries or payment of
any Tax of Metromedia or any of its Subsidiaries, required to be filed or paid
on or before the date hereof.
<PAGE>
29
(iii) With respect to all Tax Returns filed by or with
respect to Metromedia and any of its Subsidiaries, (A) Section 3.2(j) of the
Metromedia Disclosure Schedule sets forth the periods for which the statute of
limitations for the assessment of federal Taxes have expired; (B) except as set
forth in Section 3.2(j) of the Metromedia Disclosure Schedule, no audit is in
progress and no extension of time has been executed with respect to any date on
which any Tax Return was or is to be filed and no waiver or agreement has been
executed for the extension of time for the assessment or payment of any Tax; and
(C) except as set forth in Section 3.2(j) of the Metromedia Disclosure Schedule,
there is no material unassessed deficiency proposed or threatened against
Metromedia or any of its Subsidiaries.
(iv) Except as set forth in Section 3.2(j) of the
Metromedia Disclosure Schedule, neither Metromedia nor any of its Subsidiaries
has been or is a party to any tax sharing agreement or similar arrangement.
(v) Section 3.2(j) of the Metromedia Disclosure Schedule
identifies (i) the common parent of each group of affiliated corporations that
filed a consolidated federal income tax return, and the period to which such
returns related, that included Metromedia or any of its Significant Subsidiaries
since 1989, (ii) all material Tax liabilities, of which Metromedia has
knowledge, that have been asserted by the IRS with respect to any such return
and all claims with respect to Taxes in a material amount that have been
asserted against Metromedia under any tax sharing agreement to which it is a
party.
(k) Certain Agreements. Except as set forth in Section 3.2(k)
------------------
and/or Section 3.2(1) of the Metromedia Disclosure Schedule, and except for this
Agreement, as of the date of this Agreement, neither Metromedia nor any of its
Subsidiaries is a party to any oral or written (i) agreement with any executive
officer or other key employee of Metromedia or any of its Subsidiaries the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving Metromedia, of the nature
contemplated by this Agreement, or agreement with respect to any executive
officer of Metromedia providing any term of employment or compensation guarantee
extending for a period longer than three years after the Closing Date and for
the payment of in excess of $200,000 per annum or (ii) plan, including any stock
option plan, stock appreciation right plan, restricted stock plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting of
the benefits of which will be accelerated, by the occurrence of any of the
<PAGE>
30
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement.
(l) Employee Benefits.
-----------------
(i) Except as set forth in Section 3.2(l) of the
Metromedia Disclosure Schedule, there are no United States or foreign employee
benefit plans or arrangements (collectively, the "Metromedia Benefits Plans") of
any type (including, without limitation, plans described in Section 3(3) of
ERISA), under which Metromedia or any of its ERISA Affiliates has incurred any
unsatisfied material liability or could reasonably be expected in the future to
incur any direct or indirect, actual or contingent material liability
(including, without limitation, any liability that might arise indirectly under
Section 414 of the Code or Section 4069 of ERISA).
(ii) With respect to each Metromedia Benefit Plan,
Metromedia will deliver or make available on or prior to the date hereof to the
Company complete and accurate copies (where applicable) of: (A) all plan texts
and agreements; (B) all material employee communications regarding a Metromedia
Benefit Plan not embodied in plan texts and agreements that could materially
affect the liabilities of the Metromedia Benefit Plan or the liabilities of
Metromedia or its ERISA Affiliates with respect to such plan; (C) the most
recent annual report; (D) the most recent annual and periodic accounting of plan
assets; (E) the most recent determination letter received from the IRS; and (F)
the most recent actuarial valuation.
(iii) No event has occurred or might reasonably be
expected to occur as a result of which any Metromedia Benefit Plan or
Metromedia or any its ERISA Affiliates could, directly or indirectly (whether
through a commonly controlled entity under Code Section 414 or otherwise), incur
liability for failure to comply with the applicable requirements of Title IV of
ERISA, section 302 of ERISA, sections 412, 420, 4971 or 4975 of the Code, the
continuation coverage requirements of section 601 et seq. of ERISA and section
4980B of the Code, and corresponding or similar provisions of foreign laws or
regulations, other than routine claims for benefits in accordance with the terms
of such plan, except as would not have a Material Adverse Effect with respect
to Metromedia.
(iv) Each Metromedia Benefit Plan has been operated in all
respects in accordance with its terms and with the requirements of applicable
laws and regulations
<PAGE>
31
except to the extent any such operation would not have a Material Averse Effect
with respect to Metromedia.
(v) With respect to each Metromedia Benefit Plan that is a
defined benefit pension plan, since the most recent financial statements of
Metromedia there has been no material increase in such plan's liabilities other
than the accrual of such benefits in the ordinary course and in accordance with
the terms of such plan.
(vi) Except as set forth in Section 3.2(l) of the Metromedia
Disclosure Schedule or the Metromedia SEC Documents, the consummation of the
transactions contemplated by this Agreement will not without additional
discretionary action by Metromedia, the Company or any of their respective ERISA
Affiliates, with respect to employees or former employees of Metromedia or any
of their ERISA Affiliates: (A) entitle any individual to severance pay; (B)
accelerate the time of payment or vesting of, increase the amount of, or satisfy
a condition to the compensation due to any individual; and (C) result in the
payment of an amount that would, individually or in combination with any other
such payment, constitute an "excess parachute payment" under Code Section
280G(b)(1).
(m) Contracts. There is no contract, agreement or understanding
---------
required to be described in or filed as an exhibit to any Metromedia SEC
Document that is not described in or filed as required by the Securities Act or
the Exchange Act, as the case may be. All such contracts, agreements and
understanding are valid and binding and are in full force and effect and
enforceable in accordance with their respective terms other than contracts,
agreements or understandings which are by their terms no longer in force or
effect. Except for the Metromedia Required Consents and except to the extent any
of the following would not have a Material Adverse Effect with respect to
Metromedia, (i) no approval or consent of, or notice to, any Person is needed in
order that such contract, agreement or understanding shall continue in full
force and effect in accordance with its terms without penalty, acceleration or
rights of early termination following the consummation of the transactions
contemplated by this Agreement, and (ii) Metromedia is not in violation of
breach of or default under any such contract, agreement or understanding nor to
Metromedia's knowledge is any other party to any such contract, agreement or
understanding.
(n) Environmental Matters. Except as set forth in Section 3.2(n)
---------------------
of the Metromedia Disclosure Schedule, (i) Metromedia and each of its
Subsidiaries has obtained and is in material compliance with the terms and
<PAGE>
32
conditions of all permits, licenses and other authorizations required under
applicable Environmental Laws; (ii) no asbestos in a friable condition or
equipment containing polychlorinated biphenyls or leaking underground or above-
ground storage tanks is contained in or located at any facility owned, leased or
controlled by Metromedia or any of its Subsidiaries; (iii) Metromedia and each
of its Subsidiaries is in material compliance with all applicable Environmental
Laws, and has fully disclosed all known material past and present non-compliance
with Environmental Laws, and all known past discharges, emissions, leaking or
releases known to Metromedia or each of its Subsidiaries of any substance or
waste regulated under or defined by Environmental Laws that could reasonably be
expected to form the basis of any claim, action, suit, proceeding, hearing or
investigation under any applicable Environmental Laws; and (iv) neither
Metromedia nor any of its Subsidiaries has received notice of any past or
present events, conditions, circumstances, activities, practices, incidents,
actions or plans that have resulted in or threaten to result in any common law
or legal liability, or otherwise form the basis of any claim, action, suit,
proceeding, hearing or investigation under any applicable Environmental Laws;
provided, however, that clauses (i) through (iv) address only those matters that
would have a Material Adverse Effect with respect to Metromedia.
(o) Absence of Certain Changes or Events. Except as set forth in
------------------------------------
Section 3.2(o) of the Metromedia Disclosure Schedule or as disclosed in the
Metromedia SEC Documents, or as contemplated by this Agreement, since December
31, 1995, Metromedia and its Subsidiaries have conducted their respective
businesses only in the ordinary and usual course, and, as of the date of this
Agreement, there has not been (i) any declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock or property) with
respect to any of Metromedia's capital stock; (ii) any return of any capital or
other distribution of assets to stockholders of Metromedia; (iii) any material
investment by Metromedia or any of its Subsidiaries either by the purchase of
any property or assets or by any acquisition (by merger, consolidation or
acquisition of stock or assets) of any corporation, partnership or other
business organization or division thereof other than the ownership of an equity
interest in any person in an amount less than $5,000,000; (iv) any sale,
disposition or other transfer of assets or properties of Metromedia or its
Subsidiaries (other than the sale of inventory in the ordinary course of
business) in excess of $500,000 individually or $2,000,000 in the aggregate; (v)
any incurrence or guarantee of any Debt other than in the ordinary course of
business consistent with past
<PAGE>
33
practices or any Debt in excess of $10,000.00 in the aggregate; or (vi) any
change, occurrence or circumstance of any character (whether or not in the
ordinary course of business) that, individually or in the aggregate, has had or
would have, a Material Adverse Effect with respect to Metromedia.
(p) Information Supplied. Neither the Registration Statement nor
--------------------
the Proxy Statement will, at the time the Registration Statement is filed with
the SEC, at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act or at the time the Proxy Statement is
mailed to the Company's and Metromedia's stockholders, as the case may be,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, provided, however, that this representation and warranty shall
not apply to statements or omissions made in reliance upon and in conformity
with information furnished in writing by the Company to Metromedia expressly for
use in or for incorporation by reference into the Registration Statement or the
Proxy Statement or any amendments or supplements thereto.
(q) Real Estate.
-----------
(i) Ownership of Premises. Metromedia or one of its
---------------------
Subsidiaries is the owner of good and insurable fee title to the land in the
United States described on Section 3.2(q)(i) of the Metromedia Disclosure
Schedule and to all of the buildings, structures and other improvements located
thereon (collectively, the "Metromedia Owned Real Property") free and clear of
all Title Defects (as hereinafter defined) except as would not have a Material
Adverse Effect with respect to Metromedia. The Metromedia Owned Real Property
constitutes all of the real property owned by Metromedia and its Subsidiaries on
the date hereof.
(ii) Leased Properties. Section 3.2(q)(ii) of the
-----------------
Metromedia Disclosure Schedule sets forth a true, correct and complete schedule
of all leases, subleases, licenses and other agreements (collectively, the
"Metromedia Real Property Leases") under which Metromedia or any Subsidiary uses
or occupies or has the right to use or occupy, now or in the future, any real
property in the United States (the land, buildings and other improvements
covered by the Metromedia Real Property Leases being herein called the
"Metromedia Leased Real Property"), which Section 3.2(q)(ii) of the Metromedia
Disclosure Schedule sets forth the date of and parties to each Metromedia Real
Property Lease, the date of and parties to each amendment,
<PAGE>
34
modification and supplement thereto, the term and renewal terms (whether or not
exercised) thereof and a brief description of the Metromedia Leased Real
Property covered thereby. Metromedia has heretofore delivered to or made
available true, correct and complete copies of all Metromedia Real Property
Leases (including all modifications, amendments and supplements). Each
Metromedia Real Property Lease is valid, binding and in full force and effect,
all rent and other sums and charges payable by Metromedia or a Subsidiary as
tenant thereunder are current, no notice of default or termination under any
Metromedia Real Property Lease is outstanding, no termination event or condition
or uncured default on the part of Metromedia or the applicable Subsidiary or, to
Metromedia's or the applicable Subsidiary's knowledge, the landlord, exists
under any Metromedia Real Property Lease, and no event has occurred and no
condition exists which, with the giving of notice or the lapse of time or both,
would constitute such a default or termination event or condition, which, when
considered individually or in the aggregate with all such other Metromedia Real
Property Leases under which there is such an event or condition has or will have
a Material Adverse Effect with respect to Metromedia. Except as does not have a
Material Adverse Effect with respect to Metromedia, Metromedia or a Subsidiary,
whichever is applicable, holds the leasehold estate under and interest in each
Metromedia Real Property Lease free and clear of all Title Defects. Metromedia
and its Subsidiaries have no ownership, financial or other interest in the
landlord under any Metromedia Real Property Lease.
(iii) Entire Premises. All of the land, buildings,
---------------
structures and other improvements in the United States used by Metromedia and
its Subsidiaries in the conduct of their business are included in Metromedia
Owned Real Property and Metromedia Leased Real Property.
(r) Intellectual Property.
---------------------
Section 3.2(r) of the Metromedia Disclosure Schedule sets forth a
list of all of Metromedia's and its Subsidiaries' registered trademarks and
registered copyrights, all applications for any of the foregoing and all
permits, grants and licenses or other rights running to Metromedia and any of
its Subsidiaries relating to any of the foregoing that are material to the
business of Metromedia and its Subsidiaries taken as a whole. Except as set
forth on Section 3.2(r) of the Metromedia Disclosure Schedule, (i) Metromedia
or one of its Subsidiaries own, or are licensed to, or otherwise have, the right
to use all registered trademarks and registered copyrights set forth on Section
3.2(r) of the Metromedia Disclosure Schedule, and
<PAGE>
35
(ii) Metromedia's rights in the property set forth on such list are free and
clear of any liens or other encumbrances and Metromedia and its Subsidiaries
have not received written notice of any adversely-held copyright or trademark of
any other person, or notice of any charge or claim of any person relating to
such intellectual property or any process or confidential information of
Metromedia and its Subsidiaries and to Metromedia's knowledge there is no basis
for any such charge or claim, and (iii) Metromedia, its Subsidiaries and their
respective predecessors, if any, have not conducted business at any time during
the period beginning five years prior to the date hereof under any corporate or
partnership, trade or fictitious names other than their current corporate or
partnership names, except in the case of clauses (i), (ii) and (iii) above, any
of the foregoing which do not and will not have an Material Adverse Effect with
respect to Metromedia.
(s) Investment Company Act. Metromedia and each of its
----------------------
Subsidiaries either (i) is not an "investment company," or to Metromedia's
knowledge a company "controlled" by, or to Metromedia's knowledge an "affiliated
company" with respect to, an "investment company," required to register under
the Investment Company Act of 1940, as amended (the "Investment Company Act") or
(ii) satisfies all conditions for an exemption from the Investment Company Act,
and, accordingly, neither Metromedia nor any of its Subsidiaries is required to
be registered under the Investment Company Act.
(t) Brokers or Finders. No agent, broker, investment banker,
------------------
financial advisor or other Person retained by or on behalf of Metromedia is or
will be entitled to any broker's or finder's fee or any other commission or
similar fee in connection with any of the transactions contemplated by this
Agreement, except DLJ, whose fees and expenses will be paid by Metromedia in
accordance with Metromedia's agreement with such firm.
ARTICLE 4
COVENANTS
Section 4.1 Mutual Covenants of Metromedia and the Company. Each of
----------------------------------------------
Metromedia and the Company agrees that, except as expressly contemplated or
permitted by this Agreement, it shall (and shall cause each of its Subsidiaries
to) comply with the following covenants:
(a) Confidentiality. From and after the date hereof, each
---------------
party shall, and shall use its best
<PAGE>
36
efforts to cause its Affiliates and its and their respective Agents (as
hereinafter defined) to keep secret and hold in strictest confidence any and all
documents and information relating to the other party and its respective
Affiliates furnished to such first party (whether before or after the date
hereof) in connection with the transactions contemplated hereunder, other than
the following: (i) information that has become generally available to the public
other than as a result of a disclosure by such party, its Affiliates or its
Agents; (ii) information that becomes available to such party or an Agent of
such party on a nonconfidential basis from a third party having no obligation
of confidentiality to a party to this Agreement and which has not itself
received such information directly or indirectly in breach of any such
obligation of confidentiality; (iii) information that is required to be
disclosed by applicable law, judicial order or pursuant to any listing agreement
with, or the rules or regulations of, any securities exchange on which
securities of such party or any such Affiliate are listed or traded; provided
that the party making such disclosure or whose Affiliates or Agents are making
such disclosure shall notify the other party as promptly as practicable (and, if
possible, prior to making such disclosure) and shall use its reasonable best
efforts to limit the scope of such disclosure and seek confidential treatment of
the information to be disclosed; and (iv) disclosures made by any party as shall
be reasonably necessary in connection with obtaining the Metromedia Required
Consents and/or the Company Required Consents.
(b) Publicity. Except as otherwise required by applicable law or
---------
the rules or regulations of any securities exchange on which the securities of
such party or any Affiliate of such party are listed or traded, until the
earlier of (i) the date on which this Agreement ceases to be in effect and (ii)
the Closing Date, no party shall issue or cause the publication of any press
release or other public announcement with respect to the transactions
contemplated by this Agreement without the consent of the other party and in any
event each party agrees that it will give the other party reasonable opportunity
to review and comment upon any such release or announcement prior to publication
of the same.
(c) Preparation of the Proxy Statement and the Registration
-------------------------------------------------------
Statement. Metromedia shall, with all reasonably necessary assistance from the
- ---------
Company, prepare and cause to be filed with the SEC the Registration Statement,
in which the Proxy Statement will be included as a Prospectus, it being
understood that the Proxy Statement and the Prospectus will also serve as a
proxy statement and prospectus for Metromedia's transactions with Alliance
<PAGE>
37
Entertainment Corp. Each Party shall provide the other party and its Agents with
reasonable opportunity to review and comment upon the Registration Statement,
including all amendments thereto and all supplements to the Proxy Statement
contained therein, prior to the filing thereof with the SEC and/or the
distribution thereof to the stockholders of Metromedia and the Company, and
shall make all reasonable changes thereto requested by such other party or its
Agents. Each party hereto shall use its reasonable best efforts to have the
Registration Statement declared effective by the SEC as promptly as practicable.
Each party shall provide and shall be deemed to have provided the other party
with the information concerning it required to be included in the Registration
Statement. Metromedia shall take any action required to be taken under any
applicable state securities laws in connection with the issuance of the Merger
Securities in the Merger pursuant to this Agreement.
(d) Satisfaction of Conditions. Subject to the terms and
--------------------------
conditions of this Agreement, each party hereto agrees to use its reasonable
best efforts, subject to their respective fiduciary duties, to cause the
conditions set forth in Article 5 of this Agreement to be satisfied, and to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement (including the transactions contemplated by
Section 4.1(h)), including cooperating fully with the other party, including by
provision of information and making of all necessary filings in connection with,
among other things, the HSR Act. In case at any time after the Closing Date any
further action is necessary or desirable to carry out the purposes of this
Agreement, each party shall take all such necessary action.
(e) Other Actions. From the date hereof through the Closing
-------------
Date, each of Metromedia and the Company shall not, and shall cause its
Subsidiaries not to, take any action that would or is reasonably likely to
result in any of the representations and warranties of Metromedia or the
Company, as the case may be, set forth in this Agreement being untrue in any
material respect as of the date made, or in any of the conditions to the Closing
set forth in Article 5 of this Agreement not being satisfied.
(f) Advice of Changes: SEC Documents. Each party shall confer on
--------------------------------
a regular and frequent basis with the other, report on operational matters and
promptly advise the other orally and in writing of (i) any material notice or
other communication from any third party alleging that the consent of such third
party is or may be required in connection
<PAGE>
38
with the transactions contemplated by this Agreement; (ii) any material notice
or other communication from any regulatory authority or national securities
exchange in connection with the transactions contemplated by this Agreement;
(iii) any claims, actions, proceedings or investigations commenced or, to the
best of such party's knowledge, threatened, involving or affecting such party or
any of its Subsidiaries, or any of its property or assets, or, to the best of
such party's knowledge, any employee, consultant, director or officer, in his or
her capacity as such, of such party or any of its Subsidiaries, which, if
pending on the date hereof, would have been required to have been disclosed in
the Metromedia Disclosure Schedule or the Company Disclosure Schedule, as the
case may be, or which relates to the consummation of the Merger or the other
transactions contemplated by this Agreement; and (iv) any change or event that
would have a Material Adverse Effect with respect to such party. Each party
shall promptly provide the other (or its counsel) copies of all filings made by
such party with any Governmental Entity in connection with this Agreement and
the transactions contemplated hereby.
(g) Compliance with Laws. The parties agree to conduct their
--------------------
businesses and cause the businesses of their Subsidiaries to be conducted in
compliance with all applicable laws and regulations except with respect to the
Company, where failure to comply would not have a Material Adverse Effect with
respect to the Company and, with respect to Metromedia where failure to comply
would not have a Material Adverse Effect with respect to Metromedia.
(h) Refinancing. Each of Metromedia and the Company agrees to
-----------
use reasonable commercial efforts to take all necessary steps and actions to
facilitate any refinancing of indebtedness of Metromedia and/or the Company and
their respective Subsidiaries and any other financing arrangements in connection
with the consummation of the transactions contemplated hereby including, without
limitation, all amounts owed by the Company pursuant to the Second Amended and
Restated Credit Agreement dated as of April 28, 1995 (the "Credit Agreement")
among the Company and Bank of America National Trust and Savings Association, as
Agent, Collateral Agent and the Letter of Credit Issuing Bank and the Other
Financial Institutions Party thereto, as amended (collectively, the
"Financings"), it being the intention of Metromedia and the Company to refinance
(or extend the maturity date of) all amounts outstanding pursuant to the Credit
Agreement on or prior to the maturity date set forth in the Credit Agreement and
to consummate the Merger by May 15, 1996.
<PAGE>
39
Section 4.2 Covenants of the Company. During the period from the date
------------------------
of this Agreement and continuing until the Closing Date, the Company agrees that
except as expressly contemplated or permitted by this Agreement, or to the
extent that Metromedia shall otherwise consent in writing (which consent may be
withheld in its sole discretion):
(a) Access to Information. Upon reasonable notice, the Company
---------------------
shall, and shall cause its Subsidiaries to, afford to Metromedia and its Agents,
access, during normal business hours during the period prior to the Closing
Date, to all its properties, books, Contracts, commitments and records and,
during such period, the Company shall, and shall cause its Subsidiaries to,
promptly furnish or otherwise make available to Metromedia (i) a copy of each
report, schedule, registration statement and other document filed or received by
any of them during such period pursuant to the requirements of Federal
securities laws and (ii) all other information concerning its business,
properties and personnel as Metromedia may reasonably request.
(b) Ordinary Course. The Company shall, and shall cause its
---------------
Subsidiaries to, carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and use
its best efforts to preserve intact their current business organizations, keep
available the services of their current officers and employees and preserve
their relationships with customers, suppliers, contractors, distributors,
licensors, licensees and others having business dealings with them to the end
that their goodwill and ongoing businesses shall not be impaired in any material
respect at the Closing Date. Without limiting the generality of the foregoing,
and except as otherwise required by law, neither the Company nor any of its
Subsidiaries shall:
(i) (x) declare, set aside or pay any dividends on, or
make any other distributions in respect of, any of its capital stock (except
dividends and distributions by a direct or indirect wholly-owned Subsidiaries of
the Company to its parent), (y) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock or (z) purchase,
redeem or otherwise acquire any shares of capital stock of the Company or any of
its Subsidiaries or any other securities thereof of any rights, warrants or
options to acquire any such shares or other securities;
(ii) except for the exercise by the Company of the Goldwyn
Option pursuant to the Option
<PAGE>
40
Agreement dated as of April 13, 1993 by and among the Company, Samuel Goldwyn,
Jr. and The Samuel Goldwyn Jr. Trust (the "Option Exercise"), authorize for
issuance, issue, deliver, sell or agree or commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise), pledge or otherwise encumber
any shares of its capital stock or the capital stock of any of its Subsidiaries,
any other voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities or any other securities or equity equivalents (including
without limitation stock appreciation rights) other than isssuances upon
exercise of employee and director stock options issued pursuant to employee and
non-employee director stock option plans outstanding on the date hereof and
listed in Section 3.1(c) of the Company Disclosure Schedule;
(iii) except with respect to annual bonuses made in the
ordinary course of business consistent with past practice and except as
contemplated by this Agreement, adopt or amend in any material respect any
bonus, profit sharing, compensation, severance, termination, stock option, stock
appreciation right, pension, retirement, employment or other employee benefit
agreement, trust, plan or other arrangement for the benefit or welfare of any
director, officer or employee of the Company or any of its Subsidiaries or
increase in any manner the compensation or fringe benefits of any director,
officer or employee of the Company or any of its Subsidiaries or pay any benefit
not required by any existing agreement or place any assets in any trust for the
benefit of any director, officer or employee of the Company or any of its
Subsidiaries (in each case, except with respect to employees in the ordinary
course of business consistent with past practice);
(iv) amend its certificate of incorporation, by-laws or
equivalent organizational documents or alter through merger, liquidation,
reorganization, restructuring or in any other fashion the corporate structure
or ownership of any Subsidiary of the Company;
(v) sell, lease, license, mortgage or otherwise encumber
or subject to any Lien or otherwise dispose of any of its material properties or
assets;
(vi) acquire or agree to acquire (x) by merging or
consolidating with, or by purchasing a substantial portion of the stock or
assets of, or by any other manner, any business or any corporation, partnership,
joint venture, association or other business organization or
<PAGE>
41
division thereof or (y) any assets that are material, individually or in the
aggregate, to the Company and its Subsidiaries taken as a whole;
(vii) except for borrowings permitted under credit
facilities filed as exhibits to the Company SEC Documents, incur any Debt, issue
or sell any debt securities or warrants or other rights to acquire any debt
securities of the Company or any of its Subsidiaries, guarantee any debt
securities of another person, enter into any "keep well" or other agreement
to maintain any financial condition of another Person or enter into any
arrangement having the economic effect of any of the foregoing, or make any
loans, advances or capital contributions to, or investments in, any other
Person, other than to the Company or any direct or indirect wholly-owned
Subsidiary of the Company;
(viii) change any accounting principle used by it, unless
required by the SEC or the Financial Accounting Standards Board; and
(ix) except for the Option Exercise, enter into any
transaction or series of transactions with any Affiliate of the Company (other
than a wholly-owned Subsidiary of the Company) or otherwise that would be
required to be disclosed pursuant to Item 404 of Regulation S-K other than on
terms and conditions substantially as favorable to the Company or such
Subsidiary as would be obtainable by the Company or such Subsidiary at the time
of such transaction with a Person that is not an Affiliate of the Company.
(c) Meetings; Fiduciary Duties. The Company shall, promptly
--------------------------
after the date hereof, take all action necessary in accordance with the DGCL and
its Certificate of Incorporation and By-laws to convene a meeting of the
Company's stockholders at a time mutually agreed to by the Company and
Metromedia to, among other things, consider and vote upon this Agreement (the
"Company Stockholders' Meeting"), and the Company shall consult with Metromedia
in connection therewith. The Board of Directors of the Company shall not
withdraw or modify or propose to withdraw or modify in a manner adverse to
Metromedia, the Recommendation, unless the Board of Directors of the Company
concludes in good faith following receipt of a written opinion addressed to the
Company from outside counsel to the Company that such action is reasonably
necessary for the Board of Directors of the Company to comply with its fiduciary
obligations to stockholders under applicable law. The Company shall use its best
efforts to solicit from stockholders of the Company proxies in favor of the
approval and adoption of this Agreement and to secure the vote or the
<PAGE>
42
consent of the stockholders required by the DGCL to approve and adopt this
Agreement.
(d) No Solicitation. Neither the Company nor any of its
---------------
Subsidiaries shall, nor shall it or any of its Subsidiaries authorize or permit
any of their respective Agents to, (i) solicit, initiate, encourage (including
by way of furnishing information) or take any other action to facilitate, any
inquiry or the making of any proposal which constitutes, or may reasonably be
expected to lead to, any acquisition or purchase of a substantial amount of
assets of, or any equity interest in, the Company or any of its Subsidiaries or
any tender offer (including a self tender offer) or exchange offer, merger,
consolidation, business combination, sale of substantially all assets, sale of
securities, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its Subsidiaries (other than the transactions
contemplated by this Agreement) or any other material corporate transaction
(other than transactions permitted pursuant to Section 4.2(b) of this Agreement)
the consummation of which would or could reasonably be expected to impede,
interfere with, prevent or materially delay the Merger (collectively,
"Transaction Proposals") or agree to or endorse any Transaction Proposal or (ii)
propose, enter into or participate in any discussions or negotiations regarding
any of the foregoing, or furnish to any other Person any information with
respect to its business, properties or assets or any of the foregoing, or
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other Person to do or seek any of the
foregoing; provided, however, that the foregoing clauses (i) and (ii) shall not
prohibit the Company from (A) furnishing information pursuant to an appropriate
confidentiality letter concerning the Company and its businesses, properties or
assets to a third party who the Board of Directors of the Company has a
reasonable basis for determining is likely to make a Qualified Transaction
Proposal (as defined below), (B) engaging in discussions or negotiations with
such a third party who has made a Qualified Transaction Proposal or (C)
following receipt of a Qualified Transaction Proposal, taking and disclosing to
its stockholders a position contemplated by Rule 14e-2(a) under the Exchange Act
or changing the Recommendation, but in each case referred to in the foregoing
clauses (A) through (C) only after the Board of Directors of the Company
concludes in good faith following receipt of a written opinion addressed to the
Company from outside counsel to the Company that such action is reasonably
necessary for the Board of Directors of the Company to comply with its fiduciary
obligations to stockholders under applicable law. If the Board of Directors of
the Company receives a Transaction Proposal,
<PAGE>
43
then the Company shall immediately inform Metromedia of the terms and conditions
of such proposal and the identity of the Person making it and shall keep
Metromedia fully informed of the status and details of any such Transaction
Proposal and of all steps it is taking in response to such Transaction Proposal.
For purposes of this Agreement, the term "Qualified Transaction Proposal" shall
mean a Transaction Proposal that the Board of Directors of the Company
determines in good faith, after consultation with its outside financial advisor,
is reasonably capable of being consummated and is not subject to any material
contingencies relating to financing.
(e) Affiliates. Prior to the Closing Date, the Company shall
----------
endeavor to deliver to Metromedia (i) a letter identifying all Persons who, to
the knowledge of the Company, may be deemed to be "affiliates" of the Company
under Rule 145 under the Securities Act, including, without limitation, all
directors and executive officers of the Company (collectively, the "Company
Affiliates"), and (ii) copies of letter agreements, each in the form prepared by
Metromedia and reasonably acceptable to the Company, executed by each Company
Affiliate (the letters described in clauses (i) and (ii) being collectively
referred to as "Affiliate Letters"). The parties agree that the Affiliate Letter
to be signed by Samuel Goldwyn, Jr. will contain a lockup provision with
Metromedia's lead underwriter for the Financings providing that Mr. Goldwyn
agree not to sell his shares of Metromedia Common Stock received in the Merger
(other than the shares issued in exchange for the Company Common Stock received
by Mr. Goldwyn pursuant to the Option Exercise) for a period of 180 days from
the Closing Date. Metromedia shall not be required to maintain the effectiveness
of the Registration Statement for the purposes of resale of the Merger
Securities by such affiliates and the certificates representing the Merger
Securities received by such affiliates in the Merger shall bear a customary
legend regarding applicable Securities Act restrictions and the provisions of
this Section 4.2(e).
(f) Tax Returns. All Tax Returns required to be filed by or
-----------
with respect to the Company and its Subsidiaries (or any of them) after the date
hereof and on or before the Effective Time shall be prepared and timely filed,
in a manner consistent with prior years and applicable laws and regulations
other than such Tax Returns for which the failure to file would not have a
Material Adverse Effect with respect to the Company.
Section 4.3 Covenants of Metromedia. During the period from the date
-----------------------
of this Agreement and continuing until the Closing Date, Metromedia agrees that,
except as
<PAGE>
44
expressly contemplated or permitted by this Agreement, or to the extent that the
Company shall otherwise consent in writing (which consent may be withheld in its
sole discretion):
(a) Access to Information. Upon reasonable notice, Metromedia
---------------------
shall afford to the Company and its Agents access, during normal business hours
during the period prior to the Closing Date, to all its properties, books,
Contracts, commitments and records and, during such period, Metromedia shall
promptly furnish or otherwise make available to the Company (i) a copy of each
report, schedule, registration statement and other document filed or received by
any of them during such period pursuant to the requirements of Federal
securities laws and (ii) all other information concerning the businesses,
properties and personnel of Metromedia and its Subsidiaries as the Company may
reasonably request.
(b) Listing. Metromedia shall use its best efforts to cause the
-------
shares of Metromedia Common Stock comprising the Merger Consideration to be
approved for listing on the AMEX, subject to official notice of issuance.
(c) Meeting. Metromedia shall, promptly after the date hereof,
-------
take all action necessary in accordance with the DGCL and its Restated
Certificate of Incorporation and By-laws to convene a meeting of Metromedia's
stockholders at a time mutually agreed to by the Company and Metromedia to,
among other things, consider and vote upon this Agreement (the "Metromedia
Stockholders' Meeting"), and Metromedia shall consult with the Company in
connection therewith.
(d) S-3; S-8. Metromedia shall enter into a registration rights
--------
agreement with Samuel Goldwyn, Jr. and, as contemplated thereby, agrees to file
and use its best efforts to have declared effective by the SEC a Registration
Statement on Form S-3 (the "Form S-3") covering the shares of Metromedia Common
Stock to be received by Samuel Goldwyn, Jr. in the Merger. In addition,
Metromedia agrees to file a Form S-8 to cover the shares of Metromedia Common
Stock to be issued upon exercise of the Company Options (the "Form S-8").
(e) Directors' & Officers' Indemnification and Insurance.
----------------------------------------------------
(i) For a period of four years after the Effective Time,
Metromedia shall maintain in effect policies of directors' and officers'
liability insurance for the Surviving Corporation in substantially the same form
<PAGE>
45
with substantially the same terms and conditions as contained in the Company's
current policies of directors' and officers' liability insurance with respect to
claims arising from facts or events which occurred before the Effective Time.
(ii) From and after the Effective Time, the Surviving
Corporation will indemnify and hold harmless each present and former director
and officer of the Company and its Subsidiaries, determined as of the Effective
Time (the "Indemnified Parties"), against any costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages or
liabilities incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent that the Company or such Subsidiary would have been
permitted under applicable law and its certificate of incorporation or by-laws
as in effect on the date hereof, to indemnify such person (and the Surviving
Corporation shall advance expenses as incurred to the fullest extent permitted
under applicable law provided the person to whom expenses are advanced provides
an undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification).
(iii) Any Indemnified Party wishing to claim indemnification
under Section 4.3(e), upon learning of any such claim, action, suit, proceeding
or investigation, shall promptly notify the Surviving Corporation thereof, but
the failure to so notify shall not relieve the Surviving Corporation of any
liability it may have to such Indemnified Party except to the extent such
failure materially prejudices the Surviving Corporation. In the event of any
such claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), an Indemnified Party may retain counsel satisfactory
to him or her, the Surviving Corporation shall pay all reasonable fees and
expenses of such counsel for the Indemnified Party promptly as statements
therefor are received. The Surviving Corporation shall use its respective best
efforts to assist in the defense of any such matter. If such indemnity is not
available with respect to any Indemnified Party, then the Surviving Corporation
and the Indemnified Party shall contribute to the amount payable in such
proportion as is appropriate to reflect relative faults and benefits.
(iv) The provisions of this Section 4.3(e) are intended
for the benefit of, and shall be
<PAGE>
46
enforceable by, each Indemnified Party and his or her heirs and representatives.
(f) Tax Returns. All Tax Returns required to be filed by or with
-----------
respect to Metromedia and its Subsidiaries (or any of them) after the date
hereof and on or before the Effective Time shall be prepared and timely filed,
in a manner consistent with prior years and applicable laws and regulations
other than such Tax Returns for which the failure to file would not have a
Material Adverse Effect with respect to Metromedia.
(g) Interim Financing. Promptly following the execution of this
-----------------
Agreement, Metromedia shall use its best efforts to cause Orion Pictures
Corporation or an Affiliate of Orion Pictures Corporation to provide the Company
up to $5.5 million of financing in accordance with the terms of that certain
letter from Orion Pictures Corporation to the Company dated the date hereof (the
"Interim Financing").
(h) Production and Development. From and after the Closing Date,
--------------------------
Metromedia will provide the Surviving Corporation with a revolving credit
facility in the aggregate principal amount of $20,000,000 to be utilized by the
Surviving Corporation solely for the production and acquisition (including by
way of a negative pick-up) of Motion Picture Product (as hereinafter defined).
Motion Picture Product shall mean full-length feature films with budgeted
negative costs (including all costs customarily included in connection with the
preparation, production and completion, both above-the-line and below-the-line,
of such product) not in excess of $5,000,000 (provided that one film per fiscal
year may have a budgeted negative cost not in excess of $7,000,000) which is,
(i) with respect to Motion Picture Product produced by the Surviving
Corporation, approved in advance by the Office of the Chairman of Metromedia and
(ii) with respect to Motion Picture Product acquired by the Surviving
Corporation, is either approved in advance or is a feature film included in an
acquisition plan or acquisition strategy for a film festival or similar event
the acquisition costs of which were pre-approved by the Office of the Chairman
of Metromedia. In addition, Metromedia will provide the Surviving Corporation
with a revolving development fund for the development of Motion Picture Product
which will not exceed at any time $1,000,000 for the one year period from the
Effective Time to the first anniversary of the Effective Time, increasing by
$250,000 per year thereafter to a maximum of $2,000,000. As projects are
"greenlighted" by Metromedia, the amount of development costs for such Motion
Picture Product shall be included in the budgeted negative cost for such project
and the amount of the Surviving Corporation's development fund shall be
<PAGE>
47
increased (up to the applicable maximum amount) by the amount of such
development costs that become included in the budgeted negative costs for
projects. In addition, the Surviving Corporation may expend amounts for the
development of television product (other than deficit-financed television
product) as such amounts are approved by the Office of the Chairman of
Metromedia.
ARTICLE 5
CONDITIONS PRECEDENT
Section 5.1 Conditions to the Obligations of Metromedia and the
---------------------------------------------------
Company to Effect the Merger. The respective obligations of each party to effect
- ----------------------------
the Merger shall be subject to the satisfaction prior to the Closing Date of the
following conditions:
(a) Stockholder Approval. This Agreement shall have been
--------------------
approved and adopted by the affirmative vote of a majority of the votes that the
holders of each of the outstanding shares of Metromedia Common Stock and the
Company Common Stock, respectively, are entitled to cast; provided, that, to the
-------- ----
extent Metromedia determines in good faith upon the advice of counsel to
Metromedia that the approval by Metromedia's stockholders of the Merger and the
transactions contemplated by this Agreement is not required under applicable law
or the rules and regulations of the AMEX, Metromedia may unilaterally waive the
condition regarding approval by Metromedia's stockholders of the Merger and the
transactions contemplated by this Agreement.
(b) Registration Statement. The Registration Statement shall
----------------------
have become effective under the Securities Act and shall not be the subject of
any stop order or proceedings seeking a stop order.
(c) Blue Sky Laws. Metromedia shall have received all state
-------------
securities or "Blue Sky" permits and other authorizations necessary to issue the
shares of Metromedia Common Stock.
(d) Listing. The Metromedia Common Stock to be issued in the
-------
Merger pursuant to this Agreement shall have been authorized for listing on the
AMEX or any other national securities exchange or automated quotation system
approved by Metromedia and the Company, in each case, subject to official notice
of issuance.
(e) No Injunctions or Restraints. No temporary restraining
----------------------------
order, preliminary or permanent injunction
<PAGE>
48
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition (an "Injunction") restraining or preventing the
consummation of the Merger or subjecting any party or any of its Affiliates to
substantial damages as a result of the consummation of the Merger shall be in
effect; provided, however, that the party invoking this condition shall have
-------- -------
used reasonable best efforts to have vacated such Injunction.
(f) HSR Act. All HSR Act waiting periods shall have expired or
-------
been terminated.
(g) Governmental and Regulatory Consents. All filings required
------------------------------------
to be made prior to the Effective Time with, and all consents, approvals,
permits and authorizations required to be obtained prior to the Effective Time
from, Governmental Entities, including, without limitation, those set forth in
the Metromedia Disclosure Schedule and/or the Company Disclosure Schedule, in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by Metromedia and the
Company will have been made or obtained (as the case may be).
(h) The Company Required Consents. The Company Required
-----------------------------
Consents shall have been obtained and be in full force and effect, except for
those the failure to obtain which would not have a Material Adverse Effect with
respect to the Company and its Subsidiaries (and Metromedia shall have received
evidence thereof reasonably satisfactory to it).
(i) Metromedia Required Consents. The Metromedia Required
----------------------------
Consents shall have been obtained and be in full force and effect, except for
those the failure to obtain which would not have a Material Adverse Effect with
respect to Metromedia and its Subsidiaries (and the Company shall have received
evidence thereof reasonably satisfactory to it).
(j) Employment Agreement. The Surviving Corporation shall have
--------------------
entered into an employment agreement with Samuel Goldwyn, Jr. having the
principal terms set forth in that certain letter dated as of the date hereof
from Metromedia to Mr. Goldwyn.
(k) Credit Agreement. All amounts outstanding under the Credit
----------------
Agreement (or any refinancing, renewal or extension thereof) shall have been
repaid or refinanced in full.
<PAGE>
49
(l) Interim Financing. The Interim Financing shall have been
-----------------
provided in the manner specified in the Financing and Distribution Agreement.
Section 5.2 Conditions to the Obligations of Metromedia. The
-------------------------------------------
obligations of Metromedia under this Agreement to consummate the transactions
contemplated hereby are subject to the satisfaction of the following conditions,
the imposition of which is solely for the benefit of Metromedia and any one of
more of which may be expressly waived by Metromedia, in its sole discretion,
except as otherwise required by law:
(a) Accuracy of Representations and Warranties. The
------------------------------------------
representations and warranties of the Company contained herein shall have been
true and correct in all material respects when made, and shall be true and
correct in all material respects at and as of the Closing Date as though made on
and as of the Closing Date (except to the extent that any such representation
and warranty had by its terms been made as of a specific date in which case such
representation and warranty shall have been true and correct as of such specific
date). Metromedia shall have received a certificate dated the Closing Date
signed by an executive officer of the Company certifying to the fulfillment of
this condition.
(b) Performance of Agreements. The Company shall have
-------------------------
performed in all material respects all obligations and agreements and complied
in all material respects with all covenants and conditions contained in this
Agreement or otherwise contemplated hereby to be performed and complied with by
it at or prior to the Closing Date. Metromedia shall have received a certificate
dated the Closing Date signed by an executive officer of the Company certifying
to the fulfillment of this condition.
(c) No Material Adverse Change. Since December 31, 1995, no
--------------------------
change or event shall have occurred which has had or could reasonably be
expected to have a Material Adverse Effect with respect to the Company.
(d) Opinions of Counsel. Metromedia shall have received the
-------------------
opinion of Rosenfeld, Meyer & Susman, L.L.P. dated the Effective Time
substantially in the form of Exhibit D hereto.
(e) Fairness Opinions. Metromedia shall have received the
-----------------
opinion of DLJ, as of the date determined by the Board of Directors of
Metromedia in connection with the approval of this Agreement and as of the date
the Proxy Statement is mailed to Metromedia stockholders, to the
<PAGE>
50
effect that the Merger is fair to the Metromedia stockholders from a financial
point of view, which opinion shall not have been amended, modified or withdrawn.
(f) Affiliate Letters. Metromedia shall have received the
-----------------
Affiliate Letters executed by each Company Affiliate.
(g) Distribution Agreement. The agreement between the Company
----------------------
and the Trust relating to the distribution of the Samuel Goldwyn Classics
Library shall have been amended and restated in a manner satisfactory to
Metromedia containing the principal terms set forth on Exhibit E hereto.
(h) Trademark License. The license agreement between the Company
-----------------
and Samuel Goldwyn, Jr. relating to the use of certain trademarks shall have
been amended and restated in a manner satisfactory to Metromedia containing the
principal terms set forth on Exhibit F hereto.
(i) Option Agreement. The Option Agreement dated as of April 13,
----------------
1993 shall have been amended in a manner satisfactory to Metromedia with the
principal terms set forth on Exhibit G hereto.
(j) Certain Agreement. Metromedia shall be satisfied as to the
-----------------
matters referred to in that certain side letter dated the date hereof between
the Company and Metromedia.
(k) Certain Assets. The assets of Productions and Nightlife
--------------
financed by the Company or otherwise relating to the Company's operations shall
have been transferred to the Surviving Corporation or another entity in a manner
satisfactory to Metromedia.
(l) Employment Agreement. The Surviving Corporation shall have
--------------------
entered into an employment agreement with Meyer Gottlieb in form and substance
satisfactory to the parties thereto.
(m) Other Indebtedness. The maturity date for all amounts
------------------
outstanding under the Loan and Security Agreement dated as of April 2, 1994 by
and between Perez Productions Limited and Banque Paribas Los Angeles Agency, as
amended, shall have been extended beyond the Effective Time.
Section 5.3 Conditions to the Obligations of the Company. The
--------------------------------------------
obligations of the Company to consummate the
<PAGE>
51
transactions contemplated hereby are subject to the satisfaction of the
following conditions, the imposition of which is solely for the benefit of the
Company and any one or more of which may be expressly waived by the Company, in
its sole discretion, except as otherwise required by law:
(a) Accuracy of Representations and Warranties. The
------------------------------------------
representations and warranties of Metromedia contained herein shall have been
true and correct in all material respects when made, and shall be true and
correct in all material respects at and as of the Closing Date as though made on
and as of the Closing Date (except to the extent that any such representation
and warranty had by its terms been made as of a specific date, in which case
such representation and warranty shall have been true and correct in all
material respects as of such specific date). The Company shall have received a
certificate dated the Closing Date signed by an executive officer of Metromedia
certifying to the fulfillment of this condition.
(b) Performance of Agreements. Metromedia shall have performed
-------------------------
in all material respects all obligations and agreements and complied in all
material respects with all covenants and conditions contained in this Agreement
to be performed and complied with by it at or prior to the Closing Date. The
Company shall have received a certificate dated the Closing Date signed by an
executive officer of Metromedia certifying to the fulfillment of this condition.
(c) Fairness Opinion. The Company shall have received the
----------------
opinion of Furman, Selz, L.L.C., as of the date the Board of Directors of the
Company approves this Agreement and as of the date the Proxy Statement is mailed
to the Company's stockholders, to the effect that the Merger Consideration is
fair to the Company's stockholders from a financial point of view, which opinion
shall not have been amended, modified or withdrawn.
(d) No Material Adverse Change. Since December 31, 1995, no
--------------------------
change or event shall have occurred which has had or could reasonably be
expected to have Material Adverse Effect with respect to Metromedia.
(e) Legal Opinions. The Company shall have received (i) the
--------------
opinion of Paul, Weiss, Rifkind, Wharton & Garrison dated the Effective Time
substantially in the form of Exhibit H hereto and (ii) the opinion of Rosenfeld,
Meyer & Susman, LLP to the effect that the Merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Code.
<PAGE>
52
(f) Forms S-3 and S-8. The Form S-3 and Form S-8 shall have
-----------------
been declared effective by the SEC.
ARTICLE 6
TERMINATION AND AMENDMENT
Section 6.1 Termination. This Agreement may be terminated and the
-----------
Merger contemplated hereby may be abandoned at any time prior to the Effective
Time whether before or after approval by the stockholders of Metromedia or the
Company:
(a) by mutual written consent of Metromedia and the Company;
(b) by either Metromedia or the Company if there has been a
material breach of any representation, warranty, covenant or agreement on the
part of the Company, on the one hand, or Metromedia, on the other hand, as the
case may be, set forth in this Agreement which breach, if not a wilful breach,
has not been cured within ten (10) Business Days following receipt by the
breaching party of notice of such breach;
(c) by either Metromedia or the Company if the Merger shall not
have been consummated before the Termination Date (or such later date as may be
agreed to by Metromedia and the Company); provided, however, that neither
-------- -------
party may terminate this Agreement under this Section 6.1(c) if the failure has
been caused by such party's material breach of this Agreement;
(d) by either Metromedia or the Company, if this Agreement shall
fail to receive the requisite vote for approval and adoption by the stockholders
of the Company at the Company Stockholders' Meeting;
(e) by either Metromedia or the Company, if (i) the Board of
Directors of the Company shall, modify or change the Recommendation in a manner
adverse to Metromedia or shall have resolved to do any of the foregoing; (ii)
the Board of Directors of the Company shall have recommended to the stockholders
of the Company a Transaction Proposal; (iii) a tender offer (including a self-
tender offer) or exchange offer for shares of capital stock of the Company,
which would result in the beneficial ownership by any Person or any "group" (as
defined in Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder) of more than 50% of the outstanding shares of any class
of capital stock of the Company, is commenced, and the Board of
<PAGE>
53
Directors of the Company recommends that the stockholders of the Company tender
their shares in such tender or exchange offer; or (iv) any Person shall have
acquired beneficial ownership or the right to acquire beneficial ownership of,
or any "group" shall have been formed which beneficially owns, or has the right
to acquire "beneficial ownership" of, more than 50% of the then outstanding
shares of any class of capital stock of the Company;
(f) by either Metromedia or the Company if this Agreement shall
fail to receive the requisite vote for approval and adoption by the stockholders
of Metromedia at the Metromedia Stockholders' Meeting; or
(g) by Metromedia or the Company if a court of competent
jurisdiction or other Governmental Entity shall have issued an order, decree or
ruling or taken any other action restraining, enjoining or otherwise prohibiting
the consummation of the Merger and such order, decree, ruling or other action
shall have become final and nonappealable.
Section 6.2 Effect of Termination. In the event this Agreement
---------------------
is terminated and the Merger abandoned pursuant to Section 6.1, all further
obligations of the parties hereunder shall terminate except that the obligations
set forth in Sections 4.1(a) and 4.1(b), this Section 6.2 and Section 7.5 shall
survive; provided that, if this Agreement is so terminated by a party because
one or more of the conditions to such party's obligations hereunder is not
satisfied as a result of the other party's willful or knowing failure to comply
with its obligations under this Agreement, the terminating party's right to
pursue all legal remedies for breach of contract or otherwise, including,
without limitation, damages relating thereto, shall also survive such
termination unimpaired.
ARTICLE 7
GENERAL PROVISIONS
Section 7.1 Certain Definitions. As used in this Agreement, the
-------------------
following terms shall have the meanings set forth in this Section:
(a) "Affiliate" means, with respect to any Person, any other
Person that, directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, such first Person.
(b) "Agent" means, with respect to any Person, such Person's
officers, directors, employees, attorneys,
<PAGE>
54
accountants, investment bankers, financial advisors or other representatives or
agents.
(c) "Business Day" means any day other than a day on which (i)
banks in the State of New York are authorized or obligated to be closed or (ii)
the AMEX is closed.
(d) "Debt" of any Person means, without duplication, (i) all
indebtedness of such Person for borrowed money (whether on-balance sheet or
off-balance sheet); (ii) all obligations of such Person evidenced by notes,
bonds, debentures or other similar instruments; (iii) all obligations of such
Person as lessees under leases that have been or should be, in accordance with
GAAP, recorded as capital leases; (iv) all obligations, contingent or otherwise,
of such Person under banker's acceptance, letter of credit or similar
facilities; (v) all Debt of others referred to in clauses (i) through (iv) above
guaranteed directly or indirectly in any manner by such Person; and (vi) all
Debt of others referred to in clauses (i) through (v) above secured by (or for
which the holder of such Debt has an existing right, contingent or otherwise, to
be secured by) any Lien on property (including, without limitation, accounts
and contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Debt.
(e) "Governmental Entity" means any foreign, federal, state,
municipal or other governmental or regulatory department, commission, board,
bureau, agency or instrumentality.
(f) "Material Adverse Effect" means, with respect to any Person,
any change or effect that is or is reasonably likely to be materially adverse to
the business, assets, properties, operations or condition (financial or
otherwise) of such Person and its Subsidiaries taken as a whole or adversely
affects the ability of such Person to consummate the transactions contemplated
by this Agreement in any material respect.
(g) "Person" means any individual, corporation, partnership,
firm, group (as such term is used in Section 13(d)(3) of the Exchange Act),
joint venture, association, trust, limited liability company, unincorporated
organization, estate, trust or other entity.
(h) "SEC" means the Securities and Exchange Commission.
(i) "Significant Subsidiary" shall have the meaning ascribed to
such term in Section 1-02(v) of
<PAGE>
55
Regulation S-X under the Securities Act and, shall include, with respect to
Metromedia, SGC Mergerco.
(j) "Subsidiary" of any Person means any corporation,
partnership, joint venture or other legal entity of which such Person (either
directly or through or together with any other Subsidiary of such Person), owns,
directly or indirectly, 50% or more of the stock or other equity interests the
holders of which are which are generally entitled to vote for the election of
the board of directors or similar governing body of such corporation,
partnership, joint venture or other legal entity.
(k) "Termination Date" shall mean September 30, 1996.
Section 7.2 Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed given when delivered personally, upon a
receipt of a transmittal confirmation if sent by facsimile or like transmission,
and on the next Business Day when sent by Federal Express, Express Mail or
similar overnight courier service to the parties at the following addresses or
facsimile numbers (or at such other address or facsimile number for a party as
shall be specified by like notice):
(a) If to the Company, to:
The Samuel Goldwyn Company
10203 Santa Monica Boulevard
Los Angeles, California 90067
Attention: Meyer Gottlieb
Facsimile: (310) 284-8493
with a copy to:
Rosenfold, Meyer & Susman, LLP
9601 Wilshire Boulevard
Beverly Hills, California 90210
Attention: Mel Ziontz, Esq.
Facsimile: (310) 271-6430
(b) If to Metromedia or SGC Mergerco, to:
Metromedia International Group, Inc.
c/o Metromedia Company
One Meadowlands Plaza
East Rutherford, New Jersey 07073
Attention: Arnold L. Wadler, Esq.
Facsimile: (201) 531-2803
<PAGE>
56
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: James M. Dubin, Esq.
Facsimile: (212) 757-3990
Section 7.3 Interpretation. When a reference is made in this Agreement
--------------
to Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made available
if requested by the party to whom such information is to be made available.
Dollar amounts referred to in this Agreement shall not be deemed to establish
any standard of materiality.
Section 7.4 Waivers and Amendments. This Agreement may be amended,
----------------------
superseded, canceled, renewed or extended, and the terms hereof may be waived,
only by written instruments signed by the parties to this Agreement, or in the
case of a waiver, by the party waiving compliance. Except where a specific
period for action or inaction is provided herein, no delay on the part of a
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof. Neither any waiver on the part of a party of any such right,
power or privilege, nor any single or partial exercise of any such right, power
or privilege, shall preclude any further exercise thereof or the exercise of any
other such right, power or privilege.
Section 7.5 Expenses and other Payments.
---------------------------
(a) The parties to this Agreement shall, except as otherwise
specifically provided herein, bear their respective expenses incurred in
connection with the preparation, execution and performance of this Agreement and
the transactions contemplated hereby, including, without limitation, all fees
and expenses of their respective Agents.
(b) The Company agrees that if this Agreement shall be
terminated pursuant to:
(i) Section 6.1(e); or
<PAGE>
57
(ii) (A) Section 6.1(b) and such termination is the result
of a material breach by the Company of any covenant, representation or warranty
contained herein which is not cured and (B) within six months after the date of
termination of this Agreement, a Business Combination (as hereinafter defined)
shall have occurred or the Company shall have entered into a definitive
agreement providing for a Business Combination;
then the Company shall pay to Metromedia an amount equal to $3 million
plus the reimbursement of all of Metromedia's fees and expenses, including all
of its reasonable legal, accounting and investment banking fees and expenses.
In addition, (i) if this Agreement is terminated by Metromedia
pursuant to Section 6.1(b), the Company shall reimburse all of Metromedia's fees
and expenses, including all of its reasonable legal, accounting and investment
banking fees and expenses relating to the Merger or (ii) if this Agreement is
terminated by the Company pursuant to Section 6.1(b), Metromedia shall reimburse
all of the Company's fees and expenses, including all of its reasonable legal,
accounting and investment banking fees and expenses relating to the Merger.
(c) Any payment required to be made pursuant to Section 7.5(b)
shall be made as promptly as practicable but not later than two Business Days
after termination of this Agreement and shall be made by wire transfer of
immediately available funds to an account designated by Metromedia, except that
any payment to be made as the result of an event described in Section 7.5(b)(ii)
shall be made as promptly as practicable but not later than two Business Days
after the earlier to occur of the Business Combination or the execution of the
definitive agreement providing for a Business Combination.
(d) For purpose of this Section 7.5, the term "Business
Combination" shall mean (i) a merger, consolidation, share exchange, business
combination or similar transaction involving the Company; (ii) a sale,
lease, exchange, transfer or other disposition of 50% or more of the assets of
the Company and its Subsidiaries taken as a whole, in a single transaction or
series of transactions; or (iii) the acquisition by any Person or "group" (as
defined in Section 13(d) of the Exchange Act and the rules and regulations
thereunder) of "beneficial ownership" of 50% or more of Company Common Stock
whether by tender offer or exchange offer or otherwise.
<PAGE>
58
Section 7.6 Assignment. Neither this Agreement nor any of the
----------
rights, interests or obligations hereunder shall be assigned by either of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
Section 7.7 Entire Agreement; No Third Party Beneficiaries. This
----------------------------------------------
Agreement (including the documents and the instruments referred to herein) (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and (b) other than Section 7.6 is not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder.
Section 7.8 Representations and Warranties. None of the
------------------------------
representations and warranties of the parties made in this Agreement or in any
instrument delivered hereunder shall survive the Closing.
Section 7.9 Governing Law. This Agreement shall be governed and
-------------
construed in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed entirely within such state.
Section 7.10 Counterparts. This Agreement may be executed in one
------------
or more counterparts, each of which shall be an original and all of which, when
taken together, shall constitute one and the same instrument.
<PAGE>
59
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective officers thereunto duly authorized as of the date
first above written.
METROMEDIA INTERNATIONAL
GROUP, INC.
By: /s/ JOHN D. PHILLIPS
---------------------------
Name: John D. Phillips
Title: President
SGC MERGER CORP.
By: /s/ JOHN D. PHILLIPS
---------------------------
Name: John D. Phillips
Title: President
THE SAMUEL GOLDWYN COMPANY
By: /s/ MEYER GOTTLIEB
---------------------------
Name: Meyer Gottlieb
Title: President
<PAGE>
GOLDWYN MERGER SCHEDULES
------------------------
<TABLE>
<S> <C>
Schedule 3.1(a) Organization Standing and Corporate Power: Subsidiaries
Schedule 3.1(c) Capitalization
Schedule 3.1(d) SEC Documents: Financial Statements
Schedule 3.1(g)(i) Governmental Approvals: Required Consents - Government
Schedule 3.1(g)(ii) Governmental Approvals: Required Consents - Non-Government
Schedule 3.1(h)(ii) Non-Contravention
Schedule 3.1(i) Litigation
Schedule 3.1(J)(ii) Taxes and Related Tax Matters
Schedule 3.1(j) Tax and Related Tax Matters
Schedule 3.1(k) Certain Agreements
Schedule 3.1(l) Employee Benefits
Schedule 3.1(m) Contracts
Schedule 3.1(n) Environmental
Schedule 3.1(q)(i) Real Estate -- Own
Schedule 3.1(q)(ii) Real Estate -- Lease
Schedule 3.1(r) Intellectual Property
Schedule 3.2(a) Significant Subsidiaries
Schedule 3.2(c) Options, Warrants, etc
Schedule 3.2(g)(i) Consents
Schedule 3.2(g)(ii) Consents
Schedule 3.2(h)(ii) Non-Contravention Agreements
Schedule 3.2(j) Taxes and Tax Related Matters
Schedule 3.2(k) Certain Agreement
Schedule 3.2(l) Employee Benefits
Schedule 3.2(n) Environmental Matters
Schedule 3.2(o) Absence of Certain Changes or Events
Schedule 3.2(q)(i) Real Estate - Owned Real Property
Schedule 3.2(q)(ii) Real Estate - Real Estate Leases
Schedule 3.2(r) Intellectual Property
</TABLE>
<PAGE>
EXHIBIT 2.4
AMENDMENT NO. 1 TO THE GOLDWYN MERGER AGREEMENT
AMENDMENT NO. 1 TO THE GOLDWYN MERGER AGREEMENT ("Amendment No. 1") dated
as of May 29, 1996 by and among Metromedia International Group, Inc., a Delaware
corporation ("Metromedia"), SGC Merger Corp., a Delaware corporation and a
wholly-owned subsidiary of Metromedia ("SGC Mergerco") and The Samuel Goldwyn
Company, a Delaware corporation (the "Company").
WHEREAS, Metromedia, SGC Mergerco and Goldwyn are parties to a Merger
Agreement dated as of January 31, 1996 (the "Goldwyn Merger Agreement"),
pursuant to which SGC Mergerco will merge with and into the Company (the
"Merger"), with the Company as the surviving corporation of the Merger; and
WHEREAS, Metromedia, SGC Mergerco and the Company desire to amend certain
provisions of the Goldwyn Merger Agreement as set forth herein.
NOW THEREFORE, the parties hereto hereby agree as follows:
1. Section 2.1(a) of the Goldwyn Merger Agreement is amended by replacing
the following phrase beginning on the 24th line thereof and ending on the 27th
line thereof:
"which is five business days prior to the Metromedia Stockholders'
Meeting (as defined in Section 4.3(c) hereof) including both the day of
the Metromedia Stockholders' Meeting."
with the following phrase:
"which is five business days prior to the Company Stockholders' Meeting
(as defined in Section 4.2(c) hereof) including both the day of the
Company Stockholders' Meeting."
2. Section 4.1(c) of the Goldwyn Merger Agreement is amended by deleting
in its entirety the phrase beginning on the 6th line thereof and ending on the
9th line thereof: "it being understood that the Proxy Statement and the
Prospectus will also serve as a proxy statement and prospectus for Metromedia's
transactions with Alliance Entertainment Corp."
3. Section 4.3 of the Goldwyn Merger Agreement is amended by (i) deleting
in its entirety paragraph (c) thereof and (ii) relettering paragraphs (d)
through (h) thereof as paragraphs (c) through (g) thereof.
<PAGE>
2
4. The introductory paragraph to Section 6.1 of the Goldwyn Merger
Agreement is amended by replacing the phrase "whether before or after approval
by the stockholders of Metromedia or the Company" with "whether before or after
approval by the stockholders of the Company."
5. Section 6.1 of the Goldwyn Merger Agreement is amended by (i) deleting
in its entirety paragraph (f) thereof and (ii) relettering paragraph (g) thereof
as paragraph (f) thereof.
6. In accordance with Section 5.1(a), Metromedia hereby unilaterally
waives the condition regarding approval by its stockholders of the Merger and
the transactions contemplated by the Goldwyn Merger Agreement.
7. This Amendment No. 1 shall be governed by the laws of the State of
Delaware, applicable to agreements made and to be performed entirely within such
State.
8. This Amendment No. 1 may be executed in one or more counterparts, each
of which shall be deemed an original, with all of which together shall
constitute one in the same instrument.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 on the
date first written above.
METROMEDIA INTERNATIONAL GROUP, INC.
By: /s/ SILVIA KESSEL
------------------------------
Name: Silvia Kessel
Title: Senior Vice President
By: /s/ SILVIA KESSEL
------------------------------
Name: Silvia Kessel
Title: Senior Vice President
THE SAMUEL GOLDWYN COMPANY
By: /s/ MEYER E. GOTTLIEB
--------------------------------
Name: Meyer E. Gottlieb
Title: President
<PAGE>
EXHIBIT 2.5
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of May 17,
1996 (as amended, supplemented or otherwise modified from time to time, this
"Agreement"), between METROMEDIA INTERNATIONAL GROUP, INC., a Delaware
corporation, ("Metromedia"), MPCA MERGER CORP., a Delaware corporation and a
wholly-owned subsidiary of Metromedia ("MPCA Mergerco"), and Bradley Krevoy and
Steven Stabler (collectively, the "Stockholders") and MOTION PICTURE CORPORATION
OF AMERICA, a Delaware corporation (the "Company").
WHEREAS, the Stockholders are the beneficial and record owners of 545,916
issued and outstanding shares (the "Shares") of common stock, $.01 par value
per share, of the Company ("Company Common Stock");
WHEREAS, upon the terms and subject to the conditions of this Agreement,
the Company has agreed that at the Effective Time (as hereinafter defined), MPCA
Mergerco will merge with and into the Company (the "Merger") and, among other
things, the Stockholders will receive shares of Metromedia in the manner
provided in Section 2;
WHEREAS, Metromedia, MPCA Mergerco and the Company wish to make certain
representations, warranties and agreements in connection with the Merger and
also prescribe various conditions to the Merger.
Capitalized terms used herein and not otherwise defined shall have the
meanings assigned thereto in Section 12 hereof.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions set forth
----------
in
<PAGE>
this Agreement, and in accordance with the Delaware General Corporation Law (the
"DGCL"), MPCA Mergerco shall be merged with and into the Company at the
Effective Time. Upon and after the Effective Time, the separate corporate
existence of MPCA Mergerco shall cease and the Company shall be the surviving
corporation in the Merger (the "Surviving Corporation"). In accordance with the
DGCL, all of the rights, privileges, powers, immunities, purposes and franchises
of MPCA Mergerco and the Company shall vest in the Surviving Corporation and all
of the debts, liabilities, obligations and duties of MPCA Mergerco and the
Company shall become the debts, liabilities, obligations and duties of the
Surviving Corporation.
Section 1.2 Closing. The closing of the Merger (the "Closing") will take
-------
place at the offices of Metromedia Company at 10:00 a.m. on a Business Day (as
hereinafter defined) mutually agreed to by Metromedia, the Company and the
Stockholders prior to the Termination Date (as hereinafter defined) following
the satisfaction or waiver by the party entitled to the benefit of such
condition of each of the conditions set forth in Articles 7 and 8 or at such
other place, time and date as Metromedia, the Company and the Stockholders may
agree. The time and date upon which the Closing occurs is referred to herein as
the "Closing Date".
Section 1.3 Effective Time. On the Closing Date (or on such other date as
--------------
Metromedia, the Company and the Stockholders may agree), MPCA Mergerco and the
Company shall cause a Certificate of Merger (the "Certificate of Merger") to be
executed and filed with the Secretary of State of the State of Delaware in
accordance with the relevant provisions of the DGCL and shall make all other
filings or recordings required under the DGCL. The Merger shall become effective
at such time as the Certificate of Merger is duly filed with the Secretary of
State of the State of Delaware, or at such later time as Metromedia, the Company
and the Stockholders agree to specify in the Certificate of Merger (the
"Effective Time").
Section 1.4 Name, Certificate of Incorporation and By-laws. The Certificate
----------------------------------------------
of Incorporation (as defined in Section 104 of the DGCL) of the Company as in
effect at the Effective Time shall be the Certificate of Incorporation of the
Surviving Corporation from
2
<PAGE>
and after the Effective Time until thereafter changed or amended as provided
therein or by applicable law except that the Certificate of Incorporation of the
Surviving Corporation shall be amended at the Effective Time to decrease the
number of authorized shares to 1000. The By-laws of the Company at the Effective
Time shall be the By-laws of the Surviving Corporation until thereafter changed
or amended as provided therein or by applicable law.
Section 1.5 Officers and Directors.
----------------------
(a) The by-laws of the Surviving Corporation shall be amended to provide
that each of the directors of MPCA Mergerco and the Company at the Effective
Time shall be the directors of the Surviving Corporation and shall hold office
until their respective successors are duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Certificate of Incorporation and By-laws of the Surviving Corporation.
(b) The officers set forth on Schedule 1.5 hereto shall be the officers of
the Surviving Corporation and they shall hold office until their respective
successors are duly elected or appointed and qualified or until their earlier
death, resignation or removal in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation.
ARTICLE 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK AND OPTIONS;
EXCHANGE OF CERTIFICATES
Section 2.1 Effect on Capital Stock of the Company. At the Effective Time, by
--------------------------------------
virtue of the Merger and without any action on the part of the holder thereof:
(a) Conversion of Shares of Company Common Stock. Each issued and
--------------------------------------------
outstanding share of Company Common Stock (the "Company Common Stock") shall,
subject to compliance with Section 2.2, be converted into the right to receive
the Initial Shares, the Adjustment Shares (as defined herein) and, to the extent
the Closing Date Boot Limit exceeds the Existing Note Amount (as such terms are
defined in Section 2.3), the additional consideration set forth in Section 2.3
to the extent of such excess. At the Effective Time, all such shares of Company
Common Stock shall no longer be outstanding
3
<PAGE>
and shall automatically be cancelled and retired and shall cease to exist, and
the Stockholders, who collectively hold certificates representing all such
shares of Company Common Stock shall cease to have any rights with respect
thereto, except the right to receive for each share of Company Common Stock
outstanding at the Effective Time (a) the Initial Shares (as defined herein) to
be issued in consideration therefor upon surrender of such certificates in
accordance with Section 2.2, without interest, plus (b) the Adjustment Shares
(as defined herein), if any, to be issued on the Adjustment Date (as defined
herein), without interest. The term "Initial Shares" shall mean a number of
fully paid and non-assessable shares of Common Stock, par value $1.00 per share,
of Metromedia (the "Metromedia Common Stock") equal to a fraction (rounded to
the fourth decimal point), (i) the numerator of which is 1,433,636 and (ii) the
denominator of which is the number of shares of Company Common Stock outstanding
at the Effective Time ("Company Outstanding Shares"). The term "Adjustment
Shares" shall mean (A) if the Average Closing Price (as defined herein) is less
than $16.50, a number of fully paid and non-assessable shares of Metromedia
Common Stock equal to (i) a fraction (rounded to the fourth decimal point), (a)
the numerator of which is (I) 23,655,000 less (II) the product of (x) 1,433,636
and (y) the Average Closing Price, and (b) the denominator of which is the
Average Closing Price, divided by (ii) the number of Company Outstanding Shares
(rounding the quotient of (i) and (ii) to the fourth decimal point); provided,
--------
however, that in no event shall the Adjustment Shares exceed (i) 458,764 divided
- -------
by (ii) the number of Company Outstanding Shares, or (B) if the Average Closing
Price is greater than or equal to $16.50, zero. The term "Average Closing Price"
shall have the meaning ascribed to such term in that certain Agreement and Plan
of Merger (the "Goldwyn Merger Agreement") dated as of January 31, 1996 by and
among Metromedia, SGC Merger Corp. and The Samuel Goldwyn Company; provided,
--------
however, if the transactions contemplated by the Goldwyn Merger Agreement are
- -------
not consummated on or before September 30, 1996, the term "Average Closing
Price" shall mean the average of the last sale prices for the Metromedia Common
Stock as reported by the American Stock Exchange for the last 20 consecutive
trading days ending on September 30, 1996. The term "Adjustment Date" shall
4
<PAGE>
mean five business days following the earlier of (i) the consummation of the
transactions contemplated by the Goldwyn Merger Agreement and (ii) September 30,
1996.
(c) Treasury Shares. Each share of Company Common Stock held in treasury
---------------
by the Company immediately prior to the Effective Time shall, by virtue of the
Merger, be cancelled and retired and cease to exist, without any conversion
thereof.
(d) Mergerco Common Stock. Each then issued outstanding share of Common
---------------------
Stock, par value $.01 per share ("Mergerco Common Stock") of MPCA Merger Co.
shall be converted into one fully paid and non-assessable shares of Common
Stock, $.01 par value per share of the Surviving Corporation.
Section 2.2 Exchange of Certificates.
------------------------
(a) Exchange Procedures. At the Closing, the Stockholders shall deliver to
-------------------
Metromedia all of the issued and outstanding shares of stock of Company Common
Stock, including the Restricted Stock, and Metromedia shall deliver to the
Stockholders the Initial Shares. The Adjustment Shares shall be delivered to the
Stockholders on the Adjustment Date. The notes and/or other shares of Metromedia
Common Stock issuable to the Stockholders pursuant to Section 2.3 on account of
the Company Common Stock and the existing indebtedness of the Company to the
Stockholders shall be delivered as set forth in Section 2.3.
(b) Rule 144 Legend. The shares delivered to the Stockholders in
---------------
accordance with Section 2.2(a) and, if applicable, Section 2.3, shall contain a
restrictive legend pursuant to Rule 144 under the Securities Act of 1933, as
amended.
Section 2.3 Stockholder Loans; Additional Consideration.
-------------------------------------------
(a) For purposes of this Section 2.3, the following terms shall have the
following meanings:
(i) "Tax Fair Market Value Per Share" of Metromedia Common Stock on a
certain date shall mean the lesser of (A) the closing price of Metromedia Common
Stock as reported by the American Stock Exchange for such date or (B) the
average of the high and the low price of Metromedia Common Stock as reported by
the American Stock Exchange for such date.
5
<PAGE>
(ii) "Existing Note Amount" shall mean the aggregate principal amount
of the existing indebtedness of the Company to the Stockholders determined at
the close of business on the date immediately preceding the date during which
the Effective Time occurs, but not to exceed $5,000,000.
(iii) "Closing Date Boot Limit" shall mean 25% of the Tax Fair Market
Value Per Share at the Effective Time multiplied by the number of Initial
Shares.
(iv) "Test Principal Amount" of a note described in this Section 2.3
shall be the amount assigned to it in such Section 2.3. The actual principal
amount of such a note shall be determined pursuant to Section 2.3(g) below.
(v) "Maximum Additional Note Amount" shall mean the excess, if any, of
$5,000,000 over the aggregate principal amount of notes issued pursuant to
Sections 2.3(c)(i) or 2.3(d)(ii) below.
(vi) "Stock Amount" shall mean the excess, if any, of the Maximum
Additional Note Amount over the Test Principal Amount of the notes issued
pursuant to Section 2.3(e) below.
(b) If the Closing Date Boot Limit equals or exceeds $5,000,000, then
at the Closing:
(i) Metromedia shall issue to each of the Stockholders a note dated as
of the Effective Date with principal amount equal to, and in replacement for,
the existing indebtedness of the Company to such Stockholder,
(ii) Metromedia shall issue to the Stockholders, between them in
proportion to the number of shares of Company Common Stock, shares which such
Stockholders deliver pursuant to Section 2.2(a), notes dated as of the Effective
Date with aggregate Test Principal Amounts equal to the difference between
$5,000,000 and the aggregate principal amounts of the notes issued pursuant to
Section 2.3(b)(i) above, and
(iii) Section 2.3(e) shall not apply.
(c) If the Closing Date Boot Limit is less than $5,000,000 but greater
than or equal to the Existing Note Amount, then:
(i) Metromedia shall issue to each of the Stockholders a note
6
<PAGE>
dated as of the Effective Date with principal amount equal to, and in
replacement for, the existing indebtedness of the Company to such Stockholder,
and
(ii) The provisions of Section 2.3(e) shall apply.
(d) If the Closing Date Boot Limit is less than the Existing Note
Amount, then:
(i) The Stockholders shall contribute to the capital of the Company as
of the Effective Time an amount of the Company's existing indebtedness to the
Stockholders equal to the excess of the Existing Note Amount over the Closing
Date Boot Limit, between the Stockholders in proportion to their amounts of the
Company's indebtedness to the Stockholders, to reduce the amount of the
Company's indebtedness outstanding to the Stockholders at that time to the
Closing Date Boot Limit,
(ii) Metromedia shall issue to each of the Stockholders a note dated
as of the Effective Date with principal amount equal to, and in replacement for,
the then reduced indebtedness of the Company to such Stockholder and
(iii) The provisions of Section 2.3(e) shall apply.
(e) If the Closing Date Boot Limit is less than $5,000,000, then this
Section 2.3(e) applies and on the Adjustment Date, Metromedia shall issue to the
Stockholders, between them in proportion to the number of shares of Company
Common Stock which such Stockholders deliver pursuant to Section 2.2(a), notes
dated as of the Adjustment Date with aggregate Test Principal Amounts equal to
the Maximum Additional Note Amount, but not to exceed the lesser of the amounts
D and E in the equations below:
D = [.25 x TFMV2 x (N1 + N2)] - FN
E = [.25 x [(TFMV1 x N1) + (TFMV2 x N2))] - FN
where
TFMV1 = the Tax Fair Market Value per share at Effective Time
TFMV2 = the Tax Fair Market Value per share on the Adjustment Date
N1 = the aggregate number of Initial Shares
N2 = the aggregate number of Adjustment Shares
FN = the principal amount of notes issued pursuant to Sections 2.3(c)(i) or
2.3(d)(ii).
7
<PAGE>
(f) If the Closing Date Boot Limit is less than $5,000,000 so that
Section 2.3(e) applies but the Test Principal Amount of the notes issued
pursuant to such Section 2.3(e) is less than the Maximum Additional Note Amount,
then Metromedia shall, on the Adjustment Date, issue to the Stockholders,
between them in proportion to the number of shares of Company Common Stock which
such Stockholders deliver pursuant to Section 2.2(a), a number of shares of
Metromedia Common Stock equal to N3 in the equation:
N3 = Stock Amount/Average Closing Price,
then rounded down to the next lowest whole number of shares of Metromedia Common
Stock, provided, however, that the number of shares issued pursuant to this
Section 2.3(f) shall not exceed 974,872
(g) Any notes issued by Metromedia pursuant to Section 2.3 shall bear
interest at the applicable federal rate as defined in Section 1274 of the
Internal Revenue Code of 1986, as amended and shall be due 10 days after the
Adjustment Date. Any notes issued pursuant to Sections 2.3(b)(ii) and 2.3(e)
shall have an actual principal amount computed as follows: the Test Principal
Amount of each note shall be reduced by $500, and such reduced amount shall be
rounded down to the nearest even multiple of $1000.
(h) The notes and/or shares of Metromedia Common Stock issued pursuant
to this Section 2.3, to the extent equal to or less than the Existing Note
Amount shall be in satisfaction of the existing indebtedness of the Company to
the Stockholders.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3. The Company represents and warrants to Metromedia as follows:
3.1 Due Incorporation and Authority. The Company is a corporation duly
-------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and lawful authority to own,
lease and operate its Properties and to carry on its business as is presently
being conducted.
3.2 Subsidiaries and Other Affiliates. Schedule 3.2 sets forth the name
---------------------------------
8
<PAGE>
and jurisdiction of organization of each corporation or other entity
(collectively, "Subsidiaries") in which the Company directly or indirectly owns
or has the power to vote shares of any capital stock or other ownership
interests having voting power to elect a majority of the directors of such
corporation, or other Persons performing similar functions for such entity, as
the case may be. Except for the Subsidiaries and except as set forth on Schedule
3.2, the Company does not directly or indirectly own any ownership interest in
any other Person. Each of the Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization and has the corporate power and lawful authority to own, lease and
operate its Properties and to carry on its business as is presently being
conducted.
3.3 Qualification. The Company and each of the Subsidiaries is duly
-------------
qualified or otherwise authorized as a foreign corporation to transact business
and is in good standing in each jurisdiction set forth on Schedule 3.3, which
are the only jurisdictions in which such qualification or authorization is
required by law, except in those jurisdictions in which failure to be so
qualified or authorized would not, in the aggregate have a material adverse
effect on the Properties, business, operation or financial condition of the
Company and the Subsidiaries taken as a whole (a "Material Adverse Effect").
3.4 Outstanding Capital Stock. The Company is authorized to issue
-------------------------
545,916 shares of Company Common Stock, of which 545,916 shares are issued, and
are outstanding and no shares are held by the Company as treasury stock. All of
the outstanding shares of Common Stock are owned by the Stockholders in the
respective amounts set forth on Exhibit A. The authorized and issued shares of
capital stock of each Subsidiary are set forth on Schedule 3.4. All issued and
outstanding capital stock of each Subsidiary is owned by the Company, free and
clear of any lien, pledge, mortgage, security interest, claim, lease, charge,
option, right of first refusal, easement, servitude, transfer restriction under
any shareholder or similar agreement, encumbrance or any other restriction or
limitation whatsoever (collectively, "Liens"), except as created by this
Agreement and except for limitations on transfers imposed by Federal and state
securities or "blue sky" laws. All of the outstanding shares of capital stock of
the Company and the Subsidiaries are
9
<PAGE>
duly authorized and validly issued, fully paid and nonassessable. No other class
of capital stock or other ownership interests of the Company or any of the
Subsidiaries is authorized or outstanding.
3.5 Options or Other Rights. Except as set forth on Schedule 3.5, there
-----------------------
is no outstanding right, subscription, warrant, call, unsatisfied preemptive
right, option or other agreement of any kind to purchase or otherwise to receive
from the Company, any of the Subsidiaries or any Stockholder any of the
outstanding, authorized but unissued, unauthorized or treasury shares of the
capital stock or any other security of the Company or any of the Subsidiaries,
and there is no outstanding security or instrument of any kind convertible into,
exercisable for, or exchangeable for any such capital stock.
3.6 Charter Documents and Corporate Records. The Company has
---------------------------------------
heretofore caused to be delivered to Metromedia true and complete copies of the
Certificates of Incorporation and By-laws, or comparable instruments, of the
Company and each of the Subsidiaries as in effect on the date hereof and has
made available for inspection the true and complete minute books of the Company
and each of the Subsidiaries through the date hereof.
3.7 Financial Statements. The combined balance sheets of the Company
--------------------
and its Affiliates as of December 31, 1993, December 31, 1994, and December 31,
1995 and the related combined statements of income, and retained earnings and
partners' capital and cash flows for the years then ended, including the
footnotes thereto, certified by KPMG Peat Marwick, independent certified public
accountants, which have been delivered to Metromedia, fairly present in all
material respects the combined financial position of the Company and its
Affiliates as at such dates and the combined results of operations of the
Company and its Affiliates for such respective periods, in each case in
accordance with generally accepted accounting principles consistently applied
for the periods covered thereby. The foregoing combined financial statements of
the Company and its Affiliates as of December 31, 1995, and for the year then
ended are sometimes herein called the "Audited Financials". The unaudited
combined balance sheet of the Company and its Affiliates as of March 31, 1996
and the related combined statement of income which have
10
<PAGE>
been delivered to Metromedia, fairly present in all material respects the
combined financial position of the Company and its Affiliates as at such date
and the results of operations of the Company for the three months then ended, in
each case in conformity with generally accepted accounting principles applied on
a basis consistent with that of the Audited Financials (subject to the normal
year-end adjustments described in Schedule 3.7) and with all interim financial
statements of the Company heretofore delivered to Metromedia. The foregoing
unaudited combined financial statements of the Company and its Affiliates as of
March 31, 1996 and for the three months then ended are sometimes herein called
the "Interim Financials," the combined balance sheet included in the Interim
Financials is sometimes herein called the "Balance Sheet" and March 31, 1996 is
sometimes herein called the "Balance Sheet Date." Except as set forth on
Schedule 3.7, all of the assets reflected on the Balance Sheet are owned by the
Company or one of its Affiliates.
3.8 No Material Adverse Change. Except as set forth on Schedule 3.8,
--------------------------
since the Balance Sheet Date, there has been no material adverse change in the
Properties, business, prospects, results of operations or financial condition of
the Company and the Subsidiaries taken as a whole (a "Material Adverse Effect")
other then changes in prospects resulting from changes in general economic,
political, legal or other like conditions and in the motion picture industry
generally. Neither the Company nor any of the Subsidiaries Knows (as defined in
Section 12.1(ii)) of any fact, event, circumstance or change which is reasonably
likely to have a Material Adverse Effect and neither the Company nor any of its
Subsidiaries knows of any fact, event, circumstance or change which is
reasonably likely to result in any damage, destruction or loss of value with
respect to the Properties of the Company or any of the Subsidiaries not covered
by insurance which has had a Material Adverse Effect.
3.9. Tax Matters.
-----------
(i) Schedule 3.9(a) identifies all partnerships and corporations
which were predecessors or were Affiliates of the Company and the Subsidiaries.
(ii) Schedule 3.9(a)(ii) identifies which corporations, included
among the Company, the Subsidiaries, and their respective predecessors or
Affiliates were
11
<PAGE>
intended to be taxed as "S Corporations" pursuant to Sections 1362 et. seq. of
-- ---
the Internal Revenue Code of 1986, as amended (Code") and comparable provisions
of state and local tax laws applicable to such corporations (the "S
Corporations"). The S Corporations timely filed elections to be taxed as "S
Corporations" pursuant to Sections 1362 et. seq. of the Code and comparable
-- ---
provisions of state and local tax laws applicable to the S Corporations. The
Company has provided Metromedia with copies of any such elections. The S
Corporations' elections did not terminate under Sections 1362(d)(2) or (3) of
the Code or comparable provisions of state and local tax laws applicable to the
S Corporations, and such elections remained in full force and effect and were
not voluntarily revoked, until such S Corporations were liquidated, merged with
and into the Company or became one of the Subsidiaries.
(iii) All federal, state, county, local, foreign and other taxes
(including, without limitation, income, profits, premium, estimated, excise,
sales, use, occupancy, gross receipts, franchise, ad valorem, severance, capital
levy, production, transfer, withholding, employment, unemployment compensation,
payroll related, property, import duties and other governmental charges and
assessments), whether or not measured in whole or in part by net income, and
including deficiencies, interest, additions to tax or interest, and penalties
with respect thereto, (hereinafter "Taxes" or, individually, a "Tax") required
to be paid on or before the date hereof (after giving effect to any applicable
extensions) by or with respect to the Company, the Subsidiaries and their
respective predecessors or Affiliates (or any of them), have been, or will be,
timely paid when due (including extensions), except with respect to Taxes for
which the failure to pay would not have a Material Adverse Effect with respect
to the Company and the Subsidiaries taken as a whole.
(iv) All material declarations, reports, information returns,
statements and returns for Taxes (hereinafter "Tax Returns" or, individually, a
"Tax Return") required to be filed by or with respect to the Company, the
Subsidiaries or their respective predecessors or Affiliates (or any of them) on
or before the date hereof have been timely filed. No penalties or other charges
in a material amount are or will become due with
12
<PAGE>
respect to the late filing of any Tax Return of the Company, the Subsidiaries or
their respective predecessors or Affiliates or the payment of any Tax of the
Company, the Subsidiaries or their respective predecessors or Affiliates,
required to be filed or paid on or before the date hereof.
(v) With respect to all Tax Returns filed by or with respect to
the Company and any of the Subsidiaries or their respective predecessors or
Affiliates, (A) Schedule 3.9(b) sets forth the periods for which the statute of
limitations for the assessment of federal Taxes have expired; (B) except as set
forth in Schedule 3.9(b), neither the Company nor the Subsidiaries has been
notified that, nor to the Knowledge of the Stockholders is, there an audit in
progress and no extension of time has been executed with respect to any date on
which any Tax Return was or is to be filed and no waiver or agreement has been
executed for the assessment or payment of any Tax; and (C) except as set forth
in Schedule 3.9(b), there is no material unassessed deficiency of Taxes proposed
or threatened against the Company or any of the Subsidiaries or any of their
respective predecessors or Affiliates.
(vi) Except as set forth in Schedule 3.9(c), none of the Company
or any of the Subsidiaries or any of their respective predecessors or Affiliates
has been or is a party to any tax sharing agreement or similar arrangement.
3.10 Compliance with Laws. Neither the Company nor any of the Subsidiaries
--------------------
is in violation of any applicable order, judgment, injunction, award, decree or
writ (collectively, "Orders"), or any applicable law, statute, code, ordinance,
regulation or other requirement (collectively, "Laws"), of any government or
political subdivision thereof, whether federal, state, local or foreign, or any
agency or instrumentality of any such government or political subdivision, any
court or arbitrator (collectively, "Governmental Bodies") the enforcement of
which would have a Material Adverse Effect on the condition of the Company and
the Subsidiaries taken as a whole, and except as set forth on Schedule 3.10,
neither the Company nor any of the Subsidiaries has received notice that any
such violation is being or may be alleged. The Company and the Subsidiaries have
not made any illegal payment to officers or employees of any Governmental Body,
or made any payment
13
<PAGE>
to customers for the sharing of fees or to customers or suppliers for rebating
of charges, or engaged in any other reciprocal practice, or made any illegal
payment or given any other illegal consideration to purchasing agents or other
representatives of customers in respect of sales made or to be made by the
Company or any of the Subsidiaries.
3.11 Permits. The Company and the Subsidiaries have all licenses,
-------
permits, orders or approvals of, and have made all required registrations with,
any Governmental Body that are material to the current conduct of the business
of, or the current use of any of the Properties of, the Company or any of the
Subsidiaries (collectively, "Permits"). All Permits are listed on Schedule 3.11
and are in full force and effect; no material violations are or have been
recorded in respect of any Permit; and no proceeding is pending or, to the
Knowledge of the Company, any of the Subsidiaries or any of the Stockholders,
threatened to revoke or limit any Permit. No action by the Stockholders, the
Company or Metromedia is required in order that all Permits will remain in full
force and effect following the consummation of the transactions provided for
herein.
3.12 No Breach. The execution, delivery and performance of this
---------
Agreement by the Stockholders and the consummation of the transactions
contemplated hereby, including but not limited to, the conversion of shares
pursuant to Section 2.1 hereof (the "Contemplated Transactions") will not (i)
violate any provision of the Articles of Incorporation or By-laws of the Company
or any of the Subsidiaries; (ii) require the Stockholders, the Company or any of
the Subsidiaries to obtain any consent, approval or action of, or make any
filing with or give any notice to, any Governmental Body or any other Person,
except (a) filings under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder (the "HSR
Act") and (b) as set forth on Schedule 3.12 (b) (the "Required Consents"); (iii)
if the Required Consents are obtained, violate, conflict with or result in the
breach of any of the terms of, result in a material modification of the effect
of, otherwise cause the termination of or give any other contracting party the
right to terminate, or constitute (or with notice or lapse of time or both
constitute) a default under, any material contract, agreement, indenture, note,
bond, loan, instrument, lease, conditional sale contract, mortgage, license,
franchise,
14
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commitment or other binding arrangement (collectively, the "Contracts") to which
the Company or any of the Subsidiaries is a party or by or to which any of them
or any of their Properties may be bound or subject, or result in the creation of
any Lien upon the material Properties of the Company or any of the Subsidiaries
pursuant to the terms of any such Contract; (iv) if the Required Consents are
obtained, violate any Order of any Governmental Body against, or binding upon,
the Company or any of the Subsidiaries or upon their respective securities,
Properties or business; (v) if the Required Consents are obtained, violate any
Law of any Governmental Body; or (vi) if the Required Consents are obtained,
violate or result in the revocation or suspension of any Permit.
3.13 Claims and Proceedings. There are no outstanding Orders of any
----------------------
Governmental Body against or involving the Company or any of the Subsidiaries.
Except as set forth on Schedule 3.13, there are no actions, suits, claims or
legal, administrative or arbitral proceedings, public investigations or to the
Knowledge of the Company, any private investigations (collectively, "Claims")
(whether or not the defense thereof or liabilities in respect thereof are
covered by insurance) pending, or to the Knowledge of the Company or any of the
Subsidiaries, threatened, against or involving the Company or any of the
Subsidiaries or any of their Properties as set forth on Schedule 3.13, to the
Knowledge of the Company, any of the Subsidiaries or any of the Stockholders,
there is no fact, event or circumstance that may give rise to any Claim. All
notices required to have been given to any insurance company listed as insuring
against any material Claim set forth on Schedule 313 have been timely and duly
given and, except as set forth on Schedule 3.13, no insurance company has
asserted, orally or in writing, that such Claim is not covered by the applicable
policy relating to such Claim. Except as set forth on Schedule 3.13, no claims
pending or threatened against or involving the Company or any of its
Subsidiaries have been settled, adjudicated or otherwise disposed of since
December 31, 1995.
3.14 Contracts. (a) Schedule 3.14 sets forth all of the following
---------
Contracts to which the Company or any of the Subsidiaries is a party or by or to
which any of them or any of their Properties may be bound or subject: (i)
Contracts with any current or former officer, director, shareholder, employee,
consultant, agent or other representative
15
<PAGE>
or with an entity in which any of the foregoing is a controlling Person; (ii)
Contracts with any labor union or association representing any employee or
former employee; (iii) Contracts for the sale of any Properties other than in
the ordinary course of business or for the grant to any Person of any option or
preferential rights to purchase any material Properties; (iv) partnership or
joint venture agreements; (v) Contracts under which the Company or any of the
Subsidiaries agrees to indemnify any party or to share tax liability of any
party; (vi) material Contracts which cannot be cancelled without liability,
premium or penalty only on 90 days' or more notice; (vii) Contracts containing
covenants of the Company or any of the Subsidiaries not to compete in any line
of business or with any Person in any geographical area or covenants of any
other Person not to compete with the Company or any of the Subsidiaries in any
line of business or in any geographical area; (viii) Contracts relating to the
acquisition by the Company or any of the Subsidiaries of any operating business
or the capital stock of any other Person; (ix) Contracts relating to the
borrowing of money; (x) Contracts containing obligations or liabilities of any
kind to holders of the capital stock of the Company as such (including, without
limitation, an obligation to register any of such securities under any federal
or state securities laws); (xi) Contracts pursuant to which the Company or any
of the Subsidiaries may hold or use any interest owned or claimed by the Company
or any of the Subsidiaries in or to any material Property; (xii) management
Contracts and other similar agreements with any Person; (xiii) any other
Contracts pursuant to the terms of which there is either a current or future
obligation or right of the Company or any of the Subsidiaries to make payments
in excess of $50,000 or receive payments in excess of $100,000; (xiv) Contracts
with respect to the development, financing or production of motion picture,
video, television or interactive productions; (xv) Distribution Contracts; (xvi)
material Contracts relating to the acquisition of Product, including Contracts
relating to the acquisition of licensing and distribution rights with respect to
such Product; (xvii) Contracts with motion picture studios; (xviii) Contracts
relating to television sales and distribution of Product; (xix) Contracts
entitling the Company or its Subsidiaries or any Affiliate, including the
Stockholders, to Contingent Compensation; and (xx) material Contracts relating
to any other Product.
16
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(b) There have been delivered to Metromedia true and complete copies of all
of the Contracts set forth on Schedule 3.14 or on any other Schedule. All of the
Contracts are valid and binding upon the Company or one of the Subsidiaries, as
the case may be, in accordance with their terms subject as to enforcement, as to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and to general
principles of equity. Neither the Company nor any of the Subsidiaries is in
default in any material respect under any of such Contracts, nor does any
condition exist that with notice or lapse of time or both would constitute such
a material default thereunder. To the Knowledge of the Company, any of the
Subsidiaries or any of the Stockholders, no other party to any such Contract is
in default thereunder in any material respect nor does any condition exist that
with notice or lapse of time or both would constitute such a material default
thereunder.
3.15 Real Estate.
-----------
3.15.1 Ownership of Premises. The Company and its Subsidiaries do
---------------------
not own any real property or any buildings, structures and other improvements
located on any real property (collectively, "Owned Real Property").
3.15.2 Leased Properties. Except for short-term space leases entered
-----------------
into by the Company or a Subsidiary in connection with producing a specific
Product, Schedule 3.15.2 is a true, correct and complete schedule of all leases,
subleases, licenses and other agreements (collectively, the "Real Property
Leases") under which the Company or any Subsidiary uses or occupies or has the
right to use or occupy, now or in the future, any real property (the land,
buildings and other improvements covered by the Real Property Leases being
herein called the "Leased Real Property"), which Schedule 3.15 sets forth the
date of and parties to each Real Property Lease, the date of and parties to each
amendment, modification and supplement thereto, the term and renewal terms
(whether or not exercised) thereof and a brief description of the Leased Real
Property covered thereby. The Company has heretofore delivered to Metromedia
true, correct and complete copies of all Real Property Leases (including all
modifications, amendments and supplements). Each Real Property Lease is a legal,
valid, binding and enforceable obligation of the Company
17
<PAGE>
and is in full force and effect, subject as to enforcement, as to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and to general
principles of equity. All rent and other sums and charges payable by the Company
or a Subsidiary as tenant under any Real Property Lease are current, no notice
of default or termination under any Real Property Lease is outstanding, no
termination event or condition or uncured material default on the part of the
Company or the applicable Subsidiary, or to the Knowledge of the Company or the
applicable Subsidiary on the part of the landlord, exists under any Real
Property Lease, and no event has occurred and no condition exists which, with
the giving of notice or the lapse of time or both, would constitute such a
default or termination event or condition on the part of the Company or the
applicable Subsidiary or, to the Knowledge of the Company or the applicable
Subsidiary on the part of the landlord. Except as set forth on Schedule 3.15.2,
to the Knowledge of the Company or the applicable Subsidiary, none of the Leased
Real Property and the Real Property Leases contravenes any zoning ordinance or
other administrative regulation or violates any restrictive covenant, easement
or other agreement to which the lessee under any such Real Property Lease is
bound, the effect of which in any material respect would interfere with or
prevent the continued use of the Leased Real Property for the purposes for which
it is now being used by the Company or the applicable Subsidiary.
3.15.3 Entire Premises. All of the land, buildings, structures and
---------------
other improvements used by the Company and the Subsidiaries in the conduct of
their business are included in the Leased Real Property except for land,
building, structures and other improvements subject to short term space leases
entered into by the Company or a Subsidiary in connection with producing a
particular item of Product.
3.16 Intellectual Property. Schedule 3.16 sets forth a list of the
---------------------
Company's registered patents, registered trademarks, registered service marks,
registered trade names, registered copyrights and franchises, all applications
for any of the foregoing and all permits, grants and licenses or other rights
running to the Company and any of its Subsidiaries relating to any of the
foregoing that are material to the business of the
18
<PAGE>
Company and its Subsidiaries. Except as set forth on Schedule 3.16, (i) the
Company or one of the Subsidiaries own, or are licensed or otherwise have the
right, to use all registered patents, registered trademarks, registered service
marks, registered trade names, registered copyrights and franchises set forth on
Schedule 3.16, and (ii) the Company's rights in the property set forth on such
list are free and clear of any Lien or other encumbrances and the Company and
the Subsidiaries have not received written notice of any adversely-held patent,
invention, trademark, service mark or trade name of any other person, or notice
of any charge or claim of any person relating to such intellectual property or
any process or confidential information of the Company and its Subsidiaries and
to the Company's Knowledge there is no basis for any such charge or claim, and
(iii) the Company, the Subsidiaries and their respective predecessors, if any,
have not conducted business at any time during the period beginning five years
prior to the date hereof under any corporate or partnership, trade or fictitious
names other than as set forth on Schedule 3.16.
3.17 Ownership of Product; Copyrights and Other Rights.
-------------------------------------------------
The Products listed on Schedule 3.17 comprise all of the material Products in
which the Company or any of the Subsidiaries has any right, title, or interest
in or to (either directly or through a joint venture or partnership). As to each
item listed on Schedule 3.17 hereto, the party holding such interests, if not
the Company or a Subsidiary, to the Knowledge of the Company, has duly recorded
its interests in the United States Copyright Office. All such recordation is
listed on Schedule 3.17. To the Knowledge of the Company, none of the Company's
or any Subsidiaries' right, title or interest in any Product and component parts
thereof violates or infringes upon in any material respect any copyright, right
of privacy, trademark, patent, trade name, performing right or any literary,
dramatic, musical, artistic, personal, private, contract or copyright or any
other right of any Person or contain any libelous or slanderous material. There
is no claim, suit, action or proceeding pending, or to the Knowledge of the
Company or any of the Subsidiaries, threatened against the Company or any of the
Subsidiaries that involves a claim of infringement of any copyright with respect
to any Product listed on Schedule 3.17 and neither the Company nor any of the
Subsidiaries has any Knowledge of any existing infringement by any other Person
of any
19
<PAGE>
copyright held by the Company or the Subsidiaries with respect to any Product.
3.18 Title to Properties. Except as set forth elsewhere in this
-------------------
Agreement or the Schedules hereto, the Company and the Subsidiaries own outright
and have good and marketable title to all of their Properties, including,
without limitation, all of the assets reflected on the Balance Sheet or
currently used in the operation of their businesses (other than the Leased Real
Property) in each case free and clear of any material Lien.
3.19 Liabilities. Except as set forth on Schedule 3.19, as at March
-----------
31, 1996, the Company and the Subsidiaries did not have any material direct or
indirect indebtedness, liability, claim, loss, damage, deficiency, obligation or
responsibility, known or unknown, fixed or unfixed, choate or inchoate,
liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent
or otherwise, whether or not of a kind required by generally accepted accounting
principles to be set forth on a financial statement or in the notes thereto
("Liabilities") that were not fully and adequately reflected or reserved against
on the Balance Sheet dated March 31, 1996 or described on any Schedule or in the
notes to the Audited Financials. Except as set forth on Schedule 3.19 or
described on any Schedule to this Agreement, (x) the Company and the
Subsidiaries have not, except in the ordinary course of business, incurred any
material Liabilities since the Balance Sheet Date and (y) neither the Company
nor any of the Subsidiaries has any Knowledge of any circumstance, condition,
event or arrangement that may hereafter give rise to any Liabilities of the
Company or any of the Subsidiaries or any successor to their businesses except
in the ordinary course of business .
3.20 Employee Benefit Plans.
----------------------
Except as set forth on Schedule 3.20, there are no employee
benefit plans or arrangements of any type (whether or not described in section
3(3) of the Employee Retirement Income Security Act of 1974, as amended and the
regulations thereunder ("ERISA"), and including, without limitation, plans or
arrangements providing for deferred compensation, bonuses, stock options, fringe
benefits, cafeteria plan deferrals, flexible arrangements or other similar plans
or arrangements), under which the Company or any of its Subsidiaries has or in
the future could have, directly or indirectly, any liability with
20
<PAGE>
respect to any current or former employee of the Company, any Subsidiary or any
Commonly Controlled Entity (within the meaning of section 414(b), (c), (m), (n)
or (o) of the Code) ("Benefit Plans").
3.21 Employee Relations. Except with respect to Projects where members
------------------
of the Screen Actors Guild, the Directors Guild of America, the Writers Guild of
America or other union representation for "below the line" personnel are engaged
by the Company or a Subsidiary, no union organizing efforts have been conducted
within the last five years or are now being conducted. For purposes of this
section 3.21, "below the line personnel" shall mean all persons (other than
authors, screenwriters, producers, directors and actors) engaged by the Company
or its Subsidiaries in connection with the production of a film. Neither the
Company nor any of the Subsidiaries has at any time during the last five years
had, nor, to the Knowledge of the Company nor any of the Subsidiaries, is there
now threatened, a strike, picket, work stoppage, work slowdown or other labor
trouble.
3.22 Insurance. Schedule 3.22 sets forth a list (specifying the
---------
insurer, describing each pending claim thereunder of more than $50,000 and
setting forth the aggregate amounts paid out under each such policy through the
date hereof and the aggregate limit, if any, of the insurer's liability
thereunder) of all policies or binders of fire, liability, product liability,
workmen's compensation, vehicular and other insurance held by or on behalf of
the Company or any of the Subsidiaries. Such policies and binders are valid and
binding in accordance with their term, are in full force and effect. Neither the
Company nor any of the Subsidiaries is in default with respect to any provision
contained in any such policy or binder or has failed to give any notice or
present any claim under any such policy or binder in due and timely fashion.
There are no outstanding unpaid claims under any such policy or binder, and
neither the Company nor any of the Subsidiaries has received any notice of
cancellation or non-renewal of any such policy or binder. Neither the Company
nor any of the Subsidiaries has received any notice from any of its insurance
carriers that any insurance premiums will or may be materially increased in the
future or that any insurance coverage listed on Schedule 3.22 will or may not be
available in the future on terms or subject to conditions which would make
renewal thereof onerous.
21
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3.23 Officers, Directors and Key Employees. Schedule 3.23 sets forth
-------------------------------------
(i) the name and the scheduled 1996 total compensation of each officer and
director of the Company and the Subsidiaries, (ii) the name and scheduled total
compensation of each other employee, consultant, agent or other representative
of the Company or any of the Subsidiaries whose current or committed annual rate
of compensation (including bonuses and commissions) exceeds $150,000, (iii) all
wage and salary increases' bonuses and increases and any other direct or
indirect compensation received by such Persons since December 31, 1995, (iv) any
payments or commitments to pay any severance or termination pay to any such
Persons, and (v) any accrual for, or any commitment or agreement by the Company
or any of the Subsidiaries to pay, such increases, bonuses or pay. None of such
Persons has indicated that he or she will cancel or otherwise terminate such
Person's relationship with the Company or any of the Subsidiaries.
3.24 Operations of the Company. Except as set forth on Schedule 3.24
-------------------------
or on any other Schedule, since the Balance Sheet Date neither the Company nor
any of the Subsidiaries has:
(i) declared or paid any dividends or declared or made any other
distributions of any kind to its shareholders, or made any direct or indirect
redemption, retirement, purchase or other acquisition of any shares of its
capital stock;
(ii) except for short-term bank borrowings in the ordinary course
of business and except for borrowings with respect to the Project Beverly Hills
Ninja, incurred any indebtedness for borrowed money;
(iii) reduced its cash or short-term investments or their
equivalent, other than to meet cash needs arising in the ordinary course of
business, consistent with past practices and to pay year end employee bonuses
which are set forth on Schedule 3.23;
(iv) waived any material right under any contract or other
agreement of the type required to be set forth on any Schedule;
(v) made any material change in its accounting methods or
practices or made any material change in depreciation or amortization policies
or rates
22
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adopted by it;
(vi) materially changed any of its business policies, including,
without limitation, advertising, investment, marketing, pricing, purchasing,
production, personnel, sales, returns, budget or product acquisition policies,
except as specifically set forth in the Company's Confidential Information
Memorandum (dated March 1995), a copy of which was previously delivered to
Metromedia;
(vii) made any loan or advance to any of its shareholders,
officers, directors, employees, consultants, agents or other representatives
(other than travel advances made in the ordinary course of business for business
travel and entertainment expenses), or made any other loan or advance otherwise
than in the ordinary course of business;
(viii) except for the acquisition or disposition of inventory, or
equipment or other Properties in the ordinary course of business, sold,
abandoned or made any other disposition of any of its Properties or made any
acquisition of all or any part of the Properties, capital stock or business of
any other person;
(ix) paid, directly or indirectly, any of its material Liabilities
before the same became due in accordance with its terms or otherwise than in the
ordinary course of business;
(x) terminated or failed to renew, or received any written threat
that was not subsequently withdrawn) to terminate or fail to renew, any contract
or other agreement that is or was material to the business of the Company and
the Subsidiaries taken as a whole;
(xi) except with respect to certain transactions among the Company
and its Subsidiaries as set forth on Schedule 3.24, amended its Articles of
Incorporation or By-laws (or comparable instruments) or merged with or into or
consolidated with any other Person, subdivided or in any way reclassified any
shares of its capital stock or changed or agreed to change in any manner the
rights of its outstanding capital stock or the character of its business; or
(xii) except for the Company's "first look" deal with Paramount
Pictures Corporation, the most recent copy of which and all material
correspondence
23
<PAGE>
relating thereto has been provided to Metromedia, engaged in any other material
transaction.
3.25 Potential Conflicts of Interest. No executive officer or
-------------------------------
director of the Company or any of the Subsidiaries, no Stockholder, no relative
or spouse (or relative of such spouse) of any such officer, director or
Stockholder and no entity by one or more of the foregoing:
(i) owns, directly or indirectly, any interest in (excepting less
than 5% stock holdings for investment purposes in securities of publicly held
and traded companies), or is an officer, director, employee or consultant of,
any Person which is, or is engaged in business as, a competitor, lessor, lessee,
supplier, distributor, sales agent or customer of the Company or any of the
Subsidiaries except as set forth on Schedule 3.2 (a);
(ii) except as set forth on Schedule 3.25(b), owns, directly or
indirectly, in whole or in part, any Property that the Company or any of the
Subsidiaries uses in the conduct of its business; or
(iii) except as set forth on Schedule 3.25(c), has any cause of
action or other claim whatsoever against, or owes any amount to, the Company or
any of the Subsidiaries, except for claims in the ordinary course of business
such as for accrued vacation pay, accrued benefits under employee benefit plans,
and similar matters and agreements existing on the date hereof.
3.26 Premerger Notification. The Company (or its ultimate parent
----------------------
entity) will promptly file notification and report forms with respect to the
Contemplated Transactions in compliance with the HSR Act. Metromedia will bear
the costs of any filing fees required to be paid pursuant to the HSR Act as a
result of Metromedia being deemed an "acquiring person" under the HSR Act in
connection with the transactions contemplated in Section 1 hereof. In the event
Metromedia is not deemed an "acquiring person" under the HSR Act in connection
with the transactions contemplated by Section 1 hereof, the person deemed the
"acquiring person" shall bear the sole responsibility for any filing fee under
the HSR Act in connection with such transactions.
3.27 Projections. The projections relating to operations of the
-----------
Company and the Subsidiaries through the fiscal year ending 2003 (the
"Projections"), heretofore
24
<PAGE>
delivered by the Company to Metromedia, have been prepared in good faith on a
reasonable basis. The assumptions on which the Projections are based are stated
in Schedule 3.27 and are consistent with past practices of the Company and the
Subsidiaries and with historical conditions applicable to the business of the
Company and the Subsidiaries. Nothing has come to the attention of the Company
or any of the Subsidiaries to indicate that the Projections or the assumptions
upon which they are based are not reasonable.
3.28 Full Disclosure. All documents, Contracts, instruments,
---------------
certificates, notices, consents, affidavits, letters, telegrams, telexes,
statements, schedules (including Schedules to this Agreement), exhibits
(including Exhibits to this Agreement), the Confidential Information Memorandum
dated March 1995 (the "Confidential Memorandum"), the Projections through the
year ending 2003, and any other papers whatsoever (collectively, "Documents")
delivered by or on behalf of the Stockholders, the Company or the Subsidiaries
in connection with this Agreement and the Contemplated Transactions are
authentic if original or true and correct copies of the originals. With the
exception of the Confidential Memorandum, no representation or warranty of the
Company or the Stockholders contained in this Agreement or in any of the
Schedules, and no Document furnished by or on behalf of the Stockholders, the
Company or the Subsidiaries to Metromedia pursuant to this Agreement or in
connection with the Contemplated Transactions, contains an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements made, in the context in which made, not
materially false or misleading. Except as otherwise set forth in this Agreement,
there is no material fact that the Stockholders have not disclosed to Metromedia
in writing that materially adversely affects or, so far as any of the
Stockholders can now foresee, will have a Material Adverse Effect on the Company
or any of the Subsidiaries or the ability of the Stockholders to perform this
Agreement.
3.29 Environment Protection. Except as disclosed on Schedule 3.29:
----------------------
(i) neither the Company nor any of its Subsidiaries is or has been in
violation in any material respect of any applicable Safety and Environmental Law
(as hereinafter defined);
25
<PAGE>
(ii) the Company and its Subsidiaries have all material Permits
required pursuant to Safety and Environmental Laws, such Permits are in full
force and effect, no action or proceeding to revoke, limit or modify any of such
Permits is pending, and the Company and each of its Subsidiaries is in
compliance in all material respects with all terms and conditions thereof;
(iii) neither the Company nor any of its Subsidiaries has received any
Environmental Claim (as hereinafter defined);
For purposes of this Agreement, the following terms have the following
meanings:
(i) "Environmental Claims" means any notification, whether direct or
indirect, formal or informal, written or oral, pursuant to Safety and
Environmental Laws or principles of common law relating to pollution, protection
of the environment or health and safety, that any of the current or past
operations of the Company or any of its Subsidiaries, or any by-product thereof,
or any of the property currently or formerly owned, leased or operated by the
Company or any of its Subsidiaries, or the operations or property of any
predecessor of the Company or any of its Subsidiaries is or may be implicated in
or subject to any proceeding, action, investigation, claim, lawsuit, order,
agreement or evaluation by any Governmental Body or any other person.
(ii) "Safety and Environmental Laws" means all federal, state and
local laws and order relating to pollution, protection of the environment,
public or worker health and safety, or the emission, discharge, release or
threatened release of pollutants, contaminants or industrial, toxic or
hazardous substances or wastes into the environment or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or industrial, toxic or
hazardous substances or wastes, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. section 9601
et seq., the Resource Conservation and Recovery Act, 42 U.S.C. section 6901
- -- ---
et seq., the Toxic Substances Control Act, 15 U.S.C. section 2601 et seq.,
- -- --- -- ---
the Federal Water Pollution Control Act, 33 U.S.C. section 1251 et seq., the
-- ---
Clean Air Act, 42 U.S.C. section 7401 et seq., the Federal
-- ---
26
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Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. section 121 et seq., the
-- ---
Occupational Safety and Health Act, 29 U.S.C. section 651 et seq., the Asbestos
-- ---
Hazard Emergency Response Act, 15 U.S.C. section 2601 et seq., the Safe Drinking
-- ---
Water Act, 42 U.S.C. section 300 et seq., the Oil Pollution Act of 1990 and
-- ---
analogous state acts.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
4. Each Stockholder, severally and not jointly, represents and warrants to
Metromedia as follows:
4.1 Title to the Shares. As of the Closing Date, such Stockholder shall
-------------------
own beneficially and of record, free and clear of any Lien, or shall own of
record and have full power and authority to convey free and clear of any Lien,
the Shares set forth opposite such Stockholder's name on Exhibit A, and, upon
delivery of and payment for such Shares as herein provided, such Stockholder
will convey to Metromedia good and valid title thereto, free and clear of any
Lien.
4.2 Authority to Execute and Perform Agreement. Such Stockholder has
------------------------------------------
the full legal right and power and all authority and approvals required to
execute and deliver this Agreement and to perform fully such Stockholder's
obligations hereunder. This Agreement has been duly executed and delivered by
such Stockholder and (assuming the due authorization, execution and delivery
hereof by MPCA Mergerco, the Company and Metromedia) is a valid and binding
obligation of such Stockholder enforceable in accordance with its terms except
as the same may be limited by (insolvency qualification). Except as set forth on
Schedule 4.2, the execution and delivery by such Stockholder of this Agreement,
the consummation of the Contemplated Transactions and the performance by such
Stockholder of this Agreement in accordance with its terms will not (i) require
the approval or consent of any Governmental Body or the approval or consent of
any other Person; (ii) conflict with or result in any breach or violation of any
of the terms and conditions of, or constitute (or with notice or lapse of time
or both constitute) a default under, any Law or Order of any Governmental Body
applicable to such Stockholder or to
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<PAGE>
the Shares held by such Stockholder, or any Contract to which such Stockholder
is a party or by or to which such Stockholder is or the Shares held by such
Stockholder are bound or subject; or (iii) result in the creation of any Lien on
the Shares held by such Stockholder.
4.3 Company's Representations and Warranties. To the Knowledge of the
----------------------------------------
Stockholders, the Company's representations and warranties set forth in Section
3 are true, correct and complete in all material respects.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
OF MPCA MERGERCO AND METROMEDIA
5. Metromedia and MPCA Mergerco represent and warrant to the Stockholders
and the Company as follows:
5.1 Due Incorporation and Authority. Each of the MPCA Mergerco and
-------------------------------
Metromedia is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and each has all requisite
corporate power and authority to own, lease and operate their respective
Properties and to carry on its business as now being and as heretofore
conducted.
5.2 Authority to Execute and Perform Agreement. Each of MPCA Mergerco
------------------------------------------
and Metromedia has the full legal right and power and all authority and
approvals required to execute and deliver this Agreement and to perform fully
their respective obligations hereunder. This Agreement has been duly executed
and delivered by each of MPCA Mergerco and Metromedia and (assuming the due
authorization, execution and delivery hereof by the Stockholders and the
Company) is a valid and binding obligation of each of MPCA Mergerco and
Metromedia enforceable in accordance with its terms.
5.3 No Violations. Except as set forth on Schedule 5.3, the execution
-------------
and delivery by MPCA Mergerco and Metromedia of this Agreement, the consummation
of the Contemplated Transactions and the performance by MPCA Mergerco and
Metromedia of this Agreement, in accordance with its terms will not (i) require
the consent, approval, action of, or making any filing with or giving notice to
any Governmental Body or any other
28
<PAGE>
Person; (ii) conflict with or result in any breach or violation of any of the
terms and conditions of, or constitute (or with notice or lapse of time or both
constitute) a default under, the Certificate of Incorporation or By-laws of MPCA
Mergerco or Metromedia, any Law or Order of any Governmental Body applicable to
MPCA Mergerco or Metromedia, or any Contract to which MPCA Mergerco or
Metromedia is a party or by or to which MPCA Mergerco or Metromedia or any of
their Properties is bound or subject; or (iii) result in the creation of any
material Lien on any of the Properties of MPCA Mergerco, Metromedia or the
Surviving Corporation.
5.4 Investment Company Act. Metromedia either (i) is not an
----------------------
"investment company", or to Metromedia's Knowledge a company "controlled" by, or
to Metromedia's Knowledge an "affiliated company" with respect to an "investment
company" required to register under the Investment Company Act of 1940, as
amended (the "Investment Company Act") or (ii) satisfied all conditions for an
exemption from the Investment Company Act, and accordingly, none of its
subsidiaries is required to be registered under the Investment Company Act.
5.5 Premerger Notification. Metromedia (or its ultimate Parent) will
----------------------
promptly file notification and report forms with respect to the Contemplated
Transactions in compliance with the HSR Act.
5.6 Business of MPCA Mergerco. MPCA Mergerco has not incurred,
-------------------------
directly or indirectly through any subsidiary or otherwise, any liabilities or
obligations, except those incurred in connection with its incorporation or with
the negotiation and the execution, delivery and performance of this Agreement
and the transactions contemplated hereby. MPCA Mergerco has not engaged,
directly or indirectly through any subsidiaries or otherwise, in any business
or activities of any type or kind whatsoever, or entered into any agreement or
arrangements with any Person, and is not subject to or bound by any obligation
or understanding which is not contemplated by this Agreement.
5.7 Capitalization. The authorized capital stock of MPCA Mergerco
--------------
consists of 1000 shares of common stock, $.01 par value per share, all of which
are validly issued and outstanding, fully paid and nonassessable, and owned,
beneficially and of record,
29
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by Metromedia, free and clear of all Liens. As of the date of this Agreement,
there are no outstanding options, warrants, preemptive or other rights,
contracts, commitments, or agreements by which MPCA Mergerco is or may become
obligated to issue any additional shares of its capital stock or securities
convertible into any such shares.
5.8 Reports and Financial Statements. Metromedia has previously
--------------------------------
furnished or otherwise made available to the Company true and complete copies of
all reports on Forms 10-K, 10-Q and 8-K filed by Metromedia and Metromedia has
filed all reports on Forms 10-K, 10-Q and 8-K required to be filed by Metromedia
with the Securities and Exchange Commission since November 1, 1995. As of their
respective dates, such reports did not contain any untrue statement of material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
5.9 Status of Metromedia Common Stock to be Issued. Assuming without
----------------------------------------------
investigation that the shares of Company Common Stock at the Effective Time will
be validly authorized, validly issued, fully paid, and non-assessable, the
shares of Metromedia Common Stock to be issued in the Merger will, at the
Effective Time, be validly authorized and, when the Merger has become effective
and the shares of Metromedia Common Stock have been duly delivered pursuant to
the terms of this Agreement, such shares of Metromedia Common Stock will be
validly issued, fully paid and non-assessable.
ARTICLE 6
COVENANTS AND AGREEMENTS
6.1 Conduct of Business. From the date hereof through the Closing
-------------------
Date, the Stockholders, jointly and severally, agree that they (i) shall cause
the Company and the Subsidiaries to conduct their businesses in the ordinary
course and, without the prior written consent of Metromedia, not to undertake
any of the actions specified in Section 3.24 unless otherwise disclosed in any
Schedule referred to in Section 3.24 or in connection with an item disclosed in
any such Schedule; and further not to (a)
30
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authorize for issuance, issue, grant, sell, pledge, dispose of or propose to
issue, grant, sell, pledge or dispose of any shares of, or any options,
warrants, commitments, subscriptions or rights of any kind to acquire any shares
of, the capital stock of the Company or any securities convertible into or
exchangeable for shares of stock of any class of the Company or any of its
Subsidiaries; (b) split, combine, subdivide or reclassify any shares of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock or
declare, pay or set aside any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock,
or redeem, purchase or otherwise acquire or offer to acquire any shares of its
own capital stock or any of its Subsidiaries or any other securities thereof or
any right, warrants or options to acquire any such shares or other securities,
(c) (1) except for debt (including obligations in respect of capital leases) not
in excess of $50,000 and except for the existing line of credit listed on
Schedule 6.1, create, incur or assume any short-term debt, long-term debt or
obligations in respect of capital leases; (2) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, indirectly,
contingently or otherwise) for the obligations of any other person except
wholly-owned subsidiaries of the Company, in the ordinary course of business
consistent with past practice; (3) make any capital expenditures or make any
loans, advances or capital contributions to, or investments in, any other Person
(other than customary travel or business or entertainment advances to employees,
representatives, consultants, directors or advisors or subsidiaries made in the
ordinary course of business consistent with past practice and/or in connection
with the consummation of the transactions contemplated by this Agreement and
listed on Schedule 6.1), currently committed, budgeted capital expenditures and
additional capital expenditures not in excess of $50,000; or (4) incur any
material liability or obligation (absolute, accrued, contingent or otherwise)
other than in the ordinary course of business and consistent with past practice;
(d) except in the ordinary course of business consistent with past practice or
as may be required by local law, sell, transfer, mortgage, or otherwise dispose
of, or encumber, or agree to sell, transfer, mortgage or otherwise dispose of or
encumber, any material assets or properties, real, personal or mixed; (e)
increase in any manner the compensation of any of
31
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its officers; (f) enter into severance, termination or retention agreements, and
terminating any employment agreements, with its officers and key employees; (g)
(except in the ordinary course of business consistent with past practice) enter
into any agreement relating to the production, financing, acquisition,
development or license of motion pictures or television programming; (h) incur
any obligation in excess of $50,000 in connection with any item of Product to be
produced by the Company or its Subsidiaries; execute any Contract obligating the
Company or its Subsidiaries to pay a minimum guarantee of more than $50,000 for
any item of Product, incur acquisition costs of more than $100,000 for any item
of Product; (i) enter into any "first look" or output Contract with any Person;
and (ii) shall use reasonable commercial efforts to cause the Company and the
Subsidiaries to conduct their businesses in such a manner so that the
representations and warranties contained in Article 3 shall continue to be true
and correct on and as of the Closing Date as if made on and as of the Closing
Date. From the date hereof through the Closing Date, each Stockholder, severally
and not jointly, agrees to conduct such Stockholder's affairs in such a manner
so that the representations and warranties of such Stockholder contained in
Article 4 shall continue to be true and correct on and as of the Closing Date as
if made on and as of the Closing Date. The Stockholders shall give Metromedia
prompt notice of any event, condition or circumstance occurring from the date
hereof through the Closing Date that would constitute, to their Knowledge, a
violation or breach of any representation or warranty, whether made as of the
date hereof or as of the Closing Date, or that would constitute a violation or
breach of any covenant of any Stockholder contained in this Agreement.
6.2 Performance of Obligations; Copyright. From the date hereof
-------------------------------------
through the Closing Date, the Company and the Subsidiaries agree (i) to duly
observe and perform all material terms and conditions of all material agreements
with respect to the production, development and/or exploitation of each item of
Product and diligently protect and enforce the rights of the Company or any of
the Subsidiaries under all such agreements in a manner consistent with prudent
business practice; provided, however, that to the extent the Company does not
have adequate resources to comply with the foregoing, it shall
32
<PAGE>
promptly inform Metromedia and Metromedia shall, in its sole discretion, decide
whether to pursue the same (if sufficient resources are not available, then
failure to comply shall not be deemed a breach of this covenant) and (ii) in
connection with each item of Product with respect to which the Company or any of
the Subsidiaries is or becomes the copyright proprietor thereof or to the extent
such interest is obtained by the Company or any of the Subsidiaries, or the
Company or any of the Subsidiaries otherwise acquires a copyrightable interest
in, take any and all actions reasonably necessary to register the copyright for
such item of Product in the name of the Company or any of the Subsidiaries in
conformity with the laws of the United States; provided, however, that to the
extent the Company does not have adequate resources to comply with the
foregoing, it shall promptly inform Metromedia and Metromedia shall, in its sole
discretion, decide whether to pursue the same (if sufficient resources are not
available, then failure to comply shall not be deemed a breach of this
covenant).
With respect to subsections (i) and (ii) of this Section 6.2 if
sufficient resources are not available to the Company and Metromedia does not
expend its resources in connection with the Company's rights under any
Production Services Agreement or under any item of Product after notification
thereof by Metromedia, such failure shall not be deemed a breach of this
covenant by either of the Company or Metromedia.
6.3 Corporate Examinations and Investigations. Prior to the Closing
-----------------------------------------
Date, the Stockholders agree that Metromedia shall be entitled, through its
employees and representatives, including, without limitation, any counsel, tax
advisors and accountants, to conduct its due diligence investigation (the "Due
Diligence Investigation") and to make such investigation of the Properties,
businesses and operations of the Company and the Subsidiaries, and such
examination of the books, records and financial condition of the Company and the
Subsidiaries, as it wishes. Any such investigation and examination shall be
conducted at reasonable times and under reasonable circumstances, and the
Stockholders shall, and shall cause the Company and the Subsidiaries to,
cooperate fully therein. No investigation by Metromedia shall diminish or
obviate any of the representations, warranties, covenants or agreements of the
Stockholders contained in this Agreement except
33
<PAGE>
as otherwise specifically set forth herein. In order that Metromedia may have
full opportunity to make such physical, business, accounting and legal review,
examination or investigation as it may wish of the affairs of the Company and
the Subsidiaries, the Stockholders shall make available and shall cause the
Company and the Subsidiaries to make available to the representatives of
Metromedia during such period all such information and copies of such documents
concerning the affairs of the Company and the Subsidiaries as such
representatives may reasonably request, shall permit the representatives of
Metromedia access to the Properties of the Company and the Subsidiaries and all
parts thereof and shall cause their officers, employees, consultants, agents,
accountants and attorneys to cooperate fully with such representatives in
connection with such review and examination. If this Agreement terminates, (i)
Metromedia shall keep confidential and shall not use in any manner any
information or documents obtained from the Company or the Subsidiaries
concerning their Properties, businesses and operations, unless readily
ascertainable from public or published information, or trade sources, or already
known or subsequently developed by Metromedia independently of any investigation
of the Company or the Subsidiaries or through sources which, to the Knowledge of
Metromedia are not subject to an obligation of confidentiality otherwise
required by law to be disclosed provided, however, that if required by law to be
disclosed, Metromedia shall give the Company and the Stockholders written notice
of such disclosure and a reasonable opportunity to obtain a protective order,
and (ii) any documents obtained from the Company or the Subsidiaries and all
copies thereof shall be returned.
6.4 Publicity. Except as may be required by the rules and regulations
---------
of the SEC or the American Stock Exchange, the parties agree that no publicity
release or announcement concerning this Agreement or the Contemplated
Transactions shall be made without advance approval thereof by the other party
hereto.
6.5 Expenses. The parties to this Agreement shall, except as otherwise
--------
specifically provided herein, bear their respective expenses incurred in
connection with the preparation, execution and performance of this Agreement and
the Contemplated Transactions, including, without limitation, all fees and
expenses of agents, representatives,
34
<PAGE>
counsel and accountants.
6.6 Indemnification of Brokerage. The Stockholders, jointly and
----------------------------
severally, represent and warrant to Metromedia that there are no brokerage
commissions, finder's fees or similar fees or commissions payable to any Person
(a "Broker") in connection with this Agreement or based on any agreement,
arrangement or understanding with the Company, any of the Subsidiaries or any of
the Stockholders, or any action taken by the Company, any of the Subsidiaries or
any of the Stockholders relating thereto. The Stockholders agree, jointly and
severally, to indemnify and save Metromedia harmless from any claim or demand
for commission or other compensation by any Broker claiming to have been
employed by or on behalf of the Company, any of the Subsidiaries or any of the
Stockholders, and to bear the cost of legal expenses incurred in defending
against any such claim. Metromedia represents and warrants to the Stockholders
that no Broker has acted on behalf of Metromedia in connection with this
Agreement or the Contemplated Transactions, and that there are no brokerage
commissions, finders' fees or similar fees or commissions payable in connection
therewith based on any agreement, arrangement or understanding with Metromedia,
or any action taken by Metromedia. Metromedia agrees to indemnify and save the
Stockholders harmless from any claim or demand for commission or other
compensation by any Broker claiming to have been employed by or on behalf of
Metromedia, and to bear the cost of legal expenses incurred in defending against
any such claim.
6.7 Related Parties. The Stockholders shall, simultaneously with the
---------------
Closing, pay or cause to be paid to the Company or one of the Subsidiaries, as
the case may be, all amounts owed to the Company or such Subsidiary and
reflected on the Balance Sheet or borrowed from or owed to the Company or such
Subsidiary since the Balance Sheet Date by any of the Stockholders or any
Affiliate of any of the Stockholders. At and as of the Closing, upon delivery of
the consideration pursuant to Section 2.3, there will be no further obligation
of the Company to the Stockholders with respect to the Existing Note Amount. The
Company shall remain liable to the Stockholders for compensation, reimbursement
of expenses, and obligations under contracts, all listed on Schedule 6.7.
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6.8 Further Assurances. Each of the parties shall execute such
------------------
Documents and take such further actions as may be reasonably required or
desirable to carry out the provisions hereof and the Contemplated Transactions.
Each such party shall use its best commercially reasonable efforts to fulfill or
obtain the fulfillment of the conditions to the Closing set forth in Articles 7
and 8.
6.9 D&O Insurance. Metromedia agrees to maintain insurance relating to
-------------
directors' and officers' liability and cause the Surviving Corporation to act in
accordance with the indemnification provisions of the Surviving Corporation's
by-laws and certificate of incorporation.
6.10 Employee Benefits; Employment Contracts; Indemnification.
--------------------------------------------------------
(a) Following the Effective Time, the Surviving Corporation will
provide generally to officers and employees of the Company employee benefits,
which in the aggregate, are no less favorable than those provided by Orion
Pictures Corporation, a wholly-owned subsidiary of Metromedia. However, the
Surviving Corporation shall have the right to amend, modify, or terminate any
employee benefit plan, program, or arrangement after the Effective Time, in
accordance with the terms and conditions of such plans, programs or
arrangements.
(b) The Surviving Corporation will honor all Company employment
agreements listed on Schedule 6.10 in accordance with the terms and conditions
of such agreement.
6.11 Capital Stock Changes. If, prior to the Effective Time,
---------------------
Metromedia shall effect any stock dividend, stock split, or reverse stock split
of Metromedia Corporation Stock, then the shares of Metromedia Common Stock, to
be delivered under this Agreement shall be appropriately and equitably adjusted
to the kind and amount of shares of stock and other securities and property to
which the holders of such shares of Metromedia Common Stock would have been
entitled to receive had such stock or such other security been issued and
outstanding as of the record date for determining stockholders entitled to
participate in such corporate event.
6.12 Company Trademarks. Upon expiration or earlier termination of
------------------
36
<PAGE>
the Employment Agreements referred to in Section 7.7 (if expired or terminated
separately, upon the expiration or termination of the latter Employment
Agreement), the Surviving Corporation agrees to assign to the Stockholders,
jointly, all of the Surviving Corporation's right, title and interest in and to
the trade name and the trademark MOTION PICTURE CORPORATION OF AMERICA and the
design of the mark as reproduced on Exhibit A hereto (collectively, the Mark),
provided, however, that Metromedia and its Affiliates shall have the
irrevocable, perpetual, royalty-free right to continue to use the Mark
throughout the universe on any Company Product (as such term is defined in the
Employment Agreements) existing prior to the expiration or earlier termination
of the Employment Agreements. The parties agree to execute any and all
instruments necessary to effectuate the assignment referred to herein. The
Surviving Corporation agrees that from the Effective Time until the assignment
to the Stockholders as set forth above, it will not assign, transfer, dispose
of, or, license the Mark or any part thereof to any Person except that the Mark
may be transferred to and used by Affiliates on a non-exclusive basis with the
approval of the Stockholders which shall not be unreasonably withheld or
delayed.
6.13 Restricted Stock Plan. Metromedia will adopt a Restricted Stock
---------------------
Plan in the form of Exhibit B hereto and grant the Awards (as defined therein)
on the Adjustment Date. Metromedia will use reasonable efforts to register the
Common Stock underlying the Awards on a Form S-8.
ARTICLE 7
CONDITIONS PRECEDENT TO THE OBLIGATION
METROMEDIA TO CLOSE
7. The obligations of Metromedia to enter into and complete the Closing
are subject, at the option of Metromedia acting in accordance with the
provisions of Section 11 with respect to termination of this Agreement, to the
fulfillment on or prior to the Closing Date of the following conditions, any one
or more of which may be waived by it:
7.1 Representations and Covenants. The representations and warranties
-----------------------------
37
<PAGE>
of the Company and the Stockholders contained in this Agreement 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. The Company and
each of the Stockholders shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed or complied with by the Company or such Stockholder, as the case may
be, on or prior to the Closing Date. The Company and each Stockholder shall have
delivered to Metromedia a certificate, dated the date of the Closing and signed
by the Company or such Stockholder, to the foregoing effect.
7.2 Consents and Approvals. All Required Consents shall have been
----------------------
obtained and be in full force and effect, and Metromedia shall have been
furnished with evidence reasonably satisfactory to it of the granting of such
approvals, authorizations and consents.
7.3 Opinion of Counsel to the Stockholders. Metromedia shall have
--------------------------------------
received the opinion of Loeb & Loeb, LLP, counsel to the Company and the
Stockholders, dated the date of the Closing, addressed to Metromedia, in the
form of Exhibit C.
7.4 Intentionally Omitted.
7.5 FIRPTA Affidavit. Metromedia shall have received an affidavit of
----------------
each Stockholder sworn to under penalty of perjury, setting forth such Majority
Stockholder's name, address and Federal tax identification number and stating
that Stockholder is not a "foreign person" within the meaning of Section 1445 of
the Internal Revenue Code of 1986 (the "Code").
7.6 HSR Act Filing. Any Person required in connection with the
--------------
Contemplated Transactions to file a notification and report form in compliance
with the HSR Act shall have filed such form and the applicable waiting period
with respect to each such form (including any extension thereof by reason of a
request for additional information) shall have expired or been terminated.
7.7 Employment Agreements. Each Stockholder shall have entered into an
---------------------
Employment Agreement in the form attached to that certain letter dated as of the
date hereof from the Surviving Corporation to the Stockholders.
38
<PAGE>
7.8 No Claims. There shall be no outstanding Order of any
---------
Governmental Body against or involving the Company or any of the Subsidiaries
and there are no claims pending, or to the Knowledge of the Company, any of the
Subsidiaries or any of the Stockholders, threatened against or involving the
Company or any of the Subsidiaries or any of their Properties which individually
or in the aggregate could have a Material Adverse Effect or an adverse effect on
the Contemplated Transactions.
7.9 Board Approval. The Board of Directors of Metromedia shall have
--------------
approved this Agreement and the Contemplated Transactions.
7.10 Due Diligence. Metromedia shall have completed its legal,
-------------
financial and accounting review of the Company and the subsidiaries and shall be
satisfied with the results of such review.
7.11 No Dissenters' Rights. No holder of any Shares of Company Common
---------------------
Stock shall have objected to the Merger in writing and demanded the value of
their shares pursuant to Section 262 of the Delaware General Corporation Law.
7.12 Paramount Pictures. The Agreement dated as of November 1, 1995
------------------
between Paramount Pictures Corporation and the Company shall be executed in a
form approved by Metromedia.
ARTICLE 8
CONDITIONS PRECEDENT TO THE OBLIGATION
OF THE STOCKHOLDERS TO CLOSE
The obligation of the Stockholders to enter into and complete the Closing
is subject, at the option of the Stockholder acting in accordance with the
provisions of Section 11 with respect to termination of this Agreement, to the
fulfillment on or prior to the Closing Date of the following conditions, any one
or more of which may be waived by them:
8.1 Representations and Covenants. The representations and warranties
-----------------------------
of Metromedia contained in this Agreement shall be true on and as of the Closing
Date with
39
<PAGE>
the same force and effect as though made on and as of the Closing Date.
Metromedia shall have performed and complied with all covenants and agreements
required by this Agreement to be performed or complied with by it on or prior to
the Closing Date. Metromedia shall have delivered to the Stockholders a
certificate, dated the date of the Closing and signed by an officer of
Metromedia, to the foregoing effect.
8.2 Consents and Approvals. All Required Consents shall have been
----------------------
obtained and be in full force and effect and the Company and the Stockholders
shall have been furnished with evidence reasonably satisfactory to each of them
of the granting of such approvals, authorizations and consents.
8.3 Opinion of Counsel to Metromedia. The Stockholders shall have
--------------------------------
received the opinion of Arnold L. Wadler, General Counsel to Metromedia, dated
the date of the Closing, addressed to the Stockholders, in the form of Exhibit
F.
8.4 HSR Act Filing. Any Person required in connection with the
--------------
Contemplated Transactions to file a notification and report form in compliance
with the HSR Act shall have filed such form and the applicable waiting period
with respect to each such form (including any extension thereof by reason of a
request for additional information) shall have expired or been terminated.
8.5 Employment Agreements. The Surviving Corporation shall have
---------------------
entered into employment agreements with each of the Stockholders in the form
attached to that certain letter dated as of the date hereof from the Surviving
Corporation to the Stockholders.
8.6 No Claims. There shall be no outstanding Order of any governmental
---------
body against or involving Metromedia and there shall be no claims pending or to
the Knowledge of Metromedia, threatened against or involving Metromedia which
could have an adverse effect on the Contemplated Transactions.
8.7 Board Approval. The Board of Directors of the Company shall have
--------------
approved this Agreement and the Contemplated Transactions.
8.8 Due Diligence. The Company and the Stockholders shall have
-------------
completed their review of Metromedia and shall be satisfied with the results of
such review.
40
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8.9 The parties shall enter into a Registration Rights Agreement
in the form of Exhibit G hereto.
8.10 No Dissenters' Rights. No holder of any Shares of Company Common
---------------------
Stock shall have objected to the Merger in writing and demanded the value of
their shares pursuant to Section 262 of the Delaware General Corporation Law.
ARTICLE 9
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS AFTER CLOSING
Notwithstanding any right of Metromedia fully to investigate the affairs
of the Company and the Subsidiaries and notwithstanding any Knowledge of facts
determined or determinable by Metromedia pursuant to such investigation or right
of investigation, Metromedia has the right to rely fully upon the
representations, warranties, covenants and agreements of the Stockholders
contained in this Agreement or in any Documents delivered pursuant to this
Agreement. All such representations, warranties, covenants and agreements shall
survive the execution and delivery of this Agreement and the Closing hereunder.
Except for all representations and warranties in Article 4, all representations
and warranties of the Stockholders contained in this Agreement shall terminate
and expire (i) on the date 3 years after the Closing Date, with respect to any
General Claim (as defined below) based upon, arising out of or otherwise in
respect of any fact, circumstance, action or proceeding of which Metromedia
shall not have given notice on or prior to such date to the Stockholders, and
(ii) with respect to any Tax Claim), on the later of (a) the date upon which
the liability to which any such Tax Claim may relate is barred by all applicable
statutes of limitation or (b) the date upon which any claim for refund or credit
related to such Tax Claim is barred by all applicable statutes of limitations.
As used in this Agreement, the following terms have the following meanings:
(x) "General Claim" means any claim based upon, arising out of or
-------------
otherwise in respect of any inaccuracy in or any breach of any representation or
warranty, of
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any Stockholder contained in this Agreement or in any Documents delivered
pursuant to this Agreement.
(y) "Tax Claim" shall mean any claim based upon, arising out of or
---------
otherwise in respect of any inaccuracy or any breach of any representation or
warranty contained in Section 3.9.
ARTICLE 10
GENERAL INDEMNIFICATION
10.1 Obligation of the Stockholders to Indemnify.
-------------------------------------------
(a) Subject to the limitations contained in Article 9 and this Article 10,
the Stockholders jointly and severally agree to indemnify, defend and hold
harmless Metromedia (and their respective directors, officers, employees,
Affiliates, parents, partners, shareholders, successors and assigns) from and
against all losses, liabilities, damages, deficiencies, demands, claims,
actions, judgments or causes of action, assessments, costs or expenses
(including, without limitation, interest, penalties and reasonable attorneys'
fees and disbursements) ("Losses") based upon, arising out of or otherwise in
respect of any inaccuracy in or any breach of any representation, warranty,
covenant or agreement of the Company or the Stockholders contained in this
Agreement with the exception of Article 4.
(ii) Each Stockholder agrees to indemnify, defend and hold
harmless Metromedia (and its respective directors, employees, officers,
Affiliates, parents, partners, shareholders, successors and assigns) from and
against all Losses based upon, arising out of or otherwise in respect of any
inaccuracy in or any breach of any representation, warranty, covenant or
agreement of such Stockholder contained in this Agreement.
10.2 Obligation of Metromedia to Indemnify. Metromedia agrees to
-------------------------------------
indemnify, defend and hold harmless the Stockholders from and against all Losses
based upon, arising out of or otherwise in respect of any inaccuracy in or any
breach of any
42
<PAGE>
representation, warranty, covenant or agreement of Metromedia contained in this
Agreement.
10.3 Notice and Opportunity to Defend.
--------------------------------
10.3.1 Notice of Asserted Liability.
----------------------------
Promptly after receipt by any party hereto (the "Indemnitee") of notice of any
demand, claim or circumstances which, with the lapse of time, would or might
give rise to a claim or the commencement (or threatened commencement) of any
action, proceeding or investigation (an "Asserted Liability") that may result in
a Loss, the Indemnitee shall give notice thereof (the "Claims Notice") to any
other party (or parties) obligated to provide indemnification pursuant to
Section 10.1 or 10.2 (the "Indemnifying Party"). The Claims Notice shall
describe the Asserted Liability in reasonable detail, and shall indicate the
amount (estimated, if necessary and to the extent feasible) of the Loss that has
been or may be suffered by the Indemnitee.
10.3.2 Opportunity to Defend. Except as otherwise set forth in
---------------------
Section 10.3.3, the Indemnifying Party may elect to compromise or defend, at its
own expense and by its own counsel, any Asserted Liability. If the Indemnifying
Party elects to compromise or defend such Asserted Liability, it shall within 20
days (or sooner, if the nature of the Asserted Liability so requires) notify the
Indemnitee of its intent to do so, and the Indemnitee shall cooperate, at the
expense of the Indemnifying Party, in the compromise of, or defense against,
such Asserted Liability. If the Indemnifying Party elects not to compromise or
defend the Asserted Liability, fails to notify the Indemnitee of its election as
herein provided or contests its obligation to indemnify under this Agreement,
the Indemnitee may pay, compromise or defend such Asserted Liability.
Notwithstanding the foregoing, neither the Indemnifying Party nor the Indemnitee
may settle or compromise any claim over the objection of the other; provided,
--------
however, that consent to settlement or compromise shall not be unreasonably
- -------
withheld or delayed. In any event, the Indemnitee and the Indemnifying Party may
participate, at their own expense, in the defense of such Asserted Liability.
Notwithstanding the foregoing, any Indemnitee shall be entitled to employ
separate counsel from the Indemnifying Party if the interests of such Indemnitee
43
<PAGE>
may be prejudiced without such separate counsel (including, without limitation,
if one or more legal defenses may be inconsistent or in conflict with the legal
defenses available to the Indemnifying Party) and the Indemnifying Party shall
entirely and solely bear the reasonable fees and expenses of such separate
counsel. If the Indemnifying Party chooses to defend any claim, the Indemnitee
shall make available to the Indemnifying Party any books, records or other
documents within its control that are necessary or appropriate for such defense.
10.3.3 Opportunity to Defend Tax Deficiencies. In the event a
--------------------------------------
claim (a "Tax Deficiency") (including a revenue agent's report or notice of
proposed adjustment) shall be made by the Internal Revenue Service or its state,
local or foreign counterpart, which, if successful, would result in an
obligation on the part of the Stockholders to indemnify Metromedia for Taxes,
Metromedia shall give prompt written notice thereof to Stockholders. If, within
thirty days after the giving of such notice, the Stockholders notify Metromedia
in writing that they wish to question a Tax Deficiency in administrative
proceedings before the Internal Revenue Service or its state, local or foreign
counterpart, then, subject to the following provisions, Metromedia shall afford
to the Stockholders an opportunity in good faith (and subject to the
satisfaction of Metromedia's reasonable requirements) to participate in such
administrative proceeding as to such Tax Deficiency, provided, however, that in
the case of a Tax Deficiency which will, as a result of any adjustment of tax
basis of assets of the Company and the Subsidiaries or their respective
predecessors or Affiliates or the adjustment, restatement or recharacterization
of amounts deducted by the Company and the Subsidiaries or their respective
predecessors or Affiliates, require the Company and the Subsidiaries to
recognize additional taxable income for any Tax Period following the Effective
Time, Metromedia shall not be obligated to afford the Stockholders an
opportunity to participate in such administrative proceeding as to such Tax
Deficiency unless and until the Stockholders shall have delivered to Metromedia
a current opinion of counsel reasonably acceptable to Metromedia to the effect
that Stockholders' position with respect to the Tax Deficiency is more likely
than not to prevail. Metromedia shall not be obligated to take a protest with
respect to a Tax Deficiency to the
44
<PAGE>
appellate levels within the Internal Revenue Service or its state, local or
foreign counterpart, or to commence litigation in the Tax Court or any other
court unless and until the Stockholders shall have (a) delivered to Metromedia a
current opinion of counsel reasonably acceptable to Metromedia to the effect
that the Stockholders' position with respect to the Tax Deficiency is more
likely than not to prevail, and (b) delivered to Metromedia a certified check
drawn to Metromedia in the amount of the Tax Deficiency where payment of the Tax
Deficiency is required to commence appellate proceedings or litigation. If the
Stockholders fail to satisfy the requirements of the preceding sentences,
Metromedia may settle the Tax Deficiency covered by the notice for an amount
that does not exceed the amount of Taxes set forth in the original notice to the
Stockholders. If Metromedia desires to settle any Tax Deficiency, it shall give
the Stockholders thirty days' prior written notice of such intention setting
forth the terms of such settlement. Metromedia shall be entitled to settle any
Tax Deficiency covered by such notice after the expiration of said thirty day
period unless in the case of a Tax Deficiency which will, as a result of any
adjustment of Tax basis of assets of the Company and the Subsidiaries or their
respective predecessors or Affiliates or the adjustment, restatement or
recharacterization of amounts deducted by the Company and the Subsidiaries or
their respective predecessors or Affiliates, require the Company and the
Subsidiaries to recognize additional taxable income for any Tax period following
the Effective Time the Stockholders deliver to Metromedia a current opinion of
counsel reasonably acceptable to Metromedia to the effect that the Stockholders'
position with respect to the Tax Deficiency is more likely than not to prevail.
If the Stockholders shall deliver such an opinion, the Stockholders shall be
entitled to settle such Tax Deficiency without the written consent of Metromedia
unless entering into such a settlement, would, in the reasonable judgment of
Metromedia, have an adverse effect on the business of the Company or the
Subsidiaries.
10.4 Limitation on Claims. In case any event shall occur which would
--------------------
otherwise entitle Metromedia to assert a claim for indemnification hereunder, no
Loss shall be deemed to have been sustained by such party to the extent of (a)
any tax savings realized by such party with respect thereto in the year in which
the indemnification would otherwise
45
<PAGE>
be made in connection with the claim or (b) any proceeds received by such party
from any insurance policies with respect thereto.
10.5 Maximum Exposure. Notwithstanding anything to the contrary in
----------------
Section 10.1(a), (a) Metromedia shall be entitled to indemnification hereunder
only when, and only with respect to amounts by which, the aggregate of all
Losses sustained by it exceeds $500,000 and (b) the aggregate amount of all
Losses subject to indemnification hereunder by the Stockholders shall not exceed
$27,500,000.
10.6 Actual Knowledge. An Indemnifying Party shall not be liable under
----------------
this Article X for a Loss resulting from any event relating to a breach of any
representation, warranty, covenant or agreement if the Indemnifying Party can
establish that the Indemnitee had Knowledge on or before the Closing Date of
such event.
10.7 Option to Pay Indemnity Obligations in Stock. In the event that
--------------------------------------------
any payment of the indemnity obligations of the Stockholders set forth in
Section 10.1 is required to be made, the Stockholders may satisfy such payment,
in whole or in part, by delivering to Metromedia shares of Metromedia Common
Stock acquired by them pursuant to the merger pursuant to this Agreement, which
shares, for such purpose, shall be valued at the closing price of Metromedia
Common Stock, as reported in The Wall Street Journal, on the date such liability
--- ---- ------ -------
is finally determined. The Stockholders may satisfy the indemnification
obligations set forth in Section 10.1 by cash, stock, or a combination thereof.
ARTICLE 11
TERMINATION OF AGREEMENT
11.1 Termination. This Agreement may be terminated prior to the
-----------
Closing as follows:
(i) at the election of the Stockholders, if any one or more of the
conditions to the obligation of the Stockholders to close has not been fulfilled
as of the scheduled Closing Date;
46
<PAGE>
(ii) at the election of Metromedia, if any one or more of the
conditions to its respective obligations to close has not been fulfilled as of
the scheduled Closing Date;
(iii) at the election of the Stockholders, if Metromedia has
breached any material representation, warranty, covenant or agreement contained
in this Agreement, which breach cannot be or is not cured by the Closing Date;
(iv) at the election of Metromedia, if any of the Stockholders has
breached any material representation, warranty, covenant or agreement contained
in this Agreement, which breach cannot be or is not cured by the Closing Date;
or
(v) at the election of Metromedia if Metromedia is not satisfied
with the results of its Due Diligence Investigation;
(vi) at the election of the Stockholders if there is a Material
Adverse Change in the business operations or prospects of Metromedia at any time
on or prior to the Closing Date;
(vii) at the election of Metromedia, if there is a Material
Adverse Change in the business operations or prospects of the Company at any
time on or prior to the Closing Date; or
(viii) by mutual written consent of the Stockholders and
Metromedia.
If this Agreement so terminates, it shall become null and void and have
no further force or effect, except as provided in Section 11.2.
11.2 Survival After Termination. If this Agreement is terminated in
--------------------------
accordance with Section 11.1 and the Contemplated Transactions are not
consummated, this Agreement shall become void and of no further force and
effect, except for (i) the provisions of Section 6.2 relating to the obligation
of Metromedia to keep confidential and not to use certain information and data
obtained by it from the Company or the Subsidiaries and to return documents to
the Company or the Subsidiaries, and (ii) the provisions of Sections 6.4, 6.5
and 12.2; provided, however, that none of the parties shall have any liability
-------- -------
in respect of a termination of this Agreement except to the extent that failure
to
47
<PAGE>
satisfy the conditions of Article 7 or Article 8, as the case may be, results
from the intentional or willful violation of such party contained in this
Agreement.
ARTICLE 12
MISCELLANEOUS
12.1 Certain Definitions. (a) As used in this Agreement, the following
-------------------
terms have the following meanings:
(i) "Active Preproduction" means, with respect to any item of
--------------------
Product as commencing upon the earlier of (i) eight weeks priority the scheduled
date on which principal photography with respect to such item of Product is to
commence or (ii) the date that such item of Product has been "greenlighted" as
such term is understood in the motion picture industry.
(ii) "Affiliate" means, with respect to any Person, any other
---------
Person controlling, controlled by or under common control with, or the parents,
spouse, lineal descendants or beneficiaries of, such Person.
(iii) "Budgeted Negative Cost" means, with respect to any item of
----------------------
Product, the amount of the cash budget for such item of Product including all
costs customarily included in connection with the acquisition of all underlying
literary and musical rights with respect to such item of Product and in
connection with the preparation, production and completion of such item of
Product including costs of materials, equipment, physical properties, personnel
and services utilized in connection with such item of Product, both "above-the-
line" and "below-the-line", any completion guaranty fee, and all other items
customarily included in negative costs, but excluding contingency of up to 10%,
production fees and overhead charges payable to the Company or its Subsidiaries,
finance charges and interest expense.
(iv) "Contingent Compensation" means compensation that is
-----------------------
contingent upon and payable only (a) to the extent of the receipt of revenues
from the exploitation of a particular motion picture, video, television or
interactive program or (b) upon the passage of time or the occurrence of an
identified event. Examples of such
48
<PAGE>
contingent compensation include, but are not limited to, deferred cash payments
for rights or services, or gross or net profit or proceed participations.
(v) "Distribution Contract" shall mean any agreement entered into
---------------------
by the Company or any of its Subsidiaries pursuant to which the Company or any
of its Subsidiaries has licensed, leased, assigned or sold distribution or other
exploitation rights to any item of Product in any media or territory.
(vi) "Knowledge" with respect to the Company or any of the
---------
Subsidiaries means the actual Knowledge, after due inquiry, of any of the
following officers or directors of the Company or any of the Subsidiaries:
Bradley Krevoy, Steven Stabler and Jeffrey Ivers and "Knows" has a correlative
-----
meaning.
(vii) "Person" means any individual, corporation, partnership,
------
firm, joint venture, association, joint-stock company, trust, unincorporated
organization, Governmental Body or other entity.
(viii) "Product" shall mean any motion picture, film or video
-------
tape produced for theatrical, non-theatrical, television or video release or for
release in any other medium, in each case whether recorded on film, videotape,
cassette, cartridge, disc or on or by any other means, method, process or device
whether now known or hereafter developed, with respect to which the Company or
its Subsidiaries (i) is the initial copyright owner or (ii) has acquired or has
contracted to acquire an equity interest or distribution rights. The term "item
of Product" shall include, without limitation, the scenario, screenplay or
script upon which such Product is based, all of the properties thereof, tangible
and intangible, and whether now in existence or hereafter to be made or
produced, whether or not in possession of the Company or its Subsidiaries, and
all rights therein and thereto, of every kind and character.
(ix) "Property" or "Properties" means real, personal or mixed
-------- ----------
Property, tangible or intangible
(b) The following capitalized terms are defined in the following Sections
of this Agreement:
49
<PAGE>
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
Asserted Liability 10.3.1
Audited Financials 3.7
Balance Sheet 3.7
Balance Sheet Date 3.7
Buyer Preamble
Claims 3.13
Claims Notice 10.3.1
Closing 1.2
Closing Date 1.2
Company Preamble
Contemplated Transactions 3.12
Contracts 3.12
Documents 3.28
General Claim 9(x)
Governmental Body 3.10
HSR Act 3.26
Indemnifying Party 10.3.1
Indemnitee 10.3.1
Interim Financials 3.7
Laws 3.10
Liabilities 3.19
Liens 3.4
Losses 10.1
Material Adverse Effect 3.8
Orders 3.10
Permits 3.11
Projections 3.27
</TABLE>
50
<PAGE>
Purchase Price 1.1
Required Consents 3.12
Stockholder Preamble
Shares Preamble
Subsidiaries 3.2
Tax Claim 9(y)
Taxes 3.9
12.2 Consent to Jurisdiction and Service of Process. Any legal action,
----------------------------------------------
suit or proceeding arising out of or relating to this Agreement or the
Contemplated Transactions may be instituted in any federal court of the Southern
District of New York or any state court located in New York County, State of
New York, and each party agrees not to assert, by way of motion, as a defense or
otherwise, in any such action, suit or proceeding, any claim that it is not
subject personally to the jurisdiction of such court, that the action, suit or
proceeding is brought in an inconvenient forum, that the venue of the action,
suit or proceeding is improper or that this Agreement or the subject matter
hereof may not be enforced in or by such court. Each party further irrevocably
submits to the jurisdiction of such court in any such action, suit or
proceeding. Any and all service of process and any other notice in any such
action, suit or proceeding shall be effective against any party if given
personally or by registered or certified mail, return receipt requested, or by
any other means of mail that requires a signed receipt, postage prepaid, mailed
to such party as herein provided. Nothing herein contained shall be deemed to
affect the right of any party to serve process in any manner permitted by law or
to commence legal proceedings or otherwise proceed against any other party in
any other jurisdiction.
12.3 Notices. Any notice or other communication required or permitted
-------
hereunder shall be in writing and shall be delivered personally, sent by
facsimile transmission (receipt confirmed) or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, or sent by facsimile transmission or, if mailed, five days
after the date of deposit in the United States mails, as follows:
51
<PAGE>
(i) if to Metromedia:
Metromedia International Group, Inc.
c/o Metromedia Company
One Meadowlands Plaza
East Rutherford, New Jersey 07073
Attention: General Counsel
Facsimile: 201-531-2803
(ii) if to the Company or the Stockholders, to:
Motion Picture Corporation of America
1401 Ocean Avenue
Suite 301
Santa Monica, California 90401
Attention: Bradley Krevoy and Steven Stabler
Facsimile: 310-319-9501
with a copy to:
Loeb & Loeb, LLP.
345 Park Avenue
New York, New York 10154
Attention: David S. Schaefer, Esq.
Facsimile: 212-407-4990
Any party may by notice given in accordance with this Section to the other
parties designate another address or Person for receipt of notices hereunder.
12.4 Entire Agreement. This Agreement (including the Exhibits and
----------------
Schedules) and any collateral agreements executed in connection with the
consummation of the Contemplated Transactions contain the entire agreement among
the parties with respect to the purchase of the Shares and supersede all prior
agreements, written or oral, with respect thereto.
12.5 Waivers and Amendments; Non-Contractual Remedies; Preservation
--------------------------------------------------------------
of Remedies. This Agreement may be amended, superseded, cancelled, renewed or
- -----------
extended, and the term hereof may be waived, only by a written instrument signed
by Metromedia and the Stockholders or, in the case of a waiver, by the party
waiving compliance. No delay on the part of any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
waiver on the part of any party of
52
<PAGE>
any such right, power or privilege, nor any single or partial exercise of any
such right, power or privilege, preclude any further exercise thereof or the
exercise of any other such right, power or privilege. The rights and remedies
herein provided are not exclusive of any rights or remedies that any party may
otherwise have at law or in equity. The rights and remedies of any party based
upon, arising out of or otherwise in respect of any inaccuracy in or breach of
any representation, warranty, covenant or agreement contained in this Agreement
or any Documents delivered pursuant to this Agreement shall in no way be limited
by the fact that the act, omission, occurrence or other state of facts upon
which any claim of any such inaccuracy or breach is based may also be the
subject matter of any other representation, warranty, covenant or agreement
contained in this Agreement or any Documents delivered pursuant to this
Agreement (or in any other agreement between the parties) as to which there is
no inaccuracy or breach.
12.6 Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of New York applicable to agreements made
and to be performed entirely within such State:
12.7 Binding Effect; No Assignment. This Agreement shall be binding
-----------------------------
upon and inure to the benefit of the parties and their respective successors and
legal representatives. This Agreement is not assignable except by operation of
law, except that Metromedia may assign its rights hereunder to any of its
Affiliates.
12.8 Variations in Pronouns. All pronouns and any variations thereof
----------------------
refer to the masculine, feminine or neuter, singular or plural, as the context
may require.
12.9 Counterparts. This Agreement may be executed by the parties
------------
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
12.10 Exhibits and Schedules. The Exhibits and Schedules are a part of
----------------------
this Agreement as if fully set forth herein. All references herein to Sections,
Exhibits and
53
<PAGE>
Schedules shall be deemed references to such parts of this Agreement, unless the
context shall otherwise require.
12.11 Headings. The headings in this Agreement are for reference only,
--------
and shall not affect the interpretation of this Agreement.
12.12 Interpretation. The parties acknowledge and agree that: (i) each
--------------
party and its counsel reviewed and negotiated the terms and provisions of this
Agreement and have contributed to its revision; (ii) the rule of construction to
the effect that any ambiguities are resolved against the drafting party shall
not be employed in the interpretation of this Agreement; and (iii) the terms and
provisions of this Agreement shall be construed fairly as to all parties hereto,
regardless of which party was generally responsible for the preparation of this
Agreement.
12.13 Severability of Provisions. If any provision or any portion of
--------------------------
any provision of this Agreement, or the application of any such provision or
any portion thereof to any Person or circumstance, shall be held invalid or
unenforceable, the remaining portion of such provision and the remaining
provisions of this Agreement, and the application of such provision or portion
of such provision as is held invalid or unenforceable to Persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby.
54
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written
METROMEDIA INTERNATIONAL GROUP, INC.
By /s/ Silvia Kessel
----------------------------------
Name: Silvia Kessel
Title: Senior Vice President
MOTION PICTURE CORPORATION OF AMERICA
By /s/ Bradley Krevoy
----------------------------------
Name: Bradley Krevoy
Title: President
STOCKHOLDERS:
/s/ Bradley R. Krevoy
------------------------------------
Name: Bradley R. Krevoy
/s/ Steven Stabler
------------------------------------
Name: Steven Stabler
MPCA MERGER CORP.
By: /s/ Silvia Kessel
---------------------------------
Name: Silvia Kessel
Title: Senior Vice President
55
<PAGE>
MPCA MERGER SCHEDULES
---------------------
<TABLE>
<S> <C>
Exhibit A Outstanding Shares of Common Stock of Company
Exhibit B Restricted Stock Plan
Exhibit C Opinion of Counsel to Motion Picture Corporation
of America
Exhibit D Schedule Intentionally Omitted
Exhibit E Schedule Intentionally Omitted
Exhibit F Opinion of Counsel to Metromedia
Exhibit G Registration Rights Agreement
Schedule 1.5 Officers
Schedule 3.2 Subsidiaries and Other Affiliates
Schedule 3.3 Qualification
Schedule 3.4 Authorized and Issued Shares of Capital Stock
of Each Subsidiary
Schedule 3.5 Options or Other rights
Schedule 3.7 Adjustments to Audited Financials
Schedule 3.8 Material Adverse Change
Schedule 3.9(a)(i)&(ii) Reorganization Participants
Schedule 3.9(b) Taxes
Schedule 3.9(c) Tax Sharing Arrangement
Schedule 3.10 Notice of Violation of Order or Law
Schedule 3.11 Permits
Schedule 3.12(b) Required Consents
Schedule 3.13 Claims and Proceedings
Schedule 3.14 Contracts
Schedule 3.15.2 Leased Properties
Schedule 3.16 Intellectual Property
Schedule 3.17 Ownership of Product
Schedule 3.19 Liabilities
Schedule 3.20 Employee Benefit Plan
Schedule 3.22 Insurance
Schedule 3.23 Officers' Compensation
Schedule 3.24 Extraordinary Operations of the company
Schedule 3.25(a)(b)(c) Potential Conflicts of Interest
Schedule 3.27 Projections
Schedule 3.29 Environmental
Schedule 4.2 Required Approvals or Consents
Schedule 5.3 Metromedia's Conflicts
Schedule 6.1 Covenants and Agreements
</TABLE>
<PAGE>
EXHIBIT 10.1
[CONFORMED COPY]
$800,000,000
CREDIT AGREEMENT
dated as of
October 10, 1996
among
Metro-Goldwyn-Mayer Inc.,
The Lenders Listed Herein,
The L/C Issuers Named Herein
and
Morgan Guaranty Trust Company of New York,
as Agent
<PAGE>
TABLE OF CONTENTS
-------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
DEFINITIONS
Section 1.01. Definitions............................................. 2
Section 1.02. Accounting Terms and Determinations..................... 26
Section 1.03. Classes and Types of Loans and Borrowings............... 26
ARTICLE 2
THE CREDITS
Section 2.01. Commitments to Lend..................................... 27
Section 2.02. Method of Borrowing..................................... 30
Section 2.03. Notes................................................... 31
Section 2.04. Maturity of Loans; Mandatory Prepayments; Certain
Commitment Reductions................................... 32
Section 2.05. Interest Rates.......................................... 37
Section 2.06. Fees.................................................... 39
Section 2.07. Optional Termination or Reduction of Commitments........ 40
Section 2.08. Method of Electing Interest Rates....................... 40
Section 2.09. Mandatory Termination of Commitments.................... 42
Section 2.10. Optional Prepayments.................................... 42
Section 2.11. General Provisions as to Payments....................... 42
Section 2.12. Funding Losses.......................................... 43
Section 2.13. Computation of Interest and Fees........................ 44
Section 2.14. Letters of Credit....................................... 44
ARTICLE 3
CONDITIONS
Section 3.01. Closing................................................. 47
Section 3.02. Borrowings and Issuances of Letters of Credit........... 50
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Section 4.01. Corporate Existence and Power........................... 51
Section 4.02. Corporate and Governmental Authorization; No
Contravention........................................... 51
Section 4.03. Binding Effect.......................................... 51
Section 4.04. Financial Information; Information Memorandum........... 52
Section 4.05. Litigation.............................................. 53
Section 4.06. Compliance with ERISA................................... 53
</TABLE>
i
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<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 4.07. Environmental Compliance................................ 53
Section 4.08. Taxes................................................... 54
Section 4.09. Subsidiaries............................................ 54
Section 4.10. Regulatory Restrictions on Borrowing.................... 55
Section 4.11. Full Disclosure......................................... 55
Section 4.12. Representations in Transaction Documents True and
Correct................................................. 55
Section 4.13. Intellectual Property................................... 55
Section 4.14. Collateral Documents.................................... 56
Section 4.15. Solvency................................................ 56
ARTICLE 5
COVENANTS
Section 5.01. Information............................................. 56
Section 5.02. Payment of Obligations.................................. 59
Section 5.03. Maintenance of Property; Insurance...................... 60
Section 5.04. Conduct of Business and Maintenance of Existence........ 60
Section 5.05. Compliance with Laws.................................... 60
Section 5.06. Inspection of Property, Books and Records............... 61
Section 5.07. Mergers and Sales of Assets; Licensing Agreements....... 61
Section 5.08. Use of Proceeds......................................... 62
Section 5.09. Negative Pledge......................................... 63
Section 5.10. Limitation on Debt...................................... 65
Section 5.11. Adjusted EBITDA; EBITDA to Interest..................... 66
Section 5.12. Total Borrowed Funds to EBITDA.......................... 67
Section 5.13. Total Borrowed Funds/Library Cash Flow.................. 68
Section 5.15. Minimum Consolidated Adjusted Net Worth................. 69
Section 5.16. Operating Lease Payments................................ 69
Section 5.17. Restricted Payments..................................... 70
Section 5.19. Transactions with Affiliates............................ 73
Section 5.20. No Modification of Agreements Without Consent........... 74
Section 5.21. Limitation on Restrictions Affecting Subsidiaries....... 74
Section 5.22. Holdings Debt........................................... 75
Section 5.23. Hedging Facilities...................................... 75
Section 5.24. Further Assurances...................................... 75
Section 5.25. Minimum Number of Films................................. 77
ARTICLE 6
DEFAULTS
Section 6.01. Events of Default....................................... 77
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 6.02. Notice of Default....................................... 81
Section 6.03. Cash Cover.............................................. 81
ARTICLE 7
THE AGENT
Section 7.01. Appointment and Authorization........................... 82
Section 7.02. Agent and Affiliates.................................... 82
Section 7.03. Action by Agent......................................... 82
Section 7.04. Consultation with Experts............................... 82
Section 7.05. Liability of Agent...................................... 82
Section 7.06. Indemnification......................................... 83
Section 7.07. Credit Decision......................................... 83
Section 7.08. Successor Agent......................................... 84
Section 7.09. Agent's Fee............................................. 84
Section 7.10. Arranger................................................ 84
ARTICLE 8
CHANGE IN CIRCUMSTANCES
Section 8.01. Basis for Determining Interest Rate Inadequate or Unfair 84
Section 8.02. Illegality.............................................. 85
Section 8.03. Increased Cost and Reduced Return....................... 85
Section 8.04. Taxes................................................... 87
Section 8.05. Base Rate Loans Substituted for Affected Euro-Dollar
Loans................................................... 89
Section 8.06. Substitution of Lender.................................. 89
ARTICLE 9
MISCELLANEOUS
Section 9.01. Notices................................................. 90
Section 9.02. No Waivers.............................................. 90
Section 9.03. Expenses; Indemnification............................... 91
Section 9.04. Sharing of Set-offs..................................... 91
Section 9.05. Amendments and Waivers; Release of Guarantors or
Collateral.............................................. 92
Section 9.06. Successors and Assigns.................................. 93
Section 9.07. Collateral.............................................. 96
Section 9.08. Governing Law; Submission to Jurisdiction............... 96
Section 9.09. Counterparts; Integration; Effectiveness................ 96
Section 9.10. Waiver of Jury Trial.................................... 96
Section 9.11. Confidentiality......................................... 97
</TABLE>
iii
<PAGE>
Pricing Schedule
Commitment Schedule
Schedule 1.01(a) - Library Films
Schedule 3.01(h)(x) - Investor Agreements
Schedule 3.01(i) - Terminating Debt
Schedule 4.05 - Material Litigation
Schedule 4.09 - Material Subsidiaries
Schedule 5.09 - Existing Liens
Schedule 5.10 - Outstanding Debt
Schedule 5.18 - Existing Investments
Schedule 5.19 - Transactional Agreements with Affiliates
Exhibit A - Note
Exhibit B - Borrower Pledge Agreement
Exhibit C - Holdings Agreement
Exhibit D - Guarantor Pledge Agreement
Exhibit E - Borrower and Guarantor Security Agreement
Exhibit F - Subsidiary Guaranty Agreement
Exhibit G - Opinion of Gibson, Dunn & Crutcher, counsel for the Obligors
Exhibit H-1 - Opinion of Davis Polk & Wardwell, special counsel for the Agent
Exhibit H-2 - Opinion of Amster, Rothstein & Ebenstein, special counsel for the
Agent
Exhibit I - Assignment and Assumption Agreement
Exhibit J - Capital Call Agreement
Exhibit K - Extension Agreement
Exhibit L - Section 8.04(d) Certificate
<PAGE>
CREDIT AGREEMENT
AGREEMENT dated as of October 10, 1996 among METRO-GOLDWYN-MAYER INC., the
LENDERS listed on the signature pages hereof, the L/C ISSUERS named herein and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent.
The parties hereto agree as follows:
ARTICLE 1
Definitions
Section 1.0. Definitions. The following terms, as used herein, have the
following meanings:
"Accepting Tranche B Lenders" has the meaning set forth in Section
2.04(f)(iii).
"Acquisition" means the purchase by Holdings of all of the issued and
outstanding capital stock of the Borrower and all other transactions
contemplated by the Transaction Documents to be consummated on or before the
Closing Date.
"Adjusted London Interbank Offered Rate" has the meaning set forth in
Section 2.05(b).
"Administrative Questionnaire" means, with respect to each Lender, an
administrative questionnaire in the form prepared by the Agent and submitted to
the Agent (with a copy to the Borrower) duly completed by such Lender.
"Affiliate" means (i) any Person that directly, or indirectly through one
or more intermediaries, controls Holdings (a "Controlling Person") or (ii) any
Person (other than the Borrower or a Subsidiary of the Borrower) which is
controlled by or is under common control with a Controlling Person. As used
herein, the term "control" means possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
2
<PAGE>
"Agent" means Morgan Guaranty Trust Company of New York in its capacity as
agent for the Lenders under the Loan Documents, and its successors in such
capacity.
"Applicable Lending Office" means, with respect to any Lender, (i) in the
case of its Base Rate Loans, its Domestic Lending Office and (ii) in the case of
its Euro-Dollar Loans, its Euro-Dollar Lending Office.
"Arranger" means J.P. Morgan Securities Inc. in its capacity as arranger
for the Lenders under the Loan Documents.
"Asset Sale" means any sale, lease, license or other disposition (including
any such transaction effected by way of merger or consolidation) (any of the
foregoing, for purposes of this definition, a "disposition") by the Borrower or
any of its Subsidiaries of any asset, including without limitation any sale-
leaseback transaction, whether or not involving a capital lease, but excluding
(i) dispositions of cash, cash equivalents and other cash management investments
and obsolete, unused or unnecessary equipment and undeveloped real estate, in
each case in the ordinary course of business, (ii) dispositions of any right,
title or interest in an individual Film (other than any Library Film) or slate
of Films (other than any Library Film) or Film Related Asset in the ordinary
course of business in connection with any Investment permitted under Section
5.18, (iii) dispositions of any right, title or interest in an individual Film
(other than any Library Film) or slate of Films (other than any Library Film) or
Film Related Asset in the ordinary course of business in connection with any
financing permitted under Section 5.10(h) , (iv) dispositions pursuant to a
Sale-Leaseback Transaction, (v) dispositions pursuant to a Licensing Agreement
permitted under Section 5.07(d) or (e), (vi) dispositions of inventory,
including Film Related Assets, but excluding any Film (including without
limitation any Library Film), in the ordinary course of business, (vii)
dispositions of any right, title or interest in an individual Film (other than
any Library Film) or slate of Films (other than any Library Film) or Film
Related Asset in the ordinary course of business pursuant to transactions
constituting split-rights deals, coproduction deals or cofinancing deals (as
such terms are generally understood in the movie industry on the date hereof),
(viii) dispositions of accounts receivables pursuant to Receivables Financings
entered into prior to June 30, 1996, (ix) dispositions to the Borrower or any
Guarantor and (x) dispositions of any Film Related Assets, any Film (other than
any Library Film) or slate of Films (other than any Library Film) (any of the
foregoing, for purposes of this clause (x), a "disposed asset") to any Single
Purpose Subsidiary for the purpose of permitting such Single Purpose Subsidiary
to develop, produce, finance, acquire, distribute or exploit such disposed asset
so long as the cash consideration received by the Borrower or the Subsidiary
disposing of such
3
<PAGE>
disposed asset in any such disposition is at least equal to the amount invested
or spent by the Borrower and its Subsidiaries on or prior to the date of such
disposition with respect to the development, production, acquisition or
financing of such disposed asset (excluding from the calculation of such amount
invested or spent overhead and other selling, general and administrative costs);
provided that a disposition of assets not excluded by clauses (i) through (x)
above during any Fiscal Year shall not constitute an Asset Sale unless and until
(and solely to the extent that) the aggregate Net Cash Proceeds from such
disposition, when combined with all other such dispositions previously made
during such Fiscal Year, exceeds $5,000,000. The description of any transaction
as not constituting an "Asset Sale" does not affect any limitation on such
transaction imposed by Article 5 of this Agreement (other than Section 5.07(b)).
"Assignee" has the meaning set forth in Section 9.06(c).
"Base Rate" means, for any day, a rate per annum equal to the higher of (i)
the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal
Funds Rate for such day.
"Base Rate Loan" means a Loan which bears interest by reference to the Base
Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate
Election or the provisions of Article 8.
"Base Rate Margin" means a rate per annum determined in accordance with the
Pricing Schedule.
"Borrower" means Metro-Goldwyn-Mayer Inc., a Delaware corporation, and its
successors.
"Borrower Pledge Agreement" means the pledge agreement substantially in the
form of Exhibit B hereto between the Borrower and the Agent entered into as of
the Closing Date, as amended from time to time.
"Borrowing" has the meaning set forth in Section 1.03.
"Capital Call Agreement" means the agreement substantially in the form of
Exhibit J hereto among Tracinda, Seven Network, Holdings, the Borrower and the
Agent entered into as of the Closing Date, as amended from time to time.
"Class" has the meaning set forth in Section 1.03.
4
<PAGE>
"Closing Date" means the first date on or after the Effective Date on which
all of the conditions specified in Section 3.01 shall have been satisfied.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute.
"Collateral" means collateral subject to the Collateral Documents.
"Collateral Documents" means the Pledge Agreements, the Security Agreement,
any additional pledge agreements, security agreements or mortgages required to
be delivered pursuant to the Loan Documents and any instruments of assignment,
laboratory access letters or other instruments or agreements executed pursuant
to the foregoing.
"Commitment" means a Term Commitment, a Revolving Commitment or a Swing
Loan Commitment, and "Commitments" means any combination of the foregoing.
"Commitment Fee Rate" means a rate per annum determined in accordance with
the Pricing Schedule.
"Commitment Schedule" means the Schedule attached hereto identified as
such.
"Commonly Controlled Entity" means an entity, whether or not incorporated,
which is under common control with the Borrower within the meaning of Section
4001 of ERISA or is part of a group which includes the Borrower and which is
treated as a single employer under Section 414(b) or (c) of the Code.
"Consolidated Adjusted EBITDA" means for any period (i) Consolidated EBITDA
for such period plus (ii) the lesser of (A) $50,000,000 and (B) to the extent
----
deducted in determining such Consolidated EBITDA for such period, the aggregate
amount of write-offs in excess of $20,000,000 of Film costs with respect to
Films required to be taken during such period under Financial Accounting
Standard Board Statement No. 53 (as in effect on the Closing Date).
"Consolidated Adjusted Net Worth" means at any date (i) the consolidated
stockholders' equity of Holdings and its Consolidated Subsidiaries as reflected
on the balance sheet of Holdings at such date (or as the same would be reflected
on such balance sheet if such balance sheet were prepared at such date) plus
----
(ii) the aggregate amount of Specified Non-Cash Charges taken after September
30, 1996
5
<PAGE>
minus (iii) the aggregate amount of cash payments made by Holdings and its
- -----
Consolidated Subsidiaries after September 30, 1996 with respect to items for
which any Specified Non-Cash Charges have been taken after September 30, 1996
minus (iv) all amounts that are included as assets on such balance sheet at such
- -----
date (or as the same would be included on such balance sheet if such balance
sheet were prepared at such date) in respect of any Film produced or acquired by
the Borrower or any of its Consolidated Subsidiaries which Film has not been
released within 18 months following the date of completion of principal
photography thereof or, if later, the date of acquisition thereof.
"Consolidated Capital Expenditures" means for any period the gross
additions to property, plant and equipment and other capital expenditures of
Holdings and its Consolidated Subsidiaries for such period.
"Consolidated Cash Interest Expense" means for any period the cash interest
expense of Holdings and its Consolidated Subsidiaries determined on a
consolidated basis for such period.
"Consolidated EBITDA" means for any period (i) Consolidated Net Income for
such period plus (ii) to the extent deducted in determining Consolidated Net
----
Income for such period, the sum of (x) consolidated interest expense, (y) income
tax expense and (z) depreciation and amortization (other than amortization of
film and television costs and participants' share).
"Consolidated Net Income" means for any period (i) the consolidated net
income of Holdings and its Consolidated Subsidiaries for such period, determined
in any event before payment of any dividends on the Investor Preferred Stock or
any other preferred stock plus (ii) to the extent deducted in determining such
----
consolidated net income, any Specified Non-Cash Charges minus (iii) any cash
-----
payments made by Holdings and its Consolidated Subsidiaries during such period
with respect to items for which any Specified Non-Cash Charges were taken in a
prior period.
"Consolidated Subsidiary" means, with respect to any Person, at any date,
any Subsidiary or other entity the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date; unless otherwise specified, "Consolidated
Subsidiary" means a Consolidated Subsidiary of Holdings.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all
6
<PAGE>
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all obligations of such Person as lessee which are capitalized in
accordance with generally accepted accounting principles (including without
limitation any such obligations under Sale-Leaseback Transactions to the extent
that such obligations are capitalized in accordance with generally accepted
accounting principles), (v) all non-contingent obligations (and, for purposes of
Section 5.09 and the definitions of Material Debt, all contingent obligations)
of such Person to reimburse any Lender or other Person in respect of amounts
paid under a letter of credit or similar instrument, (vi) all Debt secured by a
Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vii) all Debt of others Guaranteed by such
Person; provided however, that (x) the "Debt" of any Person does not include any
(A) commitments of such Person in connection with the development, production,
acquisition, distribution, exhibition or exploitation of Films, (B) guaranteed
payment obligations of such Person of a nature customary in the film industry of
such Person under license agreements with respect to the development,
production, acquisition, distribution, exhibition or exploitation of Films, (C)
obligations of such Person in respect of Profit Participations, Residuals and
Deferred Payments payable to other Persons in connection with the development,
production, acquisition, distribution, exhibition, exploitation or financing of
Films, (D) obligations of such Person in the nature of progress or installment
payment obligations with respect to a Film owed to the owner of such Film or
cast, crew, writers, distributors, directors, producers, owners of rights, bond
companies or similar Persons for such Film, in respect of the deferred purchase
price of such Film or rights to such Film, or services in, or in connection
with, such Film (to the extent entered into in the ordinary course of business
of such Person and not otherwise constituting "Debt" of a type referred to in
clauses (i) or (ii) above), (E) obligations of such Person under performance or
completion bonds which have been posted in the ordinary course of business in
connection with the development or production of Films or (F) any Guaranty of
any obligation referred to in clause (A), (B), (C), (D) or (E) and (y) for
purposes of Section 5.10 and the determination of Total Borrowed Funds, the
amount of "Debt" of the Borrower or any of its Subsidiaries which constitutes
"Debt" solely pursuant to clause (vii) of this definition because the Borrower
or such Subsidiary is a partner in a partnership, shall be equal to the
principal or face amount of such Debt multiplied by the Borrower's or such
-------------
Subsidiary's percentage interest in such partnership, so long as such
partnership is solvent and paying and capable of paying its obligations as they
become due.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
7
<PAGE>
"Deferred Payments" means deferred payments for services payable to cast,
crew, writers, distributors, directors, producers, owners of rights, bond
companies or similar Persons or payments to producers or investors, in
connection with the development, production, acquisition, distribution or
exploitation of Films or Film Related Assets, the amount or payment of which is
contingent upon the performance of such Films or Film Related Assets or deferred
to a fixed time, tied to the performance of such Film or Film Related Assets or
to the achievements of such Person with respect to such Film or Film Related
Asset.
"Deferred Tranche B Unscheduled Prepayment Date" has the meaning set forth
in Section 2.04(f)(ii).
"Derivatives Obligations" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
"Domestic Business Day" means any day except a Saturday, Sunday or other
day on which commercial banks in New York City or Los Angeles are authorized by
law to close.
"Domestic Lending Office" means, as to each Lender, its office located at
its address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Lender may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Agent.
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 9.09.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, plans, injunctions, permits, concessions, grants, franchises,
licenses, agreements and other governmental restrictions relating to the
environment, the effect of the environment on human health or to emissions,
discharges or releases of pollutants, contaminants, Hazardous Substances or
wastes into the environment including, without limitation, ambient air, surface
water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment,
8
<PAGE>
storage, disposal, transport or handling of pollutants, contaminants, Hazardous
Substances or wastes or the clean-up or other remediation thereof.
"Equity Issuance Reduction Event" means any contribution to the capital of
Holdings or any of its Subsidiaries or the issuance by Holdings or any of its
Subsidiaries of any equity securities not constituting Debt (other than (i) any
contribution by the Borrower or any Subsidiary to the capital of a Subsidiary
and any equity securities issued to the Borrower or any of its Subsidiaries,
(ii) any contribution to the capital of Holdings by Tracinda or Seven Network or
any contribution to the capital of the Borrower by Holdings or any equity
securities issued to Holdings, Tracinda and Seven Network, in each case on or
prior to the Closing Date pursuant to the transactions referred to in Section
3.01(h), (iii) any contribution to the capital of Holdings by Tracinda or Seven
Network or any equity securities issued by Holdings to Tracinda or Seven
Network, in each case pursuant to the Capital Call Agreement and any
contribution to the capital of the Borrower by Holdings, and any equity
securities issued by the Borrower to Holdings, in each case in connection
therewith, (iv) any contribution to the capital of Holdings and any equity
securities issued by Holdings but solely to the extent that the proceeds of such
contribution to capital or the issuance of such securities are applied by
Holdings to repay outstanding Holdings Debt, (v) equity securities issued upon
the exercise of options under the Management Stock Incentive Plan or pursuant to
the Mancuso Employment Agreement or other arrangements to which Mr. Frank G.
Mancuso is a party, (vi) equity securities issued or deemed issued upon the
conversion of any preferred stock into common stock pursuant to the terms of the
Management Stock Incentive Plan or upon the conversion by Tracinda or Seven of
any preferred stock described in clauses (y)(1) and (y)(2) of Section 5.17(d),
(vii) equity securities issued pursuant to contractual anti-dilution provisions
for no cash consideration or other payment by the holder of such securities
(including without limitation any such provisions contained in contracts
governing the issuance of equity securities described in clauses (v) and (vi) of
this definition) and (viii) equity securities issued to any member of senior
management of the Borrower in satisfaction of obligations of the Borrower
pursuant to employment agreements between the Borrower and such member of senior
management in effect prior to the date hereof), but only if, and to the extent
that, the aggregate Net Cash Proceeds from such issuance, when combined with the
Net Cash Proceeds from all other such issuances (excluding any issuances
referred to in clauses (i), (ii), (iii), (iv), (v), (vi), (vii) and (viii))
consummated on or after the Closing Date, exceeds $150,000,000.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
9
<PAGE>
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Lender, its office, branch
or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its Euro-
Dollar Lending Office) or such other office, branch or affiliate of such Lender
as it may hereafter designate as its Euro-Dollar Lending Office by notice to the
Borrower and the Agent.
"Euro-Dollar Loan" means (i) a Loan which bears interest at a Euro-Dollar
Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate
Election or (ii) an overdue amount which was a Euro-Dollar Loan immediately
before it became overdue.
"Euro-Dollar Margin" means a rate per annum determined in accordance with
the Pricing Schedule.
"Euro-Dollar Rate" means a rate of interest determined pursuant to Section
2.05(b) on the basis of an Adjusted London Interbank Offered Rate.
"Euro-Dollar Reserve Percentage" has the meaning set forth in Section
2.05(b).
"Event of Default" has the meaning set forth in Section 6.01.
"Excess Cash Flow" means, for any Fiscal Year, (a) the sum of (x) the
amount set forth opposite the caption "Net cash provided by operating
activities" plus (or minus) (y) the amount set forth opposite the caption "Net
---- -----
cash provided (used) by investing activities", in each case as set forth in the
consolidated statements of cash flows of Holdings and its Consolidated
Subsidiaries for such Fiscal Year minus (b) the aggregate amount of scheduled
-----
principal repayments of the Term Loans made pursuant to Sections 2.04(b) and (c)
during such Fiscal Year minus (c) the aggregate amount of optional repayments of
-----
the Term Loans made pursuant to Section 2.10 minus (d) the aggregate amount of
-----
principal repayments of the Loans made pursuant to Section 2.04(d) with respect
to Asset Sales or the receipt of Major Casualty Proceeds to the extent that the
proceeds of any such Asset Sale or Major Casualty Proceeds were added in
determining the amounts referred to in clauses (a)(x) or (a)(y) above for such
Fiscal Year, minus (e) the aggregate amount of scheduled principal payments of
-----
other Debt made
10
<PAGE>
during such Fiscal Year (including the portion of any payments of Debt described
in clause (iv) of the definition thereof that is allocable to principal).
"Excess Licensing Proceeds" means, in respect of any Material New Film
Licensing Agreement, the amount by which payments (other than (i) any payment
calculated by reference to the production budget or negative cost of a Film (a
"Production Payment"), (ii) any payment calculated by reference to performance
of a Film (a "Performance Payment") and (iii) any payment which constitutes an
advance with respect to a Production Payment or Performance Payment to be earned
within 12 months after the date such advance is paid) (all such nonexcluded
payments, "Noncontingent Payments") received by the Borrower and its
Subsidiaries in any transaction year under such Material New Film Licensing
Agreement exceeds the sum of (x) the amount of the Noncontingent Payments that
would be received by the Borrower and its Subsidiaries in such transaction year
if such Noncontingent Payments were made reasonably pro-rata over the period of
availability of the Films which are subject to such Material New Film Licensing
Agreement plus (y) the greater of (1) 10% of the aggregate amount of all
----
Noncontingent Payments to be made under such Material New Film Licensing
Agreement during the term thereof and (2) $10,000,000. As used herein, "Material
New Film Licensing Agreement" means any Licensing Agreement or series of related
Licensing Agreements with respect to Films (other than Library Films) or Film
Related Assets (considered as a single agreement for purposes hereof) if the
aggregate amount of all payments payable with respect to such Licensing
Agreement or series of related Licensing Agreements during the term thereof (in
the case of any Performance Payments, as estimated by the Borrower in accordance
with its customary practices) exceeds $50,000,000.
"Existing Credit Agreement" means the Credit Agreement dated as of
September 16, 1994 among the Borrower, the several lenders from time to time
party thereto, and Chemical Bank, as agent, as in effect immediately prior to
the Closing Date.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, provided that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
11
<PAGE>
day shall be the average rate quoted to Morgan Guaranty Trust Company of New
York on such day on such transactions as determined by the Agent.
"Film Related Asset" means any right in and to any motion picture,
television product, literary work, dramatic work or musical work prior to the
time any such asset becomes a "Film".
"Films" means motion pictures including, without limitation, feature films,
shorts, television programs, animated programs or other similar product, and the
components thereof (whether or not now known or recognized) to which the
Borrower or any of its Subsidiaries owns any right, title or interest including,
without limitation, (i) the Library Films, (ii) works in progress comprising
feature length theatrical motion picture or television projects in principal
photography and/or post-production, projects completed but not yet released, and
unreleased or completed but undelivered pick-ups, (iii) underlying rights in and
to the literary, musical and dramatic and other material associated with or
related to or necessary to the exploitation of the works or projects referred to
in clauses (i) or (ii) including, without limitation, copyrights pertaining
thereto, (iv) to the extent related to the works or projects referred to in
clauses (i) or (ii), sequel, prequel and remake rights, all rights to
novelization, merchandising, character, serialization, games and interactive
video, (v) all other ancillary and subsidiary rights throughout the universe
related to such works and projects, (vi) all negative and positive film,
soundtracks, optical, audio, video and advertising materials and supplies
associated with any of such works or projects, and (vii) all contractual and
other rights associated with or related to such works or projects and the
related ancillary and subsidiary rights whether in any media now known or
hereafter developed.
"First Run Feature Films" means at any date any Films which have not
completed their initial theatrical release in the United States at such date.
"Fiscal Quarter" means a fiscal quarter of Holdings.
"Fiscal Year" means a fiscal year of Holdings ending December 31.
"Foreign Subsidiary" means any Subsidiary of the Borrower which is not
incorporated or organized in the United States or in any State thereof.
"Group of Loans" means at any time a group of Loans of the same Class of
Loans consisting of (i) all such Loans which are Base Rate Loans at such time or
(ii) all such Loans that are Euro-Dollar Loans having the same Interest Period
at such time; provided that, if a Loan of any particular Lender is converted to
or
12
<PAGE>
made as a Base Rate Loan pursuant to Article 8, such Loan shall be included
in the same Group or Groups of Loans from time to time as it would have been in
if it had not been so converted or made.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation (whether arising by virtue of partnership arrangements,
by agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or (ii)
entered into for the purpose of assuring in any other manner the holder of such
Debt or other obligation of the payment thereof or to protect such holder
against loss in respect thereof (in whole or in part), provided that the term
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Guarantor" means each Person who has executed the Subsidiary Guaranty.
"Guarantor Pledge Agreement"means a pledge agreement substantially in the
form of Exhibit D hereto between a Guarantor and the Agent entered into as of
the Closing Date or from time to time after the Closing Date pursuant to Section
5.22, in each case as amended from time to time.
"Hazardous Substances" means any toxic, radioactive, caustic or otherwise
hazardous substance, including petroleum, its derivatives, by-products and other
hydrocarbons, or any substance having any constituent elements displaying any of
the foregoing characteristics.
"Holdings" means P & F Acquisition Corp., a Delaware corporation, and its
successors.
"Holdings Agreement"means the agreement substantially in the form of
Exhibit C hereto between Holdings and the Agent entered into as of the Closing
Date, as amended from time to time.
"Holdings Debt" means any Debt issued by Holdings.
"Holdings Debt Incurrence" means the incurrence by Holdings of any Holdings
Debt, other than (i) the incurrence by Holdings of any Holdings Debt
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the proceeds of which are applied to refinance other Holdings Debt outstanding
immediately prior to the incurrence thereof , (ii) the incurrence by Holdings of
any Holdings Debt owed to the Borrower, but solely to the extent the proceeds of
such Holdings Debt are applied to pay Holdings Expenses permitted by Section
5.17(d) and (iii) the incurrence by Holdings of any Holdings Debt pursuant to
the Holdings Management Notes.
"Holdings Expenses" has the meaning set forth in Section 5.17(d).
"Holdings Management Notes" has the meaning set forth in the Holdings
Agreement.
"Indemnitee" has the meaning set forth in Section 9.03(b).
"Information Memorandum" means the confidential descriptive memorandum
dated August 1996 furnished to the Lenders in connection with the transactions
contemplated by the Loan Documents.
"Insolvency" means, with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent" means pertaining to a condition of Insolvency.
"Interest Period" means, with respect to each Euro-Dollar Loan, the period
commencing on the date of borrowing specified in the applicable Notice of
Borrowing or on the date specified in the applicable Notice of Interest Rate
Election and ending one, two, three or six months thereafter, as the Borrower
may elect in the applicable notice; provided that:
(a) any Interest Period which would otherwise end on a day which is not a
Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar
Business Day unless such Euro-Dollar Business Day falls in another calendar
month, in which case such Interest Period shall end on the next preceding Euro-
Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business Day
of a calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall, subject to
clauses (c) and (d) below, end on the last Euro-Dollar Business Day of the
calendar month at the end of such Interest Period;
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<PAGE>
(c) if any Interest Period with respect to any Euro-Dollar Term Loan
includes a date on which a scheduled payment of principal of such Term Loans is
required to be made under Sections 2.04(b) or 2.04(c) but does not end on such
date, then (i) the principal amount of each Euro-Dollar Term Loan required to be
repaid on such date shall have an Interest Period ending on such date and (ii)
the remainder (if any) of each such Euro-Dollar Term Loan shall have an Interest
Period determined as set forth above; and
(d) any Interest Period with respect to any Loan which would otherwise end
after the Maturity Date (as in effect on the first day of such Interest Period)
with respect to such Loan shall end on such Maturity Date.
"Investor Preferred Stock" means the preferred stock of Holdings in an
aggregate amount of $500,000,000 purchased by Tracinda and Seven Network on the
Closing Date and referred to in Section 3.01(h) hereof.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Investment" means, with respect to any Person, any investment by such
Person in any other Person (including an Affiliate) in the form of direct or
indirect loans, Guarantees of Debt or other payment obligations, advances or
capital contributions, purchases or other acquisitions for consideration of
Debt, equity interests or other securities or warrants, options or other rights
to acquire equity interests or other securities and all other items that are
classified as investments on the balance sheet of such Person in accordance with
generally accepted accounting principles as in effect from time to time or that
would be so classified on such balance sheet if such balance sheet were prepared
at the relevant time.
"Investor" has the meaning set forth in Section 6.01(b).
"L/C Issuer" means Morgan Guaranty Trust Company of New York and any other
Revolving Lender that may agree with the Borrower to issue letters of credit
hereunder (and shall have notified the Agent thereof), in each case as issuer of
a letter of credit hereunder.
"Lender" means a Term Lender, a Revolving Lender or the Swing Lender and
shall include, as the context may require, any L/C Issuer in such capacity.
"Letter of Credit" means a letter of credit to be issued hereunder by an
L/C Issuer.
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<PAGE>
"Letter of Credit Commitment" means, at any time, the lesser of (x)
$15,000,000 and (y) the aggregate Revolving Credit Commitments at such time.
"Letter of Credit Fee Rate" has the meaning set forth in the Pricing
Schedule.
"Letter of Credit Liabilities" means, for any Revolving Lender and at any
time, such Revolving Lender's Revolving Percentage of the sum of (x) the
aggregate unreimbursed amount then owing by the Borrower in respect of amounts
drawn under all Letters of Credit and (y) the aggregate amount then available
for drawing under all Letters of Credit.
"Leverage Ratio" means, on any date, the ratio of (i) Total Borrowed Funds
on such date to (ii) Consolidated EBITDA for the period of four consecutive
Fiscal Quarters most recently ended on or prior to such date (or, if greater,
solely for any date prior to December 31, 1998, Consolidated EBITDA for the
period from and including January 1, 1998 to and including the last day of the
Fiscal Quarter most recently ended on or prior to such date, annualized on a
simple arithmetic basis).
"Library Cash Flows" means for any period the aggregate amount of cash
received by the Borrower and its Consolidated Subsidiaries during such period
with respect to Films released on or prior to September 1, 1996.
"Library Films" means the films listed on Schedule 1.01(a) and all other
Films other than (and only for so long as such Films are) First-Run Feature
Films.
"Licensing Agreements" means any licensing agreements now outstanding or
hereafter executed pursuant to which the Borrower or any of its Subsidiaries
grants or licenses to third parties any right, title or interest with respect to
any Film Related Asset, any Film or any group of Films, as the same may be
amended, supplemented or otherwise modified from time to time.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement, the
Borrower or any of its Subsidiaries shall be deemed to own subject to a Lien any
asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such asset.
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<PAGE>
"Loan" means a Base Rate Loan or a Euro-Dollar Loan and "Loans" means Base
Rate Loans or Euro-Dollar Loans or any combination of the foregoing.
"Loan Documents" means this Agreement, the Notes, the Holdings Agreement,
the Capital Call Agreement, the Subsidiary Guaranty and the Collateral
Documents.
"London Interbank Offered Rate" has the meaning set forth in Section
2.05(b).
"Major Casualty Proceeds" means (i) the aggregate insurance proceeds
received in connection with one or more related events by the Borrower or any of
its Subsidiaries under any insurance policy maintained by the Borrower or any of
its Subsidiaries covering casualty losses with respect to tangible real or
personal property or improvements or (ii) any award or other compensation with
respect to any condemnation of property (or any transfer or disposition of
property in lieu of condemnation) received by the Borrower or any of its
Subsidiaries, in either case only if the amount of such aggregate proceeds or
award or other compensation exceeds $10,000,000.
"Management Stock Incentive Plan" means the 1996 Management Stock Option
and Bonus Plan of Holdings as in effect on the date hereof.
"Mancuso Employment Agreement" means the employment agreement between Frank
G. Mancuso and the Borrower as in effect on the date hereof.
"Material Adverse Effect" means (i) any material adverse effect upon the
assets or liabilities, or the business, financial position or results of
operations of the Borrower and its Subsidiaries, taken as a whole; (ii) prior to
the Closing Date, a material adverse effect on the ability of the Borrower or
any other Person to consummate the transactions contemplated hereby to occur on
the Closing Date; (iii) a material adverse effect on the ability of the Obligors
to perform their obligations under this Agreement and the Notes and the other
Loan Documents, taken as a whole, or (iv) an adverse effect on the rights and
remedies of the Agent and the Lenders under this Agreement and the Notes and the
other Loan Documents.
"Material Subsidiary" means at any date any Subsidiary of the Borrower,
other than (a) any such Subsidiary which has (i) aggregate assets with a fair
market value of less than $1,000,000 and (ii) annual revenues of less than
---
$1,000,000, in each case calculated on the basis of the latest financial
statements
17
<PAGE>
delivered by the Borrower to the Lenders pursuant to Section 4.04(b),
5.01(a) or 5.01(b), as the case may be and (b) Seventeen Leasing Corporation.
"Maturity Date" means, (i) with respect to the Tranche A Loans, September
30, 2002, (ii) with respect to the Tranche B Loans, March 31, 2004, (iii) with
respect to the Revolving Loans, the Revolver Maturity Date, (iv) with respect to
the Swing Loans, the Swing Termination Date and (v) with respect to the Letters
of Credit, the Revolver Maturity Date (or, if any such day is not a Euro-Dollar
Business Day, the next succeeding Euro-Dollar Business Day).
"Multiemployer Plan" means a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds" means, with respect to any Reduction Event, an amount
equal to the cash proceeds received by the Borrower or any of its Subsidiaries
from or in respect of such Reduction Event (including any cash proceeds received
as income or other proceeds of any noncash proceeds of any Asset Sale), less (x)
any expenses reasonably incurred by such Person in respect of such Reduction
Event (including, without limitation, if such Reduction Event constitutes the
issuance and sale of securities, underwriters' discounts or commissions and
expenses) and (y) if such Reduction Event is an Asset Sale, (i) the amount of
any Debt secured by a Lien on any asset disposed of in such Asset Sale and
discharged from the proceeds thereof and (ii) any taxes actually paid or to be
payable by such Person (as estimated by a senior financial or accounting officer
of the Borrower, giving effect to the overall tax position of the Borrower) in
respect of such Asset Sale.
"Notes" means promissory notes of the Borrower, substantially in the form
of Exhibit A hereto, evidencing the obligation of the Borrower to repay the
Loans, and "Note" means any one of such promissory notes issued hereunder.
"Notice of Borrowing" has the meaning set forth in Section 2.02(a).
"Notice of Interest Rate Election" has the meaning set forth in Section
2.08(a).
"Notice of Issuance" has the meaning set forth in Section 2.14(b).
"Obligor" means the Borrower and each Guarantor.
"Parent" means, with respect to any Lender, any Person controlling such
Lender.
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<PAGE>
"Participant" has the meaning set forth in Section 9.06(b).
"PBGC" means the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA.
"Person" means an individual, a corporation, a limited liability company, a
partnership, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Plan" means, at any time, any employee benefit plan which is covered by
ERISA and in respect of which Holdings or a Commonly Controlled Entity is (or,
if such plan were terminated at such time, would under Section 4069 of ERISA be
deemed to be) an "employer" has defined in Section 3(5) of ERISA.
"Pledge Agreement" means the Borrower Pledge Agreement or any Guarantor
Pledge Agreement.
"Pricing Schedule" means the Schedule attached hereto identified as such.
"Prime Rate" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"Profit Participation" means the amount, as customarily determined by the
Borrower, of all obligations (other than Residuals and Deferred Payments)
payable by the Borrower and/or its Subsidiaries as compensation for talent or to
producers and for similar services in connection with the development,
acquisition, production, financing, distribution, exhibition or exploitation of
Films or rights with respect thereto, the payment of which is contingent upon or
triggered by and payable only to the extent of the receipt by the Borrower or
any Subsidiary, as the case may be, of revenues from the exploitation of such
Film or such rights.
"Quarterly Dates" means each March 31, June 30, September 30 and December
31.
"Receivables Financing" means any receivables securitization program or
other type of accounts receivable financing transaction by a Person.
"Reduction Amount" means, (i) in respect of any Asset Sale, 100% of the Net
Cash Proceeds thereof, (ii) in respect of any incurrence by the Borrower or any
of its Subsidiaries of any Debt that constitutes a Reduction Event or the
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<PAGE>
receipt of Major Casualty Proceeds that constitutes a Reduction Event, 100% of
the Net Cash Proceeds thereof, (iii) in respect of any Holdings Debt Incurrence,
(x) to the extent that the aggregate amount of Net Cash Proceeds with respect to
such Holdings Debt Incurrence and all other Holdings Debt Incurrences
consummated prior to or contemporaneously therewith and on or prior to the
second anniversary of the Closing Date do not exceed $200,000,000, 50% of the
Net Cash Proceeds thereof and (y) in every other instance, 100% of the Net Cash
Proceeds thereof , (iv) in respect of Excess Cash Flow (a) for any of the 1997
Fiscal Year, 1998 Fiscal Year or 1999 Fiscal Year (any such Fiscal Year, an
"Early Fiscal Year"), 75% of the amount of Excess Cash Flow for such Early
Fiscal Year (such amount, the "Sweep Amount") but only if, and solely to the
extent that, the Sweep Amount for such Early Fiscal Year plus the positive
----
difference (if any) between (I) the Sweep Amount for each prior Early Fiscal
Year (if any) and (II) the aggregate principal amount of the Loans prepaid
pursuant to Section 2.04(d)(i)(B) (if any) in respect of such prior Early Fiscal
Years, exceeds $50,000,000 and (b) for any Fiscal Year thereafter, 75% of the
amount thereof, (v) in respect of any Equity Issuance Reduction Event made prior
to the Target Date, 75% of the Net Cash Proceeds, (vi) in respect of any Equity
Issuance Reduction Event made on or after the Target Date, 50% of the Net Cash
Proceeds thereof, (vii) in respect of any certification as to anticipated
reinvestment of Major Casualty Proceeds set forth in any Proceeds Certificate
being no longer true, 100% of the Net Cash Proceeds from the relevant receipt of
Major Casualty Proceeds not invested prior to such date to repair or replace
affected assets and (viii) in respect of receipt of Excess Licensing Proceeds,
100% of the amount thereof.
"Reduction Event" means (i) any Asset Sale, (ii) the incurrence of any Debt
by the Borrower or any of its Subsidiaries (other than Debt permitted under
Section 5.10), (iii) any Holdings Debt Incurrence, (iv) any Equity Issuance
Reduction Event, (v) receipt of Major Casualty Proceeds, unless, within 5
Domestic Business Days after receipt thereof, the Borrower shall have delivered
to the Agent a certificate (a "Proceeds Certificate") of the chief financial
officer or the chief accounting officer of the Borrower, certifying as to (x)
the aggregate amount of such Major Casualty Proceeds and (y) the fact that the
Borrower shall invest such Major Casualty Proceeds to repair or replace affected
assets with 180 days after receipt thereof, (vi) the first day on which any
certification made pursuant to any Proceeds Certificate shall cease to be true
and (vii) receipt of Excess Licensing Proceeds. The description of any
transaction as falling within the above definition does not affect any
limitation on such transaction imposed by Article 5 of this Agreement or any
rights of any Lender upon the occurrence of an Event of Default under Article 6
of this Agreement.
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"Reference Lenders" means the principal London offices of Bank of America
National Trust and Savings Association, Societe Generale and Morgan Guaranty
Trust Company of New York, and "Reference Lender" means any one of such
Reference Lenders.
"Refunded Swing Loans" has the meaning set forth in Section 2.01(e).
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
"Reportable Event" means any of the events set forth in Section 4043(b) of
ERISA, other than those events as to which the thirty day notice period is
waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. Section
2615.
"Residuals" means the amount, as reasonably determined by the Borrower, of
all obligations (other than Profit Participations and Deferred Payments) payable
by the Borrower or a Subsidiary pursuant to guild agreements or other collective
bargaining agreements in connection with the development, acquisition,
production, financing, distribution, exhibition or exploitation of Films or
rights with respect thereto.
"Responsible Officer" means any senior vice president of the Borrower, and
any more senior corporate officer of the Borrower, in any case appointed to such
office by the Board of Directors of the Borrower or any committee thereof.
"Required Lenders" means at any time Lenders having in the aggregate at
least 51% of the sum of (i) the Revolving Commitments at such time or, if the
Revolving Commitments shall have been terminated, the sum of (x) the aggregate
outstanding principal amount of the Revolving Loans at such time plus (y) the
Letter of Credit Liabilities at such time plus (ii) the aggregate outstanding
principal amount of the Term Loans at such time or, if no Term Loans are then
outstanding, the Term Commitments at such time.
"Restricted Payment" means (i) any dividend or other distribution on any
shares of the Borrower's capital stock (except dividends payable solely in
shares of its capital stock) or (ii) any payment by the Borrower or any of its
Subsidiaries on account of the purchase, redemption, retirement or acquisition
of (a) any shares of the Borrower's capital stock or (b) any option, warrant or
other right to acquire shares of the Borrower's capital stock (but not including
payments of principal, premium (if any) or interest made pursuant to the terms
of convertible debt securities prior to conversion).
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<PAGE>
"Revolver Maturity Date" means September 30, 2001 or such later date to
which the Revolver Maturity Date shall have been extended pursuant to Section
2.04(a)(ii) (or, if any such day is not a Euro-Dollar Business Day, the next
preceding Euro-Dollar Business Day).
"Revolving Commitment" means, (i) with respect to each Revolving Lender
listed on the Commitment Schedule, the amount set forth opposite the name of
such Revolving Lender on the Commitment Schedule under the heading "Revolving
Commitments" and (ii) with respect to each Assignee that becomes a Revolving
Lender pursuant to Section 9.06(c), the amount of the Revolving Commitment
thereby assumed by it, in each case as such amount may be increased or reduced
from time to time pursuant to Section 9.06(c) or reduced from time to time
pursuant to Sections 2.04(d) and 2.07(b).
"Revolving Credit Period" means the period from and including the Closing
Date to but not including the Revolver Maturity Date.
"Revolving Exposure" means, with respect to each Revolving Lender, at any
time, an amount equal to the sum of (i) the aggregate principal amount of the
Revolving Loans of such Revolving Lender outstanding at such time, (ii) such
Revolving Lender's Revolving Percentage of the aggregate principal amount of the
Swing Loans outstanding at such time and (iii) such Revolving Lender's Letter of
Credit Liabilities at such time.
"Revolving Lender" means each Lender identified as a Revolving Lender on
the Commitment Schedule, each Assignee which becomes a Revolving Lender pursuant
to Section 9.06(c), and their respective successors.
"Revolving Loan" means a loan made by a Revolving Lender pursuant to
Section 2.01(c).
"Revolving Percentage" means, with respect to each Revolving Lender, at any
time, the percentage that such Revolving Lender's Revolving Commitment
constitutes of the aggregate amount of the Revolving Commitments at such time.
"Sale-Leaseback Transaction" means the sale by the Borrower or a Subsidiary
of all of its right, title and interest in and to a Film and the retention by,
or concurrent reconveyance to the Borrower or such Subsidiary of distribution
rights to such Film and an option to repurchase such Film for a nominal purchase
price, in consideration of periodic payments by the Borrower or such Subsidiary
of amounts having an aggregate discounted present value that is less than the
purchase price paid by the purchaser thereof; provided that, concurrently with
22
<PAGE>
such reconveyance, the Borrower or such Subsidiary has defeased its obligation
to make the aggregate amount of such periodic payments by depositing in an
escrow account an amount at least equal to the discounted present value of such
amount.
"Security Agreement" means the security agreement substantially in the form
of Exhibit E hereto among the Obligors and the Agent entered into as of the
Closing Date, as amended from time to time.
"Seven Network" means Seven Network Limited ("SNL"), an Australian
corporation and, for so long as it is a wholly-owned subsidiary of SNL,
Miltonstar Pty Ltd., an Australian corporation, and their respective successors.
"Single Employer Plan" means any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"Single Purpose Subsidiary" means at any date any Subsidiary of the
Borrower (other than a Foreign Subsidiary) (i) that has been established for the
sole purpose of, and does not engage in any business or conduct any activities
other than, the development, production, financing, acquisition, distribution,
exploitation of any one Film or slate of Films (other than Films that are
Library Films determined for this purpose solely at the time of transfer thereof
to such Subsidiary) or any Film Related Asset and (ii) no Debt of which
Subsidiary is Guaranteed or otherwise supported by the Borrower or any other
Subsidiary (other than any other Single Purpose Subsidiary) or subjects any
asset of the Borrower or any other Subsidiary (other than any other Single
Purpose Subsidiary) directly or indirectly, contingently or otherwise, to the
satisfaction thereof.
"Specified Non-Cash Charges" means any non-cash charges with respect to
stock options and "bonus interests", in each case granted pursuant to the
Management Stock Incentive Plan or with respect to stock issued to Frank G.
Mancuso under the Mancuso Employment Agreement.
"Stock Purchase Agreement" means the Stock Purchase Agreement dated as of
July 16, 1996 by and among the Borrower, Consortium de Realisation, MGM Holdings
Corporation, MGM Group Holdings Corporation and the Borrower.
"Subsidiary" means, as to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
23
<PAGE>
functions are at the time directly or indirectly owned by such Person; unless
otherwise specified, "Subsidiary" means a Subsidiary of the Borrower.
"Subsidiary Guaranty" means the subsidiary guaranty agreement substantially
in the form of Exhibit F hereto between each Guarantor party thereto and the
Agent entered into as of the Closing Date, as amended from time to time.
"Swing Credit Period" means the period from and including the first
Domestic Business Day after the Closing Date to but not including the Swing
Termination Date.
"Swing Lender" means Morgan Guaranty Trust Company of New York, in its
capacity as the Swing Lender under the swing loan facility described in Section
2.01(d), and its successors in such capacity.
"Swing Loan" means a Loan made by the Swing Lender pursuant to Section
2.01(d).
"Swing Loan Commitment" means $10,000,000 or, if less, the aggregate amount
of the Revolving Commitments.
"Swing Termination Date" means the earlier of (i) August 31, 2001 or such
later date to which the Swing Termination Date shall have been extended pursuant
to Section 2.04(a)(ii) (or, if such day is not a Domestic Business Day, the next
preceding Domestic Business Day) and (ii) the date of termination of the
Revolving Commitments in their entirety.
"Swing Loan Refund Amount" has the meaning set forth in Section 2.01(e).
"Syndication Date" means the earlier of (i) the 45th day after the Closing
Date and (ii) the date on which the Agent and the Arranger determine, in their
sole discretion but after consultation with the Lenders party hereto on the date
hereof (and so notifies the Borrower), that the primary syndication and
resulting addition of institutions as "Lenders" pursuant to Section 9.06 shall
have been completed.
"Target Date" means the first date on which the Leverage Ratio (determined,
for purposes hereof, without reference to the parenthetical set forth in clause
(ii) of the definition of Leverage Ratio) at the last day of each of the two
Fiscal Quarters most recently ended on or prior to such date does not exceed
2.5:1.
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<PAGE>
"Temporary Cash Investment" means any Investment in (i) direct obligations
of the United States or any agency thereof, or obligations guaranteed by the
United States or any agency thereof, (ii) commercial paper rated at least A-2 by
Standard & Poor's Rating Group or P-2 by Moody's Investors Service, Inc., (iii)
time deposits with, including certificates of deposit issued by, any office
located in the United States of any bank or trust company which is organized
under the laws of the United States or any state thereof and has capital,
surplus and undivided profits aggregating at least $500,000,000 or (iv)
repurchase agreements with respect to securities described in clause (i) above
entered into with an office of any bank or trust company meeting the criteria
specified in clause (iii) above, provided in each case that such Investment
matures within one year from the date of acquisition thereof by the Borrower or
a Subsidiary.
"Term Lender" means a Tranche A Lender or a Tranche B Lender.
"Term Commitment" means a Tranche A Commitment or a Tranche B Commitment.
"Term Loan" means a Tranche A Loan or a Tranche B Loan.
"Total Borrowed Funds" means at any date the aggregate amount of Debt of
Holdings and its Consolidated Subsidiaries described in clauses (i) and (ii) and
(iv) of the definition of Debt (but excluding (a) any obligations under Sale-
Leaseback Transactions which constitute Debt under clause (iv) of the definition
thereof, (b) Debt of any Single Purpose Subsidiary, so long as such Debt
complies with the provisions of clause (ii) of the definition of Single Purpose
Subsidiary and (c) the Holdings Management Notes), determined on a consolidated
basis at such date.
"Tracinda" means Tracinda Corporation, a Nevada corporation, and its
successors.
"Tranche A Commitment" means, with respect to each Tranche A Lender listed
on the Commitment Schedule, the amount set forth opposite the name of such
Tranche A Lender on the Commitment Schedule under the heading "Tranche A
Commitments".
"Tranche A Lender" means each Lender identified as a Tranche A Lender on
the Commitment Schedule, each Assignee which becomes a Tranche A Lender pursuant
to Section 9.06(c), and their respective successors.
25
<PAGE>
"Tranche A Loan" means a loan made by a Tranche A Lender pursuant to
Section 2.01(a).
"Tranche B Commitment" means, with respect to each Tranche B Lender listed
on the Commitment Schedule, the amount set forth opposite the name of such
Tranche B Lender on the Commitment Schedule under the heading "Tranche B
Commitments".
"Tranche B Lender" means each Lender identified as a Tranche B Lender on
the Commitment Schedule, each Assignee which becomes a Tranche B Lender pursuant
to Section 9.06(c), and their respective successors.
"Tranche B Loan" means a loan made by a Tranche B Lender pursuant to
Section 2.01(b).
"Tranche B Prepayment Notice" has the meaning set forth in Section
2.04(f)(i).
"Tranche B Unscheduled Prepayment" has the meaning set forth in Section
2.04(f)(i).
"Transaction Documents" means the Stock Purchase Agreement, including the
exhibits and schedules thereto and all agreements, documents and instruments
executed and delivered pursuant thereto or in connection therewith.
"Type" has the meaning set forth in Section 1.03.
"UIP" means United International Pictures B.V., a Netherlands entity, and
its successors.
"Unscheduled Prepayment Date" has the meaning set forth in Section
2.04(f)(i).
"United States" means the United States of America, including the States
and the District of Columbia, but excluding its territories and possessions.
"WHV" means Warner Home Video, a division of Time Warner Entertainment,
L.P., and its successors.
"WHV Agreement" means the Video Rights Agreement between the Borrower and
WHV, dated as of November 1, 1990, as amended up to but
26
<PAGE>
excluding the date hereof, a true and correct copy of which as in effect on the
date hereof has been delivered to the Agent.
Section 1.02. Accounting Terms and Determinations. Unless otherwise
specified in the immediately succeeding sentence or otherwise herein, all
accounting terms used herein shall be interpreted, all accounting determinations
hereunder shall be made, and all financial statements required to be delivered
hereunder shall be prepared in accordance with generally accepted accounting
principles as in effect from time to time, applied on a basis consistent (except
for changes concurred in by Holdings' independent public accountants) with the
most recent audited consolidated financial statements of Holdings and its
Consolidated Subsidiaries delivered to the Lenders; provided that, if the
Borrower notifies the Agent that the Borrower wishes to amend any covenant in
Article 5 or any related definition to eliminate the effect of any change in
generally accepted accounting principles on the operation of such covenant (or
if the Agent notifies the Borrower that the Required Lenders wish to amend
Article 5 any related definition for such purpose), then the Borrower's
compliance with such covenant shall be determined on the basis of generally
accepted accounting principles in effect immediately before the relevant change
in generally accepted accounting principles became effective, until either such
notice is withdrawn or such covenant or definition is amended in a manner
satisfactory to the Borrower and the Required Lenders.
Section 1.03. Classes and Types of Loans and Borrowings. The term
"Borrowing" denotes the aggregation of Loans of one or more Lenders to be made
to the Borrower pursuant to Article 2 on the same date, all of which Loans are
of the same Class and Type (subject to Article 8) and, except in the case of
Base Rate Loans, have the same initial Interest Period. Loans hereunder are
distinguished by "Class" and by "Type". The "Class" of a Loan (or of a
Commitment to make such a Loan or of a Borrowing comprised of such Loans or of a
Group of such Loans) refers to the determination whether such Loan is a Tranche
A Loan, Tranche B Loan, a Revolving Loan or a Swing Loan, each of which
constitutes a Class. The "Type" of a Loan refers to the determination whether
such Loan is a Euro-Dollar Loan or a Base Rate Loan. Identification of a Loan
(or a Borrowing) by both Class and Type (e.g., a "Tranche B Euro-Dollar Loan")
indicates that such Loan is both a Tranche B Loan and a Euro-Dollar Loan (or
that such Borrowing or Group of Loans is comprised of such Loans).
27
<PAGE>
ARTICLE 2
The Credits
Section 2.01. Commitments to Lend. (a) Tranche A Loans. Each Tranche A
Lender severally agrees, on the terms and conditions set forth in this
Agreement, to make a single loan to the Borrower on the Closing Date in an
aggregate amount not to exceed such Tranche A Lender's Tranche A Commitment.
The Borrowing pursuant to this subsection shall be made from the several Tranche
A Lenders ratably in proportion to their respective Tranche A Commitments;
provided, that the failure of any Tranche A Lender to fulfill its obligation to
make a Tranche A Loan on the terms and conditions set forth in this Agreement
shall not excuse any other Tranche A Lender from its obligation to make a
Tranche A Loan in an amount up to the amount of such Tranche A Lender's Tranche
A Commitment. Loans made pursuant to this subsection are not revolving in
nature and amounts of such loans repaid or prepaid may not be reborrowed.
(b) Tranche B Loans. Each Tranche B Lender severally agrees, on the terms
and conditions set forth in this Agreement, to make a single loan to the
Borrower on the Closing Date in an aggregate amount not to exceed such Tranche B
Lender's Tranche B Commitment. The Borrowing pursuant to this subsection shall
be made from the several Tranche B Lenders ratably in proportion to their
respective Tranche B Commitments; provided, that the failure of any Tranche B
Lender to fulfill its obligation to make a Tranche B Loan on the terms and
conditions set forth in this Agreement shall not excuse any other Tranche B
Lender from its obligation to make a Tranche B Loan in an amount up to the
amount of such Tranche B Lender's Tranche B Commitment. Loans made pursuant to
this subsection are not revolving in nature and amounts of such loans repaid or
prepaid may not be reborrowed.
(c) Revolving Loans. During the Revolving Credit Period, each Revolving
Lender severally agrees, on the terms and conditions set forth in this
Agreement, to make revolving loans to the Borrower from time to time in amounts
such that the Revolving Exposure of such Revolving Lender at such time shall not
exceed the amount of its Revolving Commitment at such time. Each Borrowing under
this subsection shall be in an aggregate principal amount of $5,000,000 or any
larger multiple of $1,000,000 (except that any such Borrowing may be in the
aggregate amount available in accordance with Section 3.02(c)) and shall be made
from the several Revolving Lenders ratably in proportion to their respective
Revolving Commitments; provided, that the failure of any Revolving Lender at any
time to fulfill its obligation to make a Revolving Loan on the terms and
conditions set forth in this Agreement shall not in itself excuse any other
28
<PAGE>
Revolving Lender from its obligation to make a Revolving Loan. Within
the foregoing limits, the Borrower may borrow under this subsection, prepay
Revolving Loans to the extent permitted by Section 2.10 and reborrow at any time
during the Revolving Credit Period under this subsection.
(d) Swing Loans. During the Swing Credit Period, the Swing Lender agrees,
on the terms and conditions set forth in this Agreement, to make loans to the
Borrower pursuant to this subsection from time to time in amounts such that at
any time (i) the aggregate principal amount of Swing Loans outstanding at such
time does not exceed the Swing Loan Commitment and (ii) the aggregate Revolving
Exposure at such time does not exceed the aggregate amount of the Revolving
Commitments at such time. Each Borrowing under this subsection shall be in an
aggregate principal amount of $1,000,000 or any larger multiple thereof (except
that any such Borrowing may be in the aggregate amount of the Swing Loan
Commitment available in accordance with the immediately preceding sentence).
Within the foregoing limits, the Borrower may borrow under this subsection,
prepay Swing Loans to the extent permitted by Section 2.10 and reborrow at any
time during the Swing Credit Period under this subsection.
(e) Conversion of Swing Loans to Revolving Loans. The Swing Lender, at any
time and from time to time in its sole and absolute discretion may, on behalf of
the Borrower (which hereby irrevocably directs the Swing Lender to act on its
behalf), on notice given by the Swing Lender no later than 10:30 A.M. (New York
City time) on the proposed date of Borrowing for the Revolving Loans referred to
below, request each Revolving Lender to make, and each Revolving Lender hereby
agrees to make, a Revolving Loan, in an amount (such amount with respect to each
Lender, its "Swing Loan Refund Amount") equal to such Revolving Lender's
Revolving Percentage of the aggregate principal amount of the Swing Loans (the
"Refunded Swing Loans") outstanding on the date of such notice and with respect
to which such notice relates, to repay the Swing Lender. Unless any of the
events described in clause (g) or (h) of Section 6.01 with respect to the
Borrower shall have occurred and be continuing (in which case the procedures of
Section 2.01(f) shall apply), each Revolving Lender shall make such Revolving
Loan available to the Agent at its address specified in or pursuant to Section
9.01 in immediately available funds, not later than 12:00 Noon (New York City
time), on the date specified in such notice. Each such Revolving Loan shall
initially be made as a Base Rate Loan. The Agent shall pay the proceeds of such
Revolving Loans to the Swing Lender, which shall immediately apply such proceeds
to repay Refunded Swing Loans. Effective on the day such Revolving Loans are
made, the portion of the Swing Loans so paid shall no longer be outstanding as
Swing Loans, shall no longer be due as Swing Loans under the Note held by the
Swing Lender, and shall be due as Revolving Loans under the
29
<PAGE>
respective Notes issued to the Revolving Lenders (including the Swing Lender) in
accordance with their respective Revolving Percentages.
(f) Purchase of Participations in Swing Loans. If prior to the time
Revolving Loans would have otherwise been made pursuant to Section 2.01(e), one
of the events described in clause (g) or (h) of Section 6.01 with respect to the
Borrower shall have occurred and be continuing, each Revolving Lender shall, on
the date such Revolving Loans were to have been made pursuant to the notice
referred to in Section 2.01(e) (the "Refunding Date"), purchase an undivided
participating interest in the Swing Loans in an amount equal to such Revolving
Lender's Swing Loan Refund Amount. On the Refunding Date, each Revolving Lender
shall transfer to the Swing Lender, in immediately available funds, such
Lender's Swing Loan Refund Amount, and upon receipt thereof the Swing Lender
shall deliver to such Revolving Lender a Swing Loan participation certificate
dated the date of the Swing Lender's receipt of such funds and in the Swing Loan
Refund Amount of such Revolving Lender.
(g) Payments on Participated Swing Loans. Whenever, at any time after the
Swing Lender has received from any Revolving Lender such Revolving Lender's
Swing Loan Refund Amount pursuant to Section 2.01(f), the Swing Lender receives
any payment on account of the Swing Loans in which the Revolving Lenders have
purchased participations pursuant to Section 2.01(f), the Swing Lender will
promptly distribute to each such Revolving Lender its ratable share (determined
on the basis of the Swing Loan Refund Amounts of all of the Revolving Lenders)
of such payment (appropriately adjusted, in the case of interest payments, to
reflect the period of time during which such Revolving Lender's participating
interest was outstanding and funded); provided, however, that in the event that
such payment received by the Swing Lender is required to be returned, such
Revolving Lender will return to the Swing Lender any portion thereof previously
distributed to it by the Swing Lender.
(h) Obligations to Refund or Purchase Participations in Swing Loans
Absolute. Each Revolving Lender's obligation to transfer the amount of a
Revolving Loan to the Swing Lender as provided in Section 2.01(e) or to purchase
a participating interest pursuant to Section 2.01(f) shall be absolute and
unconditional and shall not be affected by any circumstance, including, without
limitation, (i) any set-off, counterclaim, recoupment, defense or other right
which such Revolving Lender, the Borrower or any other Person may have against
the Swing Lender or any other Person, (ii) the occurrence or continuance of a
Default or an Event of Default or the termination or reduction of any
Commitments, (iii) any adverse change in the condition (financial or otherwise)
of the Borrower or any other Person, (iv) any breach of this Agreement by the
Borrower, any other
30
<PAGE>
Lender or any other Person or (v) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing.
Section 2.02. Method of Borrowing. (a) The Borrower shall give the Agent
notice (a "Notice of Borrowing") (x) not later than 12:00 Noon (New York City
time) on (1) the date of each Base Rate Borrowing (other than a Swing Borrowing
or a Revolving Borrowing the proceeds of which are to be applied to repay
Refunded Swing Loans) and (2) the third Euro-Dollar Business Day before each
Euro-Dollar Borrowing and (y) not later than 12:00 Noon (New York City time) on
the date of each Swing Borrowing, specifying:
(i) the date of such Borrowing, which shall be a Domestic Business
Day in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in
the case of a Euro-Dollar Borrowing;
(ii) the aggregate amount of such Borrowing;
(iii) whether the Loans comprising such Borrowing are to bear interest
initially at a rate based on the Base Rate or at a Euro-Dollar Rate;
provided that (x) no Loans comprising any Borrowing made prior to the
Syndication Date shall be specified to bear interest at a Euro-Dollar Rate
and (y) all Swing Loans shall bear interest at a rate based on the Base
Rate; and
(iv) in the case of a Euro-Dollar Borrowing, the duration of the
initial Interest Period applicable thereto, subject to the provisions of
the definition of Interest Period.
In no event shall (i) the total number of Groups of Loans at any one time
outstanding exceed 15 or (ii) the total number of Swing Borrowings made in any
one calendar week exceed 3.
(b) Upon receipt of a Notice of Borrowing, the Agent shall promptly notify
each Lender of the contents thereof and of such Lender's ratable share of such
Borrowing (if any) and such Notice of Borrowing shall not thereafter be
revocable by the Borrower.
(c) Not later than 12:00 Noon (New York City time) on the date of each
Borrowing (or, solely in the case of a Swing Borrowing, 1:00 P.M. (New York City
time)), each Lender (or, in the case of a Swing Borrowing, the Swing Lender)
shall make available its ratable share of such Borrowing, in Federal or other
funds immediately available in New York City, to the Agent at its address
31
<PAGE>
referred to in Section 9.01. Unless the Agent determines that any applicable
condition specified in Article 3 has not been satisfied, the Agent will make the
funds so received from the Lenders available to the Borrower by crediting an
account of the Borrower maintained with the Agent and specified by the Borrower
prior to the date of such Borrowing or, if no such account has been specified,
at the Agent's aforesaid address.
(d) Unless the Agent shall have received notice from a Lender prior to the
date of any Borrowing that such Lender will not make available to the Agent such
Lender's share of such Borrowing, the Agent may assume that such Lender has made
such share available to the Agent on the date of such Borrowing in accordance
with subsection (c) of this Section and the Agent may, in reliance upon such
assumption, make available to the Borrower on such date a corresponding amount.
If and to the extent that such Lender shall not have so made such share
available to the Agent, such Lender and the Borrower severally agree to repay to
the Agent forthwith on demand such corresponding amount together with interest
thereon, for each day from the date such amount is made available to the
Borrower until the date such amount is repaid to the Agent, at (i) in the case
of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate
and the interest rate applicable thereto pursuant to Section 2.05 and (ii) in
the case of such Lender, the Federal Funds Rate. If such Lender shall repay to
the Agent such corresponding amount, such amount so repaid shall constitute such
Lender's Loan included in such Borrowing for purposes of this Agreement.
Section 2.03. Notes. (a) The Loans of each Lender shall be evidenced by a
single Note payable to the order of such Lender for the account of its
Applicable Lending Office in an amount equal to the aggregate unpaid principal
amount of such Lender's Loans.
(b) Each Lender may, by notice to the Borrower and the Agent, request that
its Loans of a particular Type or Class be evidenced by a separate Note in an
amount equal to the aggregate unpaid principal amount of such Loans. Each such
Note shall be in substantially the form of Exhibit A hereto with appropriate
modifications to reflect the fact that it evidences solely Loans of the relevant
Type or Class. Each reference in this Agreement to the "Note" of such Lender
shall be deemed to refer to and include any or all of such Notes, as the context
may require.
(c) Upon receipt of each Lender's Note pursuant to Section 3.01, the Agent
shall forward such Note to such Lender. Each Lender shall record the date,
amount, Type and Class of each Loan made by it and the date and amount of each
payment of principal made by the Borrower with respect thereto, and may, if such
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<PAGE>
Lender so elects in connection with any transfer or enforcement of its Note,
endorse on the schedule forming a part thereof appropriate notations to evidence
the foregoing information with respect to each such Loan then outstanding;
provided that the failure of any Lender to make any such recordation or
endorsement shall not affect the obligations of the Borrower hereunder or under
the Notes or any other Loan Document. Each Lender is hereby irrevocably
authorized by the Borrower so to endorse its Note and to attach to and make a
part of its Note a continuation of any such schedule as and when required.
Section 2.04. Maturity of Loans; Mandatory Prepayments; Certain Commitment
Reductions. (a)(i) Final Maturity. Each Loan of each Class shall mature, and the
outstanding principal amount thereof shall be due and payable (together with
accrued interest thereon), on the Maturity Date for such Class of Loans.
(ii) Extension of Revolving Credit Period and Swing Credit Period. The
Revolver Maturity Date and the Swing Termination Date may each be extended, in
the manner set forth in this subsection, on September 30, 2001 and on the first
anniversary of such date (an "Extension Date") for a period of one year after
the then current Revolver Maturity Date and Swing Termination Date; provided
that the Swing Termination Date shall not be extended on any Extension Date
unless the Revolver Maturity Date shall also be extended, in the manner set
forth herein, on such Extension Date. If the Borrower wishes to request an
extension of the Revolver Maturity Date and Swing Termination Date on any
Extension Date, it shall give written notice to that effect to the Agent not
less than 90 nor more than 120 days prior to such Extension Date, whereupon the
Agent shall notify each of the Revolving Lenders and the Swing Lender of such
notice. Each Revolving Lender will respond to such request, whether
affirmatively or negatively, within 30 days; provided that any Lender which does
--------
not respond to such request within such period shall be deemed to have responded
to such request negatively. If all Revolving Lenders and the Swing Lender
respond affirmatively, then, subject to receipt by the Agent prior to such
Extension Date of counterparts of an Extension Agreement in substantially the
form of Exhibit K duly completed and signed by all of the parties hereto, the
Revolver Maturity Date and the Swing Termination Date shall each be extended,
effective on such Extension Date, for a period of one year to the date stated in
such Extension Agreement.
(b) Tranche A Scheduled Amortization. In addition, the Borrower shall
repay, and there shall become due and payable, on each date set forth below, an
aggregate principal amount of the Tranche A Loans equal to the amount set forth
below opposite such date (as such amount may be reduced pursuant to Section
2.04(e) and Section 2.10(d)):
33
<PAGE>
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
12/31/99 $12,500,000
3/31/00 $12,500,000
6/30/00 $12,500,000
9/30/00 $12,500,000
12/31/00 $18,750,000
3/31/01 $18,750,000
6/30/01 $18,750,000
9/30/01 $18,750,000
12/31/01 $31,250,000
3/31/02 $31,250,000
6/30/02 $31,250,000
9/30/02 $31,250,000
</TABLE>
(c) Tranche B Scheduled Amortization. In addition, the Borrower shall
repay, and there shall become due and payable, on each date set forth below an
aggregate principal amount of the Tranche B Loans equal to the amount set forth
below opposite such date (as such amount may be reduced pursuant to Section
2.04(e) and Section 2.10(d)):
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
12/31/96 $ 250,000
3/31/97 $ 250,000
6/30/97 $ 250,000
9/30/97 $ 250,000
12/31/97 $ 250,000
3/31/98 $ 250,000
6/30/98 $ 250,000
9/30/98 $ 250,000
12/31/98 $ 250,000
3/31/99 $ 250,000
6/30/99 $ 250,000
9/30/99 $ 250,000
12/31/99 $ 250,000
3/31/00 $ 250,000
6/30/00 $ 250,000
9/30/00 $ 250,000
12/31/00 $ 1,750,000
3/31/01 $ 1,750,000
6/30/01 $ 1,750,000
</TABLE>
34
<PAGE>
<TABLE>
<S> <C>
9/30/01 $ 1,750,000
12/31/01 $ 1,750,000
3/31/02 $ 1,750,000
6/30/02 $ 1,750,000
9/30/02 $ 1,750,000
12/31/02 $10,250,000
3/31/03 $10,250,000
6/30/03 $10,250,000
9/30/03 $10,250,000
12/31/03 $20,500,000
3/31/04 $20,500,000
</TABLE>
(d) Contingent Amortization and Revolving Commitments Reduction. (i) In
addition, the Loans shall be prepaid and the Revolving Commitments shall be
reduced in the following amounts:
(A) in the event that any Reduction Event shall occur, an amount
equal to the Reduction Amount with respect thereto; and
(B) an amount, for each Fiscal Year ending after December 31,
1996, equal to the Reduction Amount of Excess Cash Flow for such Fiscal
Year.
(ii) Subject to Section 2.04(f) in the case of a prepayment of the
Term Loans in part, the prepayments and reductions required by clause (i)(A) of
this subsection shall be made forthwith upon receipt by the Borrower or any of
its Subsidiaries, as the case may be, of such Net Cash Proceeds (or, solely in
the case of an incurrence of Holdings Debt, upon receipt by Holdings of such Net
Cash Proceeds); provided that if the Reduction Amount in respect of any
Reduction Event is less than $1,000,000, such prepayment or reduction shall be
made upon receipt of proceeds such that, together with all other such amounts
not previously applied, the Reduction Amount is equal to at least $1,000,000 and
provided further, that, at the election of the Borrower, if the amount of any
such prepayment to be made exceeds the amount of Base Rate Loans then
outstanding, such excess amount shall be deposited in escrow pursuant to
arrangements in form and substance satisfactory to the Agent, and such excess
shall not be required to be prepaid until the last day of the Interest Periods
relating to outstanding Euro-Dollar Loans in an aggregate principal amount equal
to or greater than such excess amount unless an Event of Default has occurred
and is continuing or the Required Lenders otherwise determine in their sole
discretion and so notify the Borrower.
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<PAGE>
Subject to Section 2.04(f), the prepayments and reductions required by
clause (i)(B) of this subsection shall be made on or before the 105th day
after the end of the related fiscal year. The Borrower shall give the Agent
at least five Euro-Dollar Business Days' notice of each prepayment required
pursuant to this subsection.
(e) Application of Prepayments, Repayments and Revolving Commitment
Reductions. (i) The prepayments and reductions required pursuant to subsection
(d) shall be effected in the following order: first, the Borrower shall prepay
the Term Loans until the Term Loans have been paid in full (subject to Section
2.04(f) in the case of a prepayment of the Term Loans in part), second, the
Revolving Commitments shall be reduced and third, solely if such prepayment is
to be made after the Revolving Credit Period, the Borrower shall prepay
Revolving Loans until the Revolving Loans have been paid in full.
(ii) Subject to Section 2.04(f), each prepayment of the Term Loans
made by the Borrower pursuant to subsection (d) shall be allocated pro rata
on the basis of principal amount between the then outstanding Tranche A
Loans and Tranche B Loans.
(iii) If on the date of any reduction of the Revolving Commitments
pursuant to subsection (d) the aggregate Revolving Exposure on such date
exceeds the aggregate Revolving Commitments on such date, the Borrower
shall apply an amount equal to such excess to prepay the Revolving Credit
Loans or Swing Loans (or both) and/or cash collateralize Letters of Credit
so that after giving effect thereto the Revolving Exposure of each
Revolving Lender does not exceed its Revolving Credit Commitment as then
reduced. Amounts to be applied pursuant to the preceding sentence shall be
applied first to repay the principal amount of the Swing Loans then
outstanding until all such Swing Loans shall have been repaid in full,
second to repay the principal amount of the Revolving Credit Loans then
outstanding until all such Revolving Credit Loans shall have been repaid in
full and third if any excess then remains such excess shall be deposited in
the Cash Collateral Account established pursuant to Section 6(C) of the
Security Agreement to be held, applied or released for application as
provided in the Security Agreement. In determining Revolving Exposure for
purposes of this clause (iii), Letter of Credit Liabilities shall be
reduced to the extent that they are cash collateralized as contemplated by
the previous sentence.
(iv) Subject to clause (ii) of this subsection, each repayment or
prepayment of Loans of any Class made by the Borrower pursuant to this
Section shall be applied to such Group or Groups of Loans of such Class as
the Borrower may designate in the applicable Notice of Borrowing or Notice
of Interest Rate
36
<PAGE>
Election (or, failing such designation, as determined by the Agent), and,
except as provided in subsection (f) with respect to Tranche B Loans, shall
be applied to repay ratably the Loans of such Class of the several Lenders
included in such Group or Groups.
(v) The amount of any prepayment of the Term Loans made by the
Borrower pursuant to subsection (d) shall be applied to reduce the amount
of subsequent scheduled repayments of the Term Loans pursuant to
subsections (b) or (c) above, as the case may be, in inverse order of
maturity.
(f) Option of Tranche B Lenders Not to Accept Prepayments. (i) If (x) at
least one Domestic Business Day prior to any date (an "Unscheduled Prepayment
Date") on which any prepayment of the Tranche B Loans (a "Tranche B Unscheduled
Prepayment"), other than a prepayment of the Tranche B Loans in whole, would,
but for the provisions of this subsection (f), otherwise have been made pursuant
to Section 2.04(d) or 2.10(a), the Borrower shall have delivered a notice
conforming to the requirements of subsection (f)(ii) (a "Tranche B Prepayment
Notice") to the Agent and (y) on or prior to such Unscheduled Prepayment Date,
the Borrower shall have deposited in the Tranche B Prepayment Account
established pursuant to Section 6(A) of the Security Agreement an amount equal
to the principal amount that would have been payable by the Borrower pursuant to
Section 2.04(d) or 2.10(a) on such Unscheduled Prepayment Date in respect of
such Tranche B Unscheduled Prepayment, then such Tranche B Unscheduled
Prepayment shall not occur on such Unscheduled Payment Date but shall instead be
deferred as hereinafter provided in this subsection (f). Upon receipt of any
Tranche B Prepayment Notice, the Agent shall promptly notify each Tranche B
Lender of the contents hereof.
(ii) Each Tranche B Prepayment Notice shall be in writing, shall
refer to this Section 2.04(f) and shall (w) set forth the amount of the
Tranche B Unscheduled Prepayment and the prepayment that the applicable
Tranche B Lender will be entitled to receive if it accepts prepayment of
its Tranche B Loans in accordance with this subsection, (x) contain an
offer to prepay on a specified date (each such date, a "Deferred Tranche B
Unscheduled Prepayment Date"), which shall not be less than 20 days or more
than 25 days after the date of such Tranche B Prepayment Notice, the
Tranche B Loans of such Tranche B Lender by an aggregate principal amount
equal to such Tranche B Lender's ratable share of such Tranche B
Unscheduled Prepayment (determined by reference to the outstanding
principal amount of such Lender's Tranche B Loan as a proportion of the
aggregate outstanding principal amount of the Tranche B Loans of all of the
Tranche B Lenders), (y) request such Tranche B Lender to notify the
Borrower and the Agent in writing, no later than the fifth Domestic
Business Day prior to
37
<PAGE>
the Deferred Tranche B Unscheduled Prepayment Date, of such Tranche B
Lender's acceptance or rejection (in each case, in whole and not in part)
of such offer of prepayment and (z) inform such Tranche B Lender that the
failure by such Tranche B Lender to reject such offer in writing on or
before the fifth day prior to such Deferred Tranche B Unscheduled
Prepayment Date shall be deemed an acceptance of such prepayment offer.
Each Tranche B Prepayment Notice shall be given by telecopy, confirmed hand
delivery or overnight courier service, in each case addressed to the Agent
and each Tranche B Lender as provided in Section 9.01.
(iii) On each Deferred Tranche B Unscheduled Prepayment Date, the
Agent shall withdraw from the Tranche B Prepayment Account the aggregate
amount required to prepay the Tranche B Loans of each of the Tranche B
Lenders that shall have accepted (or been deemed to have accepted)
prepayment in accordance with the related Tranche B Prepayment Notice
(each, an "Accepting Tranche B Lender") and shall cause such amount to be
applied on behalf of the Borrower to prepay the outstanding Tranche B Loans
of the Accepting Tranche B Lenders.
(iv) Any amount remaining in the Tranche B Prepayment Account on any
Deferred Tranche B Unscheduled Prepayment Date after giving effect to the
prepayments required by clause (iii) above (exclusive of any interest or
profits with respect to amounts held in the Tranche B Prepayment Account)
shall be withdrawn and applied by the Agent to prepay the principal of (x)
the then outstanding Tranche A Loans and (y) the then outstanding Tranche B
Loans of the Accepting Tranche B Lenders, ratably in proportion to their
then outstanding principal amounts and/or to reduce the Revolving Credit
Commitments, all in accordance with subsection (d) above or Section
2.10(a), as applicable.
Section 2.05. Interest Rates. (a) Each Base Rate Loan shall bear
interest on the outstanding principal amount thereof, for each day from and
including the date such Loan is made to but excluding the date it becomes
due or is converted into a Euro-Dollar Loan, at a rate per annum equal to
the sum of (x) the Base Rate Margin plus (y) the Base Rate for such day.
Such interest shall be payable quarterly in arrears on each Quarterly Date.
Any overdue principal of or interest on any Base Rate Loan shall bear
interest, payable on demand, for each day until paid at a rate per annum
equal to the sum of 2% plus the rate otherwise applicable to Base Rate
Loans for such day.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for each day during each Interest Period
applicable thereto, from and including the first day thereof to but
excluding the last day
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thereof, at a rate per annum equal to the sum of the Euro-Dollar Margin for such
day plus the Adjusted London Interbank Offered Rate applicable to such Interest
Period. Such interest shall be payable for each Interest Period on the last day
thereof and, if such Interest Period is longer than three months, at intervals
of three months after the first day thereof and, with respect to the principal
amount of any Euro-Dollar Loan converted to a Base Rate Loan, on each date a
Euro-Dollar Loan is so converted.
The "Adjusted London Interbank Offered Rate" applicable to any Interest
Period means a rate per annum equal to the quotient obtained (rounded upward, if
necessary, to the next higher 1/100 of 1%) by dividing (i) the applicable London
Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar Reserve Percentage.
The Adjusted London Interbank Offered Rate shall be adjusted automatically on
and as of the effective date of any change in the Euro-Dollar Reserve
Percentage.
The "London Interbank Offered Rate" applicable to any Interest Period means
the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the
respective rates per annum at which deposits in dollars are offered to each of
the Reference Lenders in the London interbank market at approximately 11:00 A.M.
(London time) two Euro-Dollar Business Days before the first day of such
Interest Period in an amount approximately equal to the principal amount of the
Euro-Dollar Loan of such Reference Lender to which such Interest Period is to
apply and for a period of time comparable to such Interest Period.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member Lender of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Lender to
United States residents).
(c) Any overdue principal of or interest on any Euro-Dollar Loan shall
bear interest, payable on demand, for each day until paid at a rate per annum
equal to the higher of (i) the sum of 2% plus the Euro-Dollar Margin for such
day plus the quotient obtained (rounded upward, if necessary, to the next higher
1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the
next higher 1/16 of 1%) of the respective rates per annum at which one day (or,
if such amount due remains unpaid more than three Euro-Dollar Business Days,
then for
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such other period of time not longer than three months as the Agent may
select) deposits in dollars in an amount approximately equal to such overdue
payment due to each of the Reference Lenders are offered to such Reference
Lender in the London interbank market for the applicable period determined as
provided above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the
circumstances described in clause (a) or (b) of Section 8.01 shall exist, at a
rate per annum equal to the sum of 2% plus the rate applicable to Base Rate
Loans for such day) and (ii) the sum of 2% plus the Euro-Dollar Margin for such
day plus the Adjusted London Interbank Offered Rate applicable to such Loan at
the date such payment was due.
(d) The Agent shall determine each interest rate applicable to the Loans
hereunder. The Agent shall give prompt notice to the Borrower and the
participating Lenders of each rate of interest so determined, and its
determination thereof shall be conclusive in the absence of manifest error.
(e) Each Reference Lender agrees to use its best efforts to furnish
quotations to the Agent as contemplated by this Section. If any Reference
Lender does not furnish a timely quotation, the Agent shall determine the
relevant interest rate on the basis of the quotation or quotations furnished by
the remaining Reference Lender or Lenders or, if none of such quotations is
available on a timely basis, the provisions of Section 8.01 shall apply.
Section 2.06. Fees. (a) During the Revolving Credit Period, the Borrower
shall pay to the Agent for the account of each Revolving Lender a commitment fee
at the Commitment Fee Rate (determined daily in accordance with the Pricing
Schedule) on the daily amount by which such Revolving Lender's Revolving
Commitment exceeds the sum of (x) the aggregate outstanding principal amount of
its Revolving Loans and (y) its Letter of Credit Liabilities. Such commitment
fee shall accrue from and including the Effective Date to but excluding the date
of termination of the Revolving Commitments in their entirety, and shall be
payable quarterly in arrears on each Quarterly Date and on the date of
termination of the Revolving Commitments in their entirety.
(b) The Borrower shall pay to the Agent (i) for the account of the
Revolving Lenders ratably in proportion to their Revolving Commitments a letter
of credit fee accruing daily on the aggregate amount then available for drawing
under all Letters of Credit at the Letter of Credit Fee Rate (determined in
accordance with the Pricing Schedule) and (ii) for the account of each L/C
Issuer a letter of credit fronting fee accruing daily on the aggregate amount
then available for drawing under all Letters of Credit issued by such L/C Issuer
at a rate per annum equal to 1/4 of 1%.
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(c) Accrued fees under subsections (a) and (b) above shall be payable
quarterly in arrears on each March 31, June 30, September 30 and December 31 and
on the date of termination of the Revolving Commitments in their entirety (and,
if later, the date on which the aggregate Letter of Credit Liabilities shall
have been reduced to $0).
Section 2.07. Optional Termination or Reduction of Commitments. (a) Term
Commitments. Prior to the Closing Date the Borrower may, upon at least three
Domestic Business Days' notice to the Agent, (i) terminate the Term Commitments
of either Class or (ii) ratably reduce from time to time by an aggregate amount
of $5,000,000 or a larger multiple of $1,000,000, the aggregate amount of the
Term Commitments of either Class.
(b) During the Revolving Credit Period the Borrower may, upon at least
three Domestic Business Days' notice to the Agent, (i) terminate the Revolving
Commitments at any time, if no Revolving Loans, no Swing Loans or Letter of
Credit Liabilities are outstanding at such time or (ii) ratably reduce from time
to time by an aggregate amount of $5,000,000 or a larger multiple of $1,000,000,
the aggregate amount of the Revolving Commitments in excess of the aggregate
Revolving Exposure at such time.
Section 2.08. Method of Electing Interest Rates. (a) The Loans included
in each Borrowing shall initially be of the Type specified by the Borrower in
the applicable Notice of Borrowing, subject to the limitations set forth in
Section 2.02. Thereafter, the Borrower may from time to time elect to change or
continue the Type of Loans in each Group of Loans (other than any Group of Loans
which are Swing Loans), subject in each case to the provisions of Article 8, as
follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect to
convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business Day;
provided that no Base Rate Loans shall be converted to Euro-Dollar Loans
(x) at any time prior to the Syndication Date or (y) if at the time such
conversion is to be effective, an Event of Default has occurred and is
continuing; and
(ii) if such Loans are Euro-Dollar Loans, the Borrower may elect to
convert such Loans to Base Rate Loans as of any Domestic Business Day or to
continue such Loans as Euro-Dollar Loans for an additional Interest Period
as of any Euro-Dollar Business Day, subject to Section 2.12 in the case of
any such conversion or continuation effective on any day other than the
last day of the then current Interest Period applicable to such Loans;
provided that no Euro-Dollar Loans shall be continued as
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Euro-Dollar Loans if at the time such continuation is to be effective, an
Event of Default has occurred and is continuing.
Each such election shall be made by delivering a notice (a "Notice of Interest
Rate Election") to the Agent not later than 12:00 Noon (New York City time) on
the third Euro-Dollar Business Day before the conversion or continuation
selected in such notice is to be effective. A Notice of Interest Rate Election
may, if it so specifies, apply to only a portion of the aggregate principal
amount of the relevant Group of Loans; provided that (i) such portion is
allocated ratably among the Loans comprising such Group and (ii) the portion to
which such Notice applies, and the remaining portion to which it does not apply,
are each $5,000,000 or any larger multiple of $1,000,000. If no Notice of
Interest Election is timely received prior to the end of an Interest Period for
any Group of Loans, the Borrower shall be deemed to have elected that such Group
of Loans be converted to Base Rate Loans as of the last day of such Interest
Period. In no event shall the total number of Groups of Loans at any time
outstanding exceed 15.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such notice
applies;
(ii) the date on which the conversion or continuation selected in
such notice is to be effective, subject to the provisos set forth in
clauses (i) and (ii) of subsection (a) above;
(iii) if the Loans comprising such Group are to be converted, the new
Type of Loans and, if the Loans being converted are to be Euro-Dollar
Loans, the duration of the next succeeding Interest Period applicable
thereto; and
(iv) if such Loans are to be continued as Euro-Dollar Loans for an
additional Interest Period, the duration of such additional Interest
Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.
(c) Upon receipt of a Notice of Interest Rate Election from the Borrower
pursuant to subsection (a) above, the Agent shall promptly notify each Lender of
the contents thereof and such notice shall not thereafter be revocable by the
Borrower.
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(d) An election by the Borrower to change or continue the rate of interest
applicable to any Group of Loans pursuant to this Section shall not constitute a
"Borrowing" subject to the provisions of Section 3.02.
Section 2.09. Mandatory Termination of Commitments. (a) Term Commitments.
The Term Commitments of each Class shall terminate at the close of business on
the Closing Date.
(b) Revolving Commitments. The Revolving Commitments shall terminate on
the Revolver Maturity Date.
(c) Swing Loan Commitment. The Swing Loan Commitment shall terminate on
the Swing Termination Date.
Section 2.10. Optional Prepayments. (a) Subject, in the case of any
Borrowing of Euro-Dollar Loans to Section 2.12 and in the case of any Borrowing
of Tranche B Loans to Section 2.04(f), the Borrower may, upon at least one
Domestic Business Day's notice to the Agent, prepay any Group of Base Rate Loans
or upon at least three Euro-Dollar Business Days' notice to the Agent, prepay
any Group of Euro-Dollar Loans, in each case in whole at any time, or from time
to time in part in amounts aggregating $5,000,000 (or, solely in the case of any
Group of Loans which are Swing Loans, $1,000,000) or any larger multiple of
$1,000,000, by paying the principal amount to be prepaid together with, in the
case of a prepayment of Euro-Dollar Loans, accrued interest thereon to the date
of prepayment. Each such optional prepayment shall be applied to prepay ratably
the Loans of the several Lenders included in such Group.
(b) Upon receipt of a notice of prepayment pursuant to this Section, the
Agent shall promptly notify each Lender of the contents thereof and of such
Lender's ratable share of such prepayment and such notice shall not thereafter
be revocable by the Borrower.
(c) Subject to Section 2.04(f), each prepayment of the Term Loans made by
the Borrower pursuant to this Section 2.10 shall be allocated pro rata on the
basis of principal amount between the then outstanding Tranche A Loans and
Tranche B Loans.
(d) Each prepayment of the Term Loans of either Class made by the
Borrower pursuant to this Section shall be applied as follows: first, to reduce
the amount of the subsequent scheduled repayments of the Term Loans (if any) of
such Class to be made within 180 days of the date such prepayment is made in
forward order until such amount shall have been paid in full and thereafter to
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reduce the amount of subsequent scheduled repayments to the Term Loans of such
Class in inverse order of maturity.
Section 2.11. General Provisions as to Payments. (a) The Borrower shall
make each payment of principal of, and interest on, the Loans and of Letter of
Credit Liabilities and of fees hereunder (other than fees payable directly to
any L/C Issuer), not later than 1:00 P.M. (New York City time) on the date when
due, in Federal or other funds immediately available in New York City, to the
Agent at its address referred to in Section 9.01. The Agent will promptly
distribute to each Lender its ratable share of each such payment received by the
Agent for the account of the Lenders. Whenever any payment of principal of, or
interest on, the Base Rate Loans or of Letter of Credit Liabilities or of fees
shall be due on a day which is not a Domestic Business Day, the date for payment
thereof shall be extended to the next succeeding Domestic Business Day.
Whenever any payment of principal of, or interest on, the Euro-Dollar Loans
shall be due on a day which is not a Euro-Dollar Business Day, the date for
payment thereof shall be extended to the next succeeding Euro-Dollar Business
Day unless such Euro-Dollar Business Day falls in another calendar month, in
which case the date for payment thereof shall be the next preceding Euro-Dollar
Business Day. If the date for any payment of principal is extended by operation
of law or otherwise, interest thereon shall be payable for such extended time.
(b) Unless the Agent shall have received notice from the Borrower prior to
the date on which any payment is due to the Lenders hereunder that the Borrower
will not make such payment in full, the Agent may assume that the Borrower has
made such payment in full to the Agent on such date and the Agent may, in
reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the
extent that the Borrower shall not have so made such payment, each Lender shall
repay to the Agent forthwith on demand such amount distributed to such Lender
together with interest thereon, for each day from the date such amount is
distributed to such Lender until the date such Lender repays such amount to the
Agent, at the Federal Funds Rate.
Section 2.12. Funding Losses. If the Borrower makes any payment of
principal with respect to any Euro-Dollar Loan or any Euro-Dollar Loan is
converted (pursuant to Article 2 , 6 or 8 or otherwise) on any day other than
the last day of an Interest Period applicable thereto, or the last day of an
applicable period fixed pursuant to Section 2.05(c) , or if the Borrower fails
to borrow, prepay, convert or continue any Euro-Dollar Loans after notice has
been given to any Lender in accordance with Section 2.02(a), 2.04(d), 2.08 or
2.10, the Borrower shall reimburse each Lender within 15 days after demand for
any
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resulting loss or expense incurred by it (or, without duplication, by an
existing or prospective Participant in the related Loan), including (without
limitation) any loss incurred in obtaining, liquidating or employing deposits
from third parties, but excluding loss of margin for the period after any such
payment or conversion or failure to borrow, prepay, convert or continue,
provided that such Lender shall have delivered to the Borrower a certificate as
to the amount of such loss or expense, which certificate shall be conclusive in
the absence of manifest error.
Section 2.13. Computation of Interest and Fees. Interest based on the
Prime Rate hereunder shall be computed on the basis of a year of 365 days (or
366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
Section 2.14. Letters of Credit. (a) Subject to the terms and conditions
hereof, each L/C Issuer agrees to issue letters of credit hereunder from time to
time before the tenth day before the Revolver Maturity Date upon the request of
the Borrower (the "Letters of Credit"); provided that, immediately after each
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Letter of Credit is issued, (i) the aggregate amount of the Letter of Credit
Liabilities shall not exceed the Letter of Credit Commitment and (ii) the
aggregate amount of the Revolving Exposures shall not exceed the aggregate
amount of the Revolving Commitments. Upon the date of issuance by an L/C Issuer
of a Letter of Credit, the L/C Issuer shall be deemed, without further action by
any party hereto, to have sold to each Revolving Lender, and each Revolving
Lender shall be deemed, without further action by any party hereto, to have
purchased from the L/C Issuer, a participation in such Letter of Credit and all
of the related Letter of Credit Liabilities pro rata to their respective
Revolving Percentages.
(b) The Borrower shall give the L/C Issuer notice at least three Domestic
Business Days prior to the requested issuance of a Letter of Credit specifying
the date such Letter of Credit is to be issued, and describing the terms of such
Letter of Credit and the nature of the transactions to be supported thereby
(such notice, including any such notice given in connection with the extension
or renewal of a Letter of Credit, a "Notice of Issuance"). Upon receipt of a
Notice of Issuance, the L/C Issuer shall promptly notify the Agent, and the
Agent shall promptly notify each Revolving Lender of the contents thereof and of
the amount of such Revolving Lender's participation in such Letter of Credit.
The issuance by the L/C Issuer of each Letter of Credit shall, in addition to
the conditions precedent set forth in Section 3.02, be subject to the conditions
precedent that such Letter of Credit shall be in such form and contain such
terms as shall be satisfactory to the L/C Issuer and that the Borrower shall
have executed and delivered such other instruments and agreements relating to
such Letter of Credit as the L/C Issuer
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shall have reasonably requested. The Borrower shall also pay to the L/C Issuer
for its own account issuance, drawing, amendment and extension charges in the
amounts and at the times as agreed between the Borrower and the L/C Issuer. The
extension or renewal of any Letter of Credit shall be deemed to be an issuance
of such Letter of Credit, and if any Letter of Credit contains a provision
pursuant to which it is deemed to be extended unless notice of termination is
given by the L/C Issuer, the L/C Issuer shall timely give such notice of
termination unless it has theretofore timely received a Notice of Issuance and
the other conditions to issuance of a Letter of Credit have also theretofore
been met with respect to such extension. No Letter of Credit shall have a term
extending or be extendible beyond the date which is ten days prior to the
Revolver Maturity Date.
(c) Upon receipt from the beneficiary of any Letter of Credit of any notice
of a drawing under such Letter of Credit, the L/C Issuer shall notify the Agent
and the Agent shall promptly give notice (a "Draw Notice") to the Borrower and
each Revolving Lender as to the amount to be paid as a result of such demand or
drawing and the payment date. Upon receipt of a Draw Notice by the Borrower,
the Borrower shall be irrevocably and unconditionally obligated to reimburse the
L/C Issuer for any amounts paid by the L/C Issuer upon any drawing under any
Letter of Credit, without presentment, demand, protest or other formalities of
any kind on the second Domestic Business Day following the date of receipt.
Regardless of if and when a Draw Notice is given to or received by the Borrower,
all such amounts paid by the L/C Issuer and remaining unpaid by the Borrower
shall bear interest, payable on demand, for each day from and including the date
of payment by the L/C Issuer until paid at a rate per annum equal to (x) to but
not including the due date determined in accordance with the preceding sentence,
the rate applicable to Base Rate Loans for such day and (y) on and after such
due date, the sum of 2% plus the rate applicable to Base Rate Revolving Loans
for such day. In addition, each Revolving Lender will pay to the Agent, for the
account of the L/C Issuer, immediately upon the L/C Issuer's demand at any time
during the period commencing after such drawing until reimbursement therefor in
full by the Borrower, an amount equal to such Lender's ratable share of such
drawing (in proportion to its participation therein), together with interest on
such amount for each day from the date of the L/C Issuer demand for such payment
(or, if such demand is made after 12:00 Noon (New York City time) on such date,
from the next succeeding Domestic Business Day) to the date of payment by such
Lender of such amount at the Federal Funds Rate. The L/C Issuer will pay to
each Revolving Lender ratably all amounts received from the Borrower for
application in payment of its reimbursement obligations in respect of any Letter
of Credit, but only to the extent such Revolving Lender has made payment to the
L/C Issuer in respect of such Letter of Credit pursuant hereto.
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(d) The obligations of the Borrower and each Revolving Lender under
subsection (c) above shall be absolute, unconditional and irrevocable, and shall
be performed strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including without limitation the following
circumstances:
(i) any lack of validity or enforceability of this Agreement or any
Letter of Credit or any document related hereto or thereto;
(ii) any amendment or waiver of or any consent to departure from all or
any of the provisions of this Agreement or any Letter of Credit or any document
related hereto or thereto;
(iii) the use which may be made of the Letter of Credit by, or any acts or
omission of, a beneficiary of a Letter of Credit (or any Person for whom the
beneficiary may be acting);
(iv) the existence of any claim, set-off, defense or other rights that the
Borrower may have at any time against a beneficiary of a Letter of Credit (or
any Person for whom the beneficiary may be acting), the Lenders (including the
L/C Issuer) or any other Person, whether in connection with this Agreement or
the Letter of Credit or any document related hereto or thereto or any unrelated
transaction;
(v) any statement or any other document presented under a Letter of
Credit proving to be forged, fraudulent or invalid in any respect or any
statement therein being untrue or inaccurate in any respect whatsoever;
(vi) payment under a Letter of Credit against presentation to the L/C
Issuer of a draft or certificate that does not comply with the terms of the
Letter of Credit; or
(vii) any other act or omission to act or delay of any kind by any Lender
(including the L/C Issuer ), the Agent or any other Person, but for the
provisions of this subsection (vii), constitute a legal or equitable discharge
of the Borrower's or the Lender's obligations hereunder.
Nothing in this subsection (d) is intended to limit the right of the
Borrower to make a claim against the L/C Issuer for damages as contemplated by
the proviso to the first sentence of subsection (e).
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(e) The Borrower hereby indemnifies and holds harmless each L/C Issuer and
the Agent (and, to the extent any other Lender shall have contributed toward
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or indemnified against any such claim, damage, loss, liability, cost or expense,
incurred by an L/C Issuer or the Agent, each such other Lender) from and against
any and all claims, damages, losses, liabilities, costs or expenses which it may
incur (including, without limitation, any claims, damages, losses, liabilities,
costs or expenses which the L/C Issuer may incur by reason of or in connection
with the failure of any other Lender to fulfill or comply with its obligations
to such L/C Issuer hereunder), and none of the Lenders (including an L/C Issuer)
nor the Agent nor any of their officers or directors or employees or agents
shall be liable or responsible, by reason of or in connection with the execution
and delivery or transfer of or payment or failure to pay under any Letter of
Credit, including without limitation any of the circumstances enumerated in
subsection (d) above, as well as (i) any error, omission, interruption or delay
in transmission or delivery of any messages, by mail, cable, telegraph, telex or
otherwise, (ii) any error in interpretation of technical terms, (iii) any loss
or delay in the transmission of any document required in order to make a drawing
under a Letter of Credit, (iv) any consequences arising from causes beyond the
control of the L/C Issuer, including without limitation any government acts, or
any other circumstances whatsoever in making or failing to make payment under
such Letter of Credit; provided that the Borrower shall not be required to
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indemnify any Lender for any claims, damages, losses, liabilities, costs or
expenses, and the Borrower shall have a claim against the L/C Issuer for direct
(but not consequential) damage suffered by it, to the extent found by a court of
competent jurisdiction to have been caused by (x) the willful misconduct or
gross negligence of the L/C Issuer in determining whether a request presented
under any Letter of Credit complied with the terms of such Letter of Credit or
(y) the L/C Issuer's failure to pay under any Letter of Credit after the
presentation to it of a request strictly complying with the terms and conditions
of the Letter of Credit. Nothing in this subsection (e) is intended to limit
the obligations of the Borrower under any other provision of this Agreement. To
the extent the Borrower does not indemnify an L/C Issuer as required by this
subsection, the Revolving Lenders agree to do so ratably in accordance with
their Revolving Commitments.
ARTICLE 3
Conditions
Section 3.01. Closing. The closing hereunder shall occur upon receipt by
the Agent of the following (with respect to each document, dated the Closing
Date):
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(a) a duly executed Note for the account of each Lender dated on or before
the Closing Date complying with the provisions of Section 2.03;
(b) an opinion of Gibson Dunn & Crutcher, special counsel for the
Obligors, substantially in the form of Exhibit G;
(c) an opinion of Davis Polk & Wardwell, special counsel for the Agent,
substantially in the form of Exhibit H-1 hereto and Amster, Rothstein &
Ebenstein, special counsel for the Agent, substantially in the form of Exhibit
H-2 hereto;
(d) duly executed counterparts of each of the Collateral Documents,
together with duly executed financing statements on Form UCC-1 in form
sufficient for filing in all jurisdictions in which such filing is necessary to
perfect Liens created by the Collateral Documents, and all necessary documents
for filing with the U.S. Patent and Trademark Office and the U.S. Copyright
Office, and the delivery of any promissory notes and stock certificates
comprising the Collateral;
(e) a true, complete and correct copy of each Transaction Document as in
effect on the Closing Date, certified as such by a Responsible Officer;
(f) evidence satisfactory to it of the satisfaction (without waiver,
unless such waiver is approved in writing by the Agent) of all conditions to the
closing of the transactions contemplated by the Transaction Documents to be
consummated on the Closing Date as set forth in the Transaction Documents, and
that all such transactions will take place prior to or simultaneously with the
transactions contemplated hereby to take place on the Closing Date;
(g) each opinion of counsel required to be delivered by any Person
pursuant to the Transaction Documents on the Closing Date, with a letter from
each Person delivering any such opinion authorizing reliance thereon by the
Agent and the Lenders, all in form and substance satisfactory to the Agent;
(h) a certificate of the chief financial officer or chief accounting
officer of the Borrower to the effect that Holdings shall have (x) received net
cash proceeds of (i) not less than $200,000,000 from the issuance of shares of
its common stock to Tracinda, (ii) not less than
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$200,000,000 from the issuance of shares of its common stock to Seven Network
and (iii) not less than $500,000,000 in the aggregate from the issuance of its
preferred stock to Tracinda and Seven Network, in each case on terms and
conditions not materially different in any material respect from those set forth
in the agreements listed on Schedule 3.01(h)(x) hereto, as amended to the date
hereof and substantially on the terms heretofore disclosed to each of the
Lenders, and (y) contributed all such amounts to the Borrower;
(i) evidence satisfactory to it that all outstanding obligations of the
Borrower and its Subsidiaries under the agreements and instruments set forth on
Schedule 3.01(i) (including without limitation principal and interest with
respect to any loans and all accrued fees and expenses) shall have been paid in
full or otherwise discharged concurrently with the making of the Loans to be
made hereunder on the Closing Date, all commitments thereunder have been
terminated and all Liens securing such obligations and all guarantees thereof
have been released or provision made for release thereof that is satisfactory to
the Agent (all Lenders hereunder which are also Lenders under the Existing
Credit Agreement hereby agree that repayment of all outstanding obligations
thereunder may be made on the Closing Date, whether at the end of interest
periods under the Existing Credit Agreement or not);
(j) evidence satisfactory to it that, after consummation of the
transactions contemplated by the Loan Documents and the Transaction Documents to
occur on the Closing Date, the Borrower and its Subsidiaries shall have no Debt
outstanding (other than the Loans and Debt permitted pursuant to Sections
5.10(b) through 5.10(k), inclusive);
(k) the pro forma financial statements referred to in Section 4.04(c),
together with a certificate of the chief financial officer or the chief
accounting officer of the Borrower setting forth in reasonable detail the
calculations required to establish that the Borrower is in compliance with the
requirements of Section 5.15 on the Closing Date;
(l) evidence satisfactory to it of the insurance coverage required by
Section 5.03 and the Collateral Documents;
(m) payment in full of all fees, expenses and other amounts due and
payable hereunder (including fees and expenses payable pursuant to Section 9.03)
or pursuant to any letter agreement between the Borrower
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and the Agent or the Arranger relating to the transactions contemplated by
the Loan Documents;
(n) all documents the Agent may reasonably request relating to the
existence of the Obligors, the corporate authority for and the validity of
the Loan Documents, and any other matters relevant hereto, all in form and
substance reasonably satisfactory to the Agent;
(o) since the respective dates as of which information is stated in
the Information Memorandum, no event has occurred and no condition has come
into existence which would have caused the projections set forth therein to
be materially misleading; and
(p) the fact that the Closing Date shall have occurred on or prior to
October 15, 1996.
Section 3.02. Borrowings and Issuances of Letters of Credit. The
obligation of any Lender to make a Loan on the occasion of any Borrowing (other
than the obligation of any Lender to make a Refunding Swing Loan), and the
obligation of an L/C Issuer to issue (which shall include, for purposes of this
Section, any renewal or extension of the term of) any Letter of Credit are each
subject to the satisfaction of the following conditions:
(a) receipt by the Agent of a Notice of Borrowing as required by
Section 2.01 or receipt by the L/C Issuer of a Notice of Issuance as
required by Section 2.14(b);
(b) solely in the case of a Revolving Borrowing, a Swing Borrowing or
issuance of a Letter of Credit the fact that, immediately after such
Borrowing or the issuance of such Letter of Credit, as the case may be, the
aggregate Revolving Exposure will not exceed the aggregate amount of the
Revolving Commitments;
(c) the fact that, immediately before and after such Borrowing or
issuance of a Letter of Credit, as the case may be, no Default shall have
occurred and be continuing; and
(d) the fact that the representations and warranties of the Obligors
contained in the Loan Documents shall be true in all material respects on
and as of the date of such Borrowing.
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Each Borrowing and issuance of a Letter of Credit hereunder shall be deemed
to be a representation and warranty by the Borrower on the date of such
Borrowing or issuance of a Letter of Credit, as the case may be, as to the facts
specified in clauses (b), (c) and (d) of this Section.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that (including, in the case of any
such representation and warranty made or deemed made before the consummation of
the Acquisition, at the time such representation and warranty is made or deemed
made and immediately after giving effect to the consummation of the
Acquisition):
Section 4.01. Corporate Existence and Power. Each Obligor is a corporation
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted, except to the extent that the failure to have
such licenses, authorizations, consents and approvals could not in the aggregate
reasonably be expected to have a Material Adverse Effect.
Section 4.02. Corporate and Governmental Authorization; No Contravention.
The execution, delivery and performance by each Obligor of the Loan Documents to
which it is a party (i) are within the corporate powers of such Obligor and have
been duly authorized by all necessary corporate action, (ii) require no action
by or in respect of, or filing with, any governmental body, agency or official,
other than actions or filings which have been taken or made on or prior to the
Closing Date or, solely with respect to filings necessary to perfect any
security interest created under any of the Collateral Documents, will be made on
or prior to 5 Dom estic Business Days after the Closing Date, (iii) do not
contravene, or constitute a default under, any provision (v) of applicable law
or regulation, (w) of the articles or certificate of incorporation or by-laws of
such Obligor, (x) of any agreement or instrument under which Debt has or may be
incurred binding upon Holdings or any of its Subsidiaries, (y) of any other
agreement or instrument binding upon Holdings or any of its Subsidiaries which
contravention or default could reasonably be expected to have a Material Adverse
Effect, or (z) of any judgment, injunction, order or decree binding upon
Holdings or any of its Subsidiaries or (iv) result in the creation or imposition
of any Lien on any material asset of Holdings or any of its Subsidiaries.
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Section 4.03. Binding Effect. The Loan Documents (other than the Notes) to
which each Obligor is a party constitute valid and binding agreements of such
Obligor and each Note, when executed and delivered in accordance with this
Agreement, will constitute a valid and binding obligation of the Borrower, in
each case enforceable in accordance with its terms except (i) as may be limited
by bankruptcy, insolvency or similar laws affecting creditors' rights generally
and (ii) as may be limited by equitable principles of general applicability.
Section 4.04. Financial Information; Information Memorandum. (a) The
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as
of December 31, 1995 and the related consolidated statements of income and cash
flows for the fiscal year then ended, reported on by Price Waterhouse LLP, a
copy of which has been delivered to each of the Lenders, fairly present, in
conformity with generally accepted accounting principles, the consolidated
financial position of the Borrower and its Consolidated Subsidiaries as of such
date and their consolidated results of operations and cash flows for such fiscal
year.
(b) The unaudited consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of June 30, 1996 and the related unaudited
consolidated statements of income and cash flows for the six-month period then
ended fairly present, in conformity with generally accepted accounting
principles applied on a basis consistent with the financial statements referred
to in subsection (a), the consolidated financial position of the Borrower and
its Consolidated Subsidiaries as of such date and their consolidated results of
operations and cash flows for such six-month period (subject to normal year-end
adjustments).
(c) The pro forma balance sheet of the Borrower and its Consolidated
Subsidiaries as of June 30, 1996, copies of which have been delivered to each of
the Lenders prior to the date hereof, fairly present, in conformity with
generally accepted accounting principles applied on a basis consistent with the
financial statements referred to in subsection (a) , the consolidated financial
position of the Borrower and its Consolidated Subsidiaries as of such date,
adjusted to give effect (as if such events had occurred on such date) to (i) the
transactions contemplated by this Loan Documents and the Transaction Documents
to occur on the Closing Date, (ii) the application of the proceeds therefrom as
contemplated by this Agreement and the Transaction Documents and (iii) the
payment of all legal, accounting and other fees related thereto. As of the date
of such balance sheet and the Closing Date, the Borrower and its Subsidiaries
had and have no material liabilities, contingent or otherwise, including
liabilities for taxes, long-term leases or forward or long-term commitments,
which are not properly reflected on such
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balance sheet in accordance with generally accepted accounting principles or the
footnotes relating thereto.
(d) The projections set forth in the Information Memorandum were prepared
in good faith on assumptions believed to be reasonable at the time of
preparation thereof.
(e) Since June 30, 1996 there has been no material adverse change in the
assets or liabilities or the business, financial position or results of
operations of the Borrower and its Consolidated Subsidiaries, considered as a
whole, except for any such change as a result of (x) any change resulting from
general economic, financial or market conditions not specific to the Borrower
and its Subsidiaries or the business in which they operate or (y) any change
resulting from conditions or circumstances generally affecting the business in
which the Borrower and its Subsidiaries operate (including losses from the
release of Films in the ordinary course of business).
Section 4.05. Litigation. Except as set forth in Schedule 4.05, there is
no action, suit or proceeding pending against, or to the knowledge of the
Borrower threatened against or affecting, Holdings or any of its Subsidiaries
before any court or arbitrator or any governmental body, agency or official
which could reasonably be expected to have a Material Adverse Effect or which
questions the validity or enforceability of the Loan Documents or the
Transaction Documents or the consummation of the Acquisition.
Section 4.06. Compliance with ERISA. Neither a Reportable Event nor an
"accumulated funding deficiency" (within the meaning of Section 412 of the Code
or Section 302 of ERISA) has occurred during the five-year period prior to the
date on which this representation is made or deemed made with respect to any
Plan, and each Plan has complied in all material respects with the applicable
provisions of ERISA and the Code, except in each case to the extent that the
same could not reasonably be expected to have a Material Adverse Effect. No
termination of a Single Employer Plan has occurred, and no Lien in favor of the
PBGC or a Plan has arisen, during such five-year period, except to the extent
that the same could not reasonably be expected to have a Material Adverse
Effect. The present value of all accrued benefits under each Single Employer
Plan (based on those assumptions used to fund such Plans) did not, as of the
last annual valuation date prior to the date on which this representation is
made or deemed made, exceed the value of the assets of such Plan allocable to
such accrued benefits, except to the extent that the same could not reasonably
be expected to have a Material Adverse Effect. Neither Holdings nor any
Commonly Controlled Entity has had a complete or partial withdrawal from any
Multiemployer Plan,
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and neither Holdings nor any Commonly Controlled Entity would become subject to
any liability under ERISA if Holdings or any such Commonly Controlled Entity
were to withdraw completely from all Multiemployer Plans as of the valuation
date most closely preceding the date on which this representation is made or
deemed made, except in each case to the extent that the same could not
reasonably be expected to have a Material Adverse Effect. No such Multiemployer
Plan is in Reorganization or Insolvent. Neither Holdings nor any of its
Subsidiaries has any liability for any post-retirement welfare benefits.
Section 4.07. Environmental Compliance. In the ordinary course of its
business, the Borrower conducts an ongoing review of the effect of Environmental
Laws on the business, operations and properties of the Borrower and its
Subsidiaries, in the course of which it identifies and evaluates associated
liabilities and costs (including, without limitation, any capital or operating
expenditures required for clean-up or closure of properties presently or
previously owned, any capital or operating expenditures required to achieve or
maintain compliance with environmental protection standards imposed by law or as
a condition of any license, permit or contract, any related constraints on
operating activities, including any periodic or permanent shutdown of any
facility or reduction in the level of or change in the nature of operations
conducted thereat, any costs or liabilities in connection with off-site disposal
of wastes or Hazardous Substances, and any actual or potential liabilities to
third parties, including employees, and any related costs and expenses). On the
basis of this review, the Borrower has reasonably concluded that such associated
liabilities and costs, including the costs of compliance with Environmental
Laws, are unlikely to have a Material Adverse Effect.
Section 4.08. Taxes. Holdings and its Subsidiaries have filed all United
States Federal income tax returns and all other material tax returns which are
required to be filed by them and have paid all taxes due pursuant to such
returns or pursuant to any assessment received by Holdings or any Subsidiary
(other than any such taxes being contested in good faith by appropriate
proceeding and with respect to which appropriate reserves in accordance with
generally accepted accounting principles have been taken). The charges,
accruals and reserves on the books of Holdings and its Subsidiaries in respect
of taxes or other governmental charges are, in the opinion of the Borrower,
adequate.
Section 4.09. Subsidiaries. (a) Each of the Borrower's Material
Subsidiaries is a corporation or other business entity duly incorporated or
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, and has all corporate or other
powers and all material governmental licenses, authorizations, consents and
approvals required to
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carry on its business as now conducted, except to the extent that the failure of
such Material Subsidiaries to maintain their respective good standing or to have
such licenses, authorizations, consents and approvals could not in the aggregate
reasonably be expected to have a Material Adverse Effect (or its existence has
been terminated as permitted under Section 5.04 or it has merged or consolidated
with another Person as permitted under Section 5.07(a)).
(b) Schedule 4.09 lists all of the Material Subsidiaries of the Borrower
(including any Material Subsidiary the existence of which has been terminated as
permitted under Section 5.04 or which has merged or consolidated with another
Person as permitted under Section 5.07(a)). Each Material Subsidiary of the
Borrower (other than Foreign Subsidiaries and Single Purpose Subsidiaries) is a
Guarantor. Each Guarantor is a direct or indirect wholly-owned Subsidiary of the
Borrower.
Section 4.10. Regulatory Restrictions on Borrowing. The Borrower is not an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, a "holding company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended, or otherwise subject to any regulatory scheme
which restricts its ability to incur debt.
Section 4.11. Full Disclosure. No information heretofore or hereafter
furnished by each Obligor to the Agent or any Lender for purposes of or in
connection with the Loan Documents or any transaction contemplated thereby
contains or, taken together with all information so furnished will contain, any
untrue statement of a material fact or omits or will omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Section 4.12. Representations in Transaction Documents True and Correct.
Each of the representations and warranties of any party contained in the
Transaction Documents is true and correct in all material respects as of the
Closing Date, except to the extent that the failure of such representations and
warranties to be true and correct in all material respects could not in the
aggregate reasonably be expected to have a Material Adverse Effect. The
Transaction Documents have not as of the Closing Date been modified or amended
in any respect and no provision or condition contained therein has been waived,
except with the express written consent of the Agent.
Section 4.13. Intellectual Property. The Borrower and each of its
Subsidiaries owns, or is a licensed to use, all trademarks, tradenames,
copyrights (including without limitation any copyrights relating to Library
Films),
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technology, know-how and processes necessary for the conduct of their respective
businesses as currently conducted (the "Intellectual Property"), except to the
extent that the failure to own or be licensed to use any such Intellectual
Property could not in the aggregate reasonably be expected to have a Material
Adverse Effect. No claim has been asserted and is pending by any Person
challenging or questioning the use of any Intellectual Property or the validity
or effectiveness of any such Intellectual Property, nor does the Borrower know
of any valid basis for any such claim, except, in each case, for claims which
could not in the aggregate reasonably be expected to have a Material Adverse
Effect. The use of Intellectual Property by the Borrower and its Subsidiaries
does not infringe on the rights of any Person, except to the extent that such
infringements could not in the aggregate reasonably be expected to have a
Material Adverse Effect.
Section 4.14. Collateral Documents. The representations and warranties
made by the Obligors in the Collateral Documents are true and correct in all
material respects.
Section 4.15. Solvency. As of the Closing Date after giving effect to the
transactions contemplated hereby to occur on the Closing Date, and at all times
thereafter: (i) the aggregate fair market value of the business and/or assets
of the Borrower and each other Obligor will exceed its liabilities (including
contingent, subordinated, unmatured and unliquidated liabilities), (ii) the
Borrower and each other Obligor will have sufficient cash flow to enable it to
pay its debts as they mature and (iii) the Borrower and each other Obligor will
not have unreasonably small capital for the business in which the Borrower and
its Subsidiaries are engaged.
ARTICLE 5
Covenants
The Borrower agrees that, so long as any Lender has any Commitment
hereunder or any amount payable under any Note or any Letter of Credit Liability
remains unpaid:
Section 5.01. Information. The Borrower will deliver to the Agent, with
sufficient copies for all Lenders (and the Agent shall deliver promptly upon
receipt to the Lenders):
(a) as soon as available and in any event within 105 days after the
end of each Fiscal Year, (i) an audited consolidated balance sheet of
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Holdings and its Consolidated Subsidiaries as of the end of such Fiscal
Year and the related audited consolidated statements of operations and cash
flows for such Fiscal Year, setting forth in each case in comparative form
the figures for the previous Fiscal Year, all reported on without material
qualification by independent public accountants of nationally recognized
standing and (ii) an unaudited consolidated statement of cash flows of
Holdings and its Consolidated Subsidiaries for such Fiscal Year, setting
forth (x) in reasonable detail a calculation of consolidated cash flows
from operations of Holdings and its Consolidated Subsidiaries for such
Fiscal Year (determined in a manner consistent with the statements of cash
flows included in the Information Memorandum) and (y) in comparative form
the figures for such statements for such Fiscal Year set forth in the
Information Memorandum;
(b) as soon as available and in any event within 45 days after the
end of each of the first three Fiscal Quarters of each Fiscal Year, (i) a
consolidated balance sheet of Holdings and its Consolidated Subsidiaries as
of the end of such Fiscal Quarter and the related consolidated statements
of operations and cash flows for such Fiscal Quarter and for the portion of
the Fiscal Year ended at the end of such Fiscal Quarter, setting forth in
the case of such statements of operations and cash flows, in comparative
form the figures for the corresponding Fiscal Quarter and the corresponding
portion of the previous Fiscal Year, all certified (subject to normal year-
end adjustments) as to fairness of presentation, generally accepted
accounting principles and consistency by the chief financial officer or the
chief accounting officer of the Borrower and (ii) an unaudited consolidated
statement of cash flows of Holdings and its Consolidated Subsidiaries for
such Fiscal Quarter and the portion of the Fiscal Year ended at the end of
such Fiscal Quarter, setting forth (x) in reasonable detail a calculation
of consolidated cash flows from operations of Holdings and its Consolidated
Subsidiaries for such Fiscal Quarter and the portion of the Fiscal Year
ended at the end of such Fiscal Quarter (determined in a manner consistent
with the statements of cash flows included in the Information Memorandum)
and (y) in comparative form the figures for such statements for the
corresponding Fiscal Quarter and the corresponding portion of the previous
Fiscal Year set forth in the Information Memorandum;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, (A) a certificate of
the chief financial officer or the chief accounting officer of the
Borrower, (i) setting forth in reasonable detail the calculations required
to establish
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whether the Borrower and Holdings were in compliance with the requirements
of Sections 5.10 to 5.18, inclusive, on the date of such financial
statements, (ii) listing all new Material Subsidiaries of the Borrower
since the date of the previous certificate delivered pursuant to this
Section 5.01(c), (iii) solely in the case of each set of financial
statements referred to in clause (a) above, setting forth in reasonable
detail the calculations required to determine Excess Cash Flow for the
related Fiscal Year and (iv) stating whether, to his or her knowledge, any
Default exists on the date of such certificate and, if any Default then
exists, setting forth the details thereof and the action which the Borrower
is taking or proposes to take with respect thereto and (B) from the chief
financial officer or the chief accounting officer of the Borrower, a report
setting forth in reasonable detail a discussion and analysis of the
Borrower's financial condition and results of operations for the Fiscal
Quarter then ended;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a)(i) above, a statement of the firm of
independent public accountants which reported on such statements (i)
whether anything has come to their attention to cause them to believe that
any Default under Sections 5.11 to 5.16, inclusive, existed on the date of
such statements and (ii) confirming the accuracy of the calculations set
forth in the officer's certificate delivered simultaneously therewith
pursuant to clause (c) above (other than the calculations relating to the
determination of Excess Cash Flow);
(e) reasonably promptly after any Responsible Officer obtains
knowledge of any Default, if such Default is then continuing, a certificate
of the chief financial officer or the chief accounting officer of the
Borrower setting forth the details thereof and the action which the
Borrower is taking or propose to take with respect thereto;
(f) as soon as reasonably practicable after any Responsible Officer
obtains knowledge thereof, notice of any event or condition which has had
or could reasonably be expected to have a Material Adverse Effect and the
nature of such Material Adverse Effect;
(g) as soon as reasonably practicable after any Responsible Officer
obtains knowledge of the commencement of, or of a threat of the
commencement of, an action, suit or proceeding against Holdings or any of
its Subsidiaries before any court or arbitrator or any governmental body,
agency or official which could reasonably be expected to have a Material
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Adverse Effect or which questions the validity or enforceability of the
Loan Documents or the Transaction Documents or the consummation of the
Acquisition, a certificate of a senior financial officer of the Borrower
setting forth the nature of such pending or threatened action, suit or
proceeding and such additional information with respect thereto as may be
reasonably requested by any Lender;
(h) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements
on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or
their equivalents) (if any) which the Borrower or Holdings shall have filed
with the Securities and Exchange Commission;
(i) written notice of the following events, as soon as possible
and in any event within 30 days after any of the appropriate officers or
employees of Holdings with responsibility for Holdings' Plans and the
compliance by such Plans with ERISA and the Code knows or has reason to
know thereof: (i) the occurrence or expected occurrence of any Reportable
Event with respect to any Plan, the filing of an application for a waiver
of the minimum funding standard with respect to a Plan under Section 412 of
the Code, the creation of any Lien in favor of PBGC or a Plan or any
withdrawal from, or the termination, reorganization or Insolvency of, any
Multiemployer Plan or (ii) the institution of proceedings or the taking of
any other action by the PBGC or Holdings or any Commonly Controlled Entity
or any Multiemployer Plan with respect to the withdrawal from, or the
terminating, reorganization or Insolvency of, any Plan;
(j) from time to time at the request of the Required Lenders (but
no more frequently than once in any 24-month period), an appraisal made by
a qualified independent appraiser selected by the Borrower and reasonably
satisfactory to the Agent, as to value of the Library Films or any portion
thereof and as of such date as shall each be specified in the relevant
request made by the Required Lenders, performed using the methods and
procedures used in, and prepared in a form substantially consistent with,
the appraisal of the Library Films prepared by Furman Selz LLC and dated
August 1996;
(k) within 30 days prior to the end of each Fiscal Year, the
operating and capital expenditure budgets and cash flow forecasts of
Holdings and its Consolidated Subsidiaries for the immediately succeeding
Fiscal Year, which budgets and forecasts shall be in format and
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scope reasonably consistent with the projections, budgets and forecasts set
forth in the Information Memorandum; and
(l) from time to time such additional information regarding the
financial position or business of the Borrower and its Subsidiaries or any
other Obligor as the Agent, at the request of any Lender, may reasonably
request.
Section 5.02. Payment of Obligations. The Borrower will pay and discharge,
and will cause each Material Subsidiary to pay and discharge, at or before
maturity, all their respective material obligations and liabilities (including,
without limitation, tax liabilities and claims of materialmen, warehousemen and
the like which if unpaid might by law give rise to a Lien), except (i) where the
same may be contested in good faith by appropriate proceedings, and will
maintain, and will cause each Material Subsidiary to maintain, in accordance
with generally accepted accounting principles, appropriate reserves for the
accrual of any of the same and (ii) where the failure to pay or discharge such
obligations and liabilities could not reasonably be expected to have a Material
Adverse Effect.
Section 5.03. Maintenance of Property; Insurance. (a) The Borrower will
keep, and will cause each Material Subsidiary to keep, all property useful and
necessary in its business in good working order and condition, ordinary wear and
tear excepted , except where the failure to do so could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(b) The Borrower will, and will cause each of its Material Subsidiaries
to, maintain (either in the name of the Borrower or in such Subsidiary's own
name) with financially sound and responsible insurance companies, insurance on
their respective properties in at least such amounts, against at least such
risks and with such risk retention as are usually maintained, insured against or
retained, as the case may be, in the same general area by companies of
established repute engaged in the same or a similar business (but including in
any event public liability insurance and "errors and omissions" insurance); and
will furnish to the Lenders, upon request from the Agent, information presented
in reasonable detail as to the insurance so carried.
Section 5.04. Conduct of Business and Maintenance of Existence. The
Borrower will continue, and will cause each Material Subsidiary to continue, to
engage in business of the same general type as now conducted by the Borrower and
its Material Subsidiaries and other businesses reasonably incidental thereto and
will preserve, renew and keep in full force and effect, and will cause each
Material Subsidiary to preserve, renew and keep in full force and effect their
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respective corporate existence and their respective rights, privileges and
franchises necessary or desirable in the normal conduct of business, except to
the extent that the failure to keep in full force and effect such rights,
privileges and franchises could not in the aggregate reasonably be expected to
have a Material Adverse Effect; provided that (i) the Borrower may liquidate or
terminate the corporate existence of any Material Subsidiary if, prior to or
contemporaneously with such liquidation or termination, substantially all of the
assets of such Material Subsidiary are distributed, contributed or otherwise
transferred to the Borrower or a Guarantor and (ii) nothing in this Section 5.04
shall prohibit any transaction explicitly permitted by the proviso set forth in
Section 5.07(a).
Section 5.05. Compliance with Laws. The Borrower will comply, and cause
each Material Subsidiary to comply, in all material respects with all applicable
laws, ordinances, rules, regulations, and requirements of governmental
authorities (including, without limitation, Environmental Laws and ERISA and the
rules and regulations thereunder) except (i) where the necessity of compliance
therewith is contested in good faith by appropriate proceedings or (ii) to the
extent that failure to so comply could not in the aggregate reasonably be
expected to have a Material Adverse Effect.
Section 5.06. Inspection of Property, Books and Records. The Borrower will
keep, and will cause each Subsidiary to keep, proper books of record and account
in which full, true and correct entries shall be made of all dealings and
transactions in relation to its business and activities; and will permit, and
will cause each Subsidiary to permit, representatives of the Agent, at the
Agent's or the Lenders' expense, to visit and inspect any of their respective
properties, to examine and make abstracts from any of their respective books and
records and to discuss their respective affairs, finances and accounts with
their respective officers, employees and independent public accountants, all at
such reasonable times during normal business hours and upon reasonable prior
notice, and as often as may reasonably be desired.
Section 5.07. Mergers and Sales of Assets; Licensing Agreements. (a) The
Borrower will not, and will not permit any Material Subsidiary to, consolidate
or merge with or into any other Person; provided that (i) the Borrower may merge
with another Person if the Borrower is the corporation surviving such merger and
immediately after giving effect to such merger, no Default shall have occurred
and be continuing and (ii) any Material Subsidiary may merge with any other
Person if the corporation surviving the merger is the Borrower or a Guarantor
and immediately after giving effect to such merger, no Default shall have
occurred and be continuing.
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(b) The Borrower will not, and will not permit any of its Subsidiaries to,
make any Asset Sale in any Fiscal Year, other than (i) Asset Sales the fair
market value of which, when combined with all other such Asset Sales previously
made during such Fiscal Year, does not exceed $10,000,000 and (ii) any Asset
Sale in which (x) the consideration therefor is not less than the fair market
value of the related asset (as determined in good faith by the chief financial
officer or chief accounting officer of the Borrower), (y) the consideration
received therefor consists solely of cash payable at the closing thereof and (z)
after giving effect to such Asset Sale, the aggregate fair market value of the
assets disposed of in all Asset Sales in such Fiscal Year does not exceed
$25,000,000. Notwithstanding the foregoing, the Borrower will not, and will not
permit any of its Subsidiaries to, enter into any Receivable Financing after the
date hereof.
(c) Without limitation of the foregoing, the Borrower will not, and will
not permit its Subsidiaries to, sell, lease or otherwise transfer, directly or
indirectly, all or substantially all of the assets of the Borrower and its
Subsidiaries, taken as a whole, to any other Person; provided that nothing in
this subsection (c) shall prohibit any Subsidiary from distributing,
contributing or otherwise transferring its assets to the Borrower or a
Guarantor.
(d) Without limitation of the foregoing, the Borrower will not, and will
not permit its Subsidiaries to, enter into any Licensing Agreement or series of
related Licensing Agreements with respect to any Library Films if:
(i) the aggregate amount of payments under such Licensing Agreement
or series of related Licensing Agreements exceeds $100,000,000; or
(ii) the Borrower or such Subsidiary conveys, sells, assigns,
transfers or otherwise disposes of, with or without recourse, its rights to
receive payments under any such Licensing Agreement or series of related
Licensing Agreements; or
(iii) the aggregate amount of payments under such Licensing Agreement
or series of related Licensing Agreements exceeds $10,000,000 and the aggregate
---
amount of payments under all such Licensing Agreement or series of related
Licensing Agreements that are not to be made reasonably pro rata over the period
of availability of the Films which are the subject of such Licensing Agreement
or series of related Licensing Agreements would exceed the greater of (x)10% of
the aggregate amount of all payments under such Licensing Agreement or series of
related Licensing Agreements and (y) $10,000,000.
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(e) Without limitation of the foregoing, the Borrower will not, and will
not permit its Subsidiaries to, enter into any Licensing Agreement or series of
related Licensing Agreements with respect to any Films (other than Library
Films) or Film Related Assets if the Borrower or such Subsidiary conveys, sells,
assigns, transfers or otherwise disposes of, with or without recourse, its
rights to receive payments under any such Licensing Agreement or series of
related Licensing Agreements.
Section 5.08. Use of Proceeds. The proceeds of the Term Loans and the
Revolving Loans made on the Closing Date will be used by the Borrower to finance
the purchase by Holdings of all the issued and outstanding capital stock of the
Borrower, to repay Debt and other obligations outstanding under the agreements
and instruments listed on Schedule 3.01(i) and to pay for transaction costs
incurred in connection with the Acquisition and the financing thereof. The
Letters of Credit and the proceeds of the Revolving Loans made after the Closing
Date and the Swing Loans will be used for general corporate purposes (other than
any of the purposes described in the immediately preceding sentence). None of
such proceeds and none of the Letters of Credit will be used, directly or
indirectly, for the purpose, whether immediate, incidental or ultimate, of
buying or carrying any "margin stock" within the meaning of Regulation U.
Section 5.09. Negative Pledge. Neither the Borrower nor any Subsidiary
will create, assume or suffer to exist any Lien on any asset now owned or
hereafter acquired by it, except:
(a) any Lien existing on any asset of any Person at the time such
Person becomes a Subsidiary and not created in contemplation of such event;
(b) any Lien on any fixed or capital asset securing Debt incurred or
assumed for the purpose of financing all or any part of the cost of
acquiring such asset; provided that such Lien attaches to such asset
concurrently with or within 90 days after the acquisition thereof;
(c) any Lien on any asset of any Person existing at the time such
Person is merged or consolidated with or into the Borrower or a Subsidiary
and not created in contemplation of such event;
(d) any Lien existing on any asset prior to the acquisition thereof
by the Borrower or a Subsidiary and not created in contemplation of such
acquisition;
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(e) any Lien on assets of a Foreign Subsidiary securing Debt
permitted under Section 5.10(e);
(f) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the foregoing
clauses of this Section, provided that such Debt is not increased and is
not secured by any additional assets;
(g) any Lien securing Profit Participations, Residuals and Deferred
Payments and other obligations that do not constitute Debt by operation of
clause (x) of the proviso in the definition of "Debt"; provided that such
Lien attaches solely to cash deposits and the Film or Films or Film Related
Assets that are the subject of such arrangements;
(h) Liens (other than Liens securing Debt) consisting of rights of
licensees under access agreements pursuant to which such licensees have
access to duplicating material for the purpose of making prints of Films
licensed to them, and rights of distributors, exhibitors, licensees and
other Persons in Films created in connection with the distribution and
exploitation of such Films in the ordinary course of business;
(i) Liens securing Debt permitted by Sections 5.10(h) or (i) or
securing obligations of the Borrower or its Subsidiaries incurred in
connection with acquiring rights to Films in the ordinary course of
business, provided that (x) the agreement to grant such Liens shall be
created substantially simultaneously with the acquisition, development,
production or postproduction of such Films and (y) such Liens do not at any
time encumber any property other than the Films being produced, developed
or acquired;
(j) Liens (other than Liens securing Debt) incurred in the ordinary
course of business on any Film or any Film Related Asset constituting
negotiation rights with respect to such Film or Film Related Asset, options
to develop such Film or Film Related Asset or similar rights with respect
to such Film or Film Related Asset;
(k) Liens on cash and cash equivalents arising under the escrow
arrangements referred to in the proviso to the definition of Sale-Leaseback
Transactions and Liens consisting of the rights and interests of the lessor
with respect to Films subject to Sale-Leaseback Transactions permitted
under Section 5.10(i) hereof;
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(l) Liens arising out of Licensing Agreements or security agreements
entered into pursuant to such Licensing Agreements in respect of Films or Film
Related Assets permitted under Section 5.07(d) or Section 5.07(e) hereof,
consisting of such licensing rights and attaching solely to the Film or Films or
Film Related Assets so licensed;
(m) Liens in existence on the Closing Date and reflected in Schedule
5.09 hereto;
(n) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with respect
thereto are maintained on the books of the Borrower or its Subsidiaries, as the
case may be, in conformity with generally accepted accounting principles (or, in
the case of Foreign Subsidiaries, generally accepted accounting principles in
effect from time to time in their respective jurisdictions of incorporation);
(o) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are not
overdue for a period of more than 60 days or which are being contested in good
faith by appropriate proceedings;
(p) pledges or deposits in connection with workers' compensation,
unemployment insurance or other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements;
(q) Liens on deposits to secure obligations to acquire Films or Film
Related Assets or the performance of bids, trade contracts (other than contracts
under which Debt may be incurred), leases, performance or completion bonds and
other obligations of a like nature incurred in the ordinary course of business;
provided that any such Liens securing the obligation of the Borrower or any of
its Subsidiaries to acquire Films or Film Related Assets shall encumber only
cash;
(r) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case materially
detract from the value of the property subject thereto or materially interfere
with the ordinary conduct of the business of the Borrower or such Subsidiary;
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<PAGE>
(s) Liens (other than Liens permitted by any of the foregoing
clauses) arising in the ordinary course of its business which (i) do not secure
Debt or Derivatives Obligations, (ii) do not secure any obligation in an amount
exceeding $5,000,000 and (iii) do not in the aggregate materially detract from
the value of its assets or materially impair the use thereof in the operation of
its business; and
(t) Liens created by the Collateral Documents.
Section 5.10. Limitation on Debt. The Borrower will not, and will not
permit any of its Subsidiaries to, incur or at any time be liable with respect
to any Debt except:
(a) Debt under this Agreement;
(b) Debt owed to WHV under the WHV Agreement;
(c) Debt owed to UIP (or any successor thereto) under agreements
between UIP (or such successor) and the Borrower or any of its Subsidiaries
not in excess of $20,000,000 at any one time;
(d) Debt secured by Liens permitted by Section 5.09(a), (b), (c), (d)
or (f);
(e) Debt of any Foreign Subsidiary owed to a Person other than the
Borrower, any Guarantor or any other Foreign Subsidiary incurred for
working capital purposes in an aggregate principal amount not in excess of
$10,000,000 at any time;
(f) (i) Debt of the Borrower owed to a Guarantor, or Debt of a
Guarantor owed to the Borrower or another Guarantor, or Debt of a Foreign
Subsidiary owed to another Foreign Subsidiary or (ii) Debt of a Foreign
Subsidiary owed to the Borrower or a Guarantor and incurred in the ordinary
course of business to finance operating expenditures of such Foreign
Subsidiary and evidenced by a note (which may be a grid note) constituting
Collateral under a Pledge Agreement;
(g) Debt of the Borrower or any of its Subsidiaries incurred to
finance any acquisition of fixed or capital assets permitted pursuant to
Section 5.14 and any Debt of the relevant obligor refinancing such Debt;
provided that the principal amount thereof is not increased;
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<PAGE>
(h) (i) Debt (other than Debt of a Single Purpose Subsidiary) incurred
in connection with the financing or refinancing of the development,
production, acquisition, distribution, exhibition or exploitation of a Film
or Film Related Assets or a slate of Films, but solely to the extent that
under the terms of such Debt the obligations of the Borrower and its
Subsidiaries with respect to such Debt may be satisfied by recourse only to
such Film or slate of Films and rights pertaining thereto and, in each
case, to the proceeds thereof and (ii) Debt of a Single Purpose Subsidiary,
so long as such Debt complies with the provisions of clause (ii) of the
definition of Single Purpose Subsidiary;
(i) Debt in respect of Sale-Leaseback Transactions;
(j) Debt outstanding on the Closing Date and listed on Schedule
5.10; and
(k) Debt not otherwise permitted by the foregoing clauses of
this Section in an aggregate principal or face amount not in excess of
$10,000,000 at any time.
Section 5.11. Adjusted EBITDA; EBITDA to Interest. (a) At the last day of
each Fiscal Quarter of the 1997 Fiscal Year, Consolidated Adjusted EBITDA for
the four consecutive Fiscal Quarters then ended will not be less than $0.
(b) As of last day of any Fiscal Quarter set forth below, the ratio of (i)
Consolidated EBITDA to (ii) Consolidated Cash Interest Expense, in each case for
the period of four consecutive Fiscal Quarters then ended (or, solely as of the
last day of any Fiscal Quarter ended on or prior to September 30, 1998, for the
period from and including January 1, 1998 to and including the last day of such
Fiscal Quarter) shall not be less than the ratio set forth below opposite such
Fiscal Quarter:
<TABLE>
<CAPTION>
Fiscal Quarter
Ending Ratio
-------------- -----
<S> <C>
03/31/98 0.750:1
06/30/98 1.000:1
09/30/98 1.250:1
12/31/98 1.500:1
03/31/99 1.500:1
06/30/99 1.625:1
09/30/99 1.625:1
12/31/99 1.750:1
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
03/31/00 2.000:1
06/30/00 2.250:1
09/30/00 2.500:1
12/31/00 3.000:1
03/31/01 3.250:1
06/30/01 3.500:1
09/30/01 3.750:1
12/31/01 4.000:1
03/31/02 4.000:1
06/30/02 4.000:1
09/30/02 4.000:1
Thereafter 5.000:1
</TABLE>
Section 5.12. Total Borrowed Funds to EBITDA. At no time during any
Fiscal Quarter set forth below shall the Leverage Ratio be greater than the
ratio set forth below opposite such Fiscal Quarter:
<TABLE>
<CAPTION>
Fiscal Quarter
Ending Ratio
-------------- -----
<S> <C>
03/31/98 8.00:1
06/30/98 7.25:1
09/30/98 6.50:1
12/31/98 5.75:1
03/31/99 5.75:1
06/30/99 5.50:1
09/30/99 5.50:1
12/31/99 5.25:1
03/31/00 4.75:1
06/30/00 4.25:1
09/30/00 3.75:1
12/31/00 2.75:1
03/31/01 2.75:1
06/30/01 2.50:1
09/30/01 2.50:1
12/31/01 2.25:1
03/31/02 2.25:1
06/30/02 2.25:1
09/30/02 2.25:1
Thereafter 1.50:1
</TABLE>
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<PAGE>
Section 5.13. Total Borrowed Funds/Library Cash Flow. At all times during
any Fiscal Quarter set forth below the ratio of (i) Total Borrowed Funds at such
date to (ii) Library Cash Flows for the period of four consecutive Fiscal
Quarters then most recently ended, will not be greater than the ratio set forth
below opposite such Fiscal Quarter:
<TABLE>
<CAPTION>
Fiscal Quarter
Ending Ratio
-------------- -----
<S> <C>
12/31/96 2.750:1
03/31/97 2.750:1
06/30/97 2.750:1
12/31/97 2.750:1
03/31/98 3.500:1
06/30/98 4.250:1
09/30/98 4.750:1
12/31/98 5.250:1
03/31/99 5.375:1
06/30/99 5.500:1
09/30/99 5.625:1
12/31/99 5.750:1
03/31/00 5.625:1
06/30/00 5.500:1
09/30/00 5.375:1
12/31/00 5.250:1
03/31/01 5.000:1
06/30/01 4.500:1
09/30/01 4.000:1
12/31/01 3.500:1
03/31/02 3.500:1
06/30/02 3.500:1
09/30/02 3.500:1
Thereafter 2.500:1
</TABLE>
Section 5.14. Maximum Capital Expenditures. Consolidated Capital
Expenditures for any Fiscal Year will not exceed $10,000,000.
Section 5.15. Minimum Consolidated Adjusted Net Worth. Consolidated
Adjusted Net Worth will at no time be less than an amount equal to the sum of
(i) $750,000,000 plus (ii) an amount equal to 50% of Consolidated Net Income for
----
each Fiscal Year ending on or after December 31, 1997 but prior to the date of
determination, in each case, for which such Consolidated Net Income is positive
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<PAGE>
(but with no deduction on account of negative Consolidated Net Income for any
Fiscal Year), plus (iii) 100% of the aggregate net proceeds, including the fair
----
market value of property other than cash (as determined in good faith by the
Board of Directors of Holdings) received by Holdings from the issuance and sale
after the date hereof of any capital stock of Holdings (other than any such
issuances described in Section 3.01(h) in the minimum amounts referred to
therein) or in connection with the conversion or exchange of any Debt of
Holdings into capital stock of Holdings after September 30, 1996 (including
without limitation any contribution to capital) (an "equity issuance"), but
excluding an amount of such net proceeds of up to $100,000,000 in the aggregate
from up to 2 equity issuances, which equity issuances have been specified by the
Borrower by notice to the Agent at the consummation of such equity issuance to
be excepted from the increase otherwise required under this clause (iii).
Section 5.16. Operating Lease Payments. The Borrower will not, and will
not permit any Subsidiary to, incur or assume (whether pursuant to a Guarantee
or otherwise) any liability for rental payments under a lease with a lease term
(as defined in Financial Accounting Standards Board Statement No. 13, as in
effect on the date hereof) of one year or more (other than in connection with
any Sale-Leaseback Transaction) if, after giving effect thereto, the aggregate
amount of minimum lease payments that the Borrower and its Consolidated
Subsidiaries have so incurred or assumed will exceed, on a consolidated basis,
$15,000,000 for any calendar year under all such leases (excluding any lease
which is to be accounted for as a capital lease on the balance sheet of the
Borrower and its Consolidated Subsidiaries).
Section 5.17. Restricted Payments. Neither the Borrower nor any Subsidiary
will declare or make any Restricted Payment; provided that the foregoing shall
not restrict or prohibit dividends or distributions to Holdings at such times
and in such amounts as are necessary to permit:
(a) (A) purchases of shares of (or options to purchase shares of) capital
stock of Holdings from employees of the Borrower or Holdings (including without
limitation Frank G. Mancuso), or any spouse or lineal descendant of any such
employee or any trust for the benefit of any of the foregoing (i) upon their
death, disability, termination or retirement, (ii in accordance with the terms
of the Management Stock Incentive Plan (including without limitation stock
option agreements issued in substantially the forms attached to the Management
Stock Incentive Plan or the Stockholders Agreement dated as of the date hereof
among Holdings, the Borrower, the Investors and certain other stockholders party
thereto from time to time), or (iii), which shares have been issued to Frank G.
Mancuso pursuant to the Mancuso Employment Agreement or (B) payments of
principal of and interest on the Holdings Management Notes, so long as, in each
of cases
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<PAGE>
(A)(i), (A) (ii), (A) (iii) and (B) of this subsection (a), immediately
before and after giving effect to any such dividend or distribution for such
purpose, (x) no Default shall have occurred and be continuing and (y) at any
date prior to the Second Target Date, the aggregate amount of dividends or
distributions made by the Borrower to Holdings pursuant to this clause (a)
during the period from and including the date hereof to and including such date
(after giving effect to all dividends and distributions to be made on such date)
shall not exceed (1) if such date occurs prior to the Target Date, $15,000,000
and (2) if such date occurs on or after the Target Date and prior to the Second
Target Date, $35,000,000.
For purposes of this subsection (a):
"Borrower Total Borrowed Funds" means, at any date, the aggregate amount of
Debt of the Borrower and its Consolidated Subsidiaries described in clauses (i)
and (ii) and (iv) of the definition of Debt (but excluding (a) any obligations
under Sale-Leaseback Transactions which constitute Debt under clause (iv) of the
definition thereof and (b) Debt of any Single Purpose Subsidiary, so long as
such Debt complies with the provisions of clause (ii) of the definition of
Single Purpose Subsidiary), determined on a consolidated basis at such date.
"Second Target Date" means the first date on or after the Target Date on
which (i) Consolidated EBITDA for the period from October 1, 1996 to and
including the last day of the Fiscal Quarter most recently ended on or prior to
such date (treated, for this purpose, as a single accounting period) is at least
equal to $850,000,000 and (ii) Borrower Total Borrowed Funds at such date does
not exceed $150,000,000; provided that on such date the conditions set forth in
the definition of Target Date are met.
(b) purchases of shares of capital stock of Holdings from Frank G. Mancuso
or his spouse or lineal descendant or any trust for the benefit of any of the
foregoing, which shares have been issued to Frank G. Mancuso pursuant to the
Mancuso Employment Agreement, so long as (x) immediately before and after giving
effect to any such dividend or distribution for such purpose, no Default shall
have occurred and be continuing and (y) immediately after giving effect to any
such dividend or distribution for such purpose, the aggregate amount of
dividends or distributions made by the Borrower to Holdings pursuant to this
subsection (b) during the period from and including the date hereof to and
including such date (after giving effect to all dividends and distributions to
be made on such date) shall not exceed the Basket Amount. "Basket Amount" means,
at any date, (i) the aggregate amount applied by Frank G. Mancuso under the
Mancuso Employment Agreement on or prior to such date to the purchase of P&F
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<PAGE>
Stock Units (as defined in the Mancuso Employment Agreement) pursuant to Section
6(a)(2) of the Mancuso Employment Agreement minus (ii) the aggregate amount of
-----
dividends or distributions made by the Borrower to Holdings pursuant to this
subsection (b) for the period from and including the date hereof to and
including such date (after giving effect to all dividends and distributions to
be made pursuant to this subsection (b) on such date);
(c) at any time after the fifth anniversary of the Closing Date, (x)
payments of interest on Holdings Debt to the extent that such interest is then
payable in cash in accordance with the terms thereof, (y) payment of cash
dividends (1) on the preferred stock (the "Investor Preferred Stock") in the
minimum amount referred to in Section 3.01(h)(x)(iii) and issued on the Closing
Date and on any additional preferred stock of the same class as the Investor
Preferred Stock and issued as payment-in-kind of dividends with respect to the
Investor Preferred Stock, (2) on any preferred stock issued pursuant to the
Capital Call Agreement having substantially the same terms as the Investor
Preferred Stock (including, without limitation, no payment of cash dividends
with respect to such preferred stock for a term of at least five years from the
Closing Date) and on any additional preferred stock of the same class as such
preferred stock issued as payment-in-kind of dividends with respect to such
preferred stock and (3) on any preferred stock of the same class as the Investor
Preferred Stock issued pursuant to the exercise of stock options granted
pursuant to the Management Stock Incentive Plan, in each case only so long as,
immediately before and after giving effect to any such dividend or distribution
for such purpose, no Default shall have occurred and be continuing; and
(d) payments in the ordinary course of business of Holdings of legal fees,
tax preparation fees, franchise taxes and other overhead and general expenses
items (collectively, "Holdings Expenses"); provided that the sum of (i) the
aggregate amount of distributions made by the Borrower pursuant to this clause
(e) and the aggregate amount of Investments made by the Borrower pursuant to
Section 5.18(j) will not exceed in the aggregate $1,000,000 in any Fiscal Year.
Section 5.18. Investments. Neither the Borrower nor any Subsidiary will
hold, make or acquire any Investment in any Person other than:
(a) Investments by the Borrower in the form of equity interests of
Persons which are Guarantors or which, within 30 days after consummation of such
Investment, become Guarantors;
(b) Investments constituting intercompany loans permitted under Section
5.10(f);
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<PAGE>
(c) Investments made by the Borrower or any Subsidiary in the ordinary
course of business pursuant to arm's length transactions in Persons (other than
the Borrower or any Subsidiary) for the development, production, acquisition,
distribution, exhibition or exploitation of Films, copyrights or trademarks in
connection with co-production deals, split-rights deal, overhead deals or
similar arrangements (as such terms are generally understood in the movie
industry on the date hereof), provided that such Investments for the
development, production, acquisition, distribution, exhibition or exploitation
involving payment obligations owing to the Borrower or such Subsidiary (other
than advances against contractual rights to payment or other compensation made
to talent in the ordinary course of business) of Films will be secured, if such
Films are to be made in the United States, by Liens on such Films in favor of
the Borrower or such Subsidiary;
(d) Investments constituting loans and advances by the Borrower or any
Subsidiary to directors, officers and employees of Holdings, Borrower, or any
Subsidiary, in the ordinary course of business aggregating not in excess of
$2,000,000 at any time outstanding;
(e) Investments (other than Investments permitted by any of the foregoing
clauses) in existence on the date hereof and listed on Schedule 5.18;
(f) Investments made after the date hereof pursuant to a commitment to
make such Investments in existence on the date hereof and listed on Schedule
5.18;
(g) Investments (other than Investments permitted by any of the foregoing
clauses) by the Borrower or any Subsidiary in the form of equity interests of
Persons which are not Guarantors; provided that the aggregate net book value of
all Investments permitted by this clause (g) does not exceed $10,000,000;
(h) Investments (other than Investments permitted by any of the foregoing
clauses) on any date by the Borrower or any Subsidiary in Single Purpose
Subsidiaries; provided that the sum of the Invested Amount for all Single
Purpose Subsidiaries shall at no time exceed $25,000,000. For purposes of this
clause (h), "Invested Amount" means at any date, for any Single Purpose
Subsidiary, the aggregate net book value of all Investments made in such Single
Purpose Subsidiary (determined, with respect to each such Investment, at the
time such Investment is made) minus the aggregate return on equity received by
-----
the Borrower and its Subsidiaries on or prior to such date with respect to such
Investments in such Single Purpose Subsidiary;
74
<PAGE>
(i) Temporary Cash Investments;
(j) Investments constituting loans made by the Borrower to Holdings but
only to the extent that the proceeds of such loans are applied by Holdings to
pay Holdings Expenses; provided that the sum of (x) the aggregate principal
amount of such loans made by the Borrower pursuant to this clause (j) and (y)
the aggregate amount of distributions made by the Borrower and permitted by
Section 5.17(d) will not exceed $1,000,000 in any Fiscal Year; and
(k) any Investment (other than Investments in Single Purpose Subsidiaries)
not otherwise permitted by the foregoing clauses of this Section if, immediately
after such Investment is made or acquired, the aggregate net book value of all
Investments permitted by this clause (k) does not exceed $25,000,000.
Section 5.19. Transactions with Affiliates. The Borrower will not, and
will not permit any Subsidiary to, directly or indirectly, pay any funds to or
for the account of, make any investment (whether by acquisition of stock or
indebtedness, by loan, advance, transfer of property, guarantee or other
agreement to pay, purchase or service, directly or indirectly, any Debt, or
otherwise) in, lease, sell, transfer or otherwise dispose of any assets,
tangible or intangible, to, or participate in, or effect, any transaction with,
any Affiliate except on an arms-length basis on terms at least as favorable to
the Borrower or such Subsidiary than could have been obtained from a third
party who was not an Affiliate; provided that the foregoing provisions of this
Section shall not prohibit (i) any such Person from declaring or paying any
lawful dividend or other payment ratably in respect of all of its capital stock
of the relevant class so long as, after giving effect thereto, no Default shall
have occurred and be continuing, (ii) the consummation of the transactions
contemplated by the Capital Call Agreement, (iii) the consummation of the
transactions contemplated by the agreements set forth on Schedule 5.19, as
amended to the date hereof and substantially in the forms heretofore distributed
to each of the Lenders, (iv) customary indemnification arrangements between the
Borrower and the directors and officers of Holdings, the Borrower, and each
Subsidiary, (v) customary tax sharing arrangements between or among Holdings,
the Borrower, and the Subsidiaries, (vi) dividends and distributions to Holdings
permitted under Section 5.17, (vii) maintenance of "D&O", "keyman" and similar
insurance by the Borrower or Holdings, including with respect to directors and
officers of Holdings, the Borrower, and the Subsidiaries and (viii) the Borrower
from entering into and performing the Mancuso Employment Agreement.
Section 5.20. No Modification of Agreements Without Consent. The Borrower
will not, and will not permit any of its Subsidiaries to, consent to or
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<PAGE>
solicit any amendment or supplement to, or any waiver or other modification of
any Transaction Document or any of the ancillary agreements referred to therein
in any manner which could reasonably be expected to adversely affect the rights
of the Agent or the Lenders under this Agreement or the Notes or the other Loan
Documents or their ability to enforce the same.
Section 5.21. Limitation on Restrictions Affecting Subsidiaries. Neither
the Borrower nor any of its Subsidiaries (other than any Single Purpose
Subsidiary) will enter into, or suffer to exist, any agreement with any Person,
other than this Agreement, which prohibits or limits the ability of any
Subsidiary to (a) pay dividends or make other distributions or pay any Debt owed
to Borrower or any Subsidiary, (b) make loans or advances to Borrower or any
Subsidiary, (c) transfer any of its properties or assets to Borrower or any
Subsidiary or (d) create, incur, assume or suffer to exist any Lien upon any of
its property, assets or revenues, whether now owned or hereafter acquired
(other than with respect to assets subject to consensual liens permitted under
Section 5.09); provided that the foregoing shall not apply to (i) provisions
restricting assignment of any lease or other contract, (ii restrictions imposed
by applicable law, (ii restrictions under any agreement relating to any
property, asset or business acquired by the Borrower or any of its Subsidiaries,
which restrictions existed at the time of acquisition, (iv restrictions with
respect solely to a Subsidiary or the Borrower imposed pursuant to a binding
agreement (subject only to customary closing conditions and termination
provisions) that has been entered into for the sale or disposition of all or
substantially all of the capital stock or assets to be sold of such Subsidiary,
provided that such sale is permitted under Section 5.07(b) hereof, (v) customary
restrictions on transfer of Collateral imposed on such Collateral in connection
with Liens on such Collateral securing Debt, to the extent such Liens are
permitted under Section 5.09 hereof , (vi restrictions in effect on the date of
this Agreement contained in agreements governing Debt of Foreign Subsidiaries
outstanding on the date of this Agreement, and (vi restrictions ("New
Restrictions") set forth in replacements of agreements or instruments ("Replaced
Agreements") containing restrictions described in clauses (iii) or (vi);
provided that such New Restrictions are no more restrictive in any material
respect than the restrictions set forth in the relevant Replaced Agreement and
do not apply to any additional property or assets.
Section 5.22. Holdings Debt. The Borrower will not, and will not permit
any of its Subsidiaries to, directly or indirectly, redeem, retire, purchase,
acquire, defease or otherwise make any payment in respect of the principal of
any Holdings Debt.
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Section 5.23. Hedging Facilities. Not later than 60 days after the Closing
Date the Borrower will have entered into and thereafter maintain in full force
and effect interest rate agreements in such amounts and on such terms as shall
result in effectively limiting the interest cost to the Borrower on the Term
Loans in an aggregate notional principal amount not less than $300,000,000 for a
period of three years beginning on such date, all on terms and conditions
reasonably satisfactory to the Required Lenders.
Section 5.24. Further Assurances. (a) The Borrower will, and will cause
each Guarantor to, at the Borrower's sole cost and expense, do, execute,
acknowledge and deliver all such further acts, deeds, conveyances, mortgages,
assignments, notices of assignment and transfers as the Agent shall from time to
time request, which may be necessary in the reasonable judgment of the Agent
from time to time to assure, perfect, convey, assign and transfer to the Agent
the property and rights conveyed or assigned pursuant to the Collateral
Documents.
(b) All costs and expenses in connection with the grant of any security
interests under the Collateral Documents, including without limitation
reasonable legal fees and other reasonable costs and expenses in connection with
the granting, perfecting and maintenance of any security interests under the
Collateral Documents or the preparation, execution, delivery, recordation or
filing of documents and any other acts as the Agent may reasonably request in
connection with the grant of such security interests shall be paid by the
Borrower promptly upon demand.
(c) The Borrower will not, and will not permit any of its Subsidiaries to,
enter into or become subject to any agreement which would impair their ability
to comply, or which would purport to prohibit them from complying, with the
provisions of this Section.
(d) The Borrower will cause each Material Subsidiary acquired after the
Closing Date and each Subsidiary which becomes a Material Subsidiary after the
Closing Date (in each case, other than a Foreign Subsidiary and a Single Purpose
Subsidiary) (i) to become a party to the Subsidiary Guaranty as guarantor by
executing a supplement thereof in form and substance satisfactory to the Agent
and (ii) to enter into a Security Agreement and any other agreements as may be
necessary or desirable in order to grant perfected first priority security
interests upon all of its assets to secure its obligations under the Subsidiary
Guaranty. In addition, the Borrower will pledge, or cause to be pledged,
pursuant to a Pledge Agreement, all of the capital stock or other equity
interests of such Material Subsidiary owned directly or indirectly by the
Borrower (or, if such Material Subsidiary is a Foreign Subsidiary, 66% of the
capital stock or equity interests of
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such Material Subsidiary). The Borrower shall cause each such Material
Subsidiary to take such actions as may be necessary or desirable to effect the
foregoing within 30 days after such Material Subsidiary is acquired or becomes a
Material Subsidiary, as the case may be, including without limitation causing
such Material Subsidiary to (x) execute and deliver to the Agent such number of
copies as the Agent may specify of such supplements and Security Agreement and
other documents creating security interests and (y) deliver such certificates,
evidences of corporate action or other documents as the Agent may reasonably
request, all in form and substance satisfactory to the Agent, relating to the
satisfaction of the Borrower's obligations under this Section. Upon compliance
by the Borrower with the provisions of this subsection (d), Schedule 4.09 shall
be deemed to have been amended to reflect that such Material Subsidiary is a
Guarantor.
(e) The Borrower will, and will cause each of its Subsidiaries to, take
all action necessary in accordance with good business practices to (i) maintain
in full force and effect (x) all trademarks, service marks, trade names and
licenses and all material rights with respect to the foregoing, necessary for
the conduct of its business as now conducted (collectively, the "Trademarks")
and (y) all copyrights (including without limitation any copyrights relating to
Library Films) and all material rights with respect thereto, necessary for the
conduct of its business as now conducted (collectively, the "Copyrights"), other
than such Trademarks and Copyrights which the Borrower reasonably determines
are, in the aggregate, of insignificant or non-material economic value, or where
the failure to maintain such Trademarks or Copyrights could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect, and (ii)
protect all Trademarks and all Copyrights against infringement by third parties,
other than such Trademarks and Copyrights which the Borrower reasonably
determines are, in the aggregate, of insignificant or non-material economic
value or where the failure to maintain such Trademarks or Copyrights could not,
in the aggregate, reasonably be expected to have a Material Adverse Effect.
(f) The Borrower will, and will cause each of its Subsidiaries to, submit
to the United States Copyright Office or other applicable United States
Governmental Authority (with a copy to the Agent) as soon as reasonably
practicable but in any event, with respect to any Film, no later than 90
Domestic Business Days after the date of release of such Film and, with respect
to any screenplay, within 30 Domestic Business Days after commencement of
principal photography of the relevant Film (i) with respect to each screenplay
or Film which is unregistered and to which the Borrower or any Subsidiary owns
the copyright, a completed application for copyright registration and (ii) with
respect to each screenplay and Film which is registered in the name of a Person
other than the Borrower or any of its Subsidiaries, and in which the Borrower
or any
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Subsidiary acquires the copyright or any rights in the copyright, an assignment
to the Borrower or such Subsidiary of the interest owned by it.
(g) The Borrower will, and will cause each other Obligor party to a
Security Agreement to, provide a Laboratory Pledgeholder Agreement (as defined
in a Security Agreement) with each laboratory which holds any material film
and/or sound materials, cause such Laboratory Pledgeholder Agreements to remain
in full force and effect during all times when such laboratory is in possession
of such elements, and, pursuant to the Laboratory Pledgeholder Agreements, with
respect to each Film, deliver to the Agent a laboratory access letter,
substantially in the form of Exhibit B thereto, to each laboratory holding any
material film and/or sound materials.
Section 5.25. Minimum Number of Films. The number of feature Films
produced by the Borrower for general theatrical release during any Fiscal Year
beginning with Fiscal Year 1998 will be at least equal to 9.
ARTICLE 6
Defaults
Section 6.01. Events of Default. If one or more of the following events
("Events of Default") shall have occurred and be continuing:
(a) the Borrower (i) shall fail to pay when due any principal of any
Loan, (ii) shall fail to reimburse when due any drawing under any Letter of
Credit or (iii) shall fail to pay within 5 days after the due date thereof
any interest, any fees or any other amount payable hereunder;
(b) (i) the Borrower shall fail to observe or perform any covenant
contained in Article 5 (other than those contained in Sections 5.01 through
5.06, inclusive and Sections 5.24(a), (b), (c), (e), (f) and (g)) or (ii)
any Obligor shall fail to observe or perform any covenant contained in
Sections 4(A), (E) or (H) of the Security Agreement or (iii) the Borrower
shall fail to observe or perform any covenant contained in Section 3(B) of
the Borrower Pledge Agreement or any other Obligor shall fail to observe or
perform any covenant contained in the Pledge Agreement to which such
Obligor is a party containing provisions substantially similar to those set
forth in Section 3(B) of the Borrower Pledge Agreement or (iv) Holdings
shall fail to observe or perform any covenant contained in Sections 2.1,
2.3, 2.3 or 2.5 of the Holdings Agreement or (v) except with or pursuant to
the prior written consent or waiver of all Lenders, Tracinda, Seven
Network, Holdings or the
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Borrower shall fail to perform any of its obligations under the Capital
Call Agreement (and, solely in the case of any failure by either Tracinda
or Seven Network (each of them, an "Investor") to perform any of their
respective obligations thereunder, such obligations shall not have been
fully performed in a timely manner in accordance with the terms of the
Capital Call Agreement by the other Investor);
(c) any Obligor shall fail to observe or perform any covenant or
agreement contained in the Loan Documents (other than those covered by
clause (a) or (b) above) for 30 days after notice thereof has been given to
the Borrower by the Agent;
(d) (i) any representation, warranty or certification made by any
Obligor in any Loan Document or by any Investor in the Capital Call
Agreement or in any certificate or other document delivered pursuant to any
Loan Document or the Capital Call Agreement shall prove to have been
incorrect in any material respect when made (or deemed made);
(e) Holdings, the Borrower or any Subsidiary shall fail to make any
payment in respect of any Debt and/or payment or collateralization
obligations in respect of Derivatives Obligations of Holdings or any of its
Subsidiaries when due or within any applicable grace period, if the
aggregate principal or face amount of Debt and/or payment or
collateralization obligations (regardless of whether such Debt and/or
payment or collateralization obligations arise in one or more related or
unrelated transactions) with respect to which such failure or failures
shall have occurred exceeds $5,000,000;
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Debt (other than the Notes) of Holdings
or any of its Subsidiaries or enables the holder of such Debt or any Person
acting on such holder's behalf to accelerate the maturity thereof, if the
aggregate principal amount of Debt (regardless of whether such Debt arises
in one or more related or unrelated transactions) with respect to which
such events or conditions shall have occurred exceeds $5,000,000;
(g) Holdings, the Borrower or any Material Subsidiary shall commence
a voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its debts under any domestic or
foreign bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
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its property, or shall consent to any such relief or to the appointment of
or taking possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(h) an involuntary case or other proceeding shall be commenced
against Holdings, the Borrower or any Material Subsidiary seeking
liquidation, reorganization or other relief with respect to it or its debts
under any domestic or foreign bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 90 days;
or an order for relief shall be entered against Holdings, the Borrower or
any Material Subsidiary under any domestic or foreign bankruptcy laws as
now or hereafter in effect;
(i) (i) any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of
Holdings or any Commonly Controlled Entity, (iii) a Reportable Event shall
occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate,
any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of
the Required Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) notice of intent to terminate a Single
Employer Plan shall be filed under Title IV of ERISA by Holdings or a
Commonly Controlled Entity, (v) Holdings or any Commonly Controlled Entity
shall, or in the reasonable opinion of the Required Lenders is likely to,
incur any liability in connection with a withdrawal from, or the Insolvency
or Reorganization of, a Multiemployer Plan or (vi) any other event or
condition shall occur or exist with respect to a Plan; and in each case in
clauses (i) through (vi) above, such event or condition, together with all
other such events or conditions, if any, could reasonably be expected to
have a Material Adverse Effect;
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(j) judgments or orders for the payment of money in excess of $10,000,000
(net of any amount (x) covered by insurance and with respect to which the
relevant insurance carrier has acknowledged coverage or (y) covered by a third-
party indemnity from a solvent third party financially capable of making such
payments (as determined by the Required Lenders on the basis of information
provided by the Borrower) and with respect to which such third party has
acknowledged a contractual obligation to make payment thereunder) shall be
rendered and properly entered against Holdings, the Borrower or any Subsidiary
and such judgments or orders shall continue unsatisfied and unstayed for a
period of 60 days;
(k) any Lien created by any of the Collateral Documents in respect of a
substantial portion of the Collateral shall at any time fail to constitute a
valid and (to the extent required by the Collateral Documents) perfected Lien
securing the obligations purported to be secured thereby, with the priority
required by the Loan Documents, or any Obligor shall so assert in writing;
(l) the Subsidiary Guaranty shall at any time fail to constitute a valid
and binding agreement of each Obligor party thereto, or any Obligor shall so
assert in writing; or
(m) (i) Holdings shall cease to be the record and beneficial owner of 100%
of the issued and outstanding capital stock of the Borrower; or (ii) at any
date, any person or group of Persons (within the meaning of Section 13 or 14 of
the Securities Exchange Act of 1934, as amended) (other than Tracinda and Seven
Network) shall have acquired beneficial ownership (within the meaning of Rule
13d-3 promulgated by the Securities and Exchange Commission under said Act) of
20% or more of the outstanding shares of common stock of Holdings and if such
---
date occurs prior to the completion of a Significant Initial Public Offering (as
derined in the Management Stock Incentive Plan) of the common stock of Holdings,
on such date Tracinda and Seven Network fail to beneficially own in the
aggregate stock representing at least 51% of the Voting Power; or (iii) Frank
Mancuso shall cease to be chief executive officer of the Borrower and a
successor shall not have been appointed by the Borrower which successor is of
reasonably comparable stature in the entertainment industry; or (iv), during any
period of 12 consecutive calendar months which period begins on or after the
completion of a Significant Public Offering (as defined in the Management Stock
Incentive Plan), individuals who were either (x) directors of Holdings on the
first day of such period or (y) elected to fill vacancies caused by the ordinary
course resignation
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(including without limitation any such resignation effected by such
director declining to stand for reelection), retirement, death or
disability of any other director and whose nomination or election was
approved by a vote of at least a majority of the directors then still in
office who were directors of Holdings on the first day of such period,
shall cease to constitute a majority of the board of directors of
Holdings; (as used herein, "Voting Power" means, with respect to any
outstanding capital stock of Holdings, the power (expressed as a
percentage) represented by such capital stock of the aggregate voting
power of all outstanding shares of any class of capital stock of Holdings
having ordinary voting power, including the power to vote for election of
the members of the board of directors of Holdings (or, if any class
thereof has power to designate members of the board of directors of
Holdings or any special committee thereof, the power to so designate));
then, and in every such event, the Agent shall (i) if requested by Lenders
having more than 50% in aggregate amount of the Commitments, by notice to the
Borrower terminate the Commitments and they shall thereupon terminate, and (ii)
if requested by Lenders holding more than 50% of the sum of (x) the aggregate
principal amount of the Loans then outstanding and (y) the Letter of Credit
Liabilities then outstanding, by notice to the Borrower declare the Loans and
the Letter of Credit Liabilities (in each case together with accrued interest
thereon) to be, and the Loans and the Letter of Credit Liabilities shall
thereupon become, immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by the
Borrower; provided that in the case of any of the Events of Default specified in
clause (g) or (h) above with respect to the Borrower, without any notice to
the Borrower or any other act by the Agent or the Lenders, the Commitments shall
thereupon terminate and the Loans and the Letter of Credit Liabilities ( in each
case together with accrued interest thereon) shall become immediately due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Borrower.
Section 6.02. Notice of Default. The Agent shall give notice to the
Borrower under Section 6.01(c) promptly upon being requested to do so by the
Required Lenders and shall thereupon notify all the Lenders thereof.
Section 6.03. Cash Cover. The Borrower agrees, in addition to the
provisions of Section 6.01 hereof, that upon the occurrence and during the
continuance of any Event of Default, it shall, if requested by the Agent upon
the instruction of the Lenders having more than 50% in aggregate amount of the
Revolving Exposure, pay to the Agent an amount in immediately available funds
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(which funds shall be held as collateral and applied pursuant to the Security
Agreement) equal to the aggregate amount available for drawing under all Letters
of Credit then outstanding at such time, provided that, upon the occurrence of
--------
any Event of Default specified in Section 6.01(g) or 6.01(h) with respect to the
Borrower, the Borrower shall pay such amount forthwith without any notice or
demand or any other act by the Agent or the Lenders.
ARTICLE 7
The Agent
Section 7.01. Appointment and Authorization. Each Lender irrevocably
appoints and authorizes the Agent to enter into and act as its agent in
connection with the Collateral Documents and to take such action as agent on its
behalf and to exercise such powers under the Loan Documents as are delegated to
the Agent by the terms hereof or thereof, together with all such powers as are
reasonably incidental thereto.
Section 7.02. Agent and Affiliates. Morgan Guaranty Trust Company of New
York shall have the same rights and powers under the Loan Documents as any other
Lender and may exercise or refrain from exercising the same as though it were
not the Agent, and Morgan Guaranty Trust Company of New York and its affiliates
may accept deposits from, lend money to, and generally engage in any kind of
business with the Borrower or any Subsidiary or affiliate of the Borrower as if
it were not the Agent.
Section 7.03. Action by Agent. The obligations of the Agent hereunder are
only those expressly set forth herein. Without limiting the generality of the
foregoing, the Agent shall not be required to take any action with respect to
any Default, except as expressly provided in Article 6 .
Section 7.04. Consultation with Experts. The Agent may consult with legal
counsel (who may be counsel for any Obligor), independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken by it in good faith in accordance with the advice of such
counsel, accountants or experts.
Section 7.05. Liability of Agent. Neither the Agent nor any of its
affiliates nor any of their respective directors, officers, agents or employees
shall be liable for any action taken or not taken by it in connection herewith
(i) with the consent or at the request of the Required Lenders (or, when
expressly required
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hereby, such different number of Lenders required to consent to or to request
such action or inaction) or (ii) in the absence of its own gross negligence or
willful misconduct. Neither the Agent nor any of its affiliates nor any of their
respective directors, officers, agents or employees shall be responsible for or
have any duty to ascertain, inquire into or verify (i) any statement, warranty
or representation made in connection with the Loan Documents or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of any Obligor; (iii) the satisfaction of any condition specified in
Article 3 , except receipt of items required to be delivered to the Agent; (iv)
the validity, effectiveness or genuineness of the Loan Documents or any other
instrument or writing furnished in connection herewith or (v) the existence or
the value of any of the Collateral. The Agent shall not incur any liability by
acting in reliance upon any notice, consent, certificate, statement, or other
writing (which may be a bank wire, telex, facsimile transmission or similar
writing) believed by it to be genuine or to be signed by the proper party or
parties. Without limiting the generality of the foregoing, the use of the term
"agent" in the Loan Documents with reference to the Agent is not intended to
connote any fiduciary or other implied (or express) obligations arising under
agency doctrine or any applicable law. Instead, such term is used merely as a
matter of market custom and is intended to create or reflect only an
administrative relationship between independent contracting parties.
Section 7.06. Indemnification. Each Lender shall, ratably in accordance
with its Commitment (or, if the Commitments of the relevant Class shall have
terminated, with the aggregate outstanding principal amount of the Loans of such
Class held by such Lender) indemnify the Agent, its affiliates and their
respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from such indemnitees' gross negligence or willful misconduct) that such
indemnitees may suffer or incur in connection with the Loan Documents or any
action taken or omitted by such indemnitees thereunder.
Section 7.07. Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Agent or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under the Loan Documents.
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Section 7.08. Successor Agent. The Agent may resign at any time by giving
notice thereof to the Lenders and the Borrower. Upon any such resignation, the
Required Lenders shall have the right to appoint a successor Agent with, so long
as no Default has occurred and is continuing, the consent of the Borrower (which
consent shall not be unreasonably withheld). If no successor Agent shall have
been so appointed by the Required Lenders, and shall have accepted such
appointment, within 30 days after the retiring Agent gives notice of
resignation, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent, which shall be a commercial Lender organized or licensed under
the laws of the United States of America or of any State thereof and having a
combined capital and surplus of at least $100,000,000. Upon the acceptance of
its appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights and duties of
the retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent.
Section 7.09. Agent's Fee. The Borrower shall pay to the Agent for its own
account fees in the amounts and at the times previously agreed upon between the
Borrower and the Agent.
Section 7.10. Arranger. The Arranger, in its capacity as such, shall have
no duties or obligations under the Loan Documents and shall not have a fiduciary
relationship with any Lender.
ARTICLE 8
Change in Circumstances
Section 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If
on or prior to the first day of any Interest Period for any Euro-Dollar Loan:
(a) the Agent is advised by the Reference Lenders that deposits in
dollars (in the applicable amounts) are not being offered to the Reference
Lenders in the London interbank market for such Interest Period, or
(b) Lenders having 50% or more of the aggregate principal amount of
the affected Loans advise the Agent that the Adjusted London Interbank
Offered Rate as determined by the Agent will not adequately
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and fairly reflect the cost to such Lenders of funding their Euro-Dollar
Loans for such Interest Period,
the Agent shall forthwith give notice thereof to the Borrower and the Lenders,
whereupon until the Agent notifies the Borrower that the circumstances giving
rise to such suspension no longer exist, (i) the obligations of the Lenders to
make Euro-Dollar Loans or to continue or convert outstanding Loans as or into
Euro-Dollar Loans shall be suspended and (ii) each outstanding Euro-Dollar Loan
shall be converted into a Base Rate Loan on the last day of the then current
Interest Period applicable thereto. Unless the Borrower notifies the Agent at
least two Domestic Business Days before the date of any Euro-Dollar Borrowing
for which a Notice of Borrowing has previously been given that it elects not to
borrow on such date, such Borrowing shall instead be made as a Base Rate
Borrowing.
Section 8.02. Illegality. If, on or after the date of this Agreement, the
adoption of any applicable law, rule or regulation, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Lender (or its Euro-Dollar Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for any Lender (or its
Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and
such Lender shall so notify the Agent, the Agent shall forthwith give notice
thereof to the other Lenders and the Borrower, whereupon until such Lender
notifies the Borrower and the Agent that the circumstances giving rise to such
suspension no longer exist, the obligation of such Lender to make Euro-Dollar
Loans, or to convert outstanding Loans into Euro-Dollar Loans, shall be
suspended. Before giving any notice to the Agent pursuant to this Section, such
Lender shall designate a different Euro-Dollar Lending Office if such
designation will avoid the need for giving such notice and will not, in the
judgment of such Lender, be otherwise disadvantageous to such Lender. If such
notice is given, each Euro-Dollar Loan of such Lender then outstanding shall be
converted to a Base Rate Loan either (a) on the last day of the then current
Interest Period applicable to such Euro-Dollar Loan if such Lender may lawfully
continue to maintain and fund such Loan to such day or (b) immediately if such
Lender shall determine that it may not lawfully continue to maintain and fund
such Loan to such day.
Section 8.03. Increased Cost and Reduced Return. (a) If on or after the
date hereof, the adoption of any applicable law, rule or regulation, or any
change in any applicable law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable
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agency charged with the interpretation or administration thereof, or compliance
by any Lender (or its Applicable Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall impose, modify or deem applicable any reserve
(including, without limitation, any such requirement imposed by the Board of
Governors of the Federal Reserve System, but excluding any such requirement
included in an applicable Euro-Dollar Reserve Percentage), special deposit,
insurance assessment or similar requirement against assets of, deposits with or
for the account of, or credit extended by, any Lender (or its Applicable Lending
Office) or shall impose on any Lender (or its Applicable Lending Office) or the
London interbank market any other condition affecting its Euro-Dollar Loans, its
Note or its obligation to make Euro-Dollar Loans or its obligations hereunder
with respect to Letters of Credit and the result of any of the foregoing is to
increase the cost to such Lender (or its Applicable Lending Office) of making or
maintaining any Euro-Dollar Loan or of issuing or participating in any Letter of
Credit, or to reduce the amount of any sum received or receivable by such Lender
(or its Applicable Lending Office) under this Agreement or under its Note with
respect thereto, by an amount deemed by such Lender to be material, then, within
15 days after demand by such Lender (with a copy to the Agent), the Borrower
shall pay to such Lender such additional amount or amounts as will compensate
such Lender for such increased cost or reduction.
(b) If any Lender shall have determined that, after the date hereof, the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change in any such law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on capital
of such Lender (or its Parent) as a consequence of such Lender's obligations
hereunder to a level below that which such Lender (or its Parent) could have
achieved but for such adoption, change, request or directive (taking into
consideration its policies with respect to capital adequacy) by an amount deemed
by such Lender to be material, then from time to time, within 15 days after
demand by such Lender (with a copy to the Agent), the Borrower shall pay to such
Lender such additional amount or amounts as will compensate such Lender (or its
Parent) for such reduction.
(c) Each Lender will promptly notify the Borrower and the Agent of any
event of which it has knowledge, occurring after the date hereof, which will
entitle such Lender to compensation pursuant to this Section and will designate
a different Lending Office if such designation will avoid the need for, or
reduce the
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amount of, such compensation and will not, in the judgment of such Lender, be
otherwise disadvantageous to such Lender. A certificate of any Lender claiming
compensation under this Section and setting forth in reasonable detail the
additional amount or amounts to be paid to it hereunder and the method of
calculation thereof shall be conclusive in the absence of manifest error. In
determining such amount, such Lender may use any reasonable averaging and
attribution methods.
Section 8.04. Taxes. (a) For the purposes of this Section 8.04, the
following terms have the following meanings:
"Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings with respect to any payment by
any Obligor pursuant to this Agreement or under any Note, and all
liabilities with respect thereto, excluding (i) in the case of each Lender
and the Agent, taxes imposed on its income, and franchise or similar taxes
imposed on it, by a jurisdiction under the laws of which such Lender or the
Agent (as the case may be) is organized or in which its principal executive
office is located or, in the case of each Lender, in which its Applicable
Lending Office is located and (ii) in the case of each Lender, any United
States withholding tax imposed on such payments but only to the extent that
such Lender is subject to United States withholding tax at the time such
Lender first becomes a party to this Agreement.
"Other Taxes" means any present or future stamp or documentary taxes
and any other excise or property taxes, or similar charges or levies, which
arise from any payment made pursuant to this Agreement or under any Note or
from the execution or delivery of, or otherwise with respect to, any Loan
Document.
(b) Any and all payments by any Obligor to or for the account of any
Lender or the Agent hereunder or under any Note shall be made without deduction
for any Taxes or Other Taxes; provided that, if any Obligor shall be required by
law to deduct any Taxes or Other Taxes from any such payments, (i) the sum
payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section) such Lender or the Agent (as the case may be) receives an amount
equal to the sum it would have received had no such deductions been made, (ii)
such Obligor shall make such deductions, (iii) such Obligor shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law and (iv) such Obligor shall furnish to the Agent,
at its address
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referred to in Section 9.01, the original or a certified copy of a receipt
evidencing payment thereof.
(c) The Borrower agrees to indemnify each Lender and the Agent for the
full amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed or asserted by any jurisdiction on amounts payable under
this Section) paid by such Lender or the Agent (as the case may be) and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto. This indemnification shall be paid within 15 days after such
Lender or the Agent (as the case may be) makes demand therefor.
(d) Each Lender organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Lender listed on the signature pages hereof and on
or prior to the date on which it becomes a Lender in the case of each other
Lender, and from time to time thereafter if requested in writing by the Borrower
(but only so long as such Lender remains lawfully able to do so), shall provide
the Borrower and the Agent with either (i) Internal Revenue Service Form 1001 or
4224, as appropriate, or any successor form prescribed by the Internal Revenue
Service, certifying that such Lender is entitled to benefits under an income tax
treaty to which the United States is a party which exempts the Lender from
United States withholding tax or reduces the rate of withholding tax on payments
of interest for the account of such Lender or certifying that the income
receivable pursuant to this Agreement is effectively connected with the conduct
of a trade or business in the United States or (ii) if such Lender is not a
"bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver
either Internal Revenue Service Form 1001 or 4224 pursuant to clause (i) above,
(x) a certificate substantially in the form of Exhibit L and (y) two accurate
and complete original signed copies of Internal Revenue Service Form W-8 or any
successor form prescribed by the Internal Revenue Service) certifying to such
Lender's entitlement to a complete exemption from United States withholding tax
with respect to payments of interest and fees (if applicable) made under this
Agreement and under any Note.
(e) For any period with respect to which a Lender has failed to provide
the Borrower or the Agent with the appropriate form pursuant to Section 8.04(d)
(unless such failure is due to a change in treaty, law or regulation occurring
subsequent to the date on which such form originally was required to be
provided), such Lender shall not be entitled to indemnification under Section
8.04(b) or (c) with respect to Taxes imposed by the United States. In addition,
for any period with respect to which a Lender described in clause (ii) of
Section 8.4(d) above has delivered Internal Revenue Service Form W-8 (or any
successor
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form prescribed by the Internal Revenue Service) pursuant to such Section but
such form does not establish a complete exemption from deduction of withholding
or similar taxes imposed by the United States, such Lender shall not be entitled
to indemnification under Section 8.4(b) or (c) with respect to Taxes imposed by
the United States with respect to payments made under this Agreement or any Note
(other than with respect to any such payments constituting payments of
interest). If a Lender which is otherwise exempt from or subject to a reduced
rate of withholding tax, becomes subject to Taxes because of its failure to
deliver a form required hereunder, the Borrower shall take, at the cost of such
Lender, such steps as such Lender shall reasonably request to assist such Lender
to recover such Taxes.
(f) If any Obligor is required to pay additional amounts to or for the
account of any Lender pursuant to this Section, then such Lender will change the
jurisdiction of its Applicable Lending Office if, in the judgment of such
Lender, such change (i) will eliminate or reduce any such additional payment
which may thereafter accrue and (ii) is not otherwise disadvantageous to such
Lender.
Section 8.05. Base Rate Loans Substituted for Affected Euro-Dollar Loans.
If (i) the obligation of any Lender to make, or convert outstanding Loans to,
Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any
Lender has demanded compensation under Section 8.03 or 8.04 with respect to its
Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business
Days' prior notice to such Lender through the Agent, have elected that the
provisions of this Section shall apply to such Lender, then, unless and until
such Lender notifies the Borrower that the circumstances giving rise to such
suspension or demand for compensation no longer exist:
(a) all Loans which would otherwise be made by such Lender as (or
continued as or converted into) Euro-Dollar Loans shall instead be Base
Rate Loans (on which interest and principal shall be payable
contemporaneously with the related Euro-Dollar Loans of the other Lenders);
and
(b) after each of its Euro-Dollar Loans has been repaid (or converted
to a Base Rate Loan), all payments of principal which would otherwise be
applied to repay such Euro-Dollar Loans shall be applied to repay its Base
Rate Loans instead.
If such Lender notifies the Borrower that the circumstances giving rise to such
notice no longer apply, the principal amount of each such Base Rate Loan shall
be
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converted into a Euro-Dollar Loan on the first day of the next succeeding
Interest Period applicable to the related Euro-Dollar Loans of the other
Lenders.
Section 8.06. Substitution of Lender. If (i) the obligation of any
Lender to make or convert Euro-Dollar Loans has been suspended pursuant to
Section 8.02 or (ii) any Lender has demanded compensation under Section 8.03 or
8.04, the Borrower shall have the right, with the assistance of the Agent, to
seek a mutually satisfactory substitute lender or lenders (which may be one or
more of the Lenders) to purchase the Note and assume the outstanding Loans, the
Commitment (if any) and the Letter of Credit Liabilities (if any) of such
Lender. Each such Lender agrees to assign all of its outstanding Loans, its
Commitment (if any), its Note or Notes and its Letter of Credit Liabilities (if
any) to any such substitute lender, without recourse or warranty other than
title and outstanding amount; provided that such substitute lender shall have
paid to such Lender in immediately available funds the principal of and accrued
interest to the date of such payment on its outstanding Loans and Letter of
Credit Liabilities (if any) and all fees owed to it hereunder.
ARTICLE 9
MISCELLANEOUS
Section 9.01. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including bank wire, telex, facsimile
transmission (with a copy by Unites States mail) or similar writing) and shall
be given to such party: (w) in the case of the Borrower or the Agent, at its
address, facsimile number or telex number set forth on the signature pages
hereof, (x) in the case of any Guarantor, in care of the Borrower, (y) in the
case of any Lender, at its address, facsimile number or telex number set forth
in its Administrative Questionnaire or (z) in the case of any party, such other
address, facsimile number or telex number as such party may hereafter specify
for the purpose by notice to the Agent and the Borrower. Each such notice,
request or other communication shall be effective (i) if given by telex, when
such telex is transmitted to the telex number specified in this Section and the
appropriate answerback is received, (ii) if given by facsimile transmission,
when transmitted to the facsimile number specified in this Section and
confirmation of receipt is received, (iii) if given by mail, 72 hours after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (iv) if given by any other means, when delivered at
the address specified in this Section; provided that notices to the Agent under
Article 2 or Article 8 shall not be effective until received.
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Section 9.02. No Waivers. No failure or delay by the Agent or any Lender
in exercising any right, power or privilege hereunder or under any other Loan
Document shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
Section 9.03. Expenses; Indemnification. (a) The Borrower shall pay (i)
all out-of-pocket expenses of the Agent, including reasonable fees and
disbursements of each special counsel for the Agent, in connection with the
preparation and administration of the Loan Documents, any waiver or consent
thereunder or any amendment thereof or any Default or alleged Default
thereunder, (ii) the reasonable fees and expenses of consultants and other
experts retained by the Agent or the Required Lenders with the consent of the
Borrower (which consent shall not be unreasonably withheld); provided that, if
such consultants or other experts shall have been retained in connection with
any Default under the Loan Documents, no such consent shall be required and
(iii) if an Event of Default occurs, all out-of-pocket expenses incurred by the
Agent and each Lender, including (without duplication) the reasonable fees and
disbursements of outside counsel and the allocated cost of inside counsel, in
connection with such Event of Default and collection, bankruptcy, insolvency and
other enforcement proceedings resulting therefrom.
(b) The Borrower agrees to indemnify the Agent and each Lender, their
respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in connection
with any investigative, administrative or judicial proceeding (whether or not
such Indemnitee shall be designated a party thereto) brought or threatened
relating to or arising out of the Loan Documents or any actual or proposed use
of proceeds of Loans hereunder; provided that no Indemnitee shall have the right
to be indemnified hereunder for such Indemnitee's own gross negligence or
willful misconduct as determined by a court of competent jurisdiction.
Section 9.04. Sharing of Set-offs. Each Lender agrees that if it shall, by
exercising any right of set-off or counterclaim or otherwise, receive payment of
a proportion of the aggregate amount of principal and interest then due with
respect to any Note and any Letter of Credit
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Liabilities held by it which is greater than the proportion received by any
other Lender in respect of the aggregate amount of principal and interest then
due with respect to any Note and Letter of Credit Liabilities held by such other
Lender, the Lender receiving such proportionately greater payment shall purchase
such participations in the Notes held by the other Lenders, and such other
adjustments shall be made, as may be required so that all such payments of
principal and interest then due with respect to the Notes and Letter of Credit
Liabilities held by the Lenders shall be shared by the Lenders pro rata;
provided that nothing in this Section shall impair the right of any Lender to
exercise any right of set-off or counterclaim it may have and to apply the
amount subject to such exercise to the payment of indebtedness of any Obligor
other than its indebtedness hereunder. Each Obligor agrees, to the fullest
extent it may effectively do so under applicable law, that any holder of a
participation in a Note or Letter of Credit Liabilities, whether or not acquired
pursuant to the foregoing arrangements, may exercise rights of set-off or
counterclaim and other rights with respect to such participation as fully as if
such holder of a participation were a direct creditor of such Obligor in the
amount of such participation.
Section 9.05. Amendments and Waivers; Release of Guarantors or Collateral.
Any provision of this Agreement or the Notes may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed by the Borrower
and the Required Lenders (and, if the rights or duties of the Agent or any L/C
Issuer are affected thereby, by the Agent or such L/C Issuer, as relevant);
provided that no such amendment or waiver shall:
(a) unless signed by all the Lenders with a Commitment of any Class,
increase or decrease the Commitments of such Class (except for a ratable
decrease in all the Commitments of such Class), subject any such Lender to
any additional obligation, or postpone the date fixed for the scheduled
termination of any Commitment of such Class;
(b) unless signed by all Lenders holding Loans of any Class, reduce
the principal of or rate of interest on any Loans of, or fees with respect
to, such Class, postpone the date fixed for any scheduled payment of such
fees or the principal of or interest on any such Loans, or decrease the
aggregate amount by which such Loans are required to be repaid on any date
scheduled pursuant to Section 2.04 or postpone any date for such repayment;
(c) unless signed by all Revolving Lenders, reduce the amount to be
reimbursed in respect of any Letter of Credit or of any interest with
respect to any Letter of Credit Liabilities or any fees payable by
reference to the Letters of Credit hereunder, postpone the date fixed for
any payment of the amount to be reimbursed in respect of any Letter of
Credit or any interest thereon or any fees payable by reference to the
Letters of Credit
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hereunder or (except as expressly provided in Section 2.14) expiry date of
any Letter of Credit;
(d) unless signed by the Swing Lender and each other Lender affected
thereby, increase the Swing Loan Commitment, postpone the date fixed for
the termination of the Swing Loan Commitment or otherwise affect any of its
rights or obligations hereunder;
(e) unless signed by all the Lenders, postpone the date fixed for any
payment of any fees hereunder, change the percentage of the Commitments or
of the aggregate unpaid principal amount of the Notes or the Letter of
Credit Liabilities or the number of Lenders, which shall be required for
the Lenders or any of them to take any action under this Section or any
other provision of this Agreement.
Any provision of the Loan Documents (other than this Agreement and the Notes)
may be amended or waived if, but only if, such amendment or waiver is in writing
and is signed by the relevant Obligor and the Agent with the consent of the
Required Lenders; provided that no such amendment or waiver shall, unless signed
by all the Lenders, effect or permit (i) a release of all or substantially all
of the Collateral, (ii) a release of all or substantially all of the Guarantors
from their obligations under the Subsidiary Guaranty or (iii) a release of any
Investor (as defined in Section 6.01(b)) or Holdings from its respective
obligations under the Capital Call Agreement. Notwithstanding the foregoing,
Collateral shall be released from the Lien of the Collateral Documents from time
to time as necessary to effect any sale or pledge of assets permitted by the
Loan Documents, and the Agent shall execute and deliver all release documents
reasonably requested to evidence such release.
Section 9.06. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that no Obligor may assign
or otherwise transfer any of its rights under this Agreement and the other Loan
Documents without the prior written consent of all Lenders.
(b) Any Lender may at any time grant to one or more Lenders or other
institutions (other than a Competitor) (each a "Participant") participating
interests in its Commitment or any or all of its Loans or Letter of Credit
Liabilities. In the event of any such grant by a Lender of a participating
interest to a Participant, whether or not upon notice to the Borrower and the
Agent, such Lender shall remain responsible for the performance of its
obligations hereunder, and the Borrower and the Agent shall continue to deal
solely and directly with such
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Lender in connection with such Lender's rights and obligations under this
Agreement. Any agreement pursuant to which any Lender may grant such a
participating interest shall provide that such Lender shall retain the sole
right and responsibility to enforce the obligations of the Borrower hereunder
including, without limitation, the right to approve any amendment, modification
or waiver of any provision of this Agreement; provided that such participation
agreement may provide that such Lender will not agree to any modification,
amendment or waiver of this Agreement described in clause (a), (b), (c), or (d)
of, or in the proviso in the penultimate sentence of, Section 9.05 without the
consent of the Participant. The Borrower agrees that, without duplication of
amounts payable to the relevant Lender, each Participant shall, to the extent
provided in its participation agreement, be entitled to the benefits of Article
8 with respect to its participating interest. An assignment or other transfer
which is not permitted by subsection (c) or (d) below shall be given effect for
purposes of this Agreement only to the extent of a participating interest
granted in accordance with this subsection (b).
(c) Any Lender may at any time assign to one or more Lenders or other
institutions (including any fund that regularly engages in making, purchasing or
investing in loans) (each an "Assignee") all, or a proportionate part of all,
of its rights and obligations under this Agreement and the Notes with respect to
its Commitment of any Class or its outstanding Loans of any Class or its letter
of Credit Liabilities, and such Assignee shall assume such rights and
obligations, pursuant to an Assignment and Assumption Agreement in substantially
the form of Exhibit I hereto executed by such Assignee and such transferor
Lender, with (and subject to) the subscribed consent of the Borrower, which
shall not be unreasonably withheld, the Agent and, solely with respect to any
assignment of the Revolving Commitments, Revolving Loans or Letter of Credit
Liabilities, the L/C Issuers and the Swing Lender; provided that (i) if an
Assignee is an affiliate of such transferor Lender or was a Lender immediately
prior to such assignment, no such consent shall be required, (ii) if such
transferor Lender pursuant to such assignment assigns to an Assignee a part (but
not all) of its Commitment or Loans of any Class or its Letter of Credit
Liabilities, then the sum of (x) the aggregate amount of the Commitments of all
Classes (if any), (y) the aggregate outstanding principal amount of the Loans of
all Classes (if any) and (z) the aggregate Letter of Credit Liabilities (if any)
held by such Assignee immediately after giving effect to such assignment and
retained by the transferor Lender immediately after giving effect to such
assignment shall each be at least $5,000,000 and (iii) no Lender shall enter
into any assignment with a Competitor. Upon execution and delivery of such
instrument and payment by such Assignee to such transferor Lender of an amount
equal to the purchase price agreed between such transferor Lender and such
Assignee, such Assignee shall be a Lender party to this Agreement and shall have
all the rights and obligations of a Lender with a Commitment as set forth in
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such instrument of assumption, and the transferor Lender shall be released from
its obligations hereunder to a corresponding extent, and no further consent or
action by any party shall be required. Upon the consummation of any assignment
pursuant to this subsection (c), the transferor Lender, the Agent and the
Borrower shall make appropriate arrangements so that, if required, a new Note is
issued to the Assignee. In connection with any such assignment, the transferor
Lender shall pay to the Agent an administrative fee for processing such
assignment in the amount of $3,500. If the Assignee is not incorporated under
the laws of the United States of America or a state thereof, it shall deliver to
the Borrower and the Agent certification as to exemption from deduction or
withholding of any United States federal income taxes in accordance with Section
8.04 .
(d) Any Lender may at any time assign all or any portion of its rights
under this Agreement and its Note to a Federal Reserve Bank. No such assignment
shall release the transferor Lender from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Lender's rights
shall be entitled to receive any greater payment under Section 8.03 or 8.04 than
such Lender would have been entitled to receive with respect to the rights
transferred, unless such transfer is made (x) with the Borrower's prior written
consent or (y) by reason of the provisions of Section 8.02 , 8.03 or 8.04
requiring such Lender to designate a different Applicable Lending Office under
certain circumstances or (z) at a time when the circumstances giving rise to
such greater payment did not exist.
(f) For purposes of this Section 9.06, "Competitor" means any Person whose
primary line of business is the entertainment industry (any such Person, an
"Entertainment Person"), or any Person controlled by, or under common control
with, any Entertainment Person.
(g) The Borrower hereby designates the Agent to serve as the Borrower's
agent, solely for purposes of this subsection 9.06(g), to maintain a register
(the "Register") on which the Agent will record the Commitments from time to
time of each Lender, the Loans made by each Lender and each repayment in respect
of the principal amount of the Loans of each Lender and to retain a copy of each
Assignment and Assumption Agreement delivered to the Agent pursuant to this
Section. Failure to make any such recordation, or any error in such
recordation, shall not affect the Borrower's obligation in respect of such
Loans. The entries in the Register shall be conclusive, in the absence of
manifest error, and the Borrower, the Agent and the Lenders shall treat each
Person in whose name a Loan and the Note evidencing the same is registered as
the owner thereof for all purposes of this Agreement, notwithstanding notice or
any provision herein to the
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contrary. With respect to any Lender, the assignment or other transfer of the
Commitments of such Lender and the rights to the principal of, and interest on,
any Loan made and Note issued pursuant to this Agreement shall not be effective
until such assignment or other transfer is recorded on the Register and, except
to the extent provided in this subsection 9.06(g), otherwise complies with
Section 9.06, and prior to such recordation all amounts owing to the transferor
Lender with respect to such Commitments, Loans and Notes shall remain owing to
the transferor Lender. The registration of assignment or other transfer of all
or part of any Commitments, Loans and Notes for a Lender shall be recorded by
the Agent on the Register only upon the acceptance by the Agent of a properly
executed and delivered Assignment and Assumption Agreement. The Register shall
be available at the offices where kept by the Agent for inspection by the
Borrower and any Lender at any reasonable time upon reasonable prior notice to
the Agent. The Borrower may not replace any Lender pursuant to Section 8.06,
unless, with respect to any Notes held by such Lender, the requirements of
subsection 9.06(c) have been satisfied.
Section 9.07. Collateral. Each of the Lenders represents to the Agent and
each of the other Lenders that it in good faith is not relying upon any "margin
stock" (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.
Section 9.08. Governing Law; Submission to Jurisdiction. This Agreement
and each Note shall be governed by and construed in accordance with the laws of
the State of New York. Each Obligor hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
New York and of any New York State court sitting in New York City for purposes
of all legal proceedings arising out of or relating to this Agreement or the
transactions contemplated hereby. Each Obligor irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum.
Section 9.09. Counterparts; Integration; Effectiveness. This Agreement may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement constitutes the entire agreement and understanding
among the parties hereto and supersedes any and all prior agreements and
understandings, oral or written, relating to the subject matter hereof. This
Agreement shall become effective upon receipt by the Agent of counterparts
hereof signed by each of the parties hereto (or, in the case of any party as to
which
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an executed counterpart shall not have been received, receipt by the Agent in
form satisfactory to it of telegraphic, telex, facsimile or other written
confirmation from such party of execution of a counterpart hereof by such
party).
SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT AND
THE LENDERS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
Section 9.11. Confidentiality. The Agent and each Lender agrees to keep
any information delivered or made available by any Obligor pursuant to the Loan
Documents confidential from anyone other than persons employed or retained by
such Lender who are engaged in evaluating, approving, structuring or
administering the credit facility contemplated hereby; provided that nothing
herein shall prevent the Agent or any Lender from disclosing such information
(a) to any other Lender or to the Agent, (b) to any other Person if reasonably
incidental to the administration of the credit facility contemplated hereby, (c)
upon the order of any court or administrative agency, (d) upon the request or
demand of any regulatory agency or authority, (e) which had been publicly
disclosed other than as a result of a disclosure by the Agent or any Lender
prohibited by this Agreement, (f) in connection with any litigation to which the
Agent, any Lender or its subsidiaries or Parent may be a party, (g) to the
extent necessary in connection with the exercise of any remedy hereunder, (h) to
such Lender's or Agent's legal counsel and independent auditors and (i) subject
to provisions substantially similar to those contained in this Section, to any
actual or proposed Participant or Assignee.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
METRO-GOLDWYN-MAYER INC.
By/s/ Michael S. Hope
-----------------------------------
Title: Executive Vice President
Address: 2500 Broadway St.
Santa Monica, CA 90404
Telex: 310-449-3601
Facsimile: 310-449-3090
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MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By /s/ R. Blake Witherington
---------------------------
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /s/ Matthew J. Koenig
---------------------------
Title: Vice President
SOCIETE GENERALE
NEW YORK BRANCH
By /s/ Maureen E. Kelly
--------------------------
Title: Vice President
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By /s/ Kathleen A. Zarn
--------------------------
Title: Vice President
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THE LONG-TERM CREDIT BANK OF
JAPAN LIMITED, LOS ANGELES
AGENCY
By /s/ Genichi Imai
---------------------------------
Title: Joint General Manager
THE BANK OF NOVA SCOTIA
By /s/ Alan W. Pendergast
---------------------------------
Title: Relationship Manager
CANADIAN IMPERIAL BANK OF
COMMERCE
By /s/ Gerald J. Girardi
---------------------------------
Title: Director, CIBC Wood Gundy
Securities Corp., as agent
GENERAL ELECTRIC CAPITAL
CORPORATION
By /s/ Iain G. Douglas
--------------------------------
Title: Duly Authorized Signor
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UNION BANK OF CALIFORNIA, N.A.
By /s/ Anna Bagdasarian
-----------------------------
Title: Vice President/Manager
Entertainment Division
FLEET NATIONAL BANK
By /s/ Stephen J. Healey
----------------------------
Title: Vice President
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY
By /s/ Vicente L. Timiraos
----------------------------
Title: Senior Vice President
MITSUBISHI TRUST & BANKING
CORPORATION
By /s/ Yasushi Satomi
----------------------------
Title: Senior Vice President
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MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By /s/ John B. Boyce
-----------------------------------------
Title: Managing Director
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By /s/ Gilles Marchand, CFA
-----------------------------------------
Title: Authorized Signatory
PROTECTIVE LIFE INSURANCE CO.
By /s/ Mark K. Okada CFA
------------------------------------------
Title: Executive Vice President
Protective Asset Management, L.L.C.
BANK OF HAWAII
By /s/ Elizabeth O. MaClean
------------------------------------------
Title: Vice President
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BANQUE WORMS CAPITAL CORP.
By /s/ Frederic Gamet
-------------------------------
Title: Senior Vice President
By /s/ Pascale Schyns-Breij
-------------------------------
Title: Assistant Vice President
CITY NATIONAL BANK, A NATIONAL
BANKING ASSOCIATION
By /s/ Richard V. McCune
-------------------------------
Title: Vice President
PILGRIM AMERICA PRIME RATE TRUST
By /s/ Thomas C. Hunt
-------------------------------
Title: Portfolio Analyst
THE SUMITOMO BANK, LIMITED
By /s/ Joseph S. Woolf
-------------------------------
Title: Vice President
By /s/ Judith M. Bresnen
-------------------------------
Title: Vice President
105
<PAGE>
ING CAPITAL ADVISORS, AS AGENT FOR
BANK SYNDICATION ACCOUNTS
By /s/ Kathleen A. Lenarcic
---------------------------
Title: Vice President &
Portfolio Manager
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By /s/ R. Blake Witherington
---------------------------
Title: Vice President
Address: 60 Wall Street
New York, New York
10260-0060
Attention: Michael Leder
Facsimile number: 212-648-5348
106
<PAGE>
EXHIBIT 10.2
[CONFORMED COPY]
$250,000,000
CREDIT AGREEMENT
dated as of
July 10, 1997
among
Orion Pictures Corporation,
The Lenders Listed Herein,
The L/C Issuers Named Herein
and
Morgan Guaranty Trust Company of New York,
as Agent
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE 1
- ---------
Definitions
-----------
Section 1.01. Definitions................................................ 1
Section 1.02. Accounting Terms and Determinations........................ 21
Section 1.03. Classes and Types of Loans and Borrowings.................. 22
ARTICLE 2
- ---------
The Credits
-----------
Section 2.01. Commitments to Lend........................................ 22
Section 2.02. Method of Borrowing........................................ 23
Section 2.03. Notes...................................................... 24
Section 2.04. Maturity of Loans; Mandatory Prepayments; Certain
Commitment Reductions................................................ 25
Section 2.05. Interest Rates............................................. 28
Section 2.06. Fees....................................................... 30
Section 2.07. Optional Termination or Reduction of Commitments........... 31
Section 2.08. Method of Electing Interest Rates.......................... 31
Section 2.09. Mandatory Termination of Commitments....................... 32
Section 2.10. Optional Prepayments....................................... 33
Section 2.11. General Provisions as to Payments.......................... 33
Section 2.12. Funding Losses............................................. 34
Section 2.13. Computation of Interest and Fees........................... 34
Section 2.14. Letters of Credit.......................................... 34
ARTICLE 3
- ---------
Conditions
----------
Section 3.01. Closing.................................................... 38
Section 3.02. Borrowings and Issuances of Letters of Credit.............. 41
ARTICLE 4
- ---------
Representations and Warranties
------------------------------
Section 4.01. Corporate Existence and Power.............................. 42
Section 4.02. Corporate and Governmental Authorization; No
Contravention....................................................... 43
Section 4.03. Binding Effect............................................. 43
Section 4.04. Financial Information; Information Memorandum.............. 43
Section 4.05. Litigation................................................. 44
Section 4.06. Compliance with ERISA...................................... 45
Section 4.07. Taxes...................................................... 45
Section 4.08. Subsidiaries............................................... 45
</TABLE>
i
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<TABLE>
<CAPTION>
Page
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<S> <C>
Section 4.09. Regulatory Restrictions on Borrowing....................... 46
Section 4.10. Full Disclosure............................................ 46
Section 4.11. Representations in Transaction Documents True and
Correct 46
Section 4.12. Intellectual Property...................................... 46
Section 4.13. Collateral Documents....................................... 47
Section 4.14. Solvency................................................... 47
ARTICLE 5
- ---------
Covenants
---------
Section 5.01. Information................................................ 47
Section 5.02. Performance of Obligations................................. 51
Section 5.03. Maintenance of Property; Insurance......................... 51
Section 5.04. Conduct of Business and Maintenance of Existence........... 51
Section 5.05. Compliance with Laws....................................... 52
Section 5.06. Inspection of Property, Books and Records.................. 52
Section 5.07. Mergers and Sales of Assets; Licensing Agreements.......... 52
Section 5.08. Use of Proceeds............................................ 54
Section 5.09. Negative Pledge............................................ 54
Section 5.10. Limitation on Debt......................................... 57
Section 5.11. Debt to Net Cash Flow...................................... 58
Section 5.12. Minimum Library Cash Flow.................................. 58
Section 5.13. Maximum Capital Expenditures............................... 59
Section 5.14. Minimum Consolidated Adjusted Net Worth.................... 59
Section 5.15. Restrictions on Film Production Expenditures............... 60
Section 5.16. Maximum Cash Overhead and Administrative Expenses.......... 60
Section 5.17. Restricted Payments........................................ 60
Section 5.18. Investments................................................ 60
Section 5.19. Limitation on Non-Recurring Acquisition Expenditures....... 61
Section 5.20. Transactions with Affiliates............................... 61
Section 5.21. No Modification of Agreements Without Consent.............. 62
Section 5.22. Limitation on Restrictions Affecting Subsidiaries.......... 63
Section 5.23. Hedging Facilities......................................... 63
Section 5.24. Further Assurances......................................... 63
Section 5.25. Limitation on Joint Venture Arrangements................... 66
ARTICLE 6
- ---------
Defaults
--------
Section 6.01. Events of Default.......................................... 66
Section 6.02. Notice of Default.......................................... 70
Section 6.03. Cash Cover................................................. 70
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE 7
- ---------
The Agent
---------
Section 7.01. Appointment and Authorization.............................. 70
Section 7.02. Agent and Affiliates....................................... 71
Section 7.03. Action by Agent............................................ 71
Section 7.04. Consultation with Experts.................................. 71
Section 7.05. Liability of Agent......................................... 71
Section 7.06. Indemnification............................................ 72
Section 7.07. Credit Decision............................................ 72
Section 7.08. Successor Agent............................................ 72
Section 7.09. Agent's Fee................................................ 73
Section 7.10. Arranger................................................... 73
ARTICLE 8
- ---------
Change in Circumstances
-----------------------
Section 8.01. Basis for Determining Interest Rate Inadequate or Unfair... 73
Section 8.02. Illegality................................................. 73
Section 8.03. Increased Cost and Reduced Return.......................... 74
Section 8.04. Taxes...................................................... 75
Section 8.05. Base Rate Loans Substituted for Affected Euro-Dollar
Loans................................................................ 77
Section 8.06. Substitution of Lender..................................... 78
ARTICLE 9
- ---------
Miscellaneous
-------------
Section 9.01. Notices.................................................... 79
Section 9.02. No Waivers................................................. 79
Section 9.03. Expenses; Indemnification.................................. 79
Section 9.04. Sharing of Set-offs........................................ 80
Section 9.05. Amendments and Waivers; Release of Guarantors or
Collateral.......................................................... 80
Section 9.06. Successors and Assigns..................................... 82
Section 9.07. Collateral................................................. 84
Section 9.08. Governing Law; Submission to Jurisdiction.................. 84
Section 9.09. Counterparts; Integration; Effectiveness................... 85
Section 9.10. Waiver of Jury Trial....................................... 85
Section 9.11. Confidentiality............................................ 85
</TABLE>
Pricing Schedule
Commitment Schedule
Schedule 1.01(A) - Library Films
Schedule 1.01(B) - Existing 1997 Films
Schedule 3.01(h)(x) - Investor Agreements
Schedule 3.01(i) - Terminating Debt
iii
<PAGE>
Schedule 4.08 - Subsidiaries
Schedule 5.09 - Existing Liens
Schedule 5.10 - Outstanding Debt
Schedule 5.18 - Existing Investments
Schedule 5.20 - Transactional Agreements with Affiliates
<TABLE>
<CAPTION>
<S> <C>
Exhibit A - Note
Exhibit B - Borrower Pledge Agreement
Exhibit D - Guarantor Pledge Agreement
Exhibit E - Borrower and Guarantor Security Agreement
Exhibit F - Subsidiary Guaranty Agreement
Exhibit G - Opinion of Gibson, Dunn & Crutcher, counsel for the Obligors
Exhibit H-1 - Opinion of Davis Polk & Wardwell, special counsel for the Agent
Exhibit H-2 - Opinion of Amster, Rothstein & Ebenstein, special counsel for the
Agent
Exhibit I - Assignment and Assumption Agreement
Exhibit L - Section 8.04(d) Certificate
</TABLE>
iv
<PAGE>
CREDIT AGREEMENT
AGREEMENT dated as of July 10, 1997 among ORION PICTURES CORPORATION, the
LENDERS listed on the signature pages hereof, the L/C ISSUERS named herein and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent.
The parties hereto agree as follows:
ARTICLE 1
Definitions
Section 1.01. Definitions. The following terms, as used herein, have the
following meanings:
"Acquisition" means the purchase by Holdings of all of the issued and
outstanding capital stock of the Borrower and all other transactions
contemplated by the Transaction Documents to be consummated on or before the
Closing Date.
"Adjusted London Interbank Offered Rate" has the meaning set forth in
Section 2.05(b).
"Administrative Questionnaire" means, with respect to each Lender, an
administrative questionnaire in the form prepared by the Agent and submitted to
the Agent (with a copy to the Borrower) duly completed by such Lender.
"Affiliate" means (i) any Person that directly, or indirectly through one
or more intermediaries, controls the Borrower (a "Controlling Person") or (ii)
any Person (other than the Borrower or a Subsidiary of the Borrower) which is
controlled by or is under common control with a Controlling Person. As used
herein, the term "control" means possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Agent" means Morgan Guaranty Trust Company of New York in its capacity as
agent for the Lenders under the Loan Documents, and its successors in such
capacity.
"Applicable Lending Office" means, with respect to any Lender, (i) in the
case of its Base Rate Loans, its Domestic Lending Office and (ii) in the case of
its Euro-Dollar Loans, its Euro-Dollar Lending Office.
<PAGE>
"Arranger" means J.P. Morgan Securities Inc. in its capacity as arranger
for the Lenders under the Loan Documents.
"Asset Sale" means any sale, lease, license or other disposition (including
any such transaction effected by way of merger or consolidation) (any of the
foregoing, for purposes of this definition, a "disposition") by the Borrower or
any of its Subsidiaries of any asset, including without limitation any sale-
leaseback transaction, whether or not involving a capital lease, but excluding
(i) dispositions of cash, cash equivalents and other cash management investments
and obsolete, unused or unnecessary equipment and undeveloped real estate, in
each case in the ordinary course of business, (ii) dispositions of any right,
title or interest in any Existing 1997 Film or Film Related Asset in the
ordinary course of business in connection with any Investment permitted under
Section 5.18, (iii) dispositions pursuant to a Sale-Leaseback Transaction, (iv)
dispositions of any right, title or interest in any Existing 1997 Film in the
ordinary course of business in connection with any financing permitted under
5.10(h), (v) dispositions of any right, title or interest in any Existing 1997
Film in the ordinary course of business pursuant to transactions constituting
split-rights deals, coproduction deals or cofinancing deals (as such terms are
generally understood in the movie industry on the date hereof), (vi)
dispositions pursuant to a Licensing Agreement permitted under Section 5.07(d)
or (e), (vii) dispositions of inventory, including Film Related Assets, but
excluding any Film (including without limitation any Library Film), in the
ordinary course of business and (viii) dispositions to the Borrower or any
Guarantor; provided that a disposition of assets not excluded by clauses (i)
through (viii) above during any Fiscal Year shall not constitute an Asset Sale
unless and until (and solely to the extent that) the aggregate Net Cash Proceeds
from such disposition, when combined with all other such dispositions previously
made during such Fiscal Year, exceeds $2,500,000. The description of any
transaction as not constituting an "Asset Sale" does not affect any limitation
on such transaction imposed by Article 5 of this Agreement (other than Section
5.07(b)).
"Assignee" has the meaning set forth in Section 9.06(c).
"Base Rate" means, for any day, a rate per annum equal to the higher of (i)
the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal
Funds Rate for such day.
"Base Rate Loan" means a Loan which bears interest by reference to the Base
Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate
Election or the provisions of Article 8.
"Base Rate Margin" means a rate per annum determined in accordance with the
Pricing Schedule.
2
<PAGE>
"Borrower" means Orion Pictures Corporation, a Delaware corporation, and
its successors.
"Borrower Pledge Agreement" means the pledge agreement substantially in the
form of Exhibit B hereto between the Borrower and the Agent entered into as of
the Closing Date, as amended from time to time.
"Borrowing" has the meaning set forth in Section 1.03.
"Class" has the meaning set forth in Section 1.03.
"Closing Date" means the first date on or after the Effective Date on which
all of the conditions specified in Section 3.01 shall have been satisfied.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute.
"Competitor" means any Person whose primary line of business is the
entertainment industry (any such Person, an "Entertainment Person"), or any
Person controlled by, or under common control with, any Entertainment Person.
"Collateral" means collateral subject to the Collateral Documents.
"Collateral Documents" means the Pledge Agreements, the Security Agreement,
any additional pledge agreements, security agreements or mortgages required to
be delivered pursuant to the Loan Documents and any instruments of assignment,
laboratory access letters or other instruments or agreements executed pursuant
to the foregoing.
"Commitment" means a Term Commitment or a Revolving Commitment and
"Commitments" means any combination of the foregoing.
"Commitment Schedule" means the Schedule attached hereto identified as
such.
"Consolidated Adjusted Net Worth" means at any date (i) the consolidated
stockholders' equity of the Borrower and its Consolidated Subsidiaries as
reflected on the balance sheet of the Borrower at such date (or as the same
would be reflected on such balance sheet if such balance sheet were prepared at
such date) minus (ii) all amounts that are included as assets on such balance
sheet at such date (or as the same would be included on such balance sheet if
such balance sheet were prepared at such date) in respect of any Film produced
or acquired by the Borrower or any of its Consolidated Subsidiaries which Film
has not been
3
<PAGE>
released within 18 months following the date of completion of principal
photography thereof or, if later, the date of acquisition thereof.
"Consolidated Capital Expenditures" means for any period the gross
additions to property, plant and equipment and other capital expenditures of the
Borrower and its Consolidated Subsidiaries for such period.
"Consolidated Debt" means at any date the Debt of the Borrower and its
Consolidated Subsidiaries, determined on a consolidated basis.
"Consolidated Net Cash Flow" means for any period "Net Orion cash flows"
for such period determined in a manner consistent with the determination thereof
in the "Summary of Orion Cash Flows" contained in the Information Memorandum
(the "Summary of Orion Cash Flows"), which consists of (i) the sum of "Library
Cash Flows" plus "Acquired Film Slate Cash Flows" for such period minus (ii) the
sum of the amounts set forth opposite "Incremental Overhead" plus "Termination
Costs" plus "Transaction Fees and Expenses" for such period, in each case
determined in a manner consistent with the determination thereof in the Summary
of Orion Cash Flows.
"Consolidated Net Income" means for any period the net income of the
Borrower and its Consolidated Subsidiaries determined on a consolidated basis
for such period.
"Consolidated Net Operating Cash Flow" means for any period the amount set
forth opposite the caption "Net cash provided by operating activities" in the
consolidated statement of cash flows of the Borrower and its Consolidated
Subsidiaries for such period.
"Consolidated Subsidiary" means, with respect to any Person at any date,
any Subsidiary or other entity the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date; unless otherwise specified, "Consolidated
Subsidiary" means a Consolidated Subsidiary of the Borrower.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all obligations of such Person as lessee which are capitalized in
accordance with generally accepted accounting principles (including without
limitation any such obligations under Sale-Leaseback Transactions to the extent
that such obligations are capitalized in accordance with generally accepted
accounting
4
<PAGE>
principles), (v) all non-contingent obligations (and, for purposes of Section
5.09, all contingent obligations) of such Person to reimburse any Lender or
other Person in respect of amounts paid under a letter of credit or similar
instrument, (vi) all Debt secured by a Lien on any asset of such Person, whether
or not such Debt is otherwise an obligation of such Person and (vii) all Debt of
others Guaranteed by such Person; provided however, that (x) the "Debt" of any
Person does not include any (A) commitments of such Person in connection with
the development, production, acquisition, distribution, exhibition or
exploitation of Films, (B) guaranteed payment obligations of such Person of a
nature customary in the film industry of such Person under license agreements
with respect to the development, production, acquisition, distribution,
exhibition or exploitation of Films, (C) obligations of such Person in respect
of Profit Participations, Residuals and Deferred Payments payable to other
Persons in connection with the development, production, acquisition,
distribution, exhibition, exploitation or financing of Films, (D) obligations of
such Person in the nature of progress or installment payment obligations with
respect to a Film owed to the owner of such Film or cast, crew, writers,
distributors, directors, producers, owners of rights, bond companies or similar
Persons for such Film, in respect of the deferred purchase price of such Film or
rights to such Film, or services in, or in connection with, such Film (to the
extent entered into in the ordinary course of business of such Person and not
otherwise constituting "Debt" of a type referred to in clauses (i) or (ii)
above), (E) obligations of such Person under performance or completion bonds
which have been posted in the ordinary course of business in connection with the
development or production of Films or (F) any Guaranty of any obligation
referred to in clause (A), (B), (C), (D) or (E) and (y) for purposes of Section
5.10 and the determination of Total Borrowed Funds, the amount of "Debt" of the
Borrower or any of its Subsidiaries which constitutes "Debt" solely pursuant to
clause (vii) of this definition because the Borrower or such Subsidiary is a
partner in a partnership, shall be equal to the principal or face amount of such
Debt multiplied by the Borrower's or such Subsidiary's percentage interest in
such partnership, so long as such partnership is solvent and paying and capable
of paying its obligations as they become due.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Deferred Payments" means deferred payments for services payable to cast,
crew, writers, distributors, directors, producers, owners of rights, bond
companies or similar Persons or payments to producers or investors, in
connection with the development, production, acquisition, distribution or
exploitation of Films or Film Related Assets, the amount or payment of which is
contingent upon the performance of such Films or Film Related Assets or deferred
to a fixed time,
5
<PAGE>
tied to the performance of such Film or Film Related Assets or to the
achievements of such Person with respect to such Film or Film Related Asset.
"Derivatives Obligations" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
"Domestic Business Day" means any day except a Saturday, Sunday or other
day on which commercial banks in New York City or Los Angeles are authorized by
law to close.
"Domestic Lending Office" means, as to each Lender, its office located at
its address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Lender may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Agent.
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 9.09.
"Equity Issuance Reduction Event" means the issuance by the Borrower or any
of its Subsidiaries of any equity securities not constituting Debt (other than
any contribution by the Borrower or any Subsidiary to the capital of a
Subsidiary and any equity securities issued to the Borrower or any of its
Subsidiaries), but only if, and to the extent that, the aggregate Net Cash
Proceeds from such issuance, when combined with the Net Cash Proceeds from all
other issuances (excluding any issuances referred to in the immediately
preceding parenthetical phrase above) consummated on or after the Closing Date
exceeds $25,000,000.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Group" means the Borrower, any Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Borrower or any
Subsidiary, are treated as a single employer under Section 414 of the Internal
Revenue Code.
6
<PAGE>
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Lender, its office, branch
or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its Euro-
Dollar Lending Office) or such other office, branch or affiliate of such Lender
as it may hereafter designate as its Euro-Dollar Lending Office by notice to the
Borrower and the Agent.
"Euro-Dollar Loan" means (i) a Loan which bears interest at a Euro-Dollar
Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate
Election or (ii) an overdue amount which was a Euro-Dollar Loan immediately
before it became overdue.
"Euro-Dollar Margin" means a rate per annum determined in accordance with
the Pricing Schedule.
"Euro-Dollar Rate" means a rate of interest determined pursuant to Section
2.05(b) on the basis of an Adjusted London Interbank Offered Rate.
"Euro-Dollar Reserve Percentage" has the meaning set forth in Section
2.05(b).
"Event of Default" has the meaning set forth in Section 6.01.
"Excess Cash Flow" means, for any Fiscal Year, (a) the sum of (x)
Consolidated Net Operating Cash Flow for such Fiscal Year plus (or minus) (y)
the amount set forth opposite the caption "Net cash provided (used) by investing
activities", as set forth in the consolidated statements of cash flows of the
Borrower and its Consolidated Subsidiaries for such Fiscal Year minus (b) the
aggregate amount of scheduled principal repayments of the Term Loans made
pursuant to Sections 2.04(b) and (c) during such Fiscal Year minus (c) the
aggregate amount of optional repayments of the Term Loans made pursuant to
Section 2.10 minus (d) the aggregate amount of principal repayments of the Loans
made pursuant to Section 2.04(d) with respect to Asset Sales or the receipt of
Major Casualty Proceeds to the extent that the proceeds of any such Asset Sale
or Major Casualty Proceeds were added in determining the amounts referred to in
clauses (a)(x) or (a)(y) above for such Fiscal Year, minus (e) the aggregate
amount of scheduled principal payments of other Debt made during such Fiscal
Year (including the portion of any payments of Debt described in clause (iv) of
the definition thereof that is allocable to principal), but only if and to the
extent that, for such Fiscal Year, the Excess Cash Flow exceeds $7,500,000.
7
<PAGE>
"Excess Licensing Proceeds" means, in respect of any Material New Film
Licensing Agreement, the amount by which payments (other than (i) any payment
calculated by reference to the production budget or negative cost of a Film (a
"Production Payment"), (ii) any payment calculated by reference to performance
of a Film (a "Performance Payment") and (iii) any payment which constitutes an
advance with respect to a Production Payment or Performance Payment to be earned
within 12 months after the date such advance is paid) (all such nonexcluded
payments, "Noncontingent Payments") received by the Borrower and its
Subsidiaries in respect of Films in any transaction year under such Material New
Film Licensing Agreement exceeds the sum of (x) the amount of the Noncontingent
Payments that would be received by the Borrower and its Subsidiaries in such
transaction year if such Noncontingent Payments were made reasonably pro-rata
over the period of availability of the Films which are subject to such Material
New Film Licensing Agreement plus (y) the greater of (1) 10% of the aggregate
amount of all Noncontingent Payments to be made under such Material New Film
Licensing Agreement during the term thereof and (2) $2,000,000. As used herein,
"Material New Film Licensing Agreement" means any Licensing Agreement or series
of related Licensing Agreements with respect to Existing 1997 Films or Film
Related Assets (other than any MGM Film Related Asset Disposition) (considered
as a single agreement for purposes hereof) if the aggregate amount of all
payments payable with respect to such Licensing Agreement or series of related
Licensing Agreements during the term thereof (in the case of any Performance
Payments, as estimated by the Borrower in accordance with its customary
practices) exceeds $10,000,000.
"Existing Credit Agreement" means the Credit Agreement dated as of November
1, 1995, as amended and restated as of June 27, 1996, among the Borrower, the
several lenders from time to time party thereto, and Chemical Bank, as agent, as
in effect immediately prior to the Closing Date.
"Existing 1997 Films" means the Films listed on Schedule 1.01(B) hereto, in
each case until the date (if any) on which such Film has completed its initial
theatrical release in the United States.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, provided that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
8
<PAGE>
day shall be the average rate quoted to Morgan Guaranty Trust Company of New
York on such day on such transactions as determined by the Agent.
"Film Production Expenditures" means, for any period and for any Film, the
aggregate amount expended or invested (including without limitation capitalized
expenditures, and all negative costs, but excluding in any event all print and
advertising expenses) by the Borrower and its Consolidated Subsidiaries for, in
or with respect to such Film during such period.
"Film Related Asset" means any right in and to any motion picture,
television product, literary work, dramatic work or musical work prior to the
time any such asset becomes a "Film".
"Films" means motion pictures including, without limitation, feature films,
shorts, television programs, animated programs or other similar product, and the
components thereof (whether or not now known or recognized) to which the
Borrower or any of its Subsidiaries owns any right, title or interest including,
without limitation, (i) the Library Films, (ii) Existing 1997 Films, (iii)
underlying rights in and to the literary, musical and dramatic and other
material associated with or related to or necessary to the exploitation of the
works or projects referred to in clauses (i) or (ii) including, without
limitation, copyrights pertaining thereto, (iv) to the extent related to the
works or projects referred to in clauses (i) or (ii), sequel, prequel and remake
rights, all rights to novelization, merchandising, character, serialization,
games and interactive video, (v) all other ancillary and subsidiary rights
throughout the universe related to such works and projects, (vi) all negative
and positive film, soundtracks, optical, audio, video and advertising materials
and supplies associated with any of such works or projects, and (vii) all
contractual and other rights associated with or related to such works or
projects and the related ancillary and subsidiary rights whether in any media
now known or hereafter developed.
"Fiscal Quarter" means a fiscal quarter of the Borrower.
"Fiscal Year" means a fiscal year of the Borrower ending December 31.
"Foreign Subsidiary" means any Subsidiary of the Borrower which is not
incorporated or organized in the United States or in any State thereof.
"Group of Loans" means at any time a group of Loans of the same Class of
Loans consisting of (i) all such Loans which are Base Rate Loans at such time or
(ii) all such Loans that are Euro-Dollar Loans having the same Interest Period
at such time; provided that, if a Loan of any particular Lender is converted to
or made as a Base Rate Loan pursuant to Article 8, such Loan shall be included
in
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the same Group or Groups of Loans from time to time as it would have been in if
it had not been so converted or made.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation (whether arising by virtue of partnership arrangements,
by agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or (ii)
entered into for the purpose of assuring in any other manner the holder of such
Debt or other obligation of the payment thereof or to protect such holder
against loss in respect thereof (in whole or in part), provided that the term
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Guarantor" means each Person who has executed the Subsidiary Guaranty.
"Guarantor Pledge Agreement"means a pledge agreement substantially in the
form of Exhibit D hereto between a Guarantor and the Agent entered into as of
the Closing Date or from time to time after the Closing Date pursuant to Section
5.24, in each case as amended from time to time.
"Holdings" means P & F Acquisition Corp., a Delaware corporation, and its
successors.
"Indemnitee" has the meaning set forth in Section 9.03(b).
"Information Memorandum" means the confidential descriptive memorandum
dated June 1997 furnished to the Lenders in connection with the transactions
contemplated by the Loan Documents.
"Insolvency" means, with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent" means pertaining to a condition of Insolvency.
"Interest Period" means, with respect to each Euro-Dollar Loan, the period
commencing on the date of borrowing specified in the applicable Notice of
Borrowing or on the date specified in the applicable Notice of Interest Rate
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Election and ending one, two, three or six months thereafter, as the Borrower
may elect in the applicable notice; provided that:
(a) any Interest Period which would otherwise end on a day which is not a
Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar
Business Day unless such Euro-Dollar Business Day falls in another calendar
month, in which case such Interest Period shall end on the next preceding Euro-
Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business Day
of a calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall, subject to
clauses (c) and (d) below, end on the last Euro-Dollar Business Day of the
calendar month at the end of such Interest Period;
(c) if any Interest Period with respect to any Euro-Dollar Term Loan
includes a date on which a scheduled payment of principal of such Term Loans is
required to be made under Sections 2.04(b) or 2.04(c) but does not end on such
date, then (i) the principal amount of each Euro-Dollar Term Loan required to be
repaid on such date shall have an Interest Period ending on such date and (ii)
the remainder (if any) of each such Euro-Dollar Term Loan shall have an Interest
Period determined as set forth above; and
(d) any Interest Period with respect to any Loan which would otherwise end
after the Maturity Date (as in effect on the first day of such Interest Period)
with respect to such Loan shall end on such Maturity Date.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Investment" means, with respect to any Person, any investment by such
Person in any other Person (including an Affiliate) in the form of direct or
indirect loans, Guarantees of Debt or other payment obligations, advances or
capital contributions, purchases or other acquisitions for consideration of
Debt, equity interests or other securities or warrants, options or other rights
to acquire equity interests or other securities and all other items that are
classified as investments on the balance sheet of such Person in accordance with
generally accepted accounting principles as in effect from time to time or that
would be so classified on such balance sheet if such balance sheet were prepared
at the relevant time.
"L/C Issuer" means Morgan Guaranty Trust Company of New York and any other
Revolving Lender that may agree with the Borrower to issue letters of credit
hereunder (and shall have notified the Agent thereof), in each case as issuer of
a letter of credit hereunder.
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"Lender" means a Term Lender or a Revolving Lender and shall include, as
the context may require, any L/C Issuer in such capacity.
"Letter of Credit" means a letter of credit to be issued hereunder by an
L/C Issuer.
"Letter of Credit Commitment" means, at any time, the lesser of (x)
$10,000,000 and (y) the aggregate Revolving Credit Commitments at such time.
"Letter of Credit Fee Rate" has the meaning set forth in the Pricing
Schedule.
"Letter of Credit Liabilities" means, for any Revolving Lender and at any
time, such Revolving Lender's Revolving Percentage of the sum of (x) the
aggregate unreimbursed amount then owing by the Borrower in respect of amounts
drawn under all Letters of Credit and (y) the aggregate amount then available
for drawing under all Letters of Credit.
"Leverage Ratio" means, on any date, the ratio of (i) Consolidated Debt on
such date to (ii) Consolidated Net Cash Flow for the period of four consecutive
Fiscal Quarters most recently ended on or prior to such date (or (A) solely from
and including the last day of the first Fiscal Quarter of 1998 to but excluding
the last day of the second Fiscal Quarter of 1998, Consolidated Net Cash Flow
for the first Fiscal Quarter of 1998 multiplied by 4, (B) solely from and
including the last day of the second Fiscal Quarter of 1998 to but excluding the
last day of the third Fiscal Quarter of 1998, Consolidated Net Cash Flow for the
first and second Fiscal Quarters of 1998 multiplied by 2, (C) solely from and
including the last day of the third Fiscal Quarter of 1998 to but excluding the
last day of the fourth Fiscal Quarter of 1998, Consolidated Net Cash Flow for
the first, second and third Fiscal Quarters of 1998 multiplied by 1.33).
"Library Cash Flows" means for any period the aggregate amount of cash
received by the Borrower and its Consolidated Subsidiaries during such period
with respect to Library Films other than Films that are Existing 1997 Films on
the date hereof.
"Library Films" means the films listed on Schedule 1.01(A) and all other
Films other than (and only for so long as such Films are) Existing 1997 Films.
"Licensing Agreements" means any licensing agreements now outstanding or
hereafter executed (other than the MGM Licensing Agreement) pursuant to which
the Borrower or any of its Subsidiaries grants or licenses to third parties any
right, title or interest with respect to any Film Related Asset, any Film or any
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group of Films, as the same may be amended, supplemented or otherwise modified
from time to time.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement, the
Borrower or any of its Subsidiaries shall be deemed to own subject to a Lien any
asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such asset.
"Loan" means a Base Rate Loan or a Euro-Dollar Loan and "Loans" means Base
Rate Loans or Euro-Dollar Loans or any combination of the foregoing.
"Loan Documents" means this Agreement, the Notes, the Subsidiary Guaranty
and the Collateral Documents.
"London Interbank Offered Rate" has the meaning set forth in Section
2.05(b).
"Major Casualty Proceeds" means (i) the aggregate insurance proceeds
received in connection with one or more related events by the Borrower or any of
its Subsidiaries under any insurance policy maintained by the Borrower or any of
its Subsidiaries covering casualty losses with respect to tangible real or
personal property or improvements or (ii) any award or other compensation with
respect to any condemnation of property (or any transfer or disposition of
property in lieu of condemnation) received by the Borrower or any of its
Subsidiaries, in either case only if the amount of such aggregate proceeds or
award or other compensation exceeds $2,000,000.
"Material Adverse Effect" means (i) any material adverse effect upon the
assets or liabilities, or the business, financial condition or results of
operations of the Borrower and its Subsidiaries, taken as a whole; (ii) prior to
the Closing Date, a material adverse effect on the ability of the Borrower or
any other Person to consummate the transactions contemplated hereby to occur on
the Closing Date; (iii) a material adverse effect on the ability of the Obligors
to perform their obligations under this Agreement and the Notes and the other
Loan Documents, taken as a whole, or (iv) an adverse effect on the rights and
remedies of the Agent and the Lenders under this Agreement and the Notes and the
other Loan Documents.
"Material Plan" means, at any time, a Plan or Plans having aggregate
Unfunded Liabilities in excess of $5,000,000.
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"Material Subsidiary" means (i) each of Goldwyn Entertainment Company,
Heritage Entertainment, Inc., Motion Picture Corporation of America, Orion Home
Entertainment Corporation, Orion Pictures Distribution Corporation, Orion
Productions Inc., Orion TV Productions Inc., American International Pictures,
Inc. or MCEG Sterling Productions and (ii) from and after the date on which
financial statements are required to be delivered pursuant to Section 5.01(a)
for the third Fiscal Quarter of 1997, each other Subsidiary that has (x)
aggregate assets with a fair market value of not less than $1,000,000 or (y)
annual revenues of not less than $1,000,000, in each case calculated on the
basis of the latest financial statements delivered by the Borrower to the
Lenders pursuant to Section 5.01(a) or 5.01(b), as the case may be.
"Maturity Date" means July 10, 2002 or, if such day is not a Euro-Dollar
Business Day, the next succeeding Euro-Dollar Business Day, unless such next
succeeding Euro-Dollar Business Day is in the next calendar month, in which
case, the next preceding Euro-Dollar Business Day.
"MGM" means Metro-Goldwyn-Mayer Inc., a Delaware corporation and its
successors.
" MGM Companies" means MGM and its Subsidiaries (other than Borrower and its
Subsidiaries).
" MGM Film Related Asset Disposition" means any distribution, dividend, or
other disposition of any Film Related Asset after the Closing Date to any MGM
Company.
"MGM Licensing Agreement" means one or more licensing agreements to be
executed by and among the Borrower, certain of its Subsidiaries and MGM,
pursuant to which the Borrower and such Subsidiaries will grant or license to
one or more MGM Companies the right to distribute the Films and pursuant to
which MGM Companies may be paid a distribution fee, reimbursement of its
distribution expenses and such other amounts as are customary in the movie
industry, and all on terms that, in the aggregate, are determined by the
Borrower to be materially as favorable to the Borrower and its Subsidiaries as
would have been obtained from a Person that was not an Affiliate.
"Multiemployer Plan" means, at any time, an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for these
purposes any Person which ceased to be a member of the ERISA Group during such
five year period.
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"Net Cash Proceeds" means, with respect to any Reduction Event, an amount
equal to the cash proceeds received by the Borrower or any of its Subsidiaries
from or in respect of such Reduction Event (including any cash proceeds received
as income or other proceeds of any noncash proceeds of any Asset Sale), less (x)
any expenses reasonably incurred by such Person in respect of such Reduction
Event (including, without limitation, if such Reduction Event constitutes the
issuance and sale of securities, underwriters' discounts or commissions and
expenses) and (y) if such Reduction Event is an Asset Sale, (i) the amount of
any Debt secured by a Lien on any asset disposed of in such Asset Sale and
discharged from the proceeds thereof and (ii) any taxes actually paid or to be
payable by such Person (as estimated by a senior financial or accounting officer
of the Borrower, giving effect to the overall tax position of the Borrower) in
respect of such Asset Sale.
"Notes" means promissory notes of the Borrower, substantially in the form
of Exhibit A hereto, evidencing the obligation of the Borrower to repay the
Loans, and "Note" means any one of such promissory notes issued hereunder.
"Notice of Borrowing" has the meaning set forth in Section 2.02(a).
"Notice of Interest Rate Election" has the meaning set forth in Section
2.08(a).
"Notice of Issuance" has the meaning set forth in Section 2.14(b).
"Obligor" means the Borrower and each Guarantor.
"Parent" means, with respect to any Lender, any Person controlling such
Lender.
"Participant" has the meaning set forth in Section 9.06(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a limited liability company, a
partnership, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Plan" means, at any time, an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the
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preceding five years been maintained, or contributed to, by any Person which was
at such time a member of the ERISA Group for employees of any Person which was
at such time a member of the ERISA Group.
"Pledge Agreement" means the Borrower Pledge Agreement or any Guarantor
Pledge Agreement.
"Pricing Schedule" means the Schedule attached hereto identified as such.
"Prime Rate" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"Proceeds Certificate" a certificate of the chief financial officer or the
chief accounting officer of the Borrower, certifying as to (i) the aggregate
amount of Major Casualty Proceeds received by the Borrower or any of its
Subsidiaries and (ii) the fact that the Borrower shall invest such Major
Casualty Proceeds to repair or replace affected assets with 180 days after
receipt thereof.
"Profit Participation" means the amount, as customarily determined by the
Borrower, of all obligations (other than Residuals and Deferred Payments)
payable by the Borrower and/or its Subsidiaries as compensation for talent or to
producers and for similar services in connection with the development,
acquisition, production, financing, distribution, exhibition or exploitation of
Films or rights with respect thereto, the payment of which is contingent upon or
triggered by and payable only to the extent of the receipt by the Borrower or
any Subsidiary, as the case may be, of revenues from the exploitation of such
Film or such rights.
"Quarterly Dates" means each March 31, June 30, September 30 and December
31.
"Reduction Amount" means, (i) in respect of any Asset Sale, 100% of the Net
Cash Proceeds thereof, (ii) in respect of any incurrence by the Borrower or any
of its Subsidiaries of any Debt that constitutes a Reduction Event or the
receipt of Major Casualty Proceeds that constitutes a Reduction Event, 100% of
the Net Cash Proceeds thereof, (iii) in respect of Excess Cash Flow for any
Fiscal Year, 100% of the amount thereof, (iv) in respect of any Equity Issuance
Reduction Event, 100% of the Net Cash Proceeds thereof, (v) in respect of any
certification as to anticipated reinvestment of Major Casualty Proceeds set
forth in any Proceeds Certificate being no longer true, 100% of the Net Cash
Proceeds from the relevant receipt of Major Casualty Proceeds not invested prior
to such date to repair or replace affected assets and (vi) in respect of receipt
of Excess Licensing Proceeds, 100% of the amount thereof.
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"Reduction Event" means (i) any Asset Sale, (ii) the incurrence of any Debt
by the Borrower or any of its Subsidiaries (other than Debt permitted under
Section 5.10), (iii) any Equity Issuance Reduction Event, (iv) receipt of Major
Casualty Proceeds, unless, within 5 Domestic Business Days after receipt
thereof, the Borrower shall have delivered to the Agent a Proceeds Certificate,
(v) the first day on which any certification made pursuant to any Proceeds
Certificate shall cease to be true and (vi) receipt of Excess Licensing
Proceeds. The description of any transaction as falling within the above
definition does not affect any limitation on such transaction imposed by Article
5 of this Agreement or any rights of any Lender upon the occurrence of an Event
of Default under Article 6 of this Agreement.
"Reference Lenders" means the principal London offices of Bank of America
National Trust and Savings Association, Societe Generale and Morgan Guaranty
Trust Company of New York, and "Reference Lender" means any one of such
Reference Lenders.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
"Required Lenders" means at any time Lenders having in the aggregate at
least 51% of the sum of (i) the Revolving Commitments at such time or, if the
Revolving Commitments shall have been terminated, the sum of (x) the aggregate
outstanding principal amount of the Revolving Loans at such time plus (y) the
Letter of Credit Liabilities at such time plus (ii) the aggregate outstanding
principal amount of the Term Loans at such time or, if no Term Loans are then
outstanding, the Term Commitments at such time.
"Residuals" means the amount, as reasonably determined by the Borrower, of
all obligations (other than Profit Participations and Deferred Payments) payable
by the Borrower or a Subsidiary pursuant to guild agreements or other collective
bargaining agreements in connection with the development, acquisition,
production, financing, distribution, exhibition or exploitation of Films or
rights with respect thereto.
"Responsible Officer" means any senior vice president of the Borrower, and
any more senior corporate officer of the Borrower, in any case appointed to such
office by the Board of Directors of the Borrower or any committee thereof.
"Restricted Payment" means (i) any dividend or other distribution on any
shares of the Borrower's capital stock (except dividends payable solely in
shares of its capital stock) or (ii) any payment by the Borrower or any of its
Subsidiaries on account of the purchase, redemption, retirement or acquisition
of (a) any shares of the Borrower's capital stock or (b) any option, warrant or
other right to acquire
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shares of the Borrower's capital stock (but not including payments of principal,
premium (if any) or interest made pursuant to the terms of convertible debt
securities prior to conversion.
"Revolving Commitment" means, (i) with respect to each Lender listed on the
Commitment Schedule, the amount set forth opposite the name of such Lender on
the Commitment Schedule under the heading "Revolving Commitments" and (ii) with
respect to each Assignee that becomes a Lender pursuant to Section 9.06(c), the
amount of the Revolving Commitment thereby assumed by it, in each case as such
amount may be increased or reduced from time to time pursuant to Section 9.06(c)
or reduced from time to time pursuant to Sections 2.04(d) and 2.07(b).
"Revolving Credit Period" means the period from and including the Closing
Date to and including the Revolving Credit Termination Date.
"Revolving Credit Termination Date" means July 8, 1998 or, if such day is
not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.
"Revolving Exposure" means, with respect to each Revolving Lender, at any
time, an amount equal to the sum of (i) the aggregate principal amount of the
Revolving Loans of such Revolving Lender outstanding at such time, and (ii) such
Revolving Lender's Letter of Credit Liabilities at such time.
"Revolving Lender" means each Lender identified as a Revolving Lender on
the Commitment Schedule, each Assignee which becomes a Revolving Lender pursuant
to Section 9.06(c) , and their respective successors.
"Revolving Loan" means a loan made by a Revolving Lender pursuant to
Section 2.01(b).
"Revolving Percentage" means, with respect to each Revolving Lender, at any
time, the percentage that such Revolving Lender's Revolving Commitment
constitutes of the aggregate amount of the Revolving Commitments at such time.
"Sale-Leaseback Transaction" means the sale by the Borrower or a Subsidiary
of all of its right, title and interest in and to a Film and the retention by,
or concurrent reconveyance to the Borrower or such Subsidiary of distribution
rights to such Film and an option to repurchase such Film for a nominal purchase
price, in consideration of periodic payments by the Borrower or such Subsidiary
of amounts having an aggregate discounted present value that is less than the
purchase price paid by the purchaser thereof; provided that, concurrently with
such reconveyance, the Borrower or such Subsidiary has defeased its obligation
to
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make the aggregate amount of such periodic payments by depositing in an escrow
account an amount at least equal to the discounted present value of such amount.
"Security Agreement" means the security agreement substantially in the form
of Exhibit E hereto among the Obligors and the Agent entered into as of the
Closing Date, as amended from time to time.
"Seven Network" means Seven Network Limited ("SNL"), an Australian
corporation and, for so long as it is a wholly-owned subsidiary of SNL,
Miltonstar Pty Ltd., an Australian corporation, and their respective successors.
"Stock Purchase Agreement" means the Stock Purchase Agreement dated as of
May 2, 1997 by and among the Borrower, Holdings and Metromedia International
Group, Inc., as amended from time to time in accordance with the terms hereof
and thereof.
"Subsidiary" means, as to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person; unless
otherwise specified, "Subsidiary" means a Subsidiary of the Borrower.
"Subsidiary Guaranty" means the subsidiary guaranty agreement substantially
in the form of Exhibit F hereto between each Guarantor party thereto and the
Agent entered into as of the Closing Date, as amended from time to time.
"Temporary Cash Investment" means any Investment in (i) direct obligations
of the United States or any agency thereof, or obligations guaranteed by the
United States or any agency thereof, (ii) commercial paper rated at least A-2 by
Standard & Poor's Ratings Services or P-2 by Moody's Investors Service, Inc.,
(iii) time deposits with, including certificates of deposit issued by, any
office located in the United States of any bank or trust company which is
organized under the laws of the United States or any state thereof and has
capital, surplus and undivided profits aggregating at least $500,000,000 or (iv)
repurchase agreements with respect to securities described in clause (i) above
entered into with an office of any bank or trust company meeting the criteria
specified in clause (iii) above, provided in each case that such Investment
matures within one year from the date of acquisition thereof by the Borrower or
a Subsidiary.
"Term Commitment" means with respect to each Lender listed on the
Commitment Schedule, the amount set forth opposite the name of such Lender on
the Commitment Schedule under the heading "Term Commitments".
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"Term Lender" means each Lender identified as a Term Lender on the
Commitment Schedule, each Assignee which becomes a Term Lender pursuant to
Section 9.06(c), and their respective successors.
"Term Loan" means a Loan made pursuant to Section 2.01(a).
"Total Borrowed Funds" means at any date the aggregate amount of Debt of
the Borrower and its Consolidated Subsidiaries described in clauses (i) and (ii)
and (iv) of the definition of Debt (but excluding any obligations under Sale-
Leaseback Transactions which constitute Debt under clause (iv) of the definition
thereof), determined on a consolidated basis at such date.
"Tracinda" means Tracinda Corporation, a Nevada corporation, and its
successors.
"Transaction Documents" means the Stock Purchase Agreement, including the
exhibits and schedules thereto and all agreements, documents and instruments
executed and delivered pursuant thereto or in connection therewith.
"Type" has the meaning set forth in Section 1.03.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the value of all benefit liabilities under such
Plan, determined on a plan termination basis using the assumptions prescribed by
the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market
value of all Plan assets allocable to such liabilities under Title IV of ERISA
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"United States" means the United States of America, including the States
and the District of Columbia, but excluding its territories and possessions.
Section 1.02. Accounting Terms and Determinations. Unless otherwise
specified in the immediately succeeding sentence or otherwise herein, all
accounting terms used herein shall be interpreted, all accounting determinations
hereunder shall be made, and all financial statements required to be delivered
hereunder shall be prepared in accordance with generally accepted accounting
principles as in effect from time to time, applied on a basis consistent (except
for changes concurred in by the Borrower's independent public accountants) with
the most recent audited consolidated financial statements of the Borrower and
its Consolidated Subsidiaries delivered to the Lenders; provided that, if the
Borrower notifies the Agent that the Borrower wishes to amend any covenant in
Article 5 or
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any related definition to eliminate the effect of any change in generally
accepted accounting principles on the operation of such covenant (or if the
Agent notifies the Borrower that the Required Lenders wish to amend Article 5
any related definition for such purpose), then the Borrower's compliance with
such covenant shall be determined on the basis of generally accepted accounting
principles in effect immediately before the relevant change in generally
accepted accounting principles became effective, until either such notice is
withdrawn or such covenant or definition is amended in a manner satisfactory to
the Borrower and the Required Lenders.
Section 1.03. Classes and Types of Loans and Borrowings. The term
"Borrowing" denotes the aggregation of Loans of one or more Lenders to be made
to the Borrower pursuant to Article 2 on the same date, all of which Loans are
of the same Class and Type (subject to Article 8) and, except in the case of
Base Rate Loans, have the same initial Interest Period. Loans hereunder are
distinguished by "Class" and by "Type". The "Class" of a Loan (or of a
Commitment to make such a Loan or of a Borrowing comprised of such Loans or of a
Group of such Loans) refers to the determination whether such Loan is a Term
Loan or a Revolving Loan, each of which constitutes a Class. The "Type" of a
Loan refers to the determination whether such Loan is a Euro-Dollar Loan or a
Base Rate Loan. Identification of a Loan (or a Borrowing) by both Class and
Type (e.g., a "Term Euro-Dollar Loan") indicates that such Loan is both a Term
Loan and a Euro-Dollar Loan (or that such Borrowing or Group of Loans is
comprised of such Loans).
ARTICLE 2
The Credits
Section 2.01. Commitments to Lend. (a) Term Loans. Each Term Lender
severally agrees, on the terms and conditions set forth in this Agreement, to
make a single loan to the Borrower on the Closing Date in a principal amount not
to exceed the amount of such Lender's Term Commitment. The Borrowing pursuant
to this subsection shall be made from the Lenders ratably in proportion to their
respective Term Commitments; provided, that the failure of any Term Lender to
fulfill its obligation to make a Term Loan on the terms and conditions set forth
in this Agreement shall not excuse any other Term Lender from its obligation to
make a Term Loan in an amount up to the amount of such Lender's Term Commitment.
Loans made pursuant to this subsection are not revolving in nature and amounts
of such loans repaid or prepaid may not be reborrowed.
(b) Revolving Loans. During the Revolving Credit Period, each Revolving
Lender severally agrees, on the terms and conditions set forth in this
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Agreement, to make revolving loans to the Borrower from time to time in amounts
such that the Revolving Exposure of such Revolving Lender at such time shall not
exceed the amount of its Revolving Commitment at such time. Each Borrowing under
this subsection shall be in an aggregate principal amount of $2,000,000 or any
larger multiple of $1,000,000 and shall be made from the Revolving Lenders
ratably in proportion to their respective Revolving Commitments; provided, that
the failure of any Revolving Lender at any time to fulfill its obligation to
make a Revolving Loan on the terms and conditions set forth in this Agreement
shall not in itself excuse any other Revolving Lender from its obligation to
make a Revolving Loan. Within the foregoing limits, the Borrower may borrow
under this subsection, prepay Revolving Loans to the extent permitted by Section
2.10 and reborrow at any time during the Revolving Credit Period under this
subsection. After the Revolving Credit Period, Loans made pursuant to this
subsection will not be revolving in nature and amounts of such loans repaid or
prepaid after the end of the Revolving Credit Period may not be reborrowed.
Section 2.02. Method of Borrowing. (a) The Borrower shall give the Agent
notice (a "Notice of Borrowing") not later than 12:00 Noon (New York City time)
on (1) the date of each Base Rate Borrowing and (2) the third Euro-Dollar
Business Day before each Euro-Dollar Borrowing, specifying:
(i) the date of such Borrowing, which shall be a Domestic Business
Day in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in
the case of a Euro-Dollar Borrowing;
(ii) the aggregate amount of such Borrowing;
(iii) whether the Loans comprising such Borrowing are to bear
interest initially at a rate based on the Base Rate or at a Euro-Dollar
Rate; and
(iv) in the case of a Euro-Dollar Borrowing, the duration of the
initial Interest Period applicable thereto, subject to the provisions of
the definition of Interest Period.
In no event shall the total number of Groups of Loans at any one time
outstanding exceed 10.
(b) Upon receipt of a Notice of Borrowing, the Agent shall promptly notify
each Lender of the contents thereof and of such Lender's ratable share of such
Borrowing (if any) and such Notice of Borrowing shall not thereafter be
revocable by the Borrower.
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<PAGE>
(c) Not later than 12:00 Noon (New York City time) on the date of each
Borrowing, each Lender shall make available its ratable share of such Borrowing,
in Federal or other funds immediately available in New York City, to the Agent
at its address referred to in Section 9.01. Unless the Agent determines that
any applicable condition specified in Article 3 has not been satisfied, the
Agent will make the funds so received from the Lenders available to the Borrower
by crediting an account of the Borrower maintained with the Agent and specified
by the Borrower prior to the date of such Borrowing or, if no such account has
been specified, at the Agent's aforesaid address.
(d) Unless the Agent shall have received notice from a Lender prior to the
date of any Borrowing that such Lender will not make available to the Agent such
Lender's share of such Borrowing, the Agent may assume that such Lender has made
such share available to the Agent on the date of such Borrowing in accordance
with subsection (c) of this Section and the Agent may, in reliance upon such
assumption, make available to the Borrower on such date a corresponding amount.
If and to the extent that such Lender shall not have so made such share
available to the Agent, such Lender and the Borrower severally agree to repay to
the Agent forthwith on demand such corresponding amount together with interest
thereon, for each day from the date such amount is made available to the
Borrower until the date such amount is repaid to the Agent, at (i) in the case
of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate
and the interest rate applicable thereto pursuant to Section 2.05 and (ii) in
the case of such Lender, the Federal Funds Rate. If such Lender shall repay to
the Agent such corresponding amount, such amount so repaid shall constitute such
Lender's Loan included in such Borrowing for purposes of this Agreement.
Section 2.03. Notes. (a) The Loans of each Lender shall be evidenced by a
single Note payable to the order of such Lender for the account of its
Applicable Lending Office in an amount equal to the aggregate unpaid principal
amount of such Lender's Loans.
(b) Each Lender may, by notice to the Borrower and the Agent, request that
its Loans of a particular Type or Class be evidenced by a separate Note in an
amount equal to the aggregate unpaid principal amount of such Loans. Each such
Note shall be in substantially the form of Exhibit A hereto with appropriate
modifications to reflect the fact that it evidences solely Loans of the relevant
Type or Class. Each reference in this Agreement to the "Note" of such Lender
shall be deemed to refer to and include any or all of such Notes, as the context
may require.
(c) Upon receipt of each Lender's Note pursuant to Section 3.01, the Agent
shall forward such Note to such Lender. Each Lender shall record the date,
amount, Type and Class of each Loan made by it and the date and amount of each
23
<PAGE>
payment of principal made by the Borrower with respect thereto, and may, if such
Lender so elects in connection with any transfer or enforcement of its Note,
endorse on the schedule forming a part thereof appropriate notations to evidence
the foregoing information with respect to each such Loan then outstanding;
provided that the failure of any Lender to make any such recordation or
endorsement shall not affect the obligations of the Borrower hereunder or under
the Notes or any other Loan Document. Each Lender is hereby irrevocably
authorized by the Borrower so to endorse its Note and to attach to and make a
part of its Note a continuation of any such schedule as and when required.
Section 2.04. Maturity of Loans; Mandatory Prepayments; Certain Commitment
Reductions. (a) Final Maturity. Each Loan of each Class shall mature, and the
outstanding principal amount thereof shall be due and payable (together with
accrued interest thereon), on the Maturity Date.
(b) Term Loans Scheduled Amortization. In addition, the Borrower shall
repay, and there shall become due and payable, on each date set forth below, an
aggregate principal amount of the Term Loans equal to the amount set forth below
opposite such date (as such amount may be reduced pursuant to Section 2.04(e)
and Section 2.10(c):
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
12/31/98 $20,000,000
3/31/99 $15,000,000
6/30/99 $15,000,000
9/30/99 $15,000,000
12/31/99 $15,000,000
3/31/00 $10,000,000
6/30/00 $10,000,000
9/30/00 $10,000,000
12/31/00 $10,000,000
3/31/01 $10,000,000
6/30/01 $10,000,000
9/30/01 $10,000,000
12/31/01 $10,000,000
3/31/02 $10,000,000
6/30/02 $10,000,000
Maturity Date $20,000,000
</TABLE>
(c) Revolving Loans Scheduled Amortization. In addition, the Borrower shall
repay, and there shall become due and payable, on each date set forth below an
aggregate principal amount of the Revolving Loans equal to the amount set
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<PAGE>
forth below opposite such date (as such amount may be reduced pursuant to
Section 2.04(e)(iv) and Section 2.10(c)) (determined as a percentage of the
aggregate principal amount of Revolving Loans outstanding on the Revolving
Credit Termination Date):
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
12/31/98 10.0%
3/31/99 7.5%
6/30/99 7.5%
9/30/99 7.5%
12/31/99 7.5%
3/31/00 5.0%
6/30/00 5.0%
9/30/00 5.0%
12/31/00 5.0%
3/31/01 5.0%
6/30/01 5.0%
9/30/01 5.0%
12/31/01 5.0%
3/31/02 5.0%
6/30/02 5.0%
Maturity Date 10.0%
</TABLE>
(d) Contingent Amortization and Revolving Commitments Reduction. In
addition, the Term Loans shall be repaid and/or the Revolving Commitments shall
be reduced (and the Revolving Loans shall be repaid to the extent provided in
Section 2.04(e)(ii)) in the following amounts and at the following times:
(A) in the event that any Reduction Event shall occur, an amount equal
to the Reduction Amount with respect thereto; and
(B) an amount, for each Fiscal Year ending after December 31, 1997,
equal to the Reduction Amount of Excess Cash Flow for such Fiscal Year.
The prepayments and reductions required by clause (A) of this subsection shall
be made forthwith upon receipt by the Borrower or any of its Subsidiaries, as
the case may be, of such Net Cash Proceeds; provided that if the Reduction
Amount in respect of any Reduction Event is less than $1,000,000, such
prepayment or reduction shall be made upon receipt of proceeds such that,
together with all other such amounts not previously applied, the Reduction
Amount is equal to at least $1,000,000 and provided further, that, at the
election of the Borrower, if the amount of any such prepayment to be made
exceeds the amount of Base Rate
25
<PAGE>
Loans then outstanding, such excess amount shall be deposited in escrow pursuant
to arrangements in form and substance satisfactory to the Agent, and such excess
shall not be required to be prepaid until the last day of the Interest Periods
relating to outstanding Euro-Dollar Loans in an aggregate principal amount equal
to or greater than such excess amount unless an Event of Default has occurred
and is continuing or the Required Lenders otherwise determine in their sole
discretion and so notify the Borrower. The prepayments and reductions required
by clause (B) of this subsection shall be made on or before the 105th day after
the end of the related fiscal year. The Borrower shall give the Agent at least
five Euro-Dollar Business Days' notice of each prepayment required pursuant to
this subsection.
(e) Application of Prepayments, Repayments and Revolving Commitment
Reductions. (i) The prepayments and reductions required pursuant to subsection
(d) shall be effected in the following order: first, the Borrower shall prepay
the Term Loans until the Term Loans have been paid in full, second, the
Revolving Commitments shall be reduced (and outstanding Revolving Loans and
Letters of Credit shall be prepaid and/or cash collateralized in accordance with
clause (ii) below) and third, solely if such prepayment is to be made after the
Revolving Credit Period, the Borrower shall prepay Revolving Loans until the
Revolving Loans have been paid in full.
(ii) If on the date of any reduction of the Revolving Commitments pursuant
to subsection (e)(i) the aggregate Revolving Exposure on such date exceeds the
aggregate Revolving Commitments on such date, the Borrower shall apply an amount
equal to such excess to prepay the Revolving Credit Loans and/or cash
collateralize Letters of Credit so that after giving effect thereto the
Revolving Exposure of each Revolving Lender does not exceed its Revolving Credit
Commitment as then reduced. Amounts to be applied pursuant to the preceding
sentence shall be applied first to repay the principal amount of the Revolving
Credit Loans then outstanding until all such Revolving Credit Loans shall have
been repaid in full and second if any excess then remains such excess shall be
deposited in the Cash Collateral Account established pursuant to Section 6(C) of
the Security Agreement until the Letter of Credit Liabilities on the date of
repayment have been cash collateralized in full to be held, applied or released
for application as provided in the Security Agreement. In determining Revolving
Exposure for purposes of this clause (ii), Letter of Credit Liabilities shall be
reduced to the extent that they are cash collateralized as contemplated by the
previous sentence.
(iii) Subject to clause (i) of this subsection, each repayment or
prepayment of Loans of any Class made by the Borrower pursuant to this Section
shall be applied to such Group or Groups of Loans of such Class as the Borrower
may designate in the applicable Notice of Borrowing or Notice of Interest Rate
Election (or, failing such designation, as determined by the Agent), and shall
be
26
<PAGE>
applied to repay ratably the Loans of such Class of the several Lenders included
in such Group or Groups.
(iv) The amount of any prepayment of the Loans made by the Borrower
pursuant to subsection (d) shall be applied to reduce the amount of subsequent
scheduled repayments of the Loans pursuant to subsections (b) or (c) above, as
the case may be, in inverse order of maturity.
Section 2.05. Interest Rates. (a) Each Base Rate Loan shall bear interest
on the outstanding principal amount thereof, for each day from and including the
date such Loan is made to but excluding the date it becomes due or is converted
into a Euro-Dollar Loan, at a rate per annum equal to the sum of (x) the Base
Rate Margin plus (y) the Base Rate for such day. Such interest shall be payable
quarterly in arrears on each Quarterly Date. Any overdue principal of or
interest on any Base Rate Loan shall bear interest, payable on demand, for each
day until paid at a rate per annum equal to the sum of 2% plus the rate
otherwise applicable to Base Rate Loans for such day.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding principal
amount thereof, for each day during each Interest Period applicable thereto,
from and including the first day thereof to but excluding the last day thereof,
at a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus
the Adjusted London Interbank Offered Rate applicable to such Interest Period.
Such interest shall be payable for each Interest Period on the last day thereof
and, if such Interest Period is longer than three months, at intervals of three
months after the first day thereof and, with respect to the principal amount of
any Euro-Dollar Loan converted to a Base Rate Loan, on each date a Euro-Dollar
Loan is so converted.
The "Adjusted London Interbank Offered Rate" applicable to any Interest
Period means a rate per annum equal to the quotient obtained (rounded upward, if
necessary, to the next higher 1/100 of 1%) by dividing (i) the applicable London
Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar Reserve Percentage.
The Adjusted London Interbank Offered Rate shall be adjusted automatically on
and as of the effective date of any change in the Euro-Dollar Reserve
Percentage.
The "London Interbank Offered Rate" applicable to any Interest Period means
the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the
respective rates per annum at which deposits in dollars are offered to each of
the Reference Lenders in the London interbank market at approximately 11:00 A.M.
(London time) two Euro-Dollar Business Days before the first day of such
Interest Period in an amount approximately equal to the principal amount of the
Euro-Dollar Loan of such Reference Lender to which such Interest Period is to
apply and for a period of time comparable to such Interest Period.
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<PAGE>
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member Lender of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Lender to
United States residents).
(c) Any overdue principal of or interest on any Euro-Dollar Loan shall
bear interest, payable on demand, for each day until paid at a rate per annum
equal to the higher of (i) the sum of 2% plus the Euro-Dollar Margin for such
day plus the quotient obtained (rounded upward, if necessary, to the next higher
1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the
next higher 1/16 of 1%) of the respective rates per annum at which one day (or,
if such amount due remains unpaid more than three Euro-Dollar Business Days,
then for such other period of time not longer than three months as the Agent may
select) deposits in dollars in an amount approximately equal to such overdue
payment due to each of the Reference Lenders are offered to such Reference
Lender in the London interbank market for the applicable period determined as
provided above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the
circumstances described in clause (a) or (b) of Section 8.01 shall exist, at a
rate per annum equal to the sum of 2% plus the rate applicable to Base Rate
Loans for such day) and (ii) the sum of 2% plus the Euro-Dollar Margin for such
day plus the Adjusted London Interbank Offered Rate applicable to such Loan at
the date such payment was due.
(d) The Agent shall determine each interest rate applicable to the Loans
hereunder. The Agent shall give prompt notice to the Borrower and the
participating Lenders of each rate of interest so determined, and its
determination thereof shall be conclusive in the absence of manifest error.
(e) Each Reference Lender agrees to use its best efforts to furnish
quotations to the Agent as contemplated by this Section. If any Reference
Lender does not furnish a timely quotation, the Agent shall determine the
relevant interest rate on the basis of the quotation or quotations furnished by
the remaining Reference Lender or Lenders or, if none of such quotations is
available on a timely basis, the provisions of Section 8.01 shall apply.
Section 2.06. Fees. (a) During the Revolving Credit Period, the Borrower
shall pay to the Agent for the account of each Revolving Lender a commitment fee
at the rate of 0.50% per annum on the daily amount by which
28
<PAGE>
such Revolving Lender's Revolving Commitment exceeds the sum of (x) the
aggregate outstanding principal amount of its Revolving Loans and (y) its Letter
of Credit Liabilities. Such commitment fee shall accrue from and including the
Effective Date to but excluding the date of termination of the Revolving
Commitments in their entirety, and shall be payable quarterly in arrears on each
Quarterly Date and on the date of termination of the Revolving Commitments in
their entirety.
(b) The Borrower shall pay to the Agent (i) for the account of the
Revolving Lenders ratably in proportion to their Revolving Commitments a letter
of credit fee accruing daily on the aggregate amount then available for drawing
under all Letters of Credit at the Letter of Credit Fee Rate (determined in
accordance with the Pricing Schedule) and (ii) for the account of each L/C
Issuer a letter of credit fronting fee accruing daily on the aggregate amount
then available for drawing under all Letters of Credit issued by such L/C Issuer
at a rate per annum equal to 1/4 of 1%.
(c) Accrued fees under subsections (a) and (b) above shall be payable
quarterly in arrears on each Quarterly Date and on the date of termination of
the Revolving Commitments in their entirety (and, if later, the date on which
the aggregate Letter of Credit Liabilities shall have been reduced to $0).
Section 2.07. Optional Termination or Reduction of Commitments. (a) Prior
to the Closing Date the Borrower may, upon at least three Domestic Business
Days' notice to the Agent, terminate the Term Commitments or ratably reduce from
time to time by an aggregate amount of $5,000,000 or a larger multiple of
$1,000,000, the aggregate amount of the Term Commitments.
(b) During the Revolving Credit Period the Borrower may, upon at least
three Domestic Business Days' notice to the Agent, (i) terminate the Revolving
Commitments at any time, if no Revolving Loans or Letter of Credit Liabilities
are outstanding at such time or (ii) ratably reduce from time to time by an
aggregate amount of $5,000,000 or a larger multiple of $1,000,000, the aggregate
amount of the Revolving Commitments in excess of the aggregate Revolving
Exposure at such time.
Section 2.08. Method of Electing Interest Rates. (a) The Loans included
in each Borrowing shall initially be of the Type specified by the Borrower in
the applicable Notice of Borrowing, subject to the limitations set forth in
Section 2.02. Thereafter, the Borrower may from time to time elect to change or
continue the Type of Loans in each Group of Loans, subject in each case to the
provisions of Article 8, as follows:
29
<PAGE>
(i) if such Loans are Base Rate Loans, the Borrower may elect to
convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business Day;
provided that no Base Rate Loans shall be converted to Euro-Dollar Loans
(x) at any time prior to the Syndication Date or (y) if at the time such
conversion is to be effective, an Event of Default has occurred and is
continuing; and
(ii) if such Loans are Euro-Dollar Loans, the Borrower may elect to
convert such Loans to Base Rate Loans as of any Domestic Business Day or to
continue such Loans as Euro-Dollar Loans for an additional Interest Period
as of any Euro-Dollar Business Day, subject to Section 2.12 in the case of
any such conversion or continuation effective on any day other than the
last day of the then current Interest Period applicable to such Loans;
provided that no Euro-Dollar Loans shall be continued as Euro-Dollar Loans
if at the time such continuation is to be effective, an Event of Default
has occurred and is continuing.
Each such election shall be made by delivering a notice (a "Notice of Interest
Rate Election") to the Agent not later than 12:00 Noon (New York City time) on
the third Euro-Dollar Business Day before the conversion or continuation
selected in such notice is to be effective. A Notice of Interest Rate Election
may, if it so specifies, apply to only a portion of the aggregate principal
amount of the relevant Group of Loans; provided that (i) such portion is
allocated ratably among the Loans comprising such Group and (ii) the portion to
which such Notice applies, and the remaining portion to which it does not apply,
are each $2,000,000 or any larger multiple of $1,000,000. If no Notice of
Interest Election is timely received prior to the end of an Interest Period for
any Group of Loans, the Borrower shall be deemed to have elected that such Group
of Loans be converted to Base Rate Loans as of the last day of such Interest
Period. In no event shall the total number of Groups of Loans at any time
outstanding exceed 10.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such notice
applies;
(ii) the date on which the conversion or continuation selected in such
notice is to be effective, subject to the provisos set forth in clauses (i)
and (ii) of subsection (a) above;
(iii) if the Loans comprising such Group are to be converted, the new
Type of Loans and, if the Loans being converted are to be Euro-Dollar
Loans, the duration of the next succeeding Interest Period applicable
thereto; and
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<PAGE>
(iv) if such Loans are to be continued as Euro-Dollar Loans for an
additional Interest Period, the duration of such additional Interest
Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.
(c) Upon receipt of a Notice of Interest Rate Election from the Borrower
pursuant to subsection (a) above, the Agent shall promptly notify each Lender of
the contents thereof and such notice shall not thereafter be revocable by the
Borrower.
(d) An election by the Borrower to change or continue the rate of interest
applicable to any Group of Loans pursuant to this Section shall not constitute a
"Borrowing" subject to the provisions of Section 3.02.
Section 2.09. Mandatory Termination of Commitments. (a) Term Commitments.
The Term Commitments of each Class shall terminate at the close of business on
the Closing Date.
(b) Revolving Commitments. The Revolving Commitments shall terminate on
the Revolving Credit Termination Date.
Section 2.10. Optional Prepayments. (a) Subject, in the case of any
Borrowing of Euro-Dollar Loans to Section 2.12, the Borrower may, upon at least
one Domestic Business Day's notice to the Agent, prepay any Group of Base Rate
Loans or upon at least three Euro-Dollar Business Days' notice to the Agent,
prepay any Group of Euro-Dollar Loans, in each case in whole at any time, or
from time to time in part in amounts aggregating $5,000,000 or any larger
multiple of $1,000,000, by paying the principal amount to be prepaid together
with, in the case of a prepayment of Euro-Dollar Loans, accrued interest thereon
to the date of prepayment. Each such optional prepayment shall be applied to
prepay ratably the Loans of the several Lenders included in such Group.
(b) Upon receipt of a notice of prepayment pursuant to this Section, the
Agent shall promptly notify each Lender of the contents thereof and of such
Lender's ratable share of such prepayment and such notice shall not thereafter
be revocable by the Borrower.
(c) Each prepayment of the Loans of either Class made by the Borrower
pursuant to this Section shall be applied as follows: first, to reduce the
amount of the subsequent scheduled repayments of the Loans (if any) of such
Class to be made within one year of the date such prepayment is made in forward
order until
31
<PAGE>
such amount shall have been paid in full and thereafter pro rata among all
subsequent scheduled repayments of the Loans of such Class.
Section 2.11. General Provisions as to Payments. (a) The Borrower shall
make each payment of principal of, and interest on, the Loans and of Letter of
Credit Liabilities and of fees hereunder (other than fees payable directly to
any L/C Issuer), not later than 1:00 P.M. (New York City time) on the date when
due, in Federal or other funds immediately available in New York City, to the
Agent at its address referred to in Section 9.01. The Agent will promptly
distribute to each Lender its ratable share of each such payment received by the
Agent for the account of the Lenders. Whenever any payment of principal of, or
interest on, the Base Rate Loans or of Letter of Credit Liabilities or of fees
shall be due on a day which is not a Domestic Business Day, the date for payment
thereof shall be extended to the next succeeding Domestic Business Day.
Whenever any payment of principal of, or interest on, the Euro-Dollar Loans
shall be due on a day which is not a Euro-Dollar Business Day, the date for
payment thereof shall be extended to the next succeeding Euro-Dollar Business
Day unless such Euro-Dollar Business Day falls in another calendar month, in
which case the date for payment thereof shall be the next preceding Euro-Dollar
Business Day. If the date for any payment of principal is extended by operation
of law or otherwise, interest thereon shall be payable for such extended time.
(b) Unless the Agent shall have received notice from the Borrower prior to
the date on which any payment is due to the Lenders hereunder that the Borrower
will not make such payment in full, the Agent may assume that the Borrower has
made such payment in full to the Agent on such date and the Agent may, in
reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the
extent that the Borrower shall not have so made such payment, each Lender shall
repay to the Agent forthwith on demand such amount distributed to such Lender
together with interest thereon, for each day from the date such amount is
distributed to such Lender until the date such Lender repays such amount to the
Agent, at the Federal Funds Rate.
Section 2.12. Funding Losses. If the Borrower makes any payment of
principal with respect to any Euro-Dollar Loan or any Euro-Dollar Loan is
converted (pursuant to Article 2, 6 or 8 or otherwise) on any day other than the
last day of an Interest Period applicable thereto, or the last day of an
applicable period fixed pursuant to Section 2.05(c), or if the Borrower fails to
borrow, prepay, convert or continue any Euro-Dollar Loans after notice has been
given to any Lender in accordance with Section 2.02(a), 2.04(d), 2.08 or 2.10,
the Borrower shall reimburse each Lender within 15 days after demand for any
resulting loss or expense incurred by it (or, without duplication, by an
existing or prospective Participant in the related Loan), including (without
limitation) any
32
<PAGE>
loss incurred in obtaining, liquidating or employing deposits from third
parties, but excluding loss of margin for the period after any such payment or
conversion or failure to borrow, prepay, convert or continue, provided that such
Lender shall have delivered to the Borrower a certificate as to the amount of
such loss or expense, which certificate shall be conclusive in the absence of
manifest error.
Section 2.13. Computation of Interest and Fees. Interest based on the
Prime Rate hereunder shall be computed on the basis of a year of 365 days (or
366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
Section 2.14. Letters of Credit. (a) Subject to the terms and conditions
hereof, each L/C Issuer agrees to issue letters of credit hereunder from time to
time before the tenth day before the Revolving Credit Termination Date upon the
request of the Borrower (the "Letters of Credit"); provided that, immediately
after each Letter of Credit is issued, (i) the aggregate amount of the Letter of
Credit Liabilities shall not exceed the Letter of Credit Commitment and (ii) the
aggregate amount of the Revolving Exposures shall not exceed the aggregate
amount of the Revolving Commitments. Upon the date of issuance by an L/C Issuer
of a Letter of Credit, the L/C Issuer shall be deemed, without further action by
any party hereto, to have sold to each Revolving Lender, and each Revolving
Lender shall be deemed, without further action by any party hereto, to have
purchased from the L/C Issuer, a participation in such Letter of Credit and all
of the related Letter of Credit Liabilities pro rata to their respective
Revolving Percentages.
(b) The Borrower shall give the L/C Issuer notice at least three Domestic
Business Days prior to the requested issuance of a Letter of Credit specifying
the date such Letter of Credit is to be issued, and describing the terms of such
Letter of Credit and the nature of the transactions to be supported thereby
(such notice, including any such notice given in connection with the extension
or renewal of a Letter of Credit, a "Notice of Issuance"). Upon receipt of a
Notice of Issuance, the L/C Issuer shall promptly notify the Agent, and the
Agent shall promptly notify each Revolving Lender of the contents thereof and of
the amount of such Revolving Lender's participation in such Letter of Credit.
The issuance by the L/C Issuer of each Letter of Credit shall, in addition to
the conditions precedent set forth in Section 3.02, be subject to the conditions
precedent that such Letter of Credit shall be in such form and contain such
terms as shall be satisfactory to the L/C Issuer and that the Borrower shall
have executed and delivered such other instruments and agreements relating to
such Letter of Credit as the L/C Issuer shall have reasonably requested. The
Borrower shall also pay to the L/C Issuer for its own account issuance, drawing,
amendment and extension charges in the amounts and at the times as agreed
between the Borrower and the L/C Issuer. The
33
<PAGE>
extension or renewal of any Letter of Credit shall be deemed to be an issuance
of such Letter of Credit, and if any Letter of Credit contains a provision
pursuant to which it is deemed to be extended unless notice of termination is
given by the L/C Issuer, the L/C Issuer shall timely give such notice of
termination unless it has theretofore timely received a Notice of Issuance and
the other conditions to issuance of a Letter of Credit have also theretofore
been met with respect to such extension. No Letter of Credit shall have a term
extending or be extendible beyond the Revolving Credit Termination Date.
(c) Upon receipt from the beneficiary of any Letter of Credit of any
notice of a drawing under such Letter of Credit, the L/C Issuer shall notify the
Agent and the Agent shall promptly give notice (a "Draw Notice") to the Borrower
and each Revolving Lender as to the amount to be paid as a result of such demand
or drawing and the payment date. Upon receipt of a Draw Notice by the Borrower,
the Borrower shall be irrevocably and unconditionally obligated to reimburse the
L/C Issuer for any amounts paid by the L/C Issuer upon any drawing under any
Letter of Credit, without presentment, demand, protest or other formalities of
any kind on the second Domestic Business Day following the date of receipt.
Regardless of if and when a Draw Notice is given to or received by the Borrower,
all such amounts paid by the L/C Issuer and remaining unpaid by the Borrower
shall bear interest, payable on demand, for each day from and including the date
of payment by the L/C Issuer until paid at a rate per annum equal to (x) to but
not including the due date determined in accordance with the preceding sentence,
the rate applicable to Base Rate Loans for such day and (y) on and after such
due date, the sum of 2% plus the rate applicable to Base Rate Revolving Loans
for such day. In addition, each Revolving Lender will pay to the Agent, for the
account of the L/C Issuer, immediately upon the L/C Issuer's demand at any time
during the period commencing after such drawing until reimbursement therefor in
full by the Borrower, an amount equal to such Lender's ratable share of such
drawing (in proportion to its participation therein), together with interest on
such amount for each day from the date of the L/C Issuer demand for such payment
(or, if such demand is made after 12:00 Noon (New York City time) on such date,
from the next succeeding Domestic Business Day) to the date of payment by such
Lender of such amount at the Federal Funds Rate. The L/C Issuer will pay to
each Revolving Lender ratably all amounts received from the Borrower for
application in payment of its reimbursement obligations in respect of any Letter
of Credit, but only to the extent such Revolving Lender has made payment to the
L/C Issuer in respect of such Letter of Credit pursuant hereto.
(d) The obligations of the Borrower and each Revolving Lender under
subsection (c) above shall be absolute, unconditional and irrevocable, and shall
be performed strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including without limitation the following
circumstances:
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(i) any lack of validity or enforceability of this Agreement or any Letter
of Credit or any document related hereto or thereto;
(ii) any amendment or waiver of or any consent to departure from all or
any of the provisions of this Agreement or any Letter of Credit or any document
related hereto or thereto;
(iii) the use which may be made of the Letter of Credit by, or any acts or
omission of, a beneficiary of a Letter of Credit (or any Person for whom the
beneficiary may be acting);
(iv) the existence of any claim, set-off, defense or other rights that the
Borrower may have at any time against a beneficiary of a Letter of Credit (or
any Person for whom the beneficiary may be acting), the Lenders (including the
L/C Issuer) or any other Person, whether in connection with this Agreement or
the Letter of Credit or any document related hereto or thereto or any unrelated
transaction;
(v) any statement or any other document presented under a Letter of Credit
proving to be forged, fraudulent or invalid in any respect or any statement
therein being untrue or inaccurate in any respect whatsoever;
(vi) payment under a Letter of Credit against presentation to the L/C
Issuer of a draft or certificate that does not comply with the terms of the
Letter of Credit; or
(vii) any other act or omission to act or delay of any kind by any Lender
(including the L/C Issuer), the Agent or any other Person, but for the
provisions of this subsection (vii), constitute a legal or equitable discharge
of the Borrower's or the Lender's obligations hereunder.
Nothing in this subsection (d) is intended to limit the right of the
Borrower to make a claim against the L/C Issuer for damages as contemplated by
the proviso to the first sentence of subsection (e).
(e) The Borrower hereby indemnifies and holds harmless each L/C Issuer and
the Agent (and, to the extent any other Lender shall have contributed toward or
indemnified against any such claim, damage, loss, liability, cost or expense,
incurred by an L/C Issuer or the Agent, each such other Lender) from and against
any and all claims, damages, losses, liabilities, costs or expenses which it may
incur (including, without limitation, any claims, damages, losses, liabilities,
costs or expenses which the L/C Issuer may incur by reason of or in connection
with the failure of any other Lender to fulfill or comply with its obligations
to such L/C Issuer hereunder), and none of the Lenders (including an L/C Issuer)
nor the Agent nor any of their officers or directors or employees or agents
shall be liable
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or responsible, by reason of or in connection with the execution and delivery or
transfer of or payment or failure to pay under any Letter of Credit, including
without limitation any of the circumstances enumerated in subsection (d) above,
as well as (i) any error, omission, interruption or delay in transmission or
delivery of any messages, by mail, cable, telegraph, telex or otherwise, (ii)
any error in interpretation of technical terms, (iii) any loss or delay in the
transmission of any document required in order to make a drawing under a Letter
of Credit, (iv) any consequences arising from causes beyond the control of the
L/C Issuer, including without limitation any government acts, or any other
circumstances whatsoever in making or failing to make payment under such Letter
of Credit; provided that the Borrower shall not be required to indemnify any
Lender for any claims, damages, losses, liabilities, costs or expenses, and the
Borrower shall have a claim against the L/C Issuer for direct (but not
consequential) damage suffered by it, to the extent found by a court of
competent jurisdiction to have been caused by (x) the willful misconduct or
gross negligence of the L/C Issuer in determining whether a request presented
under any Letter of Credit complied with the terms of such Letter of Credit or
(y) the L/C Issuer's failure to pay under any Letter of Credit after the
presentation to it of a request strictly complying with the terms and conditions
of the Letter of Credit. Nothing in this subsection (e) is intended to limit the
obligations of the Borrower under any other provision of this Agreement. To the
extent the Borrower does not indemnify an L/C Issuer as required by this
subsection, the Revolving Lenders agree to do so ratably in accordance with
their Revolving Commitments.
ARTICLE 3
Conditions
Section 3.01. Closing. The closing hereunder shall occur upon satisfaction
of the following conditions, (with each document referred to in this Section
dated the Closing Date unless specified otherwise):
(a) receipt by the Agent of a duly executed Note for the account of
each Lender dated on or before the Closing Date complying with the
provisions of Section 2.03;
(b) receipt by the Agent of an opinion of Gibson Dunn & Crutcher LLP,
special counsel for the Obligors, substantially in the form of Exhibit G;
(c) receipt by the Agent of an opinion of Davis Polk & Wardwell,
special counsel for the Agent, substantially in the form of
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Exhibit H-1 hereto and Amster, Rothstein & Ebenstein, special counsel for
the Agent, substantially in the form of Exhibit H-2 hereto;
(d) receipt by the Agent of duly executed counterparts of each of this
Agreement, the Subsidiary Guaranty and the Collateral Documents (other than
laboratory access letters), together with duly executed financing
statements on Form UCC-1 in form sufficient for filing in all jurisdictions
in which such filing is necessary to perfect Liens created by the
Collateral Documents, and all necessary documents for filing with the U.S.
Patent and Trademark Office and the U.S. Copyright Office, and the delivery
of any promissory notes and stock certificates comprising the Collateral;
(e) receipt by the Agent of a true, complete and correct copy of each
Transaction Document as in effect on the Closing Date, certified as such by
a Responsible Officer;
(f) receipt by the Agent of evidence satisfactory to it of the
satisfaction (without waiver, unless such waiver is approved in writing by
the Agent) of all conditions to the closing of the transactions
contemplated by the Transaction Documents to be consummated on the Closing
Date as set forth in the Transaction Documents, and that all such
transactions will take place prior to or simultaneously with the
transactions contemplated hereby to take place on the Closing Date;
(g) receipt by the Agent of each opinion of counsel required to be
delivered by any Person pursuant to the Transaction Documents on the
Closing Date, with a letter from each Person delivering any such opinion
authorizing reliance thereon by the Agent and the Lenders, all in form and
substance satisfactory to the Agent;
(h) receipt by the Agent of a certificate of the chief financial
officer or chief accounting officer of the Borrower to the effect that
Holdings shall have (x) received net cash proceeds of not less than
$360,000,000 from the issuance of shares of its common stock to Tracinda
and Seven Network and on terms and conditions not materially different in
any material respect from those set forth in the agreements listed on
Schedule 3.01(h)(x) hereto, as amended to the date hereof and substantially
on the terms heretofore disclosed to each of the Lenders, and (y)
contributed such amounts to the Borrower to the extent necessary to pay in
full all obligations of the Borrower under the Existing Credit Agreement;
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(i) receipt by the Agent of evidence satisfactory to it that all
outstanding obligations of the Borrower and its Subsidiaries under the
agreements and instruments set forth on Schedule 3.01(i) (including without
limitation principal and interest with respect to any loans under the
Existing Credit Agreement and all accrued fees and expenses) shall have
been paid in full or otherwise discharged concurrently with the making of
the Loans to be made hereunder on the Closing Date, all commitments
thereunder have been terminated and all Liens securing such obligations and
all guarantees thereof have been released or provision made for release
thereof that is satisfactory to the Agent (all Lenders hereunder which are
also Lenders under the Existing Credit Agreement hereby agree that
repayment of all outstanding obligations thereunder may be made on the
Closing Date, whether at the end of interest periods under the Existing
Credit Agreement or not);
(j) receipt by the Agent of evidence satisfactory to it that, after
consummation of the transactions contemplated by the Loan Documents and the
Transaction Documents to occur on the Closing Date, the Borrower and its
Subsidiaries shall have no Debt outstanding (other than Debt permitted
pursuant to Section 5.10);
(k) receipt by the Agent of (i) the pro forma balance sheet referred
to in Section 4.04(c) in form and substance satisfactory to the Lenders and
(ii) a certificate of the chief financial officer or the chief accounting
officer of the Borrower setting forth in reasonable detail the calculations
required to establish that after giving effect to the Acquisition and any
related transactions, the Borrower is in compliance with the requirements
of Section 5.14 on the Closing Date;
(l) receipt by the Agent of evidence satisfactory to it of the
insurance coverage required by Section 5.03 and the Collateral Documents;
(m) receipt by the Agent of payment in full of all fees, expenses and
other amounts due and payable hereunder (including fees and expenses
payable pursuant to Section 9.03) or pursuant to any letter agreement
between the Borrower and the Agent or the Arranger relating to the
transactions contemplated by the Loan Documents;
(n) receipt by the Agent of all documents the Agent may reasonably
request relating to the existence of the Obligors and Holdings, the
corporate authority for and the validity of the Loan Documents, and any
other matters relevant hereto, all in form and substance reasonably
satisfactory to the Agent;
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(o) the fact that the Closing Date shall have occurred on or prior to
September 30, 1997;
(p) the fact that all material governmental and third party approvals
(including approvals under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 and other consents) necessary in connection with the Acquisition,
all related transactions and Holdings' and its Affiliates' ownership and
operation of the Borrower shall have been obtained and be in full force and
effect, and all applicable waiting periods shall have expired without any
action being taken by any governmental authority which has restrained,
prevented or otherwise imposed materially adverse conditions on the
Acquisition;
(q) the Agent shall not have received notice from Lenders holding at
least 50% of the aggregate amount of the Commitments (which notices so
received shall not have been rescinded) to the effect that (i) such Lenders
have determined in their sole good faith discretion that, since December
31, 1996, there has been a material adverse change in the business,
financial condition, operations, properties or liabilities of the Borrower
and its Subsidiaries, taken as a whole or (ii) there exists pending or
threatened litigation or proceeding against Holdings, the Borrower or any
of its Subsidiaries, or otherwise relating to the Acquisition, which seeks
to enjoin or challenge the Acquisition or the Financing or which the
Lenders have determined in their sole good faith judgment could reasonably
be expected to have a Material Adverse Effect or any material adverse
effect upon the prospects of the Borrower and its Subsidiaries, taken as a
whole; and
(r) receipt by the Agent of evidence satisfactory to it that all
necessary consents, amendments and waivers needed from the Lenders under
the Credit Agreement dated as of October 10, 1996 among MGM, the lenders
and L/C issuers referred to therein and Morgan Guaranty Trust Company of
New York, as agent, shall have been received to permit the consummation and
performance by the Obligors and Holdings of the Loan Documents and the
Transaction Documents, and the transactions contemplated thereby.
Section 3.02. Borrowings and Issuances of Letters of Credit. The
obligation of any Lender to make a Loan on the occasion of any Borrowing (other
than the obligation of an L/C Issuer to issue (which shall include, for purposes
of this Section, any renewal or extension of the term of) any Letter of Credit
are each subject to the satisfaction of the following conditions:
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(a) receipt by the Agent of a Notice of Borrowing as required by
Section 2.01 or receipt by the L/C Issuer of a Notice of Issuance as
required by Section 2.14(b);
(b) solely in the case of a Revolving Borrowing or issuance of a
Letter of Credit the fact that, immediately after such Borrowing or the
issuance of such Letter of Credit, as the case may be, the aggregate
Revolving Exposure will not exceed the aggregate amount of the Revolving
Commitments;
(c) the fact that, immediately before and after such Borrowing or
issuance of a Letter of Credit, as the case may be, no Default shall have
occurred and be continuing; and
(d) the fact that the representations and warranties of the Obligors
contained in the Loan Documents shall be true in all material respects on
and as of the date of such Borrowing.
Each Borrowing and issuance of a Letter of Credit hereunder shall be deemed
to be a representation and warranty by the Borrower on the date of such
Borrowing or issuance of a Letter of Credit, as the case may be, as to the facts
specified in clauses (b), (c) and (d) of this Section.
ARTICLE 4
Representations and Warranties
The Borrower represents and warrants that (including, in the case of any
such representation and warranty made or deemed made before the consummation of
the Acquisition, at the time such representation and warranty is made or deemed
made and immediately after giving effect to the consummation of the
Acquisition):
Section 4.01. Corporate Existence and Power. Each Obligor is a corporation
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted, except to the extent that the failure to have
such licenses, authorizations, consents and approvals could not in the aggregate
reasonably be expected to have a Material Adverse Effect.
Section 4.02. Corporate and Governmental Authorization; No Contravention.
The execution, delivery and performance by each Obligor of the
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Loan Documents to which it is a party (i) are within the corporate powers of
such Obligor and have been duly authorized by all necessary corporate action,
(ii) require no action by or in respect of, or filing with, any governmental
body, agency or official, other than actions or filings which have been taken or
made on or prior to the Closing Date or, solely with respect to filings
necessary to perfect any security interest created under any of the Collateral
Documents, will be made on or prior to 5 Domestic Business Days after the
Closing Date, (iii) do not contravene, or constitute a default under, any
provision (v) of applicable law or regulation, (w) of the articles or
certificate of incorporation or by-laws of such Obligor, (x) of any agreement or
instrument under which Debt has or may be incurred binding upon the Borrower or
any of its Subsidiaries, (y) of any other agreement or instrument binding upon
the Borrower or any of its Subsidiaries which contravention or default could
reasonably be expected to have a Material Adverse Effect, or (z) of any
judgment, injunction, order or decree binding upon the Borrower or any of its
Subsidiaries or (iv) result in the creation or imposition of any Lien on any
material asset of the Borrower or any of its Subsidiaries.
Section 4.03. Binding Effect. The Loan Documents (other than the Notes) to
which each Obligor is a party constitute valid and binding agreements of such
Obligor and each Note, when executed and delivered in accordance with this
Agreement, will constitute a valid and binding obligation of the Borrower, in
each case enforceable in accordance with its terms except (i) as may be limited
by bankruptcy, insolvency or similar laws affecting creditors' rights generally
and (ii) as may be limited by equitable principles of general applicability.
Section 4.04. Financial Information; Information Memorandum. (a) The
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as
of December 31, 1996 and the related consolidated statements of operations,
stockholder's equity (capital deficiency) and cash flows for the fiscal year
then ended, reported on by KPMG Peat Marwick LLP, a copy of which has been
delivered to each of the Lenders, fairly present, in conformity with generally
accepted accounting principles, the consolidated financial position of the
Borrower and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such fiscal year.
(b) The unaudited consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of March 31, 1997 and the related unaudited
consolidated statements of operations, stockholder's equity (capital deficiency)
and cash flows for the three-month period then ended fairly present, in
conformity with generally accepted accounting principles applied on a basis
consistent with the financial statements referred to in subsection (a), the
consolidated financial position of the Borrower and its Consolidated
Subsidiaries as of such date and their consolidated results of operations and
cash flows for such three-month period (subject to normal year-end adjustments).
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(c) The pro forma balance sheet of the Borrower and its Consolidated
Subsidiaries as of March 31, 1997, copies of which have been delivered to each
of the Lenders prior to the date hereof, fairly presents, in conformity with
generally accepted accounting principles applied on a basis consistent with the
financial statements referred to in subsection (a), the consolidated financial
position of the Borrower and its Consolidated Subsidiaries as of such date,
adjusted to give effect (as if such events had occurred on such date) to (i) the
transactions contemplated by the Loan Documents and the Transaction Documents
to occur on the Closing Date, (ii) the application of the proceeds therefrom as
contemplated by this Agreement and the Transaction Documents and (iii) the
payment of all legal, accounting and other fees related thereto (the "Pro Forma
Transactions"). As of the date of such balance sheet and the Closing Date, the
Borrower and its Subsidiaries had and have no material liabilities, contingent
or otherwise, including liabilities for taxes, long-term leases or forward or
long-term commitments, which are not properly reflected on such balance sheet in
accordance with generally accepted accounting principles or the footnotes
relating thereto.
(d) The projections set forth in the Information Memorandum were prepared
in good faith on assumptions believed to be reasonable at the time of
preparation thereof.
(e) Since December 31, 1996 there has been no material adverse change in
the assets or liabilities or the business, financial condition or results of
operations or prospects of the Borrower and its Consolidated Subsidiaries,
considered as a whole, except for any such change as a result of (x) any change
resulting from general economic, financial or market conditions not specific to
the Borrower and its Subsidiaries or the business in which they operate or (y)
any change resulting from conditions or circumstances generally affecting the
business in which the Borrower and its Subsidiaries operate (including losses
from the release of Films in the ordinary course of business).
Section 4.05. Litigation. There is no action, suit or proceeding pending
against, or to the knowledge of the Borrower threatened against or affecting,
Holdings or any of its Subsidiaries before any court or arbitrator or any
governmental body, agency or official which could reasonably be expected to have
a Material Adverse Effect or which questions the validity or enforceability of
the Loan Documents or the Transaction Documents or the consummation of the
Acquisition.
Section 4.06. Compliance with ERISA. Each member of the ERISA Group has
fulfilled its obligations under the minimum funding standards of ERISA and the
Internal Revenue Code with respect to each Plan and is in
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compliance in all material respects with the presently applicable provisions of
ERISA and the Internal Revenue Code with respect to each Plan. No member of the
ERISA Group has (i) sought a waiver of the minimum funding standard under
section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to
make any contribution or payment to any Plan or Multiemployer Plan, or made any
amendment to any Plan, which has resulted or could result in the imposition of a
Lien or the posting of a bond or other security under ERISA or the Internal
Revenue Code or (iii) incurred any liability under Title IV of ERISA other than
a liability to the PBGC for premiums under Section 4007 of ERISA.
Section 4.07. Taxes. The Borrower and its Subsidiaries have filed all
United States Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes due pursuant to
such returns or pursuant to any assessment received by the Borrower or any
Subsidiary (other than any such taxes being contested in good faith by
appropriate proceeding and with respect to which appropriate reserves in
accordance with generally accepted accounting principles have been taken). The
charges, accruals and reserves on the books of the Borrower and its Subsidiaries
in respect of taxes or other governmental charges are, in the opinion of the
Borrower, adequate.
Section 4.08. Subsidiaries. (a) Each of the Borrower's Material
Subsidiaries is a corporation or other business entity duly incorporated or
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, and has all corporate or other
powers and all material governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted, except to the
extent that the failure of such Material Subsidiaries to maintain their
respective good standing or to have such licenses, authorizations, consents and
approvals could not in the aggregate reasonably be expected to have a Material
Adverse Effect (or its existence has been terminated as permitted under Section
5.04 or it has merged or consolidated with another Person as permitted under
Section 5.07(a)).
(b) Schedule 4.08 lists all of the Subsidiaries of the Borrower (including
any Subsidiary the existence of which has been terminated as permitted under
Section 5.04 or which has merged or consolidated with another Person as
permitted under Section 5.07(a)). Each Material Subsidiary of the Borrower
(other than Foreign Subsidiaries) is a Guarantor. Each Guarantor is a direct or
indirect wholly-owned Subsidiary of the Borrower.
Section 4.09. Regulatory Restrictions on Borrowing. The Borrower is not an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, a "holding company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended, or otherwise subject to any regulatory scheme
which restricts its ability to incur debt.
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Section 4.10. Full Disclosure. No information heretofore or hereafter
furnished by each Obligor to the Agent or any Lender for purposes of or in
connection with the Loan Documents or any transaction contemplated thereby
contains or, taken together with all information so furnished will contain, any
untrue statement of a material fact or omits or will omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Section 4.11. Representations in Transaction Documents True and Correct.
Each of the representations and warranties of Holdings contained in the
Transaction Documents is true and correct in all material respects as of the
Closing Date. The Transaction Documents have not as of the Closing Date been
modified or amended in any respect and no provision or condition contained
therein has been waived, except with the express written consent of the Agent.
Section 4.12. Intellectual Property. The Borrower and each of its
Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights
(including without limitation any copyrights relating to Library Films),
technology, know-how and processes necessary for the conduct of their respective
businesses as currently conducted (the "Intellectual Property"), except to the
extent that the failure to own or be licensed to use any such Intellectual
Property could not in the aggregate reasonably be expected to have a Material
Adverse Effect. No claim has been asserted and is pending by any Person
challenging or questioning the use of any Intellectual Property or the validity
or effectiveness of any such Intellectual Property, nor does the Borrower know
of any valid basis for any such claim, except, in each case, for claims which
could not in the aggregate reasonably be expected to have a Material Adverse
Effect. The use of Intellectual Property by the Borrower and its Subsidiaries
does not infringe on the rights of any Person, except to the extent that such
infringements could not in the aggregate reasonably be expected to have a
Material Adverse Effect.
Section 4.13. Collateral Documents. The representations and warranties
made by the Obligors in the Collateral Documents are true and correct in all
material respects.
Section 4.14. Solvency. As of the Closing Date after giving effect to the
transactions contemplated hereby to occur on the Closing Date, and at all times
thereafter: (i) the aggregate fair market value of the business and/or assets of
the Borrower will exceed its liabilities (including contingent, subordinated,
unmatured and unliquidated liabilities), (ii) the Borrower will have sufficient
cash flow to enable it to pay its debts as they mature and (iii) the Borrower
and its Subsidiaries, taken as a whole, will not have unreasonably small capital
for the business in which the Borrower and its Subsidiaries are engaged.
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ARTICLE 5
Covenants
The Borrower agrees that, so long as any Lender has any Commitment
hereunder or any amount payable under any Note or any Letter of Credit Liability
remains unpaid:
Section 5.01. Information. The Borrower will deliver to the Agent, with
sufficient copies for all Lenders (and the Agent shall deliver promptly upon
receipt to the Lenders):
(a) as soon as available and in any event within 105 days after the
end of each Fiscal Year, (i) an audited consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of the end of such Fiscal
Year and the related audited consolidated statements of operations,
stockholder's equity and cash flows for such Fiscal Year, setting forth in
each case in comparative form the figures for the previous Fiscal Year, all
reported on without material qualification by independent public
accountants of nationally recognized standing and (ii) an unaudited
consolidated statement of cash flows of the Borrower and its Consolidated
Subsidiaries for such Fiscal Year, setting forth (x) in reasonable detail a
calculation of Consolidated Net Cash Flows and consolidated cash flows from
operations of the Borrower and its Consolidated Subsidiaries, in each case
for such Fiscal Year (in each case determined in a manner consistent with
the statements of cash flows included in the Information Memorandum) and
(y) in comparative form the figures for such statements for such Fiscal
Year set forth in the Information Memorandum;
(b) as soon as available and in any event within 45 days after the end
of each of the first three Fiscal Quarters of each Fiscal Year, (i) a
consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as of the end of such Fiscal Quarter and the related
consolidated statements of operations, stockholder's equity and cash flows
for such Fiscal Quarter and for the portion of the Fiscal Year ended at the
end of such Fiscal Quarter, setting forth in the case of such statements of
operations, stockholder's equity and cash flows, in comparative form the
figures for the corresponding Fiscal Quarter and the corresponding portion
of the previous Fiscal Year, all certified (subject to normal year-end
adjustments) as to fairness of presentation, generally accepted accounting
principles and consistency by the chief financial officer or the chief
accounting officer of the Borrower and (ii) an unaudited consolidated
statement of cash flows of the Borrower and its Consolidated Subsidiaries
for such Fiscal Quarter and the portion of the Fiscal Year ended at the end
of such Fiscal Quarter, setting forth (x) in reasonable detail a
calculation
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of Consolidated Net Cash Flows and consolidated cash flows from operations
of the Borrower and its Consolidated Subsidiaries, in each case for such
Fiscal Quarter and the portion of the Fiscal Year ended at the end of such
Fiscal Quarter (in each case determined in a manner consistent with the
statements of cash flows included in the Information Memorandum) and (y) in
comparative form the figures for such statements for the corresponding
Fiscal Quarter and the corresponding portion of the previous Fiscal Year
set forth in the Information Memorandum;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, (A) a certificate of
the chief financial officer or the chief accounting officer of the
Borrower, (i) setting forth in reasonable detail the calculations required
to establish whether the Borrower was in compliance with the requirements
of Sections 5.11 to 5.16, inclusive, and Section 5.19 on the date of such
financial statements, (ii) listing all new Subsidiaries of the Borrower
since the date of the previous certificate delivered pursuant to this
Section 5.01(c), (iii) solely in the case of each set of financial
statements referred to in clause (a) above, setting forth in reasonable
detail the calculations required to determine Excess Cash Flow for the
related Fiscal Year and (iv) stating whether, to his or her knowledge, any
Default exists on the date of such certificate and, if any Default then
exists, setting forth the details thereof and the action which the Borrower
is taking or proposes to take with respect thereto and (B) from the chief
financial officer or the chief accounting officer of the Borrower, a report
setting forth in reasonable detail a discussion and analysis of the
Borrower's financial condition and results of operations for the Fiscal
Quarter then ended;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a)(i) above, a statement of the firm of
independent public accountants which reported on such statements (i)
whether anything has come to their attention to cause them to believe that
any Default under Sections 5.11 to 5.16, inclusive, or Section 5.19 existed
on the date of such statements and (ii) confirming the accuracy of the
calculations set forth in the officer's certificate delivered
simultaneously therewith pursuant to clause (c) above (other than the
calculations relating to the determination of Excess Cash Flow);
(e) within five days after any Responsible Officer obtains knowledge
of any Default, if such Default is then continuing, a certificate of the
chief financial officer or the chief accounting officer of the Borrower
setting forth the details thereof and the action which the Borrower is
taking or propose to take with respect thereto;
46
<PAGE>
(f) as soon as reasonably practicable after any Responsible Officer
obtains knowledge thereof, notice of any event or condition which has had
or could reasonably be expected to have a Material Adverse Effect and the
nature of such Material Adverse Effect;
(g) as soon as reasonably practicable after any Responsible Officer
obtains knowledge of the commencement of, or of a threat of the
commencement of, an action, suit or proceeding against the Borrower or any
of its Subsidiaries before any court or arbitrator or any governmental
body, agency or official which could reasonably be expected to have a
Material Adverse Effect or which questions the validity or enforceability
of the Loan Documents or the Transaction Documents or the consummation of
the Acquisition, a certificate of a senior financial officer of the
Borrower setting forth the nature of such pending or threatened action,
suit or proceeding and such additional information with respect thereto as
may be reasonably requested by any Lender;
(h) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements
on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or
their equivalents) (if any) which the Borrower or Holdings shall have filed
with the Securities and Exchange Commission;
(i) if and when any member of the ERISA Group (i) gives or is required
to give notice to the PBGC of any "reportable event" (as defined in Section
4043 of ERISA) with respect to any Plan which might constitute grounds for
a termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any
such reportable event, a copy of the notice of such reportable event given
or required to be given to the PBGC; (ii) receives notice of complete or
partial withdrawal liability under Title IV of ERISA or notice that any
Multiemployer Plan is in reorganization, is insolvent or has been
terminated, a copy of such notice; (iii) receives notice from the PBGC
under Title IV of ERISA of an intent to terminate, impose liability (other
than for premiums under Section 4007 of ERISA) in respect of, or appoint a
trustee to administer any Plan, a copy of such notice; (iv) applies for a
waiver of the minimum funding standard under Section 412 of the Internal
Revenue Code, a copy of such application; (v) gives notice of intent to
terminate any Plan under Section 4041(c) of ERISA, a copy of such notice
and other information filed with the PBGC; (vi) gives notice of withdrawal
from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or
(vi) fails to make any payment or contribution to any Plan or Multiemployer
Plan or makes any amendment to any Plan which has resulted or could result
in the imposition of a Lien or the posting of a
47
<PAGE>
bond or other security, a certificate of the Borrower's chief financial
officer or chief accounting officer setting forth details as to such
occurrence and the action, if any, which the Borrower or applicable member
of the ERISA Group is required or proposes to take;
(j) from time to time at the request of the Agent (but no more
frequently than once in any 12-month period), an appraisal made by a
qualified independent appraiser selected by the Borrower and reasonably
satisfactory to the Agent, as to value of the Library Films or any portion
thereof, including copyrights pertaining thereto and all contractual and
other rights associated with or related to the Library Films, and as of
such date as shall each be specified in the relevant request made by the
Agent, performed using methods and procedures, and prepared in a form,
reasonably satisfactory to the Required Lenders;
(k) within 30 days prior to the end of each Fiscal Year, the operating
and capital expenditure budgets and cash flow forecasts of the Borrower and
its Consolidated Subsidiaries for the immediately succeeding Fiscal Year,
which budgets and forecasts shall be in format and scope reasonably
consistent with the projections, budgets and forecasts set forth in the
Information Memorandum; and
(l) from time to time such additional information regarding the
financial position or business of the Borrower and its Subsidiaries or any
other Obligor as the Agent, at the request of any Lender, may reasonably
request.
Section 5.02. Performance of Obligations. The Borrower will pay and
discharge, and will cause each Material Subsidiary to pay and discharge, at or
before maturity, all their respective material obligations and liabilities
(including, without limitation, tax liabilities and claims of materialmen,
warehousemen and the like which if unpaid might by law give rise to a Lien), and
will duly observe and perform, and will cause each Material Subsidiary to duly
observe and perform, all material terms and conditions of all material
agreements and, without limitation of the foregoing, all production services
agreements with respect to any Film, all completion guaranties and distribution
agreements except (i) where the same may be contested in good faith by
appropriate proceedings, with respect to which the Borrower and/or such Material
Subsidiary has established, in accordance with generally accepted accounting
principles, appropriate reserves for the accrual of any of the same and (ii)
where the failure to pay or discharge such obligations and liabilities could not
in the aggregate reasonably be expected to have a Material Adverse Effect.
48
<PAGE>
Section 5.03. Maintenance of Property; Insurance. (a) The Borrower will
keep, and will cause each Material Subsidiary to keep, all property useful and
necessary in its business in good working order and condition, ordinary wear and
tear excepted.
(b) The Borrower will, and will cause each of its Material Subsidiaries
to, maintain (either in the name of the Borrower or in such Material
Subsidiary's own name) with financially sound and responsible insurance
companies, insurance on all their respective properties in at least such
amounts, against at least such risks and with such risk retention as are usually
maintained, insured against or retained, as the case may be, in the same general
area by companies of established repute engaged in the same or a similar
business (but including in any event public liability insurance and "errors and
omissions" insurance); and will furnish to the Lenders, upon request from the
Agent, information presented in reasonable detail as to the insurance so
carried.
Section 5.04. Conduct of Business and Maintenance of Existence. The
Borrower will continue, and will cause each Material Subsidiary to continue, to
engage in business of the same general type as now conducted by the Borrower and
its Material Subsidiaries and will preserve, renew and keep in full force and
effect, and will cause each Material Subsidiary to preserve, renew and keep in
full force and effect their respective corporate existence and their respective
rights, privileges and franchises necessary or desirable in the normal conduct
of business, except to the extent that the failure to keep in full force and
effect such rights, privileges and franchises could not in the aggregate
reasonably be expected to have a Material Adverse Effect; provided that (i) the
Borrower may liquidate or terminate the corporate existence of any Material
Subsidiary if, prior to or contemporaneously with such liquidation or
termination, substantially all of the assets of such Material Subsidiary are
distributed, contributed or otherwise transferred to the Borrower or a
Guarantor, (ii) except for continuing development, production and release with
respect to Existing 1997 Films, the Borrower and its Subsidiaries shall not be
required to, and shall not, continue to engage in the development, production
and release of new films and (iii) nothing in this Section 5.04 shall prohibit
any transaction explicitly permitted by the proviso set forth in Section
5.07(a).
Section 5.05. Compliance with Laws. The Borrower will comply, and cause
each Material Subsidiary to comply, in all material respects with all applicable
laws, ordinances, rules, regulations, and requirements of governmental
authorities (including, without limitation, ERISA and the rules and regulations
thereunder) except (i) where the necessity of compliance therewith is contested
in good faith by appropriate proceedings or (ii) to the extent that failure to
so comply could not in the aggregate reasonably be expected to have a Material
Adverse Effect.
49
<PAGE>
Section 5.06. Inspection of Property, Books and Records. The Borrower will
keep, and will cause each Subsidiary to keep, proper books of record and account
in which full, true and correct entries shall be made of all dealings and
transactions in relation to its business and activities; and will permit, and
will cause each Subsidiary to permit, representatives of the Agent, at the
Agent's or any Lender's expense, to visit and inspect any of their respective
properties, to examine and make abstracts from any of their respective books and
records and to discuss their respective affairs, finances and accounts with
their respective officers, employees and independent public accountants, all at
such reasonable times during normal business hours and upon reasonable prior
notice, and as often as may reasonably be desired.
Section 5.07. Mergers and Sales of Assets; Licensing Agreements. (a) The
Borrower will not, and will not permit any Material Subsidiary to, consolidate
or merge with or into any other Person; provided that (i) the Borrower may merge
with another Person if the Borrower is the corporation surviving such merger and
immediately after giving effect to such merger, no Default shall have occurred
and be continuing and (ii) any Material Subsidiary may merge with any other
Person if the corporation surviving the merger is the Borrower or a Guarantor
and immediately after giving effect to such merger, no Default shall have
occurred and be continuing.
(b) The Borrower will not, and will not permit any of its Subsidiaries to,
make any Asset Sale in any Fiscal Year, other than (i) Asset Sales the fair
market value of which, when combined with all other such Asset Sales previously
made during such Fiscal Year, does not exceed $1,000,000, (ii) MGM Film Related
Asset Dispositions to the extent permitted by clause (viii) of Section 5.20 and
(iii) any Asset Sale in which (x) the consideration therefor is not less than
the fair market value of the related asset (as determined in good faith by the
chief financial officer or chief accounting officer of the Borrower), (y) the
consideration received therefor consists solely of cash payable at the closing
thereof and (z) after giving effect to such Asset Sale, the aggregate fair
market value of the assets disposed of in all Asset Sales in such Fiscal Year
does not exceed $5,000,000. Notwithstanding the foregoing, the Borrower will
not, and will not permit any of its Subsidiaries to, enter into any receivables
securitization program or other type of accounts receivable financing
transaction.
(c) Without limitation of the foregoing, the Borrower will not, and will
not permit its Subsidiaries to, sell, lease or otherwise transfer, directly or
indirectly, all or substantially all of the assets of the Borrower and its
Subsidiaries, taken as a whole, to any other Person; provided that nothing in
this subsection (c) shall prohibit any Subsidiary from distributing,
contributing or otherwise transferring its assets to the Borrower or a
Guarantor.
50
<PAGE>
(d) Without limitation of the foregoing, the Borrower will not, and will
not permit its Subsidiaries to, enter into any Licensing Agreement or series of
related Licensing Agreements with respect to any Library Films if:
(i) the aggregate amount of payments payable for the account of or
allocable to the Borrower and/or its Subsidiaries under such Licensing
Agreement or series of related Licensing Agreements exceeds $75,000,000; or
(ii) the Borrower or such Subsidiary conveys, sells, assigns,
transfers or otherwise disposes of, with or without recourse, its rights to
receive payments under any such Licensing Agreement or series of related
Licensing Agreements; or
(iii) the aggregate amount of payments for the account of or allocable
to the Borrower and/or its Subsidiaries under such Licensing Agreement or
series of related Licensing Agreements exceeds $7,500,000 and the aggregate
amount of payments under all such Licensing Agreement or series of related
Licensing Agreements that are not to be made reasonably pro rata over the
period of availability of the Films which are the subject of such Licensing
Agreement or series of related Licensing Agreements would exceed the
greater of (x) 10% of the aggregate amount of all payments under such
Licensing Agreement or series of related Licensing Agreements and (y)
$7,500,000.
(e) Without limitation of the foregoing, the Borrower will not, and will
not permit its Subsidiaries to, enter into any Licensing Agreement or series of
related Licensing Agreements with respect to any Films (other than Library
Films) or Film Related Assets if the Borrower or such Subsidiary conveys, sells,
assigns, transfers or otherwise disposes of, with or without recourse, its
rights to receive payments under any such Licensing Agreement or series of
related Licensing Agreements.
Section 5.08. Use of Proceeds. The proceeds of the Term Loans and the
Revolving Loans made on the Closing Date will be used by the Borrower to repay
Debt and other obligations outstanding under the agreements and instruments
listed on Schedule 3.01(i) and to pay for transaction costs incurred in
connection with the Acquisition and the financing thereof. The Letters of
Credit and the proceeds of the Revolving Loans made after the Closing Date will
be used for ongoing production costs in connection with any Existing 1997 Film,
non-recurring expenses associated with the Acquisition and general corporate
purposes. None of such proceeds and none of the Letters of Credit will be used,
directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of buying or carrying any "margin stock" within the meaning of
Regulation U.
51
<PAGE>
Section 5.09. Negative Pledge. Neither the Borrower nor any Subsidiary
will create, assume or suffer to exist any Lien on any asset now owned or
hereafter acquired by it, except:
(a) any Lien existing on any asset of any Person at the time such
Person becomes a Subsidiary and not created in contemplation of such event;
(b) any Lien on any fixed or capital asset securing Debt incurred or
assumed for the purpose of financing all or any part of the cost of
acquiring such asset; provided that such Lien attaches to such asset
concurrently with or within 90 days after the acquisition thereof;
(c) any Lien on any asset of any Person existing at the time such
Person is merged or consolidated with or into the Borrower or a Subsidiary
and not created in contemplation of such event;
(d) any Lien existing on any asset prior to the acquisition thereof by
the Borrower or a Subsidiary and not created in contemplation of such
acquisition;
(e) any Lien on assets of a Foreign Subsidiary securing Debt permitted
under Section 5.10(f);
(f) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the foregoing
clauses of this Section, provided that such Debt is not increased and is
not secured by any additional assets;
(g) any Lien securing Profit Participations, Residuals and Deferred
Payments and other obligations that do not constitute Debt by operation of
clause (x) of the proviso in the definition of "Debt"; provided that such
Lien attaches solely to cash deposits and the Film or Films or Film Related
Assets that are the subject of such arrangements;
(h) Liens (other than Liens securing Debt) consisting of rights of
licensees under access agreements pursuant to which such licensees have
access to duplicating material for the purpose of making prints of Films
licensed to them, and rights of distributors, exhibitors, licensees and
other Persons in Films created in connection with the distribution and
exploitation of such Films in the ordinary course of business;
(i) Liens on cash and cash equivalents arising under the escrow
arrangements referred to in the proviso to the definition of Sale-Leaseback
52
<PAGE>
Transactions and Liens consisting of the rights and interests of the lessor
with respect to Films subject to Sale-Leaseback Transactions permitted
under Section 5.10(d) hereof;
(j) Liens arising out of Licensing Agreements or security agreements
entered into pursuant to such Licensing Agreements in respect of Films or
Film Related Assets permitted under Section 5.07(d) or Section 5.07(e)
hereof, consisting of such licensed rights and attaching solely to the Film
or Films or Film Related Assets so licensed;
(k) Liens in existence on the Closing Date and reflected in Schedule
5.09 hereto;
(l) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with
respect thereto are maintained on the books of the Borrower or its
Subsidiaries, as the case may be, in conformity with generally accepted
accounting principles (or, in the case of Foreign Subsidiaries, generally
accepted accounting principles in effect from time to time in their
respective jurisdictions of incorporation);
(m) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are
not overdue for a period of more than 60 days or which are being contested
in good faith by appropriate proceedings;
(n) pledges or deposits in connection with workers' compensation,
unemployment insurance or other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements;
(o) Liens on deposits to secure obligations to acquire Films or Film
Related Assets or the performance of bids, trade contracts (other than
contracts under which Debt may be incurred), leases, performance or
completion bonds and other obligations of a like nature incurred in the
ordinary course of business; provided that any such Liens securing the
obligation of the Borrower or any of its Subsidiaries to acquire Films or
Film Related Assets shall encumber only cash;
(p) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the property subject thereto or
53
<PAGE>
materially interfere with the ordinary conduct of the business of the
Borrower or such Subsidiary;
(q) Liens securing Debt permitted by Sections 5.10(h) provided that
(x) the agreement to grant such Liens shall be created substantially
simultaneously with the acquisition, development, production or
postproduction of such Existing 1997 Films and (y) such Liens do not at any
time encumber any property other than the Existing 1997 Films being
produced, developed or acquired;
(r) Liens (other than Liens securing Debt) incurred in the ordinary
course of business on any Existing 1997 Film constituting negotiation
rights with respect to such Existing 1997 Film, options to develop such
Existing 1997 Film or similar rights with respect to such Existing 1997
Film;
(s) Liens (other than Liens permitted by any of the foregoing clauses)
arising in the ordinary course of its business which (i) do not secure Debt
or Derivatives Obligations, (ii) do not secure any obligation in an amount
exceeding $1,000,000 and (iii) do not in the aggregate materially detract
from the value of its assets or materially impair the use thereof in the
operation of its business; and
(t) Liens created by the Collateral Documents.
Section 5.10. Limitation on Debt. The Borrower will not, and will not
permit any of its Subsidiaries to, incur or at any time be liable with respect
to any Debt except:
(a) Debt under this Agreement;
(b) Debt secured by Liens permitted by Section 5.09(a), (b), (c), (d) or
(f);
(c) Debt of the Borrower or any of its Subsidiaries incurred to finance any
acquisition of fixed or capital assets permitted pursuant to Section 5.14 and
any Debt of the relevant obligor refinancing such Debt; provided that the
principal amount thereof is not increased;
(d) Debt in respect of Sale-Leaseback Transactions;
(e) Debt outstanding on the Closing Date and listed on Schedule 5.10;
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<PAGE>
(f) Debt of any Foreign Subsidiary owed to a person other than the
Borrower, any Guarantor or any other Foreign Subsidiary incurred for working
capital purposes in an aggregate principal amount not in excess of $1,000,000 at
any time;
(g) (i) Debt of the Borrower owed to a Guarantor, or Debt of a Guarantor
owed to the Borrower or another Guarantor, or Debt of a Foreign Subsidiary owed
to another Foreign Subsidiary or (ii) Debt of a Foreign Subsidiary owed to the
Borrower or a Guarantor and incurred in the ordinary course of business to
finance operating expenditures of such Foreign Subsidiary and evidenced by a
note (which may be a grid note) constituting Collateral under a Pledge
Agreement;
(h) Debt incurred in connection with the financing or refinancing of the
development, production, acquisition, distribution, exhibition or exploitation
of any Existing 1997 Film, but solely to the extent that under the terms of such
Debt the obligations of the Borrower and its Subsidiaries with respect to such
Debt may be satisfied by recourse only to such Existing 1997 Film and rights
pertaining thereto and, in each case, to the proceeds thereof; and
(i) Debt not otherwise permitted by the foregoing clauses of this Section
in an aggregate principal or face amount not in excess of $5,000,000 at any
time.
Section 5.11. Debt to Net Cash Flow. At no time during any Fiscal Quarter
set forth below shall the Leverage Ratio be greater than the ratio set forth
below opposite such Fiscal Quarter:
<TABLE>
<CAPTION>
Fiscal Quarter
Ending Ratio
-------------- -----
<S> <C>
3/31/98 5.0:1
6/30/98 5.0:1
9/30/98 3.25:1
12/31/98 2.75:1
3/31/99 2.50:1
6/30/99 2.25:1
9/30/99 2.00:1
12/31/99 1.75:1
3/31/00 1.75:1
6/30/00 1.75:1
9/30/00 1.75:1
12/31/00 1.50:1
3/31/01 1.50:1
6/30/01 1.25:1
</TABLE>
55
<PAGE>
<TABLE>
<S> <C>
9/30/01 1.25:1
Thereafter 1.00:1
</TABLE>
Section 5.12. Minimum Library Cash Flow. At the last day of each Fiscal
Quarter, Library Cash Flows for the four consecutive Fiscal Quarters then most
recently ended (or (A) solely at the last day of the fourth Fiscal Quarter of
1997, Library Cash Flows for the two Fiscal Quarters then most recently ended
multiplied by two, and (B) solely at the last day of the first Fiscal Quarter of
1998, Library Cash Flows for the three Fiscal Quarters then most recently ended
multiplied by 1.33) will not be less than the amount set forth opposite such
Fiscal Quarter:
<TABLE>
<CAPTION>
Fiscal Quarter
Ending Amount
-------------- -----------
<S> <C>
12/31/97 $40,000,000
3/31/98 $45,000,000
6/30/98 $50,000,000
9/30/98 $50,000,000
12/31/98 $55,000,000
3/31/99 $55,000,000
6/30/99 $55,000,000
9/30/99 $55,000,000
12/31/99 $55,000,000
3/31/00 $50,000,000
6/30/00 $47,500,000
9/30/00 $47,500,000
12/31/00 $45,000,000
3/31/01 $40,000,000
6/30/01 $37,500,000
9/30/01 $37,500,000
Thereafter $35,000,000
</TABLE>
Section 5.13. Maximum Capital Expenditures. Consolidated Capital
Expenditures for any Fiscal Year will not exceed $250,000.
Section 5.14. Minimum Consolidated Adjusted Net Worth. Consolidated
Adjusted Net Worth will at no time be less than an amount equal to the sum of
(i) $300,000,000 plus (ii) an amount equal to 50% of Consolidated Net Income for
each Fiscal Quarter ending after June 30, 1997 but prior to the date of
determination, in each case, for which such Consolidated Net Income is positive
(but with no deduction on account of negative Consolidated Net Income for any
Fiscal Quarter), plus (iii) 100% of the aggregate net proceeds, including the
fair
56
<PAGE>
market value of property other than cash (as determined in good faith by the
Board of Directors of the Borrower) received by the Borrower from the issuance
and sale after the date hereof of any capital stock of the Borrower (other than
the proceeds of any issuance and sale of any capital stock (x) to a Subsidiary
or (y) which is required to be redeemed, or is redeemable at the option of the
holder, if certain events or conditions occur or exist or otherwise) or in
connection with the conversion or exchange of any Debt of the Borrower into
capital stock of the Borrower after the closing of the Acquisition.
Section 5.15. Restrictions on Film Production Expenditures. (a) The
Borrower will not, and will not permit any of its Subsidiaries, to make any Film
Production Expenditures for any Films other than Existing 1997 Films.
(b) At the last day of each Fiscal Quarter ended on or before June 30,
1998, the aggregate Film Production Expenditures for the Existing 1997 Films for
the period from July 1, 1997 through such date, considered as a single
accounting period, shall not exceed $20,000,000.
Section 5.16. Maximum Cash Overhead and Administrative Expenses.
Consolidated overhead and administrative expenditures (including amounts
capitalized in accordance with generally accepted accounting principles)
expended in cash by the Borrower and its Consolidated Subsidiaries will not
exceed (i) $3,000,000 for the first Fiscal Quarter of 1998, (ii) $2,250,000 for
the second Fiscal Quarter of 1998, (iii) $1,500,000 for the third Fiscal Quarter
of 1998, (iv) $1,000,000 for each of the fourth Fiscal Quarter of 1998 and the
first and second Fiscal Quarters of 1999 and (iv) $750,000 for any Fiscal
Quarter thereafter.
Section 5.17. Restricted Payments. Neither the Borrower nor any Subsidiary
will declare or make any Restricted Payment, provided that the Borrower or any
Subsidiary may make MGM Film Related Asset Dispositions for consideration
received by the Borrower or such Subsidiary not less than the greater of cost or
book value of the Film Related Asset so disposed of, to the extent that the
aggregate value (determined at the greater of cost and book value) for all such
transactions after the Closing Date does not exceed $5,000,000.
Section 5.18. Investments. Neither the Borrower nor any Subsidiary will
hold, make or acquire any Investment in any Person other than:
(a) Investments by the Borrower in the form of equity interests of Persons
which are Guarantors or which, within 30 days after consummation of such
Investment, become Guarantors;
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<PAGE>
(b) Investments (other than Investments permitted by any of the foregoing
clauses) in existence on the date hereof and listed on Schedule 5.18;
(c) Investments made after the date hereof pursuant to a commitment to make
such Investments in existence on the date hereof and listed on Schedule 5.18;
(d) Temporary Cash Investments;
(e) Investments constituting intercompany loans permitted under Section
5.10(g);
(f) Investments made by the Borrower or any Subsidiary in the ordinary
course of business pursuant to arm's length transactions in Persons (other than
the Borrower or any Subsidiary) for the development, production, acquisition,
distribution, exhibition or exploitation of Existing 1997 Film, copyrights or
trademarks in connection with co-production deals, split-rights deal, overhead
deals or similar arrangements (as such terms are generally understood in the
movie industry on the date hereof), provided that such Investments for the
development, production, acquisition, distribution, exhibition or exploitation
involving payment obligations owing to the Borrower or such Subsidiary (other
than advances against contractual rights to payment or other compensation made
to talent in the ordinary course of business) of Existing 1997 Films will be
secured, if such Existing 1997 Films are to be in the United States, by Liens on
such Existing 1997 Films in favor of the Borrower or such Subsidiary;
(g) Investments (other than Investments permitted by any of the foregoing
clauses) by the Borrower or any Subsidiary in the form of equity interests of
Persons which are not Guarantors; provided that the aggregate net book value of
all Investments permitted by this clause (g) does not exceed $5,000,000; and
(h) any Investment not otherwise permitted by the foregoing clauses of this
Section if, immediately after such Investment is made or acquired, the aggregate
net book value of all Investments permitted by this clause (h) does not exceed
$5,000,000.
Section 5.19. Limitation on Non-Recurring Acquisition Expenditures. The
aggregate amount of all non-recurring charges taken by the Borrower in
connection with the Acquisition (including without limitation, legal and other
transaction related fees, severance, termination expenses in connection with
leases and other commitments and other related expenses) shall not exceed
$45,000,000.
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<PAGE>
Section 5.20. Transactions with Affiliates. The Borrower will not, and
will not permit any Subsidiary to, directly or indirectly, pay any funds to or
for the account of, make any investment (whether by acquisition of stock or
indebtedness, by loan, advance, transfer of property, guarantee or other
agreement to pay, purchase or service, directly or indirectly, any Debt, or
otherwise) in, lease, sell, transfer or otherwise dispose of any assets,
tangible or intangible, to, or participate in, or effect, any transaction with,
any Affiliate except on an arms-length basis on terms at least as favorable to
the Borrower or such Subsidiary than could have been obtained from a third party
who was not an Affiliate; provided that the foregoing provisions of this Section
shall not prohibit (i) any such Person from declaring or paying any lawful
dividend or other payment ratably in respect of all of its capital stock of the
relevant class so long as, after giving effect thereto, no Default shall have
occurred and be continuing, (ii) the consummation of the transactions
contemplated by the agreements set forth on Schedule 5.20, as amended to the
date hereof and substantially in the forms heretofore distributed to each of the
Lenders, (iii) customary indemnification arrangements between the Borrower and
the directors and officers of Holdings, the Borrower, and each Subsidiary, (iv)
customary tax sharing arrangements between or among Holdings, the Borrower, and
the Subsidiaries, (v) payment of a ratable portion of the cost of "D&O",
"keyman" and similar insurance by the Borrower or Holdings, including with
respect to directors and officers of Holdings, the Borrower and its
Subsidiaries, (vi) services arrangements between Holdings or one or more of the
MGM Companies and the Borrower or one or more of its Subsidiaries relating to
the provision of development, production, operational, administrative or other
services by employees of one of the parties to other parties; (viii)
arrangements between the MGM Companies and the Borrower or one or more of its
Subsidiaries relating to the use by the MGM Companies of any trademarks, service
marks, trade names or logos of the Borrower or such Subsidiary in connection
with the production, distribution or other exploitation of motion pictures,
(vii) payment of a ratable portion of shared overhead and other administrative
costs of Holdings, the MGM Companies and the Borrower and its Subsidiaries and
(viii) any MGM Film Related Asset Disposition for consideration received by the
Borrower or the Subsidiary disposing of such Film Related Asset of not less than
the greater of cost or book value of such Film Related Asset, to the extent that
the aggregate value (determined at the greater of cost and book value) for all
such Film Related Assets so disposed of pursuant to this clause (viii) after the
Closing Date does not exceed $5,000,000.
Section 5.21. No Modification of Agreements Without Consent. The Borrower
will not, and will not permit any of its Subsidiaries to, consent to or solicit
any amendment or supplement to, or any waiver or other modification of any
Transaction Document or any of the ancillary agreements referred to therein in
any manner which could reasonably be expected to adversely affect the rights
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of the Agent or the Lenders under this Agreement or the Notes or the other Loan
Documents or their ability to enforce the same.
Section 5.22. Limitation on Restrictions Affecting Subsidiaries. Neither
the Borrower nor any of its Subsidiaries will enter into, or suffer to exist,
any agreement with any Person, other than this Agreement, which prohibits or
limits the ability of any Subsidiary to (a) pay dividends or make other
distributions or pay any Debt owed to the Borrower or any Subsidiary, (b) make
loans or advances to the Borrower or any Subsidiary, (c) transfer any of its
properties or assets to Borrower or any Subsidiary or (d) create, incur, assume
or suffer to exist any Lien upon any of its property, assets or revenues,
whether now owned or hereafter acquired (other than with respect to assets
subject to consensual liens permitted under Section 5.09); provided that the
foregoing shall not apply to (i) provisions restricting assignment of any lease
or other contract, (ii) restrictions imposed by applicable law, (iii)
restrictions under any agreement relating to any property, asset or business
acquired by the Borrower or any of its Subsidiaries, which restrictions existed
at the time of acquisition, (iv) restrictions with respect solely to a
Subsidiary or the Borrower imposed pursuant to a binding agreement (subject only
to customary closing conditions and termination provisions) that has been
entered into for the sale or disposition of all or substantially all of the
capital stock or assets to be sold of such Subsidiary, provided that such sale
is permitted under Section 5.07(b) hereof, (v) customary restrictions on
transfer of Collateral imposed on such Collateral in connection with Liens on
such Collateral securing Debt, to the extent such Liens are permitted under
Section 5.09 hereof, (vi) restrictions in effect on the date of this Agreement
contained in agreements governing Debt of Foreign Subsidiaries outstanding on
the date of this Agreement, and (vii) restrictions ("New Restrictions") set
forth in replacements of agreements or instruments ("Replaced Agreements")
containing restrictions described in clauses (iii) or (vi); provided that such
New Restrictions are no more restrictive in any material respect than the
restrictions set forth in the relevant Replaced Agreement and do not apply to
any additional property or assets.
Section 5.23. Hedging Facilities. Not later than 180 days after the
Closing Date the Borrower will have entered into and thereafter maintain in full
force and effect interest rate agreements in such amounts and on such terms as
shall result in effectively limiting the interest cost to the Borrower on not
less than 50% of Total Borrowed Funds for a period of three years beginning on
such date, all on terms and conditions reasonably satisfactory to the Required
Lenders.
Section 5.24. Further Assurances. (a) The Borrower will, and will cause
each Guarantor to, at the Borrower's sole cost and expense, do, execute,
acknowledge and deliver all such further acts, deeds, conveyances, mortgages,
assignments, notices of assignment and transfers as the Agent shall from time to
time request, which may be necessary in the reasonable judgment of the Agent
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from time to time to assure, perfect, convey, assign and transfer to the Agent
the property and rights conveyed or assigned pursuant to the Collateral
Documents.
(b) All costs and expenses in connection with the grant of any security
interests under the Collateral Documents, including without limitation
reasonable legal fees and other reasonable costs and expenses in connection with
the granting, perfecting and maintenance of any security interests under the
Collateral Documents or the preparation, execution, delivery, recordation or
filing of documents and any other acts as the Agent may reasonably request in
connection with the grant of such security interests shall be paid by the
Borrower promptly upon demand.
(c) The Borrower will not, and will not permit any of its Subsidiaries to,
enter into or become subject to any agreement which would impair their ability
to comply, or which would purport to prohibit them from complying, with the
provisions of this Section.
(d) The Borrower will cause each Subsidiary acquired after the Closing
Date and each Subsidiary which becomes a Subsidiary after the Closing Date (in
each case, other than a Foreign Subsidiary) (i) to become a party to the
Subsidiary Guaranty as guarantor by executing a supplement thereof in form and
substance satisfactory to the Agent and (ii) to enter into a Security Agreement
and any other agreements as may be necessary or desirable in order to grant
perfected first priority security interests upon all of its assets to secure its
obligations under the Subsidiary Guaranty. In addition, the Borrower will
pledge, or cause to be pledged, pursuant to a Pledge Agreement, all of the
capital stock or other equity interests of such Subsidiary owned directly or
indirectly by the Borrower (or, if such Subsidiary is a Foreign Subsidiary, 66%
of the capital stock or equity interests of such Subsidiary). The Borrower
shall cause each such Subsidiary to take such actions as may be necessary or
desirable to effect the foregoing within 30 days after such Subsidiary is
acquired or becomes a Subsidiary, as the case may be, including without
limitation causing such Subsidiary to (x) execute and deliver to the Agent such
number of copies as the Agent may specify of such supplements and Security
Agreement and other documents creating security interests and (y) deliver such
certificates, evidences of corporate action or other documents as the Agent may
reasonably request, all in form and substance satisfactory to the Agent,
relating to the satisfaction of the Borrower's obligations under this Section.
Upon compliance by the Borrower with the provisions of this subsection (d),
Schedule 4.08 shall be deemed to have been amended to reflect that such
Subsidiary is a Guarantor.
(e) The Borrower will, and will cause each of its Subsidiaries to, take
all action necessary in accordance with good business practices to (i) maintain
in full force and effect (x) all trademarks, service marks, trade names and
licenses and all
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material rights with respect to the foregoing, necessary for the conduct of its
business as now conducted (collectively, the "Trademarks") and (y) all
copyrights (including without limitation any copyrights relating to Library
Films) and all material rights with respect thereto, necessary for the conduct
of its business as now conducted (collectively, the "Copyrights"), other than
such Trademarks and Copyrights which the Borrower reasonably determines are, in
the aggregate, of insignificant or non-material economic value, or where the
failure to maintain such Trademarks or Copyrights could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect, and (ii) protect all
Trademarks and all Copyrights against infringement by third parties, other than
such Trademarks and Copyrights which the Borrower reasonably determines are, in
the aggregate, of insignificant or non-material economic value or where the
failure to maintain such Trademarks or Copyrights could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(f) The Borrower will, and will cause each of its Subsidiaries to, submit
to the United States Copyright Office or other applicable United States
Governmental Authority (with a copy to the Agent) as soon as reasonably
practicable but in any event, with respect to any Film, no later than 90
Domestic Business Days after the date of release of such Film and, with respect
to any screenplay, within 30 Domestic Business Days after commencement of
principal photography of the relevant Film (i) with respect to each screenplay
or Film which is unregistered and to which the Borrower or any Subsidiary owns
the copyright, a completed application for copyright registration and (ii) with
respect to each screenplay and Film which is registered in the name of a Person
other than the Borrower or any of its Subsidiaries, and in which the Borrower or
any Subsidiary acquires the copyright or any rights in the copyright, an
assignment to the Borrower or such Subsidiary of the interest owned by it.
(g) The Borrower will, and will cause each other Obligor party to a
Security Agreement to, provide a Laboratory Pledgeholder Agreement (as defined
in a Security Agreement) with each laboratory which holds any material film
and/or sound materials, cause such Laboratory Pledgeholder Agreements to remain
in full force and effect during all times when such laboratory is in possession
of such elements, and, pursuant to the Laboratory Pledgeholder Agreements, with
respect to each Film, deliver to the Agent a laboratory access letter,
substantially in the form of Exhibit B thereto, to each laboratory holding any
material film and/or sound materials.
Section 5.25. Limitation on Joint Venture Arrangements. The Borrower will
not, and will not permit any of its Subsidiaries, to enter into any joint
venture or similar agreement (other than any such agreement in connection with
the development, production, acquisition, distribution, exhibition or
exploitation of Films).
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ARTICLE 6
Defaults
Section 6.01. Events of Default. If one or more of the following events
("Events of Default") shall have occurred and be continuing:
(a) the Borrower (i) shall fail to pay when due any principal of any
Loan, (ii) shall fail to reimburse when due any drawing under any Letter of
Credit or (iii) shall fail to pay within 5 days after the due date thereof
any interest, any fees or any other amount payable hereunder;
(b) (i) the Borrower shall fail to observe or perform any covenant
contained in Article 5 (other than those contained in Sections 5.01 through
5.06, inclusive and Sections 5.24(a), (b), (c), (e), (f) and (g)) or (ii)
any Obligor shall fail to observe or perform any covenant contained in
Sections 4(A), (E) or (H) of the Security Agreement or (iii) the Borrower
shall fail to observe or perform any covenant contained in Section 3(B) of
the Borrower Pledge Agreement or any other Obligor shall fail to observe or
perform any covenant contained in the Pledge Agreement to which such
Obligor is a party containing provisions substantially similar to those set
forth in Section 3(B) of the Borrower Pledge Agreement;
(c) any Obligor shall fail to observe or perform any covenant or
agreement contained in the Loan Documents (other than those covered by
clause (a) or (b) above) for 30 days after notice thereof has been given to
the Borrower by the Agent;
(d) (i) any representation, warranty or certification made by any
Obligor in any Loan Document or in any certificate or other document
delivered pursuant to any Loan Document shall prove to have been incorrect
in any material respect when made (or deemed made);
(e) the Borrower or any Subsidiary or Holdings or any of its
Subsidiaries (including without limitation the MGM Companies) shall fail to
make any payment in respect of any Debt and/or payment or collateralization
obligations in respect of Derivatives Obligations of the Borrower or any of
its Subsidiaries or Holdings or any of its Subsidiaries (including without
limitation the MGM Companies), as the case may be, when due or within any
applicable grace period, if the aggregate principal or face amount of Debt
and/or payment or collateralization obligations (regardless of whether such
Debt and/or payment or collateralization obligations arise in one or more
related or unrelated transactions) with respect to which such failure or
failures shall have occurred exceeds $5,000,000;
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(f) any event or condition shall occur which results in the
acceleration of the maturity of any Debt (other than the Notes) of the
Borrower or any of its Subsidiaries or of Holdings any of its Subsidiaries
(including without limitation the MGM Companies) or enables the holder of
such Debt or any Person acting on such holder's behalf to accelerate the
maturity thereof, if the aggregate principal amount of Debt (regardless of
whether such Debt arises in one or more related or unrelated transactions)
with respect to which such events or conditions shall have occurred exceeds
$5,000,000;
(g) Holdings, MGM, the Borrower or any Material Subsidiary shall
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under
any domestic or foreign bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial
part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary
case or other proceeding commenced against it, or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall take any corporate action to authorize
any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced against
Holdings, MGM, the Borrower or any Material Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
domestic or foreign bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial
part of its property, and such involuntary case or other proceeding shall
remain undismissed and unstayed for a period of 90 days; or an order for
relief shall be entered against Holdings, MGM, the Borrower or any Material
Subsidiary under any domestic or foreign bankruptcy laws as now or
hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due an amount
or amounts aggregating in excess of $5,000,000 which it shall have become
liable to pay under Title IV of ERISA; or notice of intent to terminate a
Material Plan shall be filed under Title IV of ERISA by any member of the
ERISA Group, any plan administrator or any combination of the foregoing; or
the PBGC shall institute proceedings under Title IV of ERISA to terminate,
to impose liability (other than for premiums under Section 4007 of ERISA)
in respect of, or to cause a trustee to be appointed to administer, any
Material Plan; or a condition shall exist by reason of
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which the PBGC would be entitled to obtain a decree adjudicating that any
Material Plan must be terminated; or there shall occur a complete or
partial withdrawal from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which
could cause one or more members of the ERISA Group to incur a current
payment obligation in excess of $5,000,000;
(j) judgments or orders for the payment of money in excess of
$5,000,000 (net of any amount (x) covered by insurance and with respect to
which the relevant insurance carrier has acknowledged coverage or (y)
covered by a third-party indemnity from a solvent third party financially
capable of making such payments (as determined by the Required Lenders on
the basis of information provided by the Borrower) and with respect to
which such third party has acknowledged a contractual obligation to make
payment thereunder) shall be rendered and properly entered against the
Borrower or any Subsidiary and such judgments or orders shall continue
unsatisfied and unstayed for a period of 60 days;
(k) any Lien created by any of the Collateral Documents in respect of
a substantial portion of the Collateral shall at any time fail to
constitute a valid and (to the extent required by the Collateral Documents)
perfected Lien securing the obligations purported to be secured thereby,
with the priority required by the Loan Documents, or any Obligor shall so
assert in writing;
(l) the Subsidiary Guaranty shall at any time fail to constitute a
valid and binding agreement of each Obligor party thereto, or any Obligor
shall so assert in writing; or
(m) (i) Holdings shall cease to be the record and beneficial owner,
directly or indirectly, of 100% of the issued and outstanding capital stock
of the Borrower; (ii) Holdings shall cease to be the record and beneficial
owner of 100% of the issued and outstanding capital stock of MGM, or (iii)
at any date, any person or group of Persons (within the meaning of Section
13 or 14 of the Securities Exchange Act of 1934, as amended) (other than
Tracinda and Seven Network) shall have acquired beneficial ownership
(within the meaning of Rule 13d-3 promulgated by the Securities and
Exchange Commission under said Act) of 20% or more of the outstanding
shares of common stock of Holdings and if such date occurs prior to the
completion of a Significant Initial Public Offering (as defined in the
Management Stock Incentive Plan) of the common stock of Holdings, on such
date Tracinda and Seven Network fail to beneficially own in the aggregate
stock representing at least 51% of the Voting Power; or (iv) Frank Mancuso
shall cease to be chief executive officer of the
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Borrower or MGM and a successor shall not have been appointed by the
Borrower or MGM (as applicable) which successor is of reasonably comparable
stature in the entertainment industry; or (v), during any period of 12
consecutive calendar months which period begins on or after the completion
of a Significant Public Offering (as defined in the Management Stock
Incentive Plan), individuals who were either (x) directors of Holdings on
the first day of such period or (y) elected to fill vacancies caused by the
ordinary course resignation (including without limitation any such
resignation effected by such director declining to stand for reelection),
retirement, death or disability of any other director and whose nomination
or election was approved by a vote of at least a majority of the directors
then still in office who were directors of Holdings on the first day of
such period, shall cease to constitute a majority of the board of directors
of Holdings; (as used herein, "Voting Power" means, with respect to any
outstanding capital stock of Holdings, the power (expressed as a
percentage) represented by such capital stock of the aggregate voting power
of all outstanding shares of any class of capital stock of Holdings having
ordinary voting power, including the power to vote for election of the
members of the board of directors of Holdings (or, if any class thereof has
power to designate members of the board of directors of Holdings or any
special committee thereof, the power to so designate));
then, and in every such event, the Agent shall (i) if requested by Lenders
having more than 50% in aggregate amount of the Commitments, by notice to the
Borrower terminate the Commitments and they shall thereupon terminate, and (ii)
if requested by Lenders holding more than 50% of the sum of (x) the aggregate
principal amount of the Loans then outstanding and (y) the Letter of Credit
Liabilities then outstanding, by notice to the Borrower declare the Loans and
the Letter of Credit Liabilities (in each case together with accrued interest
thereon) to be, and the Loans and the Letter of Credit Liabilities shall
thereupon become, immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by the
Borrower; provided that in the case of any of the Events of Default specified in
clause (g) or (h) above with respect to the Borrower, without any notice to the
Borrower or any other act by the Agent or the Lenders, the Commitments shall
thereupon terminate and the Loans and the Letter of Credit Liabilities (in each
case together with accrued interest thereon) shall become immediately due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Borrower.
Section 6.02. Notice of Default. The Agent shall give notice to the
Borrower under Section 6.01(c) promptly upon being requested to do so by the
Required Lenders and shall thereupon notify all the Lenders thereof.
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Section 6.03. Cash Cover. The Borrower agrees, in addition to the
provisions of Section 6.01 hereof, that upon the occurrence and during the
continuance of any Event of Default, it shall, if requested by the Agent upon
the instruction of the Lenders having more than 50% in aggregate amount of the
Revolving Exposure, pay to the Agent an amount in immediately available funds
(which funds shall be held as collateral and applied pursuant to the Security
Agreement) equal to the aggregate amount available for drawing under all Letters
of Credit then outstanding at such time, provided that, upon the occurrence of
any Event of Default specified in Section 6.01(g) or 6.01(h) with respect to the
Borrower, the Borrower shall pay such amount forthwith without any notice or
demand or any other act by the Agent or the Lenders.
ARTICLE 7
The Agent
Section 7.01. Appointment and Authorization. Each Lender irrevocably
appoints and authorizes the Agent to enter into and act as its agent in
connection with the Collateral Documents and to take such action as agent on its
behalf and to exercise such powers under the Loan Documents as are delegated to
the Agent by the terms hereof or thereof, together with all such powers as are
reasonably incidental thereto.
Section 7.02. Agent and Affiliates. Morgan Guaranty Trust Company of New
York shall have the same rights and powers under the Loan Documents as any other
Lender and may exercise or refrain from exercising the same as though it were
not the Agent, and Morgan Guaranty Trust Company of New York and its affiliates
may accept deposits from, lend money to, and generally engage in any kind of
business with the Borrower or any Subsidiary or affiliate of the Borrower as if
it were not the Agent.
Section 7.03. Action by Agent. The obligations of the Agent hereunder are
only those expressly set forth herein. Without limiting the generality of the
foregoing, the Agent shall not be required to take any action with respect to
any Default, except as expressly provided in Article 6.
Section 7.04. Consultation with Experts. The Agent may consult with legal
counsel (who may be counsel for any Obligor), independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken by it in good faith in accordance with the advice of such
counsel, accountants or experts.
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Section 7.05. Liability of Agent. Neither the Agent nor any of its
affiliates nor any of their respective directors, officers, agents or employees
shall be liable for any action taken or not taken by it in connection herewith
(i) with the consent or at the request of the Required Lenders (or, when
expressly required hereby, such different number of Lenders required to consent
to or to request such action or inaction) or (ii) in the absence of its own
gross negligence or willful misconduct. Neither the Agent nor any of its
affiliates nor any of their respective directors, officers, agents or employees
shall be responsible for or have any duty to ascertain, inquire into or verify
(i) any statement, warranty or representation made in connection with the Loan
Documents or any borrowing hereunder; (ii) the performance or observance of any
of the covenants or agreements of any Obligor; (iii) the satisfaction of any
condition specified in Article 3, except receipt of items required to be
delivered to the Agent; (iv) the validity, effectiveness or genuineness of the
Loan Documents or any other instrument or writing furnished in connection
herewith or (v) the existence or the value of any of the Collateral. The Agent
shall not incur any liability by acting in reliance upon any notice, consent,
certificate, statement, or other writing (which may be a bank wire, telex,
facsimile transmission or similar writing) believed by it to be genuine or to be
signed by the proper party or parties. Without limiting the generality of the
foregoing, the use of the term "agent" in the Loan Documents with reference to
the Agent is not intended to connote any fiduciary or other implied (or express)
obligations arising under agency doctrine or any applicable law. Instead, such
term is used merely as a matter of market custom and is intended to create or
reflect only an administrative relationship between independent contracting
parties.
Section 7.06. Indemnification. Each Lender shall, ratably in accordance
with its Commitment (or, if the Commitments of the relevant Class shall have
terminated, with the aggregate outstanding principal amount of the Loans of such
Class held by such Lender) indemnify the Agent, its affiliates and their
respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from such indemnitees' gross negligence or willful misconduct) that such
indemnitees may suffer or incur in connection with the Loan Documents or any
action taken or omitted by such indemnitees thereunder.
Section 7.07. Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Agent or
any other Lender, and based on such documents and information as it shall deem
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appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under the Loan Documents.
Section 7.08. Successor Agent. The Agent may resign at any time by giving
notice thereof to the Lenders and the Borrower. Upon any such resignation, the
Required Lenders shall have the right to appoint a successor Agent with, so long
as no Default has occurred and is continuing, the consent of the Borrower (which
consent shall not be unreasonably withheld). If no successor Agent shall have
been so appointed by the Required Lenders, and shall have accepted such
appointment, within 30 days after the retiring Agent gives notice of
resignation, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent, which shall be a commercial Lender organized or licensed under
the laws of the United States of America or of any State thereof and having a
combined capital and surplus of at least $100,000,000. Upon the acceptance of
its appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights and duties of
the retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent.
Section 7.09. Agent's Fee. The Borrower shall pay to the Agent for its own
account fees in the amounts and at the times previously agreed upon between the
Borrower and the Agent.
Section 7.10. Arranger. The Arranger, in its capacity as such, shall have
no duties or obligations under the Loan Documents and shall not have a fiduciary
relationship with any Lender.
ARTICLE 8
Change in Circumstances
Section 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If
on or prior to the first day of any Interest Period for any Euro-Dollar Loan:
(a) the Agent is advised by the Reference Lenders that deposits in
dollars (in the applicable amounts) are not being offered to the Reference
Lenders in the London interbank market for such Interest Period, or
(b) Lenders having 50% or more of the aggregate principal amount of
the affected Loans advise the Agent that the Adjusted London Interbank
Offered Rate as determined by the Agent will not adequately
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and fairly reflect the cost to such Lenders of funding their Euro-Dollar
Loans for such Interest Period,
the Agent shall forthwith give notice thereof to the Borrower and the Lenders,
whereupon until the Agent notifies the Borrower that the circumstances giving
rise to such suspension no longer exist, (i) the obligations of the Lenders to
make Euro-Dollar Loans or to continue or convert outstanding Loans as or into
Euro-Dollar Loans shall be suspended and (ii) each outstanding Euro-Dollar Loan
shall be converted into a Base Rate Loan on the last day of the then current
Interest Period applicable thereto. Unless the Borrower notifies the Agent at
least two Domestic Business Days before the date of any Euro-Dollar Borrowing
for which a Notice of Borrowing has previously been given that it elects not to
borrow on such date, such Borrowing shall instead be made as a Base Rate
Borrowing.
Section 8.02. Illegality. If, on or after the date of this Agreement, the
adoption of any applicable law, rule or regulation, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Lender (or its Euro-Dollar Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for any Lender (or its
Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and
such Lender shall so notify the Agent, the Agent shall forthwith give notice
thereof to the other Lenders and the Borrower, whereupon until such Lender
notifies the Borrower and the Agent that the circumstances giving rise to such
suspension no longer exist, the obligation of such Lender to make Euro-Dollar
Loans, or to convert outstanding Loans into Euro-Dollar Loans, shall be
suspended. Before giving any notice to the Agent pursuant to this Section, such
Lender shall designate a different Euro-Dollar Lending Office if such
designation will avoid the need for giving such notice and will not, in the
judgment of such Lender, be otherwise disadvantageous to such Lender. If such
notice is given, each Euro-Dollar Loan of such Lender then outstanding shall be
converted to a Base Rate Loan either (a) on the last day of the then current
Interest Period applicable to such Euro-Dollar Loan if such Lender may lawfully
continue to maintain and fund such Loan to such day or (b) immediately if such
Lender shall determine that it may not lawfully continue to maintain and fund
such Loan to such day.
Section 8.03. Increased Cost and Reduced Return. (a) If on or after the
date hereof, the adoption of any applicable law, rule or regulation, or any
change in any applicable law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender (or its Applicable Lending Office) with any
request or directive
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(whether or not having the force of law) of any such authority, central bank or
comparable agency shall impose, modify or deem applicable any reserve
(including, without limitation, any such requirement imposed by the Board of
Governors of the Federal Reserve System, but excluding any such requirement
included in an applicable Euro-Dollar Reserve Percentage), special deposit,
insurance assessment or similar requirement against assets of, deposits with or
for the account of, or credit extended by, any Lender (or its Applicable Lending
Office) or shall impose on any Lender (or its Applicable Lending Office) or the
London interbank market any other condition affecting its Euro-Dollar Loans, its
Note or its obligation to make Euro-Dollar Loans or its obligations hereunder
with respect to Letters of Credit and the result of any of the foregoing is to
increase the cost to such Lender (or its Applicable Lending Office) of making or
maintaining any Euro-Dollar Loan or of issuing or participating in any Letter of
Credit, or to reduce the amount of any sum received or receivable by such Lender
(or its Applicable Lending Office) under this Agreement or under its Note with
respect thereto, by an amount deemed by such Lender to be material, then, within
15 days after demand by such Lender (with a copy to the Agent), the Borrower
shall pay to such Lender such additional amount or amounts as will compensate
such Lender for such increased cost or reduction.
(b) If any Lender shall have determined that, after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change in any such law, rule or regulation, or any change
in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the
interpretation or administration thereof, or any request or directive
regarding capital adequacy (whether or not having the force of law) of any
such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on capital of such Lender (or its
Parent) as a consequence of such Lender's obligations hereunder to a level
below that which such Lender (or its Parent) could have achieved but for
such adoption, change, request or directive (taking into consideration its
policies with respect to capital adequacy) by an amount deemed by such
Lender to be material, then from time to time, within 15 days after demand
by such Lender (with a copy to the Agent), the Borrower shall pay to such
Lender such additional amount or amounts as will compensate such Lender (or
its Parent) for such reduction.
(c) Each Lender will promptly notify the Borrower and the Agent of any
event of which it has knowledge, occurring after the date hereof, which
will entitle such Lender to compensation pursuant to this Section and will
designate a different Lending Office if such designation will avoid the
need for, or reduce the amount of, such compensation and will not, in the
judgment of such Lender, be otherwise disadvantageous to such Lender. A
certificate of any Lender claiming compensation under this Section and
setting forth in reasonable detail the additional amount or amounts to be
paid to it hereunder and the method of
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calculation thereof shall be conclusive in the absence of manifest error.
In determining such amount, such Lender may use any reasonable averaging
and attribution methods.
Section 8.04. Taxes. (a) For the purposes of this Section 8.04, the
following terms have the following meanings:
"Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings with respect to any payment by
any Obligor pursuant to this Agreement or under any Note, and all
liabilities with respect thereto, excluding (i) in the case of each Lender
and the Agent, taxes imposed on its income, and franchise or similar taxes
imposed on it, by a jurisdiction under the laws of which such Lender or the
Agent (as the case may be) is organized or in which its principal executive
office is located or, in the case of each Lender, in which its Applicable
Lending Office is located and (ii) in the case of each Lender, any United
States withholding tax imposed on such payments but only to the extent that
such Lender is subject to United States withholding tax at the time such
Lender first becomes a party to this Agreement.
"Other Taxes" means any present or future stamp or documentary taxes
and any other excise or property taxes, or similar charges or levies, which
arise from any payment made pursuant to this Agreement or under any Note or
from the execution or delivery of, or otherwise with respect to, any Loan
Document.
(b) Any and all payments by any Obligor to or for the account of any
Lender or the Agent hereunder or under any Note shall be made without deduction
for any Taxes or Other Taxes; provided that, if any Obligor shall be required by
law to deduct any Taxes or Other Taxes from any such payments, (i) the sum
payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section) such Lender or the Agent (as the case may be) receives an amount
equal to the sum it would have received had no such deductions been made, (ii)
such Obligor shall make such deductions, (iii) such Obligor shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law and (iv) such Obligor shall furnish to the Agent,
at its address referred to in Section 9.01, the original or a certified copy of
a receipt evidencing payment thereof.
(c) The Borrower agrees to indemnify each Lender and the Agent for the
full amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed or asserted by any jurisdiction on amounts payable under
this Section) paid by such Lender or the Agent (as the case may be) and any
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liability (including penalties, interest and expenses) arising therefrom or with
respect thereto. This indemnification shall be paid within 15 days after such
Lender or the Agent (as the case may be) makes demand therefor.
(d) Each Lender organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Lender listed on the signature pages hereof and on
or prior to the date on which it becomes a Lender in the case of each other
Lender, and from time to time thereafter if requested in writing by the Borrower
(but only so long as such Lender remains lawfully able to do so), shall provide
the Borrower and the Agent with either (i) Internal Revenue Service Form 1001 or
4224, as appropriate, or any successor form prescribed by the Internal Revenue
Service, certifying that such Lender is entitled to benefits under an income tax
treaty to which the United States is a party which exempts the Lender from
United States withholding tax or reduces the rate of withholding tax on payments
of interest for the account of such Lender or certifying that the income
receivable pursuant to this Agreement is effectively connected with the conduct
of a trade or business in the United States or (ii) if such Lender is not a
"bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver
either Internal Revenue Service Form 1001 or 4224 pursuant to clause (i) above,
(x) a certificate substantially in the form of Exhibit L and (y) two accurate
and complete original signed copies of Internal Revenue Service Form W-8 or any
successor form prescribed by the Internal Revenue Service) certifying to such
Lender's entitlement to a complete exemption from United States withholding tax
with respect to payments of interest and fees (if applicable) made under this
Agreement and under any Note.
(e) For any period with respect to which a Lender has failed to provide
the Borrower or the Agent with the appropriate form pursuant to Section 8.04(d)
(unless such failure is due to a change in treaty, law or regulation occurring
subsequent to the date on which such form originally was required to be
provided), such Lender shall not be entitled to indemnification under Section
8.04(b) or (c) with respect to Taxes imposed by the United States. In addition,
for any period with respect to which a Lender described in clause (ii) of
Section 8.4(d) above has delivered Internal Revenue Service Form W-8 (or any
successor form prescribed by the Internal Revenue Service) pursuant to such
Section but such form does not establish a complete exemption from deduction of
withholding or similar taxes imposed by the United States, such Lender shall not
be entitled to indemnification under Section 8.4(b) or (c) with respect to Taxes
imposed by the United States with respect to payments made under this Agreement
or any Note (other than with respect to any such payments constituting payments
of interest). If a Lender which is otherwise exempt from or subject to a reduced
rate of withholding tax, becomes subject to Taxes because of its failure to
deliver a form required hereunder, the Borrower shall take, at the cost of such
Lender, such steps
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as such Lender shall reasonably request to assist such Lender to recover such
Taxes.
(f) If any Obligor is required to pay additional amounts to or for the
account of any Lender pursuant to this Section, then such Lender will change the
jurisdiction of its Applicable Lending Office if, in the judgment of such
Lender, such change (i) will eliminate or reduce any such additional payment
which may thereafter accrue and (ii) is not otherwise disadvantageous to such
Lender.
Section 8.05. Base Rate Loans Substituted for Affected Euro-Dollar Loans.
If (i) the obligation of any Lender to make, or convert outstanding Loans to,
Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any
Lender has demanded compensation under Section 8.03 or 8.04 with respect to its
Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business
Days' prior notice to such Lender through the Agent, have elected that the
provisions of this Section shall apply to such Lender, then, unless and until
such Lender notifies the Borrower that the circumstances giving rise to such
suspension or demand for compensation no longer exist:
(a) all Loans which would otherwise be made by such Lender as (or
continued as or converted into) Euro-Dollar Loans shall instead be Base
Rate Loans (on which interest and principal shall be payable
contemporaneously with the related Euro-Dollar Loans of the other Lenders);
and
(b) after each of its Euro-Dollar Loans has been repaid (or converted
to a Base Rate Loan), all payments of principal which would otherwise be
applied to repay such Euro-Dollar Loans shall be applied to repay its Base
Rate Loans instead.
If such Lender notifies the Borrower that the circumstances giving rise to such
notice no longer apply, the principal amount of each such Base Rate Loan shall
be converted into a Euro-Dollar Loan on the first day of the next succeeding
Interest Period applicable to the related Euro-Dollar Loans of the other
Lenders.
Section 8.06. Substitution of Lender. If (i) the obligation of any Lender
to make or convert Euro-Dollar Loans has been suspended pursuant to Section 8.02
or (ii) any Lender has demanded compensation under Section 8.03 or 8.04, the
Borrower shall have the right, with the assistance of the Agent, to seek a
mutually satisfactory substitute lender or lenders (which may be one or more of
the Lenders) to purchase the Note and assume the outstanding Loans, the
Commitment (if any) and the Letter of Credit Liabilities (if any) of such
Lender. Each such Lender agrees to assign all of its outstanding Loans, its
Commitment (if any), its Note or Notes and its Letter of Credit Liabilities (if
any) to any such
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substitute lender, without recourse or warranty other than title and outstanding
amount; provided that such substitute lender shall have paid to such Lender in
immediately available funds the principal of and accrued interest to the date of
such payment on its outstanding Loans and Letter of Credit Liabilities (if any)
and all fees owed to it hereunder.
ARTICLE 9
Miscellaneous
Section 9.01. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including bank wire, telex, facsimile
transmission (with a copy by United States mail) or similar writing) and shall
be given to such party: (w) in the case of the Borrower or the Agent, at its
address, facsimile number or telex number set forth on the signature pages
hereof, (x) in the case of any Guarantor, in care of the Borrower, (y) in the
case of any Lender, at its address, facsimile number or telex number set forth
in its Administrative Questionnaire or (z) in the case of any party, such other
address, facsimile number or telex number as such party may hereafter specify
for the purpose by notice to the Agent and the Borrower. Each such notice,
request or other communication shall be effective (i) if given by telex, when
such telex is transmitted to the telex number specified in this Section and the
appropriate answerback is received, (ii) if given by facsimile transmission,
when transmitted to the facsimile number specified in this Section and
confirmation of receipt is received, (iii) if given by mail, 72 hours after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (iv) if given by any other means, when delivered at
the address specified in this Section; provided that notices to the Agent under
Article 2 or Article 8 shall not be effective until received.
Section 9.02. No Waivers. No failure or delay by the Agent or any Lender
in exercising any right, power or privilege hereunder or under any other Loan
Document shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
Section 9.03. Expenses; Indemnification. (a) The Borrower shall pay (i)
all out-of-pocket expenses of the Agent, including reasonable fees and
disbursements of each special counsel for the Agent, in connection with the
preparation and administration of the Loan Documents, any waiver or consent
thereunder or any amendment thereof or any Default or alleged Default
thereunder, (ii) the reasonable fees and expenses of consultants and other
experts
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retained by the Agent or the Required Lenders with the consent of the Borrower
(which consent shall not be unreasonably withheld); provided that, if such
consultants or other experts shall have been retained in connection with any
Default under the Loan Documents, no such consent shall be required and (iii) if
an Event of Default occurs, all out-of-pocket expenses incurred by the Agent and
each Lender, including (without duplication) the reasonable fees and
disbursements of outside counsel and the allocated cost of inside counsel, in
connection with such Event of Default and collection, bankruptcy, insolvency and
other enforcement proceedings resulting therefrom.
(b) The Borrower agrees to indemnify the Agent and each Lender, their
respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in connection
with any investigative, administrative or judicial proceeding (whether or not
such Indemnitee shall be designated a party thereto) brought or threatened
relating to or arising out of the Loan Documents or any actual or proposed use
of proceeds of Loans hereunder; provided that no Indemnitee shall have the right
to be indemnified hereunder for such Indemnitee's own gross negligence or
willful misconduct as determined by a court of competent jurisdiction.
Section 9.04. Sharing of Set-offs. Each Lender agrees that if it shall, by
exercising any right of set-off or counterclaim or otherwise, receive payment of
a proportion of the aggregate amount of principal and interest then due with
respect to any Note and any Letter of Credit Liabilities held by it which is
greater than the proportion received by any other Lender in respect of the
aggregate amount of principal and interest then due with respect to any Note and
Letter of Credit Liabilities held by such other Lender, the Lender receiving
such proportionately greater payment shall purchase such participations in the
Notes held by the other Lenders, and such other adjustments shall be made, as
may be required so that all such payments of principal and interest then due
with respect to the Notes and Letter of Credit Liabilities held by the Lenders
shall be shared by the Lenders pro rata; provided that nothing in this Section
shall impair the right of any Lender to exercise any right of set-off or
counterclaim it may have and to apply the amount subject to such exercise to the
payment of indebtedness of any Obligor other than its indebtedness hereunder.
Each Obligor agrees, to the fullest extent it may effectively do so under
applicable law, that any holder of a participation in a Note or Letter of Credit
Liabilities, whether or not acquired pursuant to the foregoing arrangements, may
exercise rights of set-off or counterclaim and other rights with respect to such
participation as fully as if such holder of a participation were a direct
creditor of such Obligor in the amount of such participation.
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Section 9.05. Amendments and Waivers; Release of Guarantors or Collateral.
Any provision of this Agreement or the Notes may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed by the Borrower
and the Required Lenders (and, if the rights or duties of the Agent or any L/C
Issuer are affected thereby, by the Agent or such L/C Issuer, as relevant);
provided that no such amendment or waiver shall:
(a) unless signed by all the Lenders with a Commitment of any Class,
increase or decrease the Commitments of such Class (except for a ratable
decrease in all the Commitments of such Class), subject any such Lender to
any additional obligation, or postpone the date fixed for the scheduled
termination of any Commitment of such Class;
(b) unless signed by all Lenders holding Loans of any Class, reduce
the principal of or rate of interest on any Loans of, or fees with respect
to, such Class, postpone the date fixed for any scheduled payment of such
fees or the principal of or interest on any such Loans, or decrease the
aggregate amount by which such Loans are required to be repaid on any date
scheduled pursuant to Section 2.04 or postpone any date for such repayment;
(c) unless signed by all Revolving Lenders, reduce the amount to be
reimbursed in respect of any Letter of Credit or of any interest with
respect to any Letter of Credit Liabilities or any fees payable by
reference to the Letters of Credit hereunder, postpone the date fixed for
any payment of the amount to be reimbursed in respect of any Letter of
Credit or any interest thereon or any fees payable by reference to the
Letters of Credit hereunder or (except as expressly provided in Section
2.14) expiry date of any Letter of Credit;
(d) unless signed by all the Lenders, postpone the date fixed for any
payment of any fees hereunder, change the percentage of the Commitments or
of the aggregate unpaid principal amount of the Notes or the Letter of
Credit Liabilities or the number of Lenders, which shall be required for
the Lenders or any of them to take any action under this Section or any
other provision of this Agreement.
Any provision of the Loan Documents (other than this Agreement and the Notes)
may be amended or waived if, but only if, such amendment or waiver is in writing
and is signed by the relevant Obligor and the Agent with the consent of the
Required Lenders; provided that no such amendment or waiver shall, unless signed
by all the Lenders, effect or permit (i) a release of all or substantially all
of the Collateral or (ii) a release of all or substantially all of the
Guarantors from their obligations under the Subsidiary Guaranty.
Notwithstanding the foregoing,
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Collateral shall be released from the Lien of the Collateral Documents from time
to time as necessary to effect any sale or pledge of assets permitted by the
Loan Documents, and the Agent shall execute and deliver all release documents
reasonably requested to evidence such release.
Section 9.06. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that no Obligor may assign
or otherwise transfer any of its rights under this Agreement and the other Loan
Documents without the prior written consent of all Lenders.
(b) Any Lender may at any time grant to one or more Lenders or other
institutions (other than a Competitor) (each a "Participant") participating
interests in its Commitment or any or all of its Loans or Letter of Credit
Liabilities. In the event of any such grant by a Lender of a participating
interest to a Participant, whether or not upon notice to the Borrower and the
Agent, such Lender shall remain responsible for the performance of its
obligations hereunder, and the Borrower and the Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement. Any agreement pursuant to which any Lender
may grant such a participating interest shall provide that such Lender shall
retain the sole right and responsibility to enforce the obligations of the
Borrower hereunder including, without limitation, the right to approve any
amendment, modification or waiver of any provision of this Agreement; provided
that such participation agreement may provide that such Lender will not agree to
any modification, amendment or waiver of this Agreement described in clause (a),
(b), (c), or (d) of, or in the proviso in the penultimate sentence of, Section
9.05 without the consent of the Participant. The Borrower agrees that, without
duplication of amounts payable to the relevant Lender, each Participant shall,
to the extent provided in its participation agreement, be entitled to the
benefits of Article 8 with respect to its participating interest. An
assignment or other transfer which is not permitted by subsection (c) or (d)
below shall be given effect for purposes of this Agreement only to the extent of
a participating interest granted in accordance with this subsection (b).
(c) Any Lender may at any time assign to one or more Lenders or other
institutions (including any fund that regularly engages in making, purchasing or
investing in loans) (each an "Assignee") all, or a proportionate part of all,
of its rights and obligations under this Agreement and the Notes with respect to
its Commitment of any Class or its outstanding Loans of any Class or its Letter
of Credit Liabilities, and such Assignee shall assume such rights and
obligations, pursuant to an Assignment and Assumption Agreement in substantially
the form of Exhibit I hereto executed by such Assignee and such transferor
Lender, with (and subject to) the subscribed consent of the Borrower, which
shall not be unreasonably withheld, the Agent and, solely with respect to any
assignment of
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the Revolving Commitments, Revolving Loans or Letter of Credit Liabilities and
the L/C Issuers; provided that (i) if an Assignee is an affiliate of such
transferor Lender or was a Lender immediately prior to such assignment, no such
consent shall be required, (ii) if such transferor Lender pursuant to such
assignment assigns to an Assignee a part (but not all) of its Commitment or
Loans of any Class or its Letter of Credit Liabilities, then the sum of (x) the
aggregate amount of the Commitments of all Classes (if any), (y) the aggregate
outstanding principal amount of the Loans of all Classes (if any) and (z) the
aggregate Letter of Credit Liabilities (if any) held by such Assignee
immediately after giving effect to such assignment and retained by the
transferor Lender immediately after giving effect to such assignment shall each
be at least $5,000,000 and (iii) no Lender shall enter into any assignment with
a Competitor. Upon execution and delivery of such instrument and payment by such
Assignee to such transferor Lender of an amount equal to the purchase price
agreed between such transferor Lender and such Assignee, such Assignee shall be
a Lender party to this Agreement and shall have all the rights and obligations
of a Lender with a Commitment as set forth in such instrument of assumption, and
the transferor Lender shall be released from its obligations hereunder to a
corresponding extent, and no further consent or action by any party shall be
required. Upon the consummation of any assignment pursuant to this subsection
(c), the transferor Lender, the Agent and the Borrower shall make appropriate
arrangements so that, if required, a new Note is issued to the Assignee. In
connection with any such assignment, the transferor Lender shall pay to the
Agent an administrative fee for processing such assignment in the amount of
$3,500. If the Assignee is not incorporated under the laws of the United States
of America or a state thereof, it shall deliver to the Borrower and the Agent
certification as to exemption from deduction or withholding of any United States
federal income taxes in accordance with Section 8.04.
(d) Any Lender may at any time assign all or any portion of its rights
under this Agreement and its Note to a Federal Reserve Bank. No such assignment
shall release the transferor Lender from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Lender's rights
shall be entitled to receive any greater payment under Section 8.03 or 8.04 than
such Lender would have been entitled to receive with respect to the rights
transferred, unless such transfer is made (x) with the Borrower's prior written
consent or (y) by reason of the provisions of Section 8.02, 8.03 or 8.04
requiring such Lender to designate a different Applicable Lending Office under
certain circumstances or (z) at a time when the circumstances giving rise to
such greater payment did not exist.
(f) The Borrower hereby designates the Agent to serve as the Borrower's
agent, solely for purposes of this subsection 9.06(f), to maintain a register
(the "Register") on which the Agent will record the Commitments from time to
time of
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each Lender, the Loans made by each Lender and each repayment in respect of the
principal amount of the Loans of each Lender and to retain a copy of each
Assignment and Assumption Agreement delivered to the Agent pursuant to this
Section. Failure to make any such recordation, or any error in such recordation,
shall not affect the Borrower's obligation in respect of such Loans. The entries
in the Register shall be conclusive, in the absence of manifest error, and the
Borrower, the Agent and the Lenders shall treat each Person in whose name a Loan
and the Note evidencing the same is registered as the owner thereof for all
purposes of this Agreement, notwithstanding notice or any provision herein to
the contrary. With respect to any Lender, the assignment or other transfer of
the Commitments of such Lender and the rights to the principal of, and interest
on, any Loan made and Note issued pursuant to this Agreement shall not be
effective until such assignment or other transfer is recorded on the Register
and, except to the extent provided in this subsection 9.06(f), otherwise
complies with Section 9.06, and prior to such recordation all amounts owing to
the transferor Lender with respect to such Commitments, Loans and Notes shall
remain owing to the transferor Lender. The registration of assignment or other
transfer of all or part of any Commitments, Loans and Notes for a Lender shall
be recorded by the Agent on the Register only upon the acceptance by the Agent
of a properly executed and delivered Assignment and Assumption Agreement. The
Register shall be available at the offices where kept by the Agent for
inspection by the Borrower and any Lender at any reasonable time upon reasonable
prior notice to the Agent. The Borrower may not replace any Lender pursuant to
Section 8.06, unless, with respect to any Notes held by such Lender, the
requirements of subsection 9.06(c) have been satisfied.
Section 9.07. Collateral. Each of the Lenders represents to the Agent and
each of the other Lenders that it in good faith is not relying upon any "margin
stock" (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.
Section 9.08. Governing Law; Submission to Jurisdiction. This Agreement
and each Note shall be governed by and construed in accordance with the laws of
the State of New York. Each Obligor hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
New York and of any New York State court sitting in New York City for purposes
of all legal proceedings arising out of or relating to this Agreement or the
transactions contemplated hereby. Each Obligor irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum.
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Section 9.09. Counterparts; Integration; Effectiveness. This Agreement may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement constitutes the entire agreement and understanding
among the parties hereto and supersedes any and all prior agreements and
understandings, oral or written, relating to the subject matter hereof. This
Agreement shall become effective upon receipt by the Agent of counterparts
hereof signed by each of the parties hereto (or, in the case of any party as to
which an executed counterpart shall not have been received, receipt by the Agent
in form satisfactory to it of telegraphic, telex, facsimile or other written
confirmation from such party of execution of a counterpart hereof by such
party).
SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT AND
THE LENDERS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
Section 9.11. Confidentiality. The Agent and each Lender agrees to keep
any information delivered or made available by any Obligor pursuant to the Loan
Documents confidential from anyone other than persons employed or retained by
such Lender who are engaged in evaluating, approving, structuring or
administering the credit facility contemplated hereby; provided that nothing
herein shall prevent the Agent or any Lender from disclosing such information
(a) to any other Lender or to the Agent, (b) to any other Person if reasonably
incidental to the administration of the credit facility contemplated hereby, (c)
upon the order of any court or administrative agency, (d) upon the request or
demand of any regulatory agency or authority, (e) which had been publicly
disclosed other than as a result of a disclosure by the Agent or any Lender
prohibited by this Agreement, (f) in connection with any litigation to which the
Agent, any Lender or its subsidiaries or Parent may be a party, (g) to the
extent necessary in connection with the exercise of any remedy hereunder, (h) to
such Lender's or Agent's legal counsel and independent auditors and (i) subject
to provisions substantially similar to those contained in this Section, to any
actual or proposed Participant or Assignee.
81
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
ORION PICTURES CORPORATION
By /s/ David G. Johnson
-----------------------------------
Name: David G. Johnson
Title: Senior Executive Vice President
Address: 1888 Century Park East
Los Angeles, CA 90067
Facsimile: 310-282-9902
82
<PAGE>
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By /s/ Maria D. Kratsios
--------------------------------------
Name: Maria D. Kratsios
Title: Vice President
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION
By /s/ Matthew J. Koenig
------------------------------------
Name: Matthew J. Koenig
Title: Vice President
ML CBO IV (CAYMAN) LTD.
By PROTECTIVE ASSET
MANAGEMENT, L.L.C., as Collateral
Manager
By /s/ James Dondero
--------------------------------------
Name: James Dondero
Title: President, Protective Asset
Management, L.L.C.
CONTINENTAL ASSURANCE COMPANY
SEPARATE ACCOUNT (E)
By PROTECTIVE ASSET
MANAGEMENT, L.L.C., as its Attorney-in-Fact
By /s/ James Dondero
--------------------------------------
Name: James Dondero
Title: President, Protective Asset
Management, L.L.C.
SOCIETE GENERALE
By /s/ Maureen E. Kelly
-------------------------------------
Name: Maureen E. Kelly
Title: Vice President
83
<PAGE>
THE BANK OF NOVA SCOTIA
By /s/ Alan W. Pendergast
------------------------------------
Name: Alan W. Pendergast
Title: Relationship Manager
FLEET NATIONAL BANK
By /s/ Stephen J. Healey
--------------------------------------
Name: Stephen J. Healey
Title: Senior Vice President
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By /s/ Jeffrey W. Maillet
--------------------------------------
Name: Jeffrey W. Maillet
Title: Senior Vice President -
Portfolio Manager
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Agent
By /s/ Maria D. Kratsios
--------------------------------------
Name: Maria D. Kratsios
Title: Vice President
Address: 60 Wall Street
New York, New York
10260-0060
Attention: Jessica Laxman
Facsimile number: 212-648-5348
1
<PAGE>
EXHIBIT 10.12
JOINT AND SEVERAL INDEMNITY AGREEMENT
AGREEMENT dated as of October 10, 1996 by and between P&F Acquisition
Corp., a Delaware corporation (the "Corporation") and Metro-Goldwyn-Mayer Inc.,
-----------
a Delaware corporation ("MGM Inc." and together with the Corporation, the
-------
"Indemnitors") on the one hand, and Frank G. Mancuso (the "Indemnitee"), on the
----------- ----------
other.
RECITALS
The Indemnitee is a director and/or officer of the Corporation, MGM
Inc. and/or an Affiliate Indemnitee (as hereinafter defined). Each of the
Indemnitors and the Indemnitee recognize the increased risk of litigation and
other claims being asserted against directors and officers in today's
environment.
The Bylaws of the Corporation requires the Corporation and the Bylaws
of MGM Inc. requires MGM Inc. to indemnify its directors and officers as
currently provided therein, and the Indemnitee has been serving and continues to
serve as a director and/or officer of the Corporation and/or MGM Inc. in part in
reliance on such provisions. The Bylaws of each of the Indemnitors permit such
Indemnitor to purchase and maintain insurance or to furnish similar protection
or make other arrangements (any such insurance, protection or arrangement, an
"Indemnification Arrangement") on behalf of the Indemnitee against personal
---------------------------
liability (including, but not limited to, providing for Advanced Amounts as
hereinafter defined) asserted against him or incurred by or on behalf of him in
such capacity as a director or officer of such Indemnitor or as an Affiliate
Indemnitee, or arising out of his status as such, whether or not such Indemnitor
would have the power to indemnify him against such liability under the
provisions of this Agreement or under the Delaware General Corporation Law (the
"DGCL"), as it may then be in effect.
----
In part to provide the Indemnitee with specific contractual assurance
of substantial protection against personal liability (regardless of, among other
things, any amendment to or revocation of the aforementioned provisions of any
of the Indemnitor's Bylaws or any change in the composition of such Indemnitor's
Board of Directors or control of such Indemnitor), each of the Indemnitors
desires to enter into this Agreement. DGCL Section 145(f) expressly recognizes
that the indemnification provisions of the DGCL are not exclusive of any other
rights to which a person seeking indemnification may be entitled under the
Certificate of Incorporation or Bylaws of any of the Indemnitors, or an
agreement providing for indemnification, or a resolution of stockholders or
directors, or otherwise, and the Bylaws of each of the Indemnitors expressly
recognizes that the indemnification provisions of the Bylaws of such Indemnitor
shall not be deemed exclusive of, and shall not affect, any other rights to
which a person seeking indemnification may be entitled under any agreement, and
this Agreement is being entered into pursuant to the Bylaws of each of the
Indemnitors, as permitted by the DGCL, and has been authorized by the
stockholders of the Indemnitors.
In order to induce the Indemnitee to serve as a director and/or
officer of the Corporation and/or MGM Inc. and in consideration of the
Indemnitee's so serving, each of the Indemnitors desires jointly and severally
to hold harmless and indemnify the Indemnitee and to make arrangements pursuant
to which the Indemnitee may be advanced or reimbursed expenses incurred by the
Indemnitee in certain proceedings, in every case to the fullest extent
authorized or permitted by the DGCL, or any other applicable law, or by any
amendment thereof or other statutory provisions authorizing or permitting such
indemnification which are adopted after the date hereof (but, in the case of
any such amendment, only to the extent that such amendment permits the
Indemnitor to provide broader indemnification rights than the DGCL, or other
applicable law, permitted such Indemnitor to provide prior to such amendment).
<PAGE>
NOW, THEREFORE, in consideration of the foregoing recitals and of the
Indemnitee's continuing to serve the Corporation and/or MGM Inc. as a director
and/or officer, the parties agree as follows:
1. Indemnification. To the fullest extent allowed by law, each of the
---------------
Indemnitors, jointly and severally, shall hold harmless and indemnify the
Indemnitee, his executors, administrators or assigns against any and all
expenses, liabilities and losses (including, without limitation, investigation
expenses, expert witnesses' and attorneys' fees and expenses, judgments,
penalties, fines, amounts paid or to be paid in settlement any interest,
assessments, or other charges imposed thereon and any federal, state, local or
foreign taxes imposed as a result of actual or deemed receipt of any payment
hereunder) actually incurred by the Indemnitee (net of any related insurance
proceeds or other amounts received by the Indemnitee or paid by or on behalf of
an Indemnitor on the Indemnitee's behalf in compensation of such expenses,
liabilities or losses) in connection with any actual or threatened action, suit
or proceeding, whether civil, criminal, administrative or investigative or in
arbitration, to which the Indemnitee is a party or participant or is threatened
to be made a party or participant (a "Proceeding"), as a plaintiff, defendant,
----------
respondent, witness or otherwise, based upon, arising from, relating to or by
reason of the fact that the Indemnitee: (a) is, was, shall be or shall have been
a director and/or officer of the Corporation, (b) is or was serving, shall
serve, or shall have served at the request of the Corporation as a director,
officer, partner, trustee, fiduciary, employee or agent ("Affiliate Indemnitee")
--------------------
of another foreign or domestic corporation or non-profit corporation,
cooperative, partnership, joint venture, trust, employee benefit plan, or other
incorporated or unincorporated enterprise (each, a "Company Affiliate") or (c)
-----------------
is, was, shall be or shall have been a director and/or officer of MGM Inc.,
during the period from and after the date on which Indemnitee became an officer
and/or director of MGM Inc. through and until the Closing Date in connection
with the potential sale of MGM Inc. and the Indemnitee's efforts to assemble a
bid group to purchase MGM Inc.; or arising from or relating to any action or
omission to act taken by the Indemnitee in any of the foregoing capacities;
provided, however, that, except as provided in Section 9(b) hereof, an
Indemnitor shall indemnify the Indemnitee in connection with a Proceeding
initiated by the Indemnitee only if such proceeding (or part thereof) was
authorized by a two-thirds vote of the Board of Directors of such Indemnitor and
provided further, that Indemnitors shall have no obligation for indemnification
hereunder for liabilities and other amounts owed to Indemnitee for any salary,
compensation or bonus payment arising out of or from the change of control of
MGM Inc. on or about the date hereof and pursuant to any employment agreement
between MGM Inc. and Indemnitee as in effect immediately prior to the date
hereof.
The Indemnitee shall be presumed to be entitled to such
indemnification under this Agreement upon submission of a written claim pursuant
to Section 4 hereof. Thereafter, the Indemnitors shall have the burden of proof
to overcome the presumption that the Indemnitee is so entitled. Such
presumption shall only be overcome by a judgment or other fiscal adjudication,
after all appeals and all time for appeals has expired ("Final Determination"),
-------------------
which is adverse to the Indemnitee and which establishes (i) that his acts were
committed in bad faith, or were the result of active and deliberate dishonesty,
and were material to the cause of action so adjudicated and (ii) that the
Indemnitee in fact personally gained a financial profit or other advantage to
which he was not legally entitled. If the Indemnitee is not wholly successful in
any Proceeding but is successful on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding the Indemnitors
agree, jointly and severally, to indemnify the Indemnitee to the maximum extent
permitted by law against all losses and expenses incurred by the Indemnitee in
connection with each successfully resolved claim, issue or matter. Neither the
failure of any of the Indemnitors (including their respective Boards of
Directors, legal counsel or stockholders) to have made a determination prior to
the commencement of such Proceeding that indemnification of the
2
<PAGE>
Indemnitee is proper in the circumstances because such person has met the
applicable standard of conduct set forth in the DGCL, nor an actual
determination by such Indemnitor (including its Board of Directors, its legal
counsel or its stockholders) that the Indemnitee has not met the applicable
standard of conduct, shall be a defense to the action or create a presumption
that the Indemnitee has not met the applicable standard of conduct. The
purchase, establishment or maintenance of any Indemnification Arrangement shall
not in any way diminish, restrict, limit or adversely affect the rights and
obligations of any of the Indemnitors or of the Indemnitee under this Agreement,
except as expressly provided herein, and the execution and delivery of this
Agreement by the Indemnitors and the Indemnitee shall not in any way diminish,
restrict, limit or adversely affect the Indemnitee's right to indemnification
from the Indemnitors or any other party or parties under any other
Indemnification Arrangement, the Certificate of Incorporation or Bylaws of any
of the Indemnitors, or the DGCL.
2. Period of Limitations. No legal action shall be brought and no
---------------------
cause of action shall be asserted by or on behalf of an Indemnitor or any
affiliate of an Indemnitor against the Indemnitee, Indemnitee's spouse, heirs,
executors, or personal or legal representatives after the expiration of two
years from the date of accrual of such cause of action, or such longer period as
may be required by applicable law under the circumstances. Any claim or cause of
action of the Indemnitor or its affiliate shall be extinguished and deemed
released unless asserted by the timely filing of a legal action within such
period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action the shorter period shall
govern.
3. Insurance. Subject only to the provisions of this Section 3, as
---------
long as the Indemnitee shall continue to serve as a director and/or officer of
an Indemnitor (or shall continue at the request of an Indemnitor to serve as an
Affiliate Indemnitee) and, thereafter, as long as the Indemnitee shall be
subject to any possible Proceeding by reason of the fact that the Indemnitee was
a director and/or officer of the Corporation and/or MGM Inc. (or served in any
of said other capacities), the Indemnitors shall, unless no such policies are
available in any market, purchase and maintain in effect for the benefit of the
Indemnitee one or more valid, binding and enforceable policies (the "Insurance
---------
Policies") of directors' and officers' liability insurance ("D&O Insurance")
- -------- -------------
providing adequate liability coverage for the Indemnitee's acts as a director
and/or officer of the Indemnitors or as an Affiliate Indemnitee. Each Indemnitor
shall promptly notify the Indemnitee of any lapse, amendment or failure to renew
said policy or policies or any provision thereof relating to the extent or
nature of coverage provided thereunder. In the event any Indemnitor does not
purchase and maintain in effect said policy or policies of D&O Insurance
pursuant to the provisions of this Section 3, such Indemnitor shall, in addition
to and not in limitation of the other rights granted the Indemnitee under this
Agreement, hold harmless and indemnify the Indemnitee to the full extent of
coverage which would otherwise have been provided for the benefit of the
Indemnitee pursuant to the Insurance Policies.
4. Claims for Payments. The Indemnitee shall have the right to receive
-------------------
from the Indemnitors on demand or, at his option, to have any of the Indemnitors
pay promptly on his behalf, in advance of a Final Determination of a Proceeding,
all amounts payable by the Indemnitors pursuant to the terms of this Agreement
as corresponding amounts are expended or incurred by the Indemnitee in
connection with any Proceeding or otherwise (such amounts so expended or
incurred being referred to as "Advanced Amounts"). In making any claim for
----------------
payment by the Indemnitors of any amount, including any Advanced Amount,
pursuant to this Agreement, the Indemnitee shall submit to the Indemnitors a
written request for payment (a "Claim") which includes a schedule setting forth
in reasonable detail the dollar amount expended (or incurred or expected to be
expended or incurred). Each item
3
<PAGE>
on such schedule shall be supported by the bill, agreement, or other
documentation relating thereto, a copy of which shall be appended to the
schedule as an exhibit.
Where the Indemnitee is requesting Advanced Amounts, the Indemnitee
must also provide an undertaking to repay such Advanced Amounts if a Final
Determination is made that the Indemnitee is not entitled to indemnification
hereunder.
5. Section 16(b) Liability. No Indemnitor shall be liable under this
-----------------------
Agreement to make any payment in connection with any claim made against the
Indemnitee for an accounting of profits made from the purchase or sale by the
Indemnitee of securities of an Indemnitor within the meaning of Section 16(b) of
the Securities Exchange Act of 1934, and amendments thereto, or similar
provisions of any state statutory law or common law.
6. Continuation of Indemnity. All agreements and obligations of the
-------------------------
Indemnitors contained herein shall continue during the period the Indemnitee is
a director and/or officer of such Indemnitor (or is serving at the request of an
Indemnitor as an Affiliate Indemnitee) and shall continue thereafter so long as
the Indemnitee shall be subject to any possible Proceeding by reason of the fact
that the Indemnitee was a director or officer of such Indemnitor or served as
such an Affiliate Indemnitee.
7. Successors: Binding Agreement. This Agreement shall be binding on,
-----------------------------
and shall inure to the benefit of and be enforceable by, each of the
Indemnitor's successors and assigns and by the Indemnitee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
divisees and legatees. Each Indemnitor shall require any successor or assignee
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of such Indemnitor, by
written agreement in form and substance reasonably satisfactory to such
Indemnitor and to the Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that such Indemnitor would
be required to perform if no such succession or assignment had taken place.
8. Notification and Defense of Claim. Promptly after receipt by the
---------------------------------
Indemnitee of notice of the commencement of any Proceeding, the Indemnitee
shall, if a claim in respect thereof is to be made against an Indemnitor under
this Agreement, notify such Indemnitor of the commencement thereof, but the
failure to so notify such Indemnitor will not relieve the Indemnitors from any
liability which it may have to the Indemnitee. With respect to any such
Proceeding:
(i) Each Indemnitor shall be entitled to participate therein at its own
expense;
(ii) Except with prior written consent of the Indemnitee, the
Indemnitors shall not be entitled to assume the defense of any Proceeding;
and
(iii) No Indemnitor shall settle any Proceeding in any manner which
would impose any penalty or limitation on the Indemnitee without the
Indemnitee's prior written consent.
The Indemnitee shall not settle any Proceeding with respect to which the
Indemnitee has received indemnified amounts or Advanced Amounts without the
Indemnitors' prior written consent, nor will the Indemnitee unreasonably
withhold consent to any proposed settlement.
9. Enforcement. (a) Each Indemnitor has entered into this Agreement
-----------
and assumed the obligations imposed on such Indemnitor hereby in order to induce
the
4
<PAGE>
Indemnitee to act as a director and/or officer of the Corporation and/or MGM
Inc. or as an Affiliate Indemnitee and acknowledges that the Indemnitee is
relying upon this Agreement in continuing in such capacity.
(b) All expenses incurred by the Indemnitee in connection with the
preparation and submission of the Indemnitee's request for indemnification
hereunder shall be borne, jointly and severally, by the Indemnitors. In the
event the Indemnitee has requested payment of any amount under this Agreement
and has not received payment thereof within thirty (30) days of such request,
the Indemnitee may bring any action to enforce rights or collect moneys due
under this Agreement, and, if the Indemnitee is successful in such action, the
Indemnitors shall reimburse the Indemnitee for all of the Indemnitee's fees and
expenses in bringing and pursuing such action. If it is determined that the
Indemnitee is entitled to indemnification for part (but not all) of the
indemnification so requested, expenses incurred in seeking enforcement of such
partial indemnification shall be reasonably prorated among the claims, issues or
matters for which the Indemnitee is entitled to indemnification for claims,
issues or matters for which the Indemnitee is entitled to indemnification for
claims, issues or matter for which the Idemnitee is not so entitled. The
Indemnitee shall be entitled to the advancement of such amounts to the full
extent contemplated by Section 4 hereof in connection with such Proceeding.
10. Separability. If any provision or provisions of this Agreement
------------
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of
this Agreement (including, without limitation, all portions of any sections or
subsections of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not by themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby, and (ii) to
the fullest extent possible, the provisions of any section or subsections of
this Agreement containing any such provisions held to be invalid, illegal or
unenforceable shall be construed so as to give effect to the intent of the
parties that the Indemnitors (or any of them) provide protection to the
Indemnitee to the fullest extent enforceable.
11. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such modification, waiver or discharge is agreed to
in writing signed by the Indemnitee and an officer of each of the Indemnitors
designated by the Board of Directors of such Indemnitor. No waiver by either
party at any time of any breach by the other party of, or of compliance with,
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same time or at any prior or subsequent time. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Delaware, without giving effect to the principles of conflicts of
laws thereof. The Indemnitee may bring an action seeking resolution of disputes
or controversies arising under, or in any way related to, this Agreement in the
state or federal court jurisdiction in which the Indemnitee resides or in which
his place of business is located and in any related appellate courts, and each
of the Indemnitors hereby consents to the jurisdiction of such courts and to
such venue.
12. Notices. For the purposes of this Agreement, notices and all other
-------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
5
<PAGE>
If to the Indemnitee: Frank G. Mancuso
First Floor
2500 Broadway
Santa Monica, CA 90404
If to the Corporation: P&F Acquisition Corp.
First Floor
2500 Broadway
Santa Monica, CA 90404
Attn: General Counsel
If to MGM Inc.: Metro-Goldwyn-Mayer Inc.
Fifth Floor
2500 Broadway
Santa Monica, CA 90404
Attn: General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Effectiveness. This Agreement shall be effective as of the day
-------------
and year above written.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
P&F ACQUISITION CORP.
By: /s/ David G. Johnson
---------------------------
Name: David G. Johnson
Title: Executive Vice President
METRO GOLDWYN MAYER INC.
By: /s/ David G. Johnson
---------------------------
Name: David G. Johnson
Title: Executive Vice President
INDEMNITEE
/s/ Frank G. Mancuso
------------------------------
Frank G. Mancuso
6
<PAGE>
EXHIBIT 10.13
JOINT AND SEVERAL INDEMNITY AGREEMENT
AGREEMENT dated as of October 10, 1996 by and between P&F Acquisition
Corp., a Delaware corporation (the "Corporation") and Metro-Goldwyn-Mayer Inc.,
-----------
a Delaware corporation ("MGM Inc." and together with the Corporation, the
"Indemnitors") on the one hand, and A. Robert Pisano (the "Indemnitee"), on the
----------- ----------
other.
RECITALS
The Indemnitee is a director and/or officer of the Corporation, MGM Inc.
and/or an Affiliate Indemnitee (as hereinafter defined). Each of the Indemnitors
and the Indemnitee recognize the increased risk of litigation and other claims
being asserted against directors and officers in today's environment.
The Bylaws of the Corporation requires the Corporation and the Bylaws of MGM
Inc. requires MGM Inc. to indemnify its directors and officers as currently
provided therein, and the Indemnitee has been serving and continues to serve as
a director and/or officer of the Corporation and/or MGM Inc. in part in reliance
on such provisions. The Bylaws of each of the Indemnitors permit such Indemnitor
to purchase and maintain insurance or to furnish similar protection or make
other arrangements (any such insurance, protection or arrangement, an
"Indemnification Arrangement") on behalf of the Indemnitee against personal
---------------------------
liability (including, but not limited to, providing for Advanced Amounts as
hereinafter defined) asserted against him or incurred by or on behalf of him in
such capacity as a director or officer of such Indemnitor or as an Affiliate
Indemnitee, or arising out of his status as such, whether or not such Indemnitor
would have the power to indemnify him against such liability under the
provisions of this Agreement or under the Delaware General Corporation Law (the
"DGCL"), as it may then be in effect.
----
In part to provide the Indemnitee with specific contractual assurance of
substantial protection against personal liability (regardless of, among other
things, any amendment to or revocation of the aforementioned provisions of any
of the Indemnitor's Bylaws or any change in the composition of such Indemnitor's
Board of Directors or control of such Indemnitor), each of the Indemnitors
desires to enter into this Agreement. DGCL Section 145(f) expressly recognizes
that the indemnification provisions of the DGCL are not exclusive of any other
rights to which a person seeking indemnification may be entitled under the
Certificate of Incorporation or Bylaws of any of the Indemnitors, or an
agreement providing for indemnification, or a resolution of stockholders or
directors, or otherwise, and the Bylaws of each of the Indemnitors expressly
recognizes that the indemnification provisions of the Bylaws of such Indemnitor
shall not be deemed exclusive of, and shall not affect, any other rights to
which a person seeking indemnification may be entitled under any agreement, and
this Agreement is being entered into pursuant to the Bylaws of each of the
Indemnitors, as permitted by the DGCL and has been authorized by the
stockholders of the Indemnitors.
In order to induce the Indemnitee to serve as a director and/or officer of
the Corporation and/or MGM Inc. and in consideration of the Indemnitee's so
serving, each of the Indemnitors desires jointly and severally to hold harmless
and indemnify the Indemnitee and to make arrangements pursuant to which the
Indemnitee may be advanced or reimbursed expenses incurred by the Indemnitee in
certain proceedings, in every case to the fullest extent authorized or permitted
by the DGCL, or any other applicable law, or by any amendment thereof or other
statutory provisions authorizing or permitting such indemnification which are
adopted after the date hereof (but, in the case of any such amendment, only to
the extent that such amendment permits the Indemnitor to provide broader
indemnification rights than the DGCL, or other applicable law, permitted such
Indemnitor to provide prior to such amendment).
<PAGE>
NOW, THEREFORE, in consideration of the foregoing recitals and of the
Indemnitee's continuing to serve the Corporation and/or MGM Inc. as a director
and/or officer, the parties agree as follows:
1. Indemnification. To the fullest extent allowed by law, each of the
---------------
Indemnitors, jointly and severally, shall hold harmless and indemnify the
Indemnitee, his executors, administrators or assigns against any and all
expenses, liabilities and losses (including, without limitation, investigation
expenses, expert witnesses' and attorneys' fees and expenses, judgments,
penalties, fines, amounts paid or to be paid in settlement any interest,
assessments, or other charges imposed thereon and any federal, state, local or
foreign taxes imposed as a result of actual or deemed receipt of any payment
hereunder) actually incurred by the Indemnitee (net of any related insurance
proceeds or other amounts received by the Indemnitee or paid by or on behalf of
an Indemnitor on the Indemnitee's behalf in compensation of such expenses,
liabilities or losses) in connection with any actual or threatened action, suit
or proceeding, whether civil, criminal, administrative or investigative or in
arbitration, to which the Indemnitee is a party or participant or is threatened
to be made a party or participant (a "Proceeding"), as a plaintiff,
----------
defendant, respondent, witness or otherwise, based upon, arising from, relating
to or by reason of the fact that the Indemnitee: (a) is, was, shall be or shall
have been a director and/or officer of the Corporation, (b) is or was serving,
shall serve, or shall have served at the request of the Corporation as a
director, officer, partner, trustee, fiduciary, employee or agent
("Affiliate Indemnitee") of another foreign or domestic corporation or non-
- -----------------------
profit corporation, cooperative, partnership, joint venture, trust, employee
benefit plan, or other incorporated or unincorporated enterprise (each, a
"Company Affiliate") or (c) is, was, shall be or shall have been a director
- ------------------
and/or officer of MGM Inc., during the period from and after the date on which
Indemnitee became an officer and/or director of MGM Inc. through and until the
Closing Date in connection with the potential sale of MGM Inc. and the
Indemnitee's efforts to assemble a bid group to purchase MGM Inc.; or arising
from or relating to any action or omission to act taken by the Indemnitee in any
of the foregoing capacities; provided, however, that, except as provided in
Section 9(b) hereof, an Indemnitor shall indemnify the Indemnitee in connection
with a Proceeding initiated by the Indemnitee only if such proceeding (or part
thereof) was authorized by a two-thirds vote of the Board of Directors of such
Indemnitor and provided further, that Indemnitors shall have no obligation for
indemnification hereunder for liabilities and other amounts owed to Indemnitee
for any salary, compensation or bonus payment arising out of or from the change
of control of MGM Inc. on or about the date hereof and pursuant to any
employment agreement between MGM Inc. and Indemnitee as in effect immediately
prior to the date hereof.
The Indemnitee shall be presumed to be entitled to such indemnification
under this Agreement upon submission of a written claim pursuant to Section 4
hereof. Thereafter, the Indemnitors shall have the burden of proof to overcome
the presumption that the Indemnitee is so entitled. Such presumption shall
only be overcome by a judgment or other final adjudication, after all appeals
and all time for appeals has expired ("Final Determination"), which is adverse
-------------------
to the Indemnitee and which establishes (i) that his acts were committed in bad
faith, or were the result of active and deliberate dishonesty, and were material
to the cause of action so adjudicated and (ii) that the Indemnitee in fact
personally gained a financial profit or other advantage to which he was not
legally entitled. If the Indemnitee is not wholly successful in any Proceeding
but is successful on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding the Indemnitors agree, jointly
and severally, to indemnify the Indemnitee to the maximum extent permitted by
law against all losses and expenses incurred by the Indemnitee in connection
with each successfully resolved claim, issue or matter. Neither the failure of
any of the Indemnitors (including their respective Boards of Directors, legal
counsel or stockholders) to have made a determination prior to the commencement
of such Proceeding that indemnification of the
2
<PAGE>
Indemnitee is proper in the circumstances because such person has met the
applicable standard of conduct set forth in the DGCL, nor an actual
determination by such Indemnitor (including its Board of Directors, its legal
counsel or its stockholders) that the Indemnitee has not met the applicable
standard of conduct, shall be a defense to the action or create a presumption
that the Indemnitee has not met the applicable standard of conduct. The
purchase, establishment or maintenance of any Indemnification Arrangement shall
not in any way diminish, restrict, limit or adversely affect the rights and
obligations of any of the Indemnitors or of the Indemnitee under this Agreement,
except as expressly provided herein, and the execution and delivery of this
Agreement by the Indemnitors and the Indemnitee shall not in any way diminish,
restrict, limit or adversely affect the Indemnitee's right to indemnification
from the Indemnitors or any other party or parties under any other
Indemnification Arrangement, the Certificate of Incorporation or Bylaws of any
of the Indemnitors, or the DGCL.
2. Period of Limitations. No legal action shall be brought and no cause of
---------------------
action shall be asserted by or on behalf of an Indemnitor or any affiliate of an
Indemnitor against the Indemnitee, Indemnitee's spouse, heirs, executors, or
personal or legal representatives after the expiration of two years from the
date of accrual of such cause of action, or such longer period as may be
required by applicable law under the circumstances. Any claim or cause of action
of the Indemnitor or its affiliate shall be extinguished and deemed released
unless asserted by the timely filing of a legal action within such period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such cause of action the shorter period shall govern.
3. Insurance. Subject only to the provisions of this Section 3, as long as
---------
the Indemnitee shall continue to serve as a director and/or officer of an
Indemnitor (or shall continue at the request of an Indemnitor to serve as an
Affiliate Indemnitee) and, thereafter, as long as the Indemnitee shall be
subject to any possible Proceeding by reason of the fact that the Indemnitee was
a director and/or officer of the Corporation and/or MGM Inc. (or served in any
of said other capacities), the Indemnitors shall, unless no such policies are
available in any market, purchase and maintain in effect for the benefit of the
Indemnitee one or more valid, binding and enforceable policies (the "Insurance
---------
Policies") of directors' and officers' liability insurance ("D&O Insurance")
- --------- -------------
providing adequate liability coverage for the Indemnitee's acts as a director
and/or officer of the Indemnitors or as an Affiliate Indemnitee. Each
Indemnitor shall promptly notify the Indemnitee of any lapse, amendment or
failure to renew said policy or policies or any provision thereof relating to
the extent or nature of coverage provided thereunder. In the event any
Indemnitor does not purchase and maintain in effect said policy or policies of
D&O Insurance pursuant to the provisions of this Section 3, such Indemnitor
shall, in addition to and not in limitation of the other rights granted the
Indemnitee under this Agreement, hold harmless and indemnify the Indemnitee to
the full extent of coverage which would otherwise have been provided for the
benefit of the Indemnitee pursuant to the Insurance Policies.
4. Claims for Payments. The Indemnitee shall have the right to receive
-------------------
from the Indemnitors on demand or, at his option, to have any of the Indemnitors
pay promptly on his behalf, in advance of a Final Determination of a Proceeding,
all amounts payable by the Indemnitors pursuant to the terms of this Agreement
as corresponding amounts are expended or incurred by the Indemnitee in
connection with any Proceeding or otherwise (such amounts so expended or
incurred being referred to as "Advanced Amounts"). In making any claim for
----------------
payment by the Indemnitors of any amount, including any Advanced Amount,
pursuant to this Agreement, the Indemnitee shall submit to the Indemnitors a
written request for payment (a "Claim") which includes a schedule setting forth
in reasonable detail the dollar amount expended (or incurred or expected to be
expended or incurred). Each item
3
<PAGE>
on such schedule shall be supported by the bill, agreement, or other
documentation relating thereto, a copy of which shall be appended to the
schedule as an exhibit.
Where the Indemnitee is requesting Advanced Amounts, the Indemnitee
must also provide an undertaking to repay such Advanced Amounts if a Final
Determination is made that the Indemnitee is not entitled to indemnification
hereunder.
5. Section 16(b) Liability. No Indemnitor shall be liable under this
-----------------------
Agreement to make any payment in connection with any claim made against the
Indemnitee for an accounting of profits made from the purchase or sale by the
Indemnitee of securities of an Indemnitor within the meaning of Section 16(b)
of the Securities Exchange Act of 1934, and amendments thereto, or similar
provisions of any state statutory law or common law.
6. Continuation of Indemnity. All agreements and obligations of the
-------------------------
Indemnitors contained herein shall continue during the period the Indemnitee is
a director and/or officer of such Indemnitor (or is serving at the request of
an Indemnitor as an Affiliate Indemnitee) and shall continue thereafter so long
as the Indemnitee shall be subject to any possible Proceeding by reason of the
fact that the Indemnitee was a director or officer of such Indemnitor or served
as such an Affiliate Indemnitee.
7. Successors: Binding Agreement. This Agreement shall be binding
-----------------------------
on, and shall inure to the benefit of and be enforceable by, each of the
Indemnitor's successors and assigns and by the Indemnitee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
divisees and legatees. Each Indemnitor shall require any successor or assignee
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of such Indemnitor, by
written agreement in form and substance reasonably satisfactory to such
Indemnitor and to the Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that such Indemnitor would
be required to perform if no such succession or assignment had taken place.
8. Notification and Defense of Claim. Promptly after receipt by the
---------------------------------
Indemnitee of notice of the commencement of any Proceeding, the Indemnitee
shall, if a claim in respect thereof is to be made against an Indemnitor under
this Agreement, notify such Indemnitor of the commencement thereof, but the
failure to so notify such Indemnitor will not relieve the Indemnitors from any
liability which it may have to the Indemnitee. With respect to any such
Proceeding:
(i) Each Indemnitor shall be entitled to participate therein at its
own expense;
(ii) Except with prior written consent of the Indemnitee, the
Indemnitors shall not be entitled to assume the defense of any Proceeding;
and
(iii) No Indemnitor shall settle any Proceeding in any manner which
would impose any penalty or limitation on the Indemnitee without the
Indemnitee's prior written consent.
The Indemnitee shall not settle any Proceeding with respect to which the
Indemnitee has received indemnified amounts or Advanced Amounts without the
Indemnitors' prior written consent, nor will the Indemnitee unreasonably
withhold consent to any proposed settlement.
9. Enforcement. (a) Each Indemnitor has entered into this Agreement
------------
and assumed the obligations imposed on such Indemnitor hereby in order to induce
the
4
<PAGE>
Indemnitee to act as a director and/or officer of the Corporation and/or MGM
Inc. or as an Affiliate Indemnitee and acknowledges that the Indemnitee is
relying upon this Agreement in continuing in such capacity.
(b) All expenses incurred by the Indemnitee in connection with the
preparation and submission of the Indemnitee's request for indemnification
hereunder shall be borne, jointly and severally, by the Indemnitors. In the
event the Indemnitee has requested payment of any amount under this Agreement
and has not received payment thereof within thirty (30) days of such request,
the Indemnitee may bring any action to enforce rights or collect moneys due
under this Agreement, and, if the Indemnitee is successful in such action, the
Indemnitors shall reimburse the Indemnitee for all of the Indemnitee's fees and
expenses in bringing and pursuing such action. If it is determined that the
Indemnitee is entitled to indemnification for part (but not all) of the
indemnification so requested, expenses incurred in seeking enforcement of such
partial indemnification shall be reasonably prorated among the claims, issues or
matters for which the Indemnitee is entitled to indemnification for claims,
issues or matter for which the Indemnitee is not so entitled. The Indemnitee
shall be entitled to the advancement of such amounts to the full extent
contemplated by Section 4 hereof in connection with such Proceeding.
10. Separability. If any provision or provisions of this Agreement shall be
-------------
held to be invalid, illegal or unenforceable for any reason whatsoever, (i) the
validity, legality and enforceability of the remaining provisions of this
Agreement (including, without limitation, all portions of any sections or
subsections of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not by themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby, and (ii) to
the fullest extent possible, the provisions of any section or subsections of
this Agreement containing any such provisions held to be invalid, illegal or
unenforceable shall be construed so as to give effect to the intent of the
parties that the Indemnitors (or any of them) provide protection to the
Indemnitee to the fullest extent enforceable.
11. Miscellaneous. No provision of this Agreement may be modified, waived or
--------------
discharged unless such modification, waiver or discharge is agreed to in writing
signed by the Indemnitee and an officer of each of the Indemnitors designated by
the Board of Directors of such Indemnitor. No waiver by either party at any time
of any breach by the other party of, or of compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same time or
at any prior or subsequent time. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Delaware, without giving effect to the principles of conflicts of laws thereof.
The Indemnitee may bring an action seeking resolution of disputes or
controversies arising under, or in any way related to, this Agreement in the
state or federal court jurisdiction in which the Indemnitee resides or in which
his place of business is located and in any related appellate courts, and each
of the Indemnitors hereby consents to the jurisdiction of such courts and to
such venue.
12. Notices. For the purposes of this Agreement, notices and all other
-------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
5
<PAGE>
If to the Indemnitee: A. Robert Pisano
Fifth Floor
2500 Broadway
Santa Monica, CA 90404
If to the Corporation: P&F Acquisition Corp.
Fifth Floor
2500 Broadway
Santa Monica, CA 90404
Attn: General Counsel
If to MGM Inc.: Metro-Goldwyn-Mayer Inc.
Fifth Floor
2500 Broadway
Santa Monica, CA 90404
Attn: General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Effectiveness. This Agreement shall be effective as of the day and year
-------------
first above written.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
P&F ACQUISITION CORP.
By: /s/ David G. Johnson
--------------------------
Name: David G. Johnson
Title: Executive Vice President
METRO-GOLDWYN-MAYER INC.
By: /s/ David G. Johnson
--------------------------
Name: David G. Johnson
Title: Executive Vice President
INDEMNITEE
/s/ A. Robert Pisano
-----------------------------
A. Robert Pisano
6
<PAGE>
EXHIBIT 10.15
JOINT AND SEVERAL INDEMNITY AGREEMENT
AGREEMENT dated as of October 10, 1996 by and between P&F Acquisition
Corp., a Delaware corporation (the "Corporation") and Metro-Goldwyn-Mayer Inc.,
-----------
a Delaware corporation ("MGM Inc." and together with the Corporation, the
--------
"Indemnitors") on the one hand, and David G. Johnson (the "Indemnitee"), on the
----------- ----------
other.
RECITALS
The Indemnitee is a director and/or officer of the Corporation, MGM
Inc. and/or an Affiliate Indemnitee (as hereinafter defined). Each of the
Indemnitors and the Indemnitee recognize the increased risk of litigation and
other claims being asserted against directors and officers in today's
environment.
The Bylaws of the Corporation requires the Corporation and the Bylaws
of MGM Inc. requires MGM Inc. to indemnify its directors and officers as
currently provided therein, and the Indemnitee has been serving and continues to
serve as a director and/or officer of the Corporation and/or MGM Inc. in part in
reliance on such provisions. The Bylaws of each of the Indemnitors permit such
Indemnitor to purchase and maintain insurance or to furnish similar protection
or make other arrangements (any such insurance, protection or arrangement, an
"Indemnification Arrangement") on behalf of the Indemnitee against personal
---------------------------
liability (including, but not limited to, providing for Advanced Amounts as
hereinafter defined) asserted against him or incurred by or on behalf of him in
such capacity as a director or officer of such Indemnitor or as an Affiliate
Indemnitee, or arising out of his status as such, whether or not such Indemnitor
would have the power to indemnify him against such liability under the
provisions of this Agreement or under the Delaware General Corporation Law (the
"DGCL"), as it may then be in effect.
In part to provide the Indemnitee with specific contractual assurance
of substantial protection against personal liability (regardless of, among other
things, any amendment to or revocation of the aforementioned provisions of any
of the Indemnitor's Bylaws or any change in the composition of such Indemnitor's
Board of Directors or control of such Indemnitor), each of the Indemnitors
desires to enter into this Agreement. DGCL Section 145(f) expressly recognizes
that the indemnification provisions of the DGCL are not exclusive of any other
rights to which a person seeking indemnification may be entitled under the
Certificate of Incorporation or Bylaws of any of the Indemnitors, or an
agreement providing for indemnification, or a resolution of stockholders or
directors, or otherwise, and the Bylaws of each of the Indemnitors expressly
recognizes that the indemnification provisions of the Bylaws of such Indemnitor
shall not be deemed exclusive of, and shall not affect, any other rights to
which a person seeking indemnification may be entitled under any agreement, and
this Agreement is being entered into pursuant to the Bylaws of each of the
Indemnitors, as permitted by the DGCL, and has been authorized by the
stockholders of the Indemnitors.
In order to induce the Indemnitee to serve as a director and/or
officer of the Corporation and/or MGM Inc. and in consideration of the
Indemnitee's so serving, each of the Indemnitors desires jointly and severally
to hold harmless and indemnify the Indemnitee and to make arrangements pursuant
to which the Indemnitee may be advanced or reimbursed expenses incurred by the
Indemnitee in certain proceedings, in every case to the fullest extent
authorized or permitted by the DGCL, or any other applicable law, or by any
amendment thereof or other statutory provisions authorizing or permitting such
indemnification which are adopted after the date hereof (but, in the case of
any such amendment, only to the extent that such amendment permits the
Indemnitor to provide broader indemnification rights than the DGCL, or other
applicable law, permitted such Indemnitor to provide prior to such amendment).
<PAGE>
NOW, THEREFORE, in consideration of the foregoing recitals and of the
Indemnitee's continuing to serve the Corporation and/or MGM Inc. as a director
and/or officer, the parties agree as follows:
1. Indemnification. To the fullest extent allowed by law, each of the
---------------
Indemnitors, jointly and severally, shall hold harmless and indemnify the
Indemnitee, his executors, administrators or assigns against any and all
expenses, liabilities and losses (including, without limitation, investigation
expenses, expert witnesses' and attorneys' fees and expenses, judgments,
penalties, fines, amounts paid or to be paid in settlement any interest,
assessments, or other charges imposed thereon and any federal, state, local or
foreign taxes imposed as a result of actual or deemed receipt of any payment
hereunder) actually incurred by the Indemnitee (net of any related insurance
proceeds or other amounts received by the Indemnitee or paid by or on behalf of
an Indemnitor on the Indemnitee's behalf in compensation of such expenses,
liabilities or losses) in connection with any actual or threatened action, suit
or proceeding, whether civil, criminal, administrative or investigative or in
arbitration, to which the Indemnitee is a party or participant or is threatened
to be made a party or participant (a "Proceeding"), as a plaintiff, defendant,
----------
respondent, witness or otherwise, based upon, arising from, relating to or by
reason of the fact that the Indemnitee: (a) is, was, shall be or shall have been
a director and/or officer of the Corporation, (b) is or was serving, shall
serve, or shall have served at the request of the Corporation as a director,
officer, partner, trustee, fiduciary, employee or agent ("Affiliate Indemnitee")
--------------------
of another foreign or domestic corporation or non-profit corporation,
cooperative, partnership, joint venture, trust, employee benefit plan, or other
incorporated or unincorporated enterprise (each, a "Company Affiliate") or (c)
-----------------
is, was, shall be or shall have been a director and/or officer of MGM Inc.,
during the period from and after the date on which Indemnitee became an officer
and/or director of MGM Inc. through and until the Closing Date in connection
with the potential sale of MGM Inc. and the Indemnitee's efforts to assemble a
bid group to purchase MGM Inc.; or arising from or relating to any action or
omission to act taken by the Indemnitee in any of the foregoing capacities;
provided, however, that, except as provided in Section 9(b) hereof, an
Indemnitor shall indemnify the Indemnitee in connection with a Proceeding
initiated by the Indemnitee only if such proceeding (or part thereof) was
authorized by a two-thirds vote of the Board of Directors of such Indemnitor and
provided further, that Indemnitors shall have no obligation for indemnification
hereunder for liabilities and other amounts owed to Indemnitee for any salary,
compensation or bonus payment arising out of or from the change of control of
MGM Inc. on or about the date hereof and pursuant to any employment agreement
between MGM Inc. and Indemnitee as in effect immediately prior to the date
hereof.
The Indemnitee shall be presumed to be entitled to such
indemnification under this Agreement upon submission of a written claim pursuant
to Section 4 hereof. Thereafter, the Indemnitors shall have the burden of proof
to overcome the presumption that the Indemnitee is so entitled. Such
presumption shall only be overcome by a judgment or other final adjudication,
after all appeals and all time for appeals has expired ("Final Determination"),
-------------------
which is adverse to the Indemnitee and which establishes (i) that his acts were
committed in bad faith, or were the result of active and deliberate dishonesty,
and were material to the cause of action so adjudicated and (ii) that the
Indemnitee in fact personally gained a financial profit or other advantage to
which he was not legally entitled. If the Indemnitee is not wholly successful in
any Proceeding but is successful on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding the Indemnitors
agree, jointly and severally, to indemnify the Indemnitee to the maximum extent
permitted by law against all losses and expenses incurred by the Indemnitee in
connection with each successfully resolved claim, issue or matter. Neither the
failure of any of the Indemnitors (including their respective Boards of
Directors, legal counsel or stockholders) to have made a determination prior to
the commencement of such Proceeding that indemnification of the
2
<PAGE>
Indemnitee is proper in the circumstances because such person has met the
applicable standard of conduct set forth in the DGCL, nor an actual
determination by such Indemnitor (including its Board of Directors, its legal
counsel or its stockholders) that the Indemnitee has not met the applicable
standard of conduct, shall be a defense to the action or create a presumption
that the Indemnitee has not met the applicable standard of conduct. The
purchase, establishment or maintenance of any Indemnification Arrangement shall
not in any way diminish, restrict, limit or adversely affect the rights and
obligations of any of the Indemnitors or of the Indemnitee under this Agreement,
except as expressly provided herein, and the execution and delivery of this
Agreement by the Indemnitors and the Indemnitee shall not in any way diminish,
restrict, limit or adversely affect the Indemnitee's right to indemnification
from the Indemnitors or any other party or parties under any other
Indemnification Arrangement, the Certificate of Incorporation or Bylaws of any
of the Indemnitors, or the DGCL.
2. Period of Limitations. No legal action shall be brought and no
---------------------
cause of action shall be asserted by or on behalf of an Indemnitor or any
affiliate of an Indemnitor against the Indemnitee, Indemnitee's spouse, heirs,
executors, or personal or legal representatives after the expiration of two
years from the date of accrual of such cause of action, or such longer period as
may be required by applicable law under the circumstances. Any claim or cause of
action of the Indemnitor or its affiliate shall be extinguished and deemed
released unless asserted by the timely filing of a legal action within such
period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action the shorter period shall
govern.
3. Insurance. Subject only to the provisions of this Section 3, as
---------
long as the Indemnitee shall continue to serve as a director and/or officer of
an Indemnitor (or shall continue at the request of an Indemnitor to serve as an
Affiliate Indemnitee) and, thereafter, as long as the Indemnitee shall be
subject to any possible Proceeding by reason of the fact that the Indemnitee was
a director and/or officer of the Corporation and/or MGM Inc. (or served in any
of said other capacities), the Indemnitors shall, unless no such policies are
available in any market, purchase and maintain in effect for the benefit of the
Indemnitee one or more valid, binding and enforceable policies (the "Insurance
---------
Policies") of directors' and officers' liability insurance ("D&O Insurance")
- -------- -------------
providing adequate liability coverage for the Indemnitee's acts as a director
and/or officer of the Indemnitors or as an Affiliate Indemnitee. Each Indemnitor
shall promptly notify the Indemnitee of any lapse, amendment or failure to renew
said policy or policies or any provision thereof relating to the extent or
nature of coverage provided thereunder. In the event any Indemnitor does not
purchase and maintain in effect said policy or policies of D&O Insurance
pursuant to the provisions of this Section 3, such Indemnitor shall, in addition
to and not in limitation of the other rights granted the Indemnitee under this
Agreement, hold harmless and indemnify the Indemnitee to the full extent of
coverage which would otherwise have been provided for the benefit of the
Indemnitee pursuant to the Insurance Policies.
4. Claims for Payments. The Indemnitee shall have the right to receive
-------------------
from the Indemnitors on demand or, at his option, to have any of the Indemnitors
pay promptly on his behalf, in advance of a Final Determination of a Proceeding,
all amounts payable by the Indemnitors pursuant to the terms of this Agreement
as corresponding amounts are expended or incurred by the Indemnitee in
connection with any Proceeding or otherwise (such amounts so expended or
incurred being referred to as "Advanced Amounts"). In making any claim for
----------------
payment by the Indemnitors of any amount, including any Advanced Amount,
pursuant to this Agreement, the Indemnitee shall submit to the Indemnitors a
written request for payment (a "Claim") which includes a schedule setting forth
in reasonable detail the dollar amount expended (or incurred or expected to be
expended or incurred). Each item
3
<PAGE>
on such schedule shall be supported by the bill, agreement, or other
documentation relating thereto, a copy of which shall be appended to the
schedule as an exhibit.
Where the Indemnitee is requesting Advanced Amounts, the Indemnitee
must also provide an undertaking to repay such Advanced Amounts if a Final
Determination is made that the Indemnitee is not entitled to indemnification
hereunder.
5. Section 16(b) Liability. No Indemnitor shall be liable under this
-----------------------
Agreement to make any payment in connection with any claim made against the
Indemnitee for an accounting of profits made from the purchase or sale by the
Indemnitee of securities of an Indemnitor within the meaning of Section 16(b) of
the Securities Exchange Act of 1934, and amendments thereto, or similar
provisions of any state statutory law or common law.
6. Continuation of Indemnity. All agreements and obligations of the
-------------------------
Indemnitors contained herein shall continue during the period the Indemnitee is
a director and/or officer of such Indemnitor (or is serving at the request of an
Indemnitor as an Affiliate Indemnitee) and shall continue thereafter so long as
the Indemnitee shall be subject to any possible Proceeding by reason of the fact
that the Indemnitee was a director or officer of such Indemnitor or served as
such an Affiliate Indemnitee.
7. Successors: Binding Agreement. This Agreement shall be binding on,
-----------------------------
and shall inure to the benefit of and be enforceable by, each of the
Indemnitor's successors and assigns and by the Indemnitee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
divisees and legatees. Each Indemnitor shall require any successor or assignee
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of such Indemnitor, by
written agreement in form and substance reasonably satisfactory to such
Indemnitor and to the Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that such Indemnitor would
be required to perform if no such succession or assignment had taken place.
8. Notification and Defense of Claim. Promptly after receipt by the
---------------------------------
Indemnitee of notice of the commencement of any Proceeding, the Indemnitee
shall, if a claim in respect thereof is to be made against an Indemnitor under
this Agreement, notify such Indemnitor of the commencement thereof, but the
failure to so notify such Indemnitor will not relieve the Indemnitors from any
liability which it may have to the Indemnitee. With respect to any such
Proceeding:
(i) Each Indemnitor shall be entitled to participate therein at its
own expense;
(ii) Except with prior written consent of the Indemnitee, the
Indemnitors shall not be entitled to assume the defense of any Proceeding;
and
(iii) No Indemnitor shall settle any Proceeding in any manner which
would impose any penalty or limitation on the Indemnitee without the
Indemnitee's prior written consent.
The Indemnitee shall not settle any Proceeding with respect to which the
Indemnitee has received indemnified amounts or Advanced Amounts without the
Indemnitors' prior written consent, nor will the Indemnitee unreasonably
withhold consent to any proposed settlement.
9. Enforcement. (a) Each Indemnitor has entered into this Agreement
-----------
and assumed the obligations imposed on such Indemnitor hereby in order to induce
the
4
<PAGE>
Indemnitee to act as a director and/or officer of the Corporation and/or MGM
Inc. or as an Affiliate Indemnitee and acknowledges that the Indemnitee is
relying upon this Agreement in continuing in such capacity.
(b) All expenses incurred by the Indemnitee in connection with the
preparation and submission of the Indemnitee's request for indemnification
hereunder shall be borne, jointly and severally, by the Indemnitors. In the
event the Indemnitee has requested payment of any amount under this Agreement
and has not received payment thereof within thirty (30) days of such request,
the Indemnitee may bring any action to enforce rights or collect moneys due
under this Agreement, and, if the Indemnitee is successful in such action, the
Indemnitors shall reimburse the Indemnitee for all of the Indemnitee's fees and
expenses in bringing and pursuing such action. If it is determined that the
Indemnitee is entitled to indemnification for part (but not all) of the
indemnification so requested, expenses incurred in seeking enforcement of such
partial indemnification shall be reasonably prorated among the claims, issues or
matters for which the Indemnitee is entitled to indemnification for claims,
issues or matter for which the Indemnitee is not so entitled. The Indemnitee
shall be entitled to the advancement of such amounts to the full extent
contemplated by Section 4 hereof in connection with such Proceeding.
10. Separability. If any provision or provisions of this Agreement
------------
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of
this Agreement (including, without limitation, all portions of any sections or
subsections of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not by themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby, and (ii) to
the fullest extent possible, the provisions of any section or subsections of
this Agreement containing any such provisions held to be invalid, illegal or
unenforceable shall be construed so as to give effect to the intent of the
parties that the Indemnitors (or any of them) provide protection to the
Indemnitee to the fullest extent enforceable.
11. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such modification, waiver or discharge is agreed to
in writing signed by the Indemnitee and an officer of each of the Indemnitors
designated by the Board of Directors of such Indemnitor. No waiver by either
party at any time of any breach by the other party of, or of compliance with,
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same time or at any prior or subsequent time. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Delaware, without giving effect to the principles of conflicts of
laws thereof. The Indemnitee may bring an action seeking resolution of disputes
or controversies arising under, or in any way related to, this Agreement in the
state or federal court jurisdiction in which the Indemnitee resides or in which
his place of business is located and in any related appellate courts, and each
of the Indemnitors hereby consents to the jurisdiction of such courts and to
such venue.
12. Notices. For the purposes of this Agreement, notices and all other
-------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
5
<PAGE>
If to the Indemnitee: David G. Johnson
Fifth Floor
2500 Broadway
Santa Monica, CA 90404
If to the Corporation: P&F Acquisition Corp.
Fifth Floor
2500 Broadway
Santa Monica, CA 90404
Attn: General Counsel
If to MGM Inc.: Metro-Goldwyn-Mayer Inc.
Fifth Floor
2500 Broadway
Santa Monica, CA 90404
Attn: General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Effectiveness. This Agreement shall be effective as of the day
-------------
and year first above written.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
P&F ACQUISITION CORP.
By: /s/ Robert Brada
---------------------------
Name: Robert Brada
Title: Senior Vice President
METRO-GOLDWYN-MAYER INC.
By: /s/ Robert Brada
---------------------------
Name: Robert Brada
Title: Senior Vice President
INDEMNITEE
/s/ David G. Johnson
------------------------------
David G. Johnson
6
<PAGE>
Exhibit 10.16
JOINT AND SEVERAL INDEMNITY AGREEMENT
AGREEMENT dated as of October 10, 1996 by and between P&F Acquisition
Corp., a Delaware corporation (the "Corporation") and Metro-Goldwyn-Mayer Inc.,
-----------
a Delaware corporation ("MGM Inc." and together with the Corporation, the
-------
"Indemnitors") on the one hand, and William Allen Jones (the "Indemnitee"), on
----------- ----------
the other.
RECITALS
The Indemnitee is a director and/or officer of the Corporation, MGM
Inc. and/or an Affiliate Indemnitee (as hereinafter defined). Each of the
Indemnitors and the Indemnitee recognize the increased risk of litigation and
other claims being asserted against directors and officers in today's
environment.
The Bylaws of the Corporation requires the Corporation and the Bylaws
of MGM Inc. requires MGM Inc. to indemnify its directors and officers as
currently provided therein, and the Indemnitee has been serving and continues to
serve as a director and/or officer of the Corporation and/or MGM Inc. in part in
reliance on such provisions. The Bylaws of each of the Indemnitors permit such
Indemnitor to purchase and maintain insurance or to furnish similar protection
or make other arrangements (any such insurance, protection or arrangement, an
"Indemnification Arrangement") on behalf of the Indemnitee against personal
---------------------------
liability (including, but not limited to, providing for Advanced Amounts as
hereinafter defined) asserted against him or incurred by or on behalf of him in
such capacity as a director or officer of such Indemnitor or as an Affiliate
Indemnitee, or arising out of his status as such, whether or not such Indemnitor
would have the power to indemnify him against such liability under the
provisions of this Agreement or under the Delaware General Corporation Law (the
"DGCL"), as it may then be in effect.
In part to provide the Indemnitee with specific contractual assurance
of substantial protection against personal liability (regardless of, among other
things, any amendment to or revocation of the aforementioned provisions of any
of the Indemnitor's Bylaws or any change in the composition of such Indemnitor's
Board of Directors or control of such Indemnitor), each of the Indemnitors
desires to enter into this Agreement. DGCL Section 145(f) expressly recognizes
that the indemnification provisions of the DGCL are not exclusive of any other
rights to which a person seeking indemnification may be entitled under the
Certificate of Incorporation or Bylaws of any of the Indemnitors, or an
agreement providing for indemnification, or a resolution of stockholders or
directors, or otherwise, and the Bylaws of each of the Indemnitors expressly
recognizes that the indemnification provisions of the Bylaws of such Indemnitor
shall not be deemed exclusive of, and shall not affect, any other rights to
which a person seeking indemnification may be entitled under any agreement, and
this Agreement is being entered into pursuant to the Bylaws of each of the
Indemnitors, as permitted by the DGCL, and has been authorized by the
stockholders of the Indemnitors.
In order to induce the Indemnitee to serve as a director and/or
officer of the Corporation and/or MGM Inc. and in consideration of the
Indemnitee's so serving, each of the Indemnitors desires jointly and severally
to hold harmless and indemnify the Indemnitee and to make arrangements pursuant
to which the Indemnitee may be advanced or reimbursed expenses incurred by the
Indemnitee in certain proceedings, in every case to the fullest extent
authorized or permitted by the DGCL, or any other applicable law, or by any
amendment thereof or other statutory provisions authorizing or permitting such
indemnification which are adopted after the date hereof (but, in the case of any
such amendment, only to the extent that such amendment permits the Indemnitor to
provide broader indemnification rights than the DGCL, or other applicable law,
permitted such Indemnitor to provide prior to such amendment).
<PAGE>
NOW, THEREFORE, in consideration of the foregoing recitals and of the
Indemnitee's continuing to serve the Corporation and/or MGM Inc. as a director
and/or officer, the parties agree as follows:
1. Indemnification. To the fullest extent allowed by law, each of the
---------------
Indemnitors, jointly and severally, shall hold harmless and indemnify the
Indemnitee, his executors, administrators or assigns against any and all
expenses, liabilities and losses (including, without limitation, investigation
expenses, expert witnesses' and attorneys' fees and expenses, judgments,
penalties, fines, amounts paid or to be paid in settlement any interest,
assessments, or other charges imposed thereon and any federal, state, local or
foreign taxes imposed as a result of actual or deemed receipt of any payment
hereunder) actually incurred by the Indemnitee (net of any related insurance
proceeds or other amounts received by the Indemnitee or paid by or on behalf of
an Indemnitor on the Indemnitee's behalf in compensation of such expenses,
liabilities or losses) in connection with any actual or threatened action, suit
or proceeding, whether civil, criminal, administrative or investigative or in
arbitration, to which the Indemnitee is a party or participant or is threatened
to be made a party or participant (a "Proceeding"), as a plaintiff, defendant,
----------
respondent, witness or otherwise, based upon, arising from, relating to or by
reason of the fact that the Indemnitee: (a) is, was, shall be or shall have been
a director and/or officer of the Corporation, (b) is or was serving, shall
serve, or shall have served at the request of the Corporation as a director,
officer, partner, trustee, fiduciary, employee or agent ("Affiliate Indemnitee")
--------------------
of another foreign or domestic corporation or non-profit corporation,
cooperative, partnership, joint venture, trust, employee benefit plan, or other
incorporated or unincorporated enterprise (each, a "Company Affiliate") or (c)
-----------------
is, was, shall be or shall have been a director and/or officer of MGM Inc.,
during the period from and after the date on which Indemnitee became an officer
and/or director of MGM Inc. through and until the Closing Date in connection
with the potential sale of MGM Inc. and the Indemnitee's efforts to assemble a
bid group to purchase MGM Inc.; or arising from or relating to any action or
omission to act taken by the Indemnitee in any of the foregoing capacities;
provided, however, that, except as provided in Section 9(b) hereof, an
Indemnitor shall indemnify the Indemnitee in connection with a Proceeding
initiated by the Indemnitee only if such proceeding (or part thereof) was
authorized by a two-thirds vote of the Board of Directors of such Indemnitor and
provided further, that Indemnitors shall have no obligation for indemnification
hereunder for liabilities and other amounts owed to Indemnitee for any salary,
compensation or bonus payment arising out of or from the change of control of
MGM Inc. on or about the date hereof and pursuant to any employment agreement
between MGM Inc. and Indemnitee as in effect immediately prior to the date
hereof.
The Indemnitee shall be presumed to be entitled to such
indemnification under this Agreement upon submission of a written claim pursuant
to Section 4 hereof. Thereafter, the Indemnitors shall have the burden of proof
to overcome the presumption that the Indemnitee is so entitled. Such presumption
shall only be overcome by a judgment or other final adjudication, after all
appeals and all time for appeals has expired ("Final Determination"), which is
-------------------
adverse to the Indemnitee and which establishes (i) that his acts were committed
in bad faith, or were the result of active and deliberate dishonesty, and were
material to the cause of action so adjudicated and (ii) that the Indemnitee in
fact personally gained a financial profit or other advantage to which he was not
legally entitled. If the Indemnitee is not wholly successful in any Proceeding
but is successful on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding the Indemnitors agree, jointly
and severally, to indemnify the Indemnitee to the maximum extent permitted by
law against all losses and expenses incurred by the Indemnitee in connection
with each successfully resolved claim, issue or matter. Neither the failure of
any of the Indemnitors (including their respective Boards of Directors, legal
counsel or stockholders) to have made a determination prior to the commencement
of such Proceeding that indemnification of the
2
<PAGE>
Indemnitee is proper in the circumstances because such person has met the
applicable standard of conduct set forth in the DGCL, nor an actual
determination by such Indemnitor (including its Board of Directors, its legal
counsel or its stockholders) that the Indemnitee has not met the applicable
standard of conduct, shall be a defense to the action or create a presumption
that the Indemnitee has not met the applicable standard of conduct. The
purchase, establishment or maintenance of any Indemnification Arrangement shall
not in any way diminish, restrict, limit or adversely affect the rights and
obligations of any of the Indemnitors or of the Indemnitee under this Agreement,
except as expressly provided herein, and the execution and delivery of this
Agreement by the Indemnitors and the Indemnitee shall not in any way diminish,
restrict, limit or adversely affect the Indemnitee's right to indemnification
from the Indemnitors or any other party or parties under any other
Indemnification Arrangement, the Certificate of Incorporation or Bylaws of any
of the Indemnitors, or the DGCL.
2. Period of Limitations. No legal action shall be brought and no
---------------------
cause of action shall be asserted by or on behalf of an Indemnitor or any
affiliate of an Indemnitor against the Indemnitee, Indemnitee's spouse, heirs,
executors, or personal or legal representatives after the expiration of two
years from the date of accrual of such cause of action, or such longer period as
may be required by applicable law under the circumstances. Any claim or cause of
action of the Indemnitor or its affiliate shall be extinguished and deemed
released unless asserted by the timely filing of a legal action within such
period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action the shorter period shall
govern.
3. Insurance. Subject only to the provisions of this Section 3, as
---------
long as the Indemnitee shall continue to serve as a director and/or officer of
an Indemnitor (or shall continue at the request of an Indemnitor to serve as an
Affiliate Indemnitee) and, thereafter, as long as the Indemnitee shall be
subject to any possible Proceeding by reason of the fact that the Indemnitee was
a director and/or officer of the Corporation and/or MGM Inc. (or served in any
of said other capacities), the Indemnitors shall, unless no such policies are
available in any market, purchase and maintain in effect for the benefit of the
Indemnitee one or more valid, binding and enforceable policies (the "Insurance
---------
Policies") of directors' and officers' liability insurance ("D&O Insurance")
- -------- -------------
providing adequate liability coverage for the Indemnitee's acts as a director
and/or officer of the Indemnitors or as an Affiliate Indemnitee. Each Indemnitor
shall promptly notify the Indemnitee of any lapse, amendment or failure to renew
said policy or policies or any provision thereof relating to the extent or
nature of coverage provided thereunder. In the event any Indemnitor does not
purchase and maintain in effect said policy or policies of D&O Insurance
pursuant to the provisions of this Section 3, such Indemnitor shall, in addition
to and not in limitation of the other rights granted the Indemnitee under this
Agreement, hold harmless and indemnify the Indemnitee to the full extent of
coverage which would otherwise have been provided for the benefit of the
Indemnitee pursuant to the Insurance Policies.
4. Claims for Payments. The Indemnitee shall have the right to receive
-------------------
from the Indemnitors on demand or, at his option, to have any of the Indemnitors
pay promptly on his behalf, in advance of a Final Determination of a Proceeding,
all amounts payable by the Indemnitors pursuant to the terms of this Agreement
as corresponding amounts are expended or incurred by the Indemnitee in
connection with any Proceeding or otherwise (such amounts so expended or
incurred being referred to as "Advanced Amounts"). In making any claim for
----------------
payment by the Indemnitors of any amount, including any Advanced Amount,
pursuant to this Agreement, the Indemnitee shall submit to the Indemnitors a
written request for payment (a "Claim") which includes a schedule setting forth
-----
in reasonable detail the dollar amount expended (or incurred or expected to be
expended or incurred). Each item
3
<PAGE>
on such schedule shall be supported by the bill, agreement, or other
documentation relating thereto, a copy of which shall be appended to the
schedule as an exhibit.
Where the Indemnitee is requesting Advanced Amounts, the Indemnitee
must also provide an undertaking to repay such Advanced Amounts if a Final
Determination is made that the Indemnitee is not entitled to indemnification
hereunder.
5. Section 16(b) Liability. No Indemnitor shall be liable under this
-----------------------
Agreement to make any payment in connection with any claim made against the
Indemnitee for an accounting of profits made from the purchase or sale by the
Indemnitee of securities of an Indemnitor within the meaning of Section 16(b) of
the Securities Exchange Act of 1934, and amendments thereto, or similar
provisions of any state statutory law or common law.
6. Continuation of Indemnity. All agreements and obligations of the
-------------------------
Indemnitors contained herein shall continue during the period the Indemnitee is
a director and/or officer of such Indemnitor (or is serving at the request of
an Indemnitor as an Affiliate Indemnitee) and shall continue thereafter so long
as the Indemnitee shall be subject to any possible Proceeding by reason of the
fact that the Indemnitee was a director or officer of such Indemnitor or served
as such an Affiliate Indemnitee.
7. Successors: Binding Agreement. This Agreement shall be binding on,
-----------------------------
and shall inure to the benefit of and be enforceable by, each of the
Indemnitor's successors and assigns and by the Indemnitee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
divisees and legatees. Each Indemnitor shall require any successor or assignee
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of such Indemnitor, by
written agreement in form and substance reasonably satisfactory to such
Indemnitor and to the Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that such Indemnitor would
be required to perform if no such succession or assignment had taken place.
8. Notification and Defense of Claim. Promptly after receipt by the
---------------------------------
Indemnitee of notice of the commencement of any Proceeding, the Indemnitee
shall, if a claim in respect thereof is to be made against an Indemnitor under
this Agreement, notify such Indemnitor of the commencement thereof, but the
failure to so notify such Indemnitor will not relieve the Indemnitors from any
liability which it may have to the Indemnitee. With respect to any such
Proceeding:
(i) Each Indemnitor shall be entitled to participate therein at its own
expense;
(ii) Except with prior written consent of the Indemnitee, the
Indemnitors shall not be entitled to assume the defense of any Proceeding;
and
(iii) No Indemnitor shall settle any Proceeding in any manner which
would impose any penalty or limitation on the Indemnitee without the
Indemnitee's prior written consent.
The Indemnitee shall not settle any Proceeding with respect to which the
Indemnitee has received indemnified amounts or Advanced Amounts without the
Indemnitors' prior written consent, nor will the Indemnitee unreasonably
withhold consent to any proposed settlement.
9. Enforcement. (a) Each Indemnitor has entered into this Agreement
-----------
and assumed the obligations imposed on such Indemnitor hereby in order to induce
the
4
<PAGE>
Indemnitee to act as a director and/or officer of the Corporation and/or MGM
Inc. or as an Affiliate Indemnitee and acknowledges that the Indemnitee is
relying upon this Agreement in continuing in such capacity.
(b) All expenses incurred by the Indemnitee in connection with the
preparation and submission of the Indemnitee's request for indemnification
hereunder shall be borne, jointly and severally, by the Indemnitors. In the
event the Indemnitee has requested payment of any amount under this Agreement
and has not received payment thereof within thirty (30) days of such request,
the Indemnitee may bring any action to enforce rights or collect moneys due
under this Agreement, and, if the Indemnitee is successful in such action, the
Indemnitors shall reimburse the Indemnitee for all of the Indemnitee's fees and
expenses in bringing and pursuing such action. If it is determined that the
Indemnitee is entitled to indemnification for part (but not all) of the
indemnification so requested, expenses incurred in seeking enforcement of such
partial indemnification shall be reasonably prorated among the claims, issues or
matters for which the Indemnitee is entitled to indemnification for claims,
issues or matter for which the Indemnitee is not so entitled. The Indemnitee
shall be entitled to the advancement of such amounts to the full extent
contemplated by Section 4 hereof in connection with such Proceeding.
10. Separability. If any provision or provisions of this Agreement
------------
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of
this Agreement (including, without limitation, all portions of any sections or
subsections of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not by themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby, and (ii) to
the fullest extent possible, the provisions of any section or subsections of
this Agreement containing any such provisions held to be invalid, illegal or
unenforceable shall be construed so as to give effect to the intent of the
parties that the Indemnitors (or any of them) provide protection to the
Indemnitee to the fullest extent enforceable.
11. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such modification, waiver or discharge is agreed to
in writing signed by the Indemnitee and an officer of each of the Indemnitors
designated by the Board of Directors of such Indemnitor. No waiver by either
party at any time of any breach by the other party of, or of compliance with,
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same time or at any prior or subsequent time. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Delaware, without giving effect to the principles of conflicts of
laws thereof. The Indemnitee may bring an action seeking resolution of disputes
or controversies arising under, or in any way related to, this Agreement in the
state or federal court jurisdiction in which the Indemnitee resides or in which
his place of business is located and in any related appellate courts, and each
of the Indemnitors hereby consents to the jurisdiction of such courts and to
such venue.
12. Notices. For the purposes of this Agreement, notices and all other
-------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
5
<PAGE>
If to the Indemnitee: William Allen Jones
Fifth Floor
2500 Broadway
Santa Monica, CA 90404
If to the Corporation: P&F Acquisition Corp.
Fifth Floor
2500 Broadway
Santa Monica, CA 90404
Attn: General Counsel
If to MGM Inc.: Metro-Goldwyn-Mayer Inc.
Fifth Floor
2500 Broadway
Santa Monica, CA 90404
Attn: General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Effectiveness. This Agreement shall be effective as of the day and
-------------
year first above written.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
P&F ACQUISITION CORP.
By: /s/ David G. Johnson
---------------------------
Name: David G. Johnson
Title: Executive Vice President
METRO-GOLDWYN-MAYER INC.
By: /s/ David G. Johnson
---------------------------
Name: David G. Johnson
Title: Executive Vice President
INDEMNITEE
/s/ William Allen Jones
-----------------------------
William Allen Jones
6
<PAGE>
EXHIBIT 10.17
JOINT AND SEVERAL INDEMNITY AGREEMENT
AGREEMENT dated as of October l0, 1996 by and between P&F Acquisition
Corp., a Delaware corporation (the "Corporation") and Metro-Goldwyn-Mayer Inc.,
-----------
a Delaware corporation ("MGM Inc." and together with the Corporation, the
--------
"Indemnitors") on the one hand, and James Aljian (the "Indemnitee"), on the
----------- ----------
other.
RECITALS
The Indemnitee is a director and/or officer of the Corporation, MGM
Inc. and/or an Affiliate Indemnitee (as hereinafter defined). Each of the
Indemnitors and the Indemnitee recognize the increased risk of litigation and
other claims being asserted against directors and officers in today's
environment.
The Bylaws of the Corporation requires the Corporation and the Bylaws
of MGM Inc. requires MGM Inc. to indemnify its directors and officers as
currently provided therein, and the Indemnitee has been serving and continues to
serve as a director and/or officer of the Corporation and/or MGM Inc. in part in
reliance on such provisions. The Bylaws of each of the Indemnitors permit such
Indemnitor to purchase and maintain insurance or to furnish similar protection
or make other arrangements (any such insurance, protection or arrangement, an
"Indemnification Arrangement") on behalf of the Indemnitee against personal
---------------------------
liability (including, but not limited to, providing for Advanced Amounts as
hereinafter defined) asserted against him or incurred by or on behalf of him in
such capacity as a director or officer of such Indemnitor or as an Affiliate
Indemnitee, or arising out of his status as such, whether or not such Indemnitor
would have the power to indemnify him against such liability under the
provisions of this Agreement or under the Delaware General Corporation Law (the
"DGCL"), as it may then be in effect.
----
In part to provide the Indemnitee with specific contractual assurance
of substantial protection against personal liability (regardless of, among other
things, any amendment to or revocation of the aforementioned provisions of any
of the Indemnitor's Bylaws or any change in the composition of such Indemnitor's
Board of Directors or control of such Indemnitor), each of the Indemnitors
desires to enter into this Agreement. DGCL Section 145(f) expressly recognizes
that the indemnification provisions of the DGCL are not exclusive of any other
rights to which a person seeking indemnification may be entitled under the
Certificate of Incorporation or Bylaws of any of the Indemnitors, or an
agreement providing for indemnification, or a resolution of stockholders or
directors, or otherwise, and the Bylaws of each of the Indemnitors expressly
recognizes that the indemnification provisions of the Bylaws of such Indemnitor
shall not be deemed exclusive of, and shall not affect, any other rights to
which a person seeking indemnification may be entitled under any agreement, and
this Agreement is being entered into pursuant to the Bylaws of each of the
Indemnitors, as permitted by the DGCL, and has been authorized by the
stockholders of the Indemnitors.
In order to induce the Indemnitee to serve as a director and/or
officer of the Corporation and/or MGM Inc. and in consideration of the
Indemnitee's so serving, each of the Indemnitors desires jointly and severally
to hold harmless and indemnify the Indemnitee and to make arrangements pursuant
to which the Indemnitee may be advanced or reimbursed expenses incurred by the
Indemnitee in certain proceedings, in every case to the fullest extent
authorized or permitted by the DGCL, or any other applicable law, or by any
amendment thereof or other statutory provisions authorizing or permitting such
indemnification which are adopted after the date hereof (but, in the case of any
such amendment, only to the extent that such amendment permits the Indemnitor to
provide broader indemnification rights than the DGCL, or other applicable law,
permitted such Indemnitor to provide prior to such amendment).
<PAGE>
NOW, THEREFORE, in consideration of the foregoing recitals and of the
Indemnitee's continuing to serve the Corporation and/or MGM Inc. as a director
and/or officer, the parties agree as follows:
1. Indemnification. To the fullest extent allowed by law, each of the
---------------
Indemnitors, jointly and severally, shall hold harmless and indemnify the
Indemnitee, his executors, administrators or assigns against any and all
expenses, liabilities and losses (including, without limitation, investigation
expenses, expert witnesses' and attorneys' fees and expenses, judgments,
penalties, fines, amounts paid or to be paid in settlement any interest,
assessments, or other charges imposed thereon and any federal, state, local or
foreign taxes imposed as a result of actual or deemed receipt of any payment
hereunder) actually incurred by the Indemnitee (net of any related insurance
proceeds or other amounts received by the Indemnitee or paid by or on behalf of
an Indemnitor on the Indemnitee's behalf in compensation of such expenses,
liabilities or losses) in connection with any actual or threatened action, suit
or proceeding, whether civil, criminal, administrative or investigative or in
arbitration, to which the Indemnitee is a party or participant or is threatened
to be made a party or participant (a "Proceeding"), as a plaintiff, defendant,
-----------
respondent, witness or otherwise, based upon, arising from, relating to or by
reason of the fact that the Indemnitee: (a) is, was, shall be or shall have been
a director and/or officer of the Corporation, (b) is or was serving, shall
serve, or shall have served at the request of the Corporation as a director,
officer, partner, trustee, fiduciary, employee or agent ("Affiliate Indemnitee")
--------------------
of another foreign or domestic corporation or non-profit corporation,
cooperative, partnership, joint venture, trust, employee benefit plan, or other
incorporated or unincorporated enterprise (each, a "Company Affiliate") or (c)
-----------------
is, was, shall be or shall have been a director and/or officer of MGM Inc.,
during the period from and after the date on which Indemnitee became an officer
and/or director of MGM Inc. through and until the Closing Date in connection
with the potential sale of MGM Inc. and the Indemnitee's efforts to assemble a
bid group to purchase MGM Inc.; or arising from or relating to any action or
omission to act taken by the Indemnitee in any of the foregoing capacities;
provided, however, that, except as provided in Section 9(b) hereof, an
Indemnitor shall indemnify the Indemnitee in connection with a Proceeding
initiated by the Indemnitee only if such proceeding (or part thereof) was
authorized by a two-thirds vote of the Board of Directors of such Indemnitor.
The Indemnitee shall be presumed to be entitled to such
indemnification under this Agreement upon submission of a written claim pursuant
to Section 4 hereof. Thereafter, the Indemnitors shall have the burden of proof
to overcome the presumption that the Indemnitee is so entitled. Such presumption
shall only be overcome by a judgment or other final adjudication, after all
appeals and all time for appeals has expired ("Final Determination"), which is
-------------------
adverse to the Indemnitee and which establish (i) that his acts were committed
in bad faith, or were the result of active and deliberate dishonesty, and were
material to the cause of action so adjudicated and (ii) that the Indemnitee in
fact personally gained a financial profit or other advantage to which he was not
legally entitled. If the Indemnitee is not wholly successful in any Proceeding
but is successful on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding the Indemnitors agree, jointly
and severally, to indemnify the Indemnitee to the maximum extent permitted by
law against all losses and expenses incurred by the Indemnitee in connection
with each successfully resolved claim, issue or matter. Neither the failure of
any of the Indemnitors (including their respective Boards of Directors, legal
counsel or stockholders) to have made a determination prior to the commencement
of such Proceeding that indemnification of the Indemnitee is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in the DGCL, nor an actual determination by such Indemnitor (including its
Board of Directors, its legal counsel or its stockholders) that the Indemnitee
has not met the applicable standard of conduct, shall be a defense to the action
or create a presumption that the Indemnitee has not met the applicable standard
of conduct. The
2
<PAGE>
purchase, establishment or maintenance of any Indemnification Arrangement shall
not in any way diminish, restrict, limit or adversely affect the rights and
obligations of any of the Indemnitors or of the Indemnitee under this Agreement,
except as expressly provided herein, and the execution and delivery of this
Agreement by the Indemnitors and the Indemnitee shall not in any way diminish,
restrict, limit or adversely affect the Indemnitee's right to indemnification
from the Indemnitors or any other party or parties under any other
Indemnification Arrangement, the Certificate of Incorporation or Bylaws of any
of the Indemnitors, or the DGCL.
2. Period of Limitations. No legal action shall be brought and no
---------------------
cause of action shall be asserted by or on behalf of an Indemnitor or any
affiliate of an Indemnitor against the Indemnitee, Indemnitee's spouse, heirs,
executors, or personal or legal representatives after the expiration of two
years from the date of accrual of such cause of action, or such longer period as
may be required by applicable law under the circumstances. Any claim or cause of
action of the Indemnitor or its affiliate shall be extinguished and deemed
released unless asserted by the timely filing of a legal action within such
period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action the shorter period shall
govern.
3. Insurance. Subject only to the provisions of this Section 3, as
---------
long as the Indemnitee shall continue to serve as a director and/or officer of
an Indemnitor (or shall continue at the request of an Indemnitor to serve as an
Affiliate Indemnitee) and, thereafter, as long as the Indemnitee shall be
subject to any possible Proceeding by reason of the fact that the Indemnitee was
a director and/or officer of the Corporation and/or MGM Inc. (or served in any
of said other capacities), the Indemnitors shall, unless no such policies are
available in any market, purchase and maintain in effect for the benefit of the
Indemnitee one or more valid, binding and enforceable policies (the "Insurance
---------
Policies") of directors' and officers' liability insurance ("D&O Insurance")
- -------- -------------
providing adequate liability coverage for the Indemnitee's acts as a director
and/or officer of the Indemnitors or as an Affiliate Indemnitee. Each Indemnitor
shall promptly notify the Indemnitee of any lapse, amendment or failure to renew
said policy or policies or any provision thereof relating to the extent or
nature of coverage provided thereunder. In the event any Indemnitor does not
purchase and maintain in effect said policy or policies of D&O Insurance
pursuant to the provisions of this Section 3, such Indemnitor shall, in addition
to and not in limitation of the other rights granted the Indemnitee under this
Agreement, hold harmless and indemnify the Indemnitee to the full extent of
coverage which would otherwise have been provided for the benefit of the
Indemnitee pursuant to the Insurance Policies.
4. Claims for Payments. The Indemnitee shall have the right to receive
-------------------
from the Indemnitors on demand or, at his option, to have any of the Indemnitors
pay promptly on his behalf, in advance of a Final Determination of a Proceeding,
all amounts payable by the Indemnitors pursuant to the terms of this Agreement
as corresponding amounts are expended or incurred by the Indemnitee in
connection with any Proceeding or otherwise (such amounts so expended or
incurred being referred to as "Advanced Amounts"). In making any claim for
----------------
payment by the Indemnitors of any amount, including any Advanced Amount,
pursuant to this Agreement, the Indemnitee shall submit to the Indemnitors a
written request for payment (a "Claim") which includes a schedule setting forth
-----
in reasonable detail the dollar amount expended (or incurred or expected to be
expended or incurred). Each item on such schedule shall be supported by the
bill, agreement, or other documentation relating thereto, a copy of which shall
be appended to the schedule as an exhibit.
Where the Indemnitee is requesting Advanced Amounts, the Indemnitee
must also provide an undertaking to repay such Advanced Amounts if a Final
Determination is made that the Indemnitee is not entitled to indemnification
hereunder.
3
<PAGE>
5. Section 16(b) Liability. No Indemnitor shall be liable under this
-----------------------
Agreement to make any payment in connection with any claim made against the
Indemnitee for an accounting of profits made from the purchase or sale by the
Indemnitee of securities of an Indemnitor within the meaning of Section 16(b) of
the Securities Exchange Act of 1934, and amendments thereto, or similar
provisions of any state statutory law or common law.
6. Continuation of Indemnity. All agreements and obligations of the
-------------------------
Indemnitors contained herein shall continue during the period the Indemnitee is
a director and/or officer of such Indemnitor (or is serving at the request of an
Indemnitor as an Affiliate Indemnitee) and shall continue thereafter so long as
the Indemnitee shall be subject to any possible Proceeding by reason of the fact
that the Indemnitee was a director or officer of such Indemnitor or served as
such an Affiliate Indemnitee.
7. Successors: Binding Agreement. This Agreement shall be binding on,
-----------------------------
and shall inure to the benefit of and be enforceable by, each of the
Indemnitor's successors and assigns and by the Indemnitee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
divisees and legatees. Each Indemnitor shall require any successor or assignee
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of such Indemnitor, by
written agreement in form and substance reasonably satisfactory to such
Indemnitor and to the Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that such Indemnitor would
be required to perform if no such succession or assignment had taken place.
8. Notification and Defense of Claim. Promptly after receipt by the
---------------------------------
Indemnitee of notice of the commencement of any Proceeding, the Indemnitee
shall, if a claim in respect thereof is to be made against an Indemnitor under
this Agreement, notify such Indemnitor of the commencement thereof, but the
failure to so notify such Indemnitor will not relieve the Indemnitors from any
liability which it may have to the Indemnitee. With respect to any such
Proceeding:
(i) Each Indemnitor shall be entitled to participate therein at its
own expense;
(ii) Except with prior written consent of the Indemnitee, the
Indemnitors shall not be entitled to assume the defense of any Proceeding;
and
(iii) No Indemnitor shall settle any Proceeding in any manner which
would impose any penalty or limitation on the Indemnitee without the
Indemnitee's prior written consent.
The Indemnitee shall not settle any Proceeding with respect to which the
Indemnitee has received indemnified amounts or Advanced Amounts without the
Indemnitors' prior written consent, nor will the Indemnitee unreasonably
withhold consent to any proposed settlement.
9. Enforcement. (a) Each Indemnitor has entered into this Agreement
-----------
and assumed the obligations imposed on such Indemnitor hereby in order to induce
the Indemnitee to act as a director and/or officer of the Corporation and/or MGM
Inc. or as an Affiliate Indemnitee and acknowledges that the Indemnitee is
relying upon this Agreement in continuing in such capacity.
(b) All expenses incurred by the Indemnitee in connection with the
preparation and submission of the Indemnitee's request for indemnification
hereunder shall be borne, jointly and severally, by the Indemnitors. In the
event the Indemnitee has requested payment
4
<PAGE>
of any amount under this Agreement and has not received payment thereof within
thirty (30) days of such request, the Indemnitee may bring any action to enforce
rights or collect moneys due under this Agreement, and, if the Indemnitee is
successful in such action, the Indemnitors shall reimburse the Indemnitee for
all of the Indemnitee's fees and expenses in bringing and pursuing such action.
If it is determined that the Indemnitee is entitled to indemnification for part
(but not all) of the indemnification so requested, expenses incurred in seeking
enforcement of such partial indemnification shall be reasonably prorated among
the claims, issues or matters for which the Indemnitee is entitled to
indemnification for claims, issues or matter for which the Indemnitee is not so
entitled. The Indemnitee shall be entitled to the advancement of such amounts to
the full extent contemplated by Section 4 hereof in connection with such
Proceeding.
10. Separability. If any provision or provisions of this Agreement
------------
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(l) the validity, legality and enforceability of the remaining provisions of
this Agreement (including, without limitation, all portions of any sections or
subsections of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not by themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby, and (ii) to
the fullest extent possible, the provisions of any section or subsections of
this Agreement containing any such provisions held to be invalid, illegal or
unenforceable shall be construed so as to give effect to the intent of the
parties that the Indemnitors (or any of them) provide protection to the
Indemnitee to the fullest extent enforceable.
11. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such modification, waiver or discharge is agreed to
in writing signed by the Indemnitee and an officer of each of the Indemnitors
designated by the Board of Directors of such Indemnitor. No waiver by either
party at any time of any breach by the other party of, or of compliance with,
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same time or at any prior or subsequent time. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Delaware, without giving effect to the principles of conflicts of
laws thereof. The Indemnitee may bring an action seeking resolution of disputes
or controversies arising under, or in any way related to, this Agreement in the
state or federal court jurisdiction in which the Indemnitee resides or in which
his place of business is located and in any related appellate courts, and each
of the Indemnitors hereby consents to the jurisdiction of such courts and to
such venue.
12. Notices. For the purposes of this Agreement, notices and all other
-------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
5
<PAGE>
If to the Indemnitee: James Aljian
4835 Koval Lane
Las Vegas, NV 89109
If to the Corporation: P&F Acquisition Corp.
Fifth Floor
2500 Broadway
Santa Monica, CA 90404
Attn: General Counsel
If to MGM Inc.: Metro-Goldwyn-Mayer Inc.
Fifth Floor
2500 Broadway
Santa Monica, CA 90404
Attn: General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Effectiveness. This Agreement shall be effective as of the day and
-------------
year first above written.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
P&F ACQUISITION CORP.
By: /s/ David G. Johnson
--------------------------
Name: David G. Johnson
Title: Executive Vice President
METRO-GOLDWYN-MAYER INC.
By: /s/ David G. Johnson
--------------------------
Name: David G. Johnson
Title: Executive Vice President
INDEMNITEE
/s/ James Aljian
-----------------------------
James Aljian
6
<PAGE>
EXHIBIT 10.18
JOINT AND SEVERAL INDEMNITY AGREEMENT
AGREEMENT dated as of October 10, 1996 by and between P&F Acquisition
Corp., a Delaware corporation (the "Corporation") and Metro-Goldwyn-Mayer Inc.,
-----------
a Delaware corporation ("MGM Inc." and together with the Corporation, the
--------
"Indemnitors") on the one hand, and Michael Gleason (the "Indemnitee"), on the
----------- ----------
other.
RECITALS
The Indemnitee is a director and/or officer of the Corporation, MGM
Inc. and/or an Affiliate Indemnitee (as hereinafter defined). Each of the
Indemnitors and the Indemnitee recognize the increased risk of litigation and
other claims being asserted against directors and officers in today's
environment.
The Bylaws of the Corporation requires the Corporation and the Bylaws
of MGM Inc. requires MGM Inc. to indemnify its directors and officers as
currently provided therein, and the Indemnitee has been serving and continues to
serve as a director and/or officer of the Corporation and/or MGM Inc. in part in
reliance on such provisions. The Bylaws of each of the Indemnitors permit such
Indemnitor to purchase and maintain insurance or to furnish similar protection
or make other arrangements (any such insurance, protection or arrangement, an
"Indemnification Arrangement") on behalf of the Indemnitee against personal
---------------------------
liability (including, but not limited to, providing for Advanced Amounts as
hereinafter defined) asserted against him or incurred by or on behalf of him in
such capacity as a director or officer of such Indemnitor or as an Affiliate
Indemnitee, or arising out of his status as such, whether or not such Indemnitor
would have the power to indemnify him against such liability under the
provisions of this Agreement or under the Delaware General Corporation Law (the
"DGCL"), as it may then be in effect.
----
In part to provide the Indemnitee with specific contractual assurance
of substantial protection against personal liability (regardless of, among other
things, any amendment to or revocation of the aforementioned provisions of any
of the Indemnitor's Bylaws or any change in the composition of such Indemnitor's
Board of Directors or control of such Indemnitor), each of the Indemnitors
desires to enter into this Agreement. DGCL Section 145(f) expressly recognizes
that the indemnification provisions of the DGCL are not exclusive of any other
rights to which a person seeking indemnification may be entitled under the
Certificate of Incorporation or Bylaws of any of the Indemnitors, or an
agreement providing for indemnification, or a resolution of stockholders or
directors, or otherwise, and the Bylaws of each of the Indemnitors expressly
recognizes that the indemnification provisions of the Bylaws of such Indemnitor
shall not be deemed exclusive of, and shall not affect, any other rights to
which a person seeking indemnification may be entitled under any agreement, and
this Agreement is being entered into pursuant to the Bylaws of each of the
Indemnitors, as permitted by the DGCL, and has been authorized by the
stockholders of the Indemnitors.
In order to induce the Indemnitee to serve as a director and/or
officer of the Corporation and/or MGM Inc. and in consideration of the
Indemnitee's so serving, each of the Indemnitors desires jointly and severally
to hold harmless and indemnify the Indemnitee and to make arrangements pursuant
to which the Indemnitee may be advanced or reimbursed expenses incurred by the
Indemnitee in certain proceedings, in every case to the fullest extent
authorized or permitted by the DGCL, or any other applicable law, or by any
amendment thereof or other statutory provisions authorizing or permitting such
indemnification which are adopted after the date hereof (but, in the case of
any such amendment, only to the extent that such amendment permits the
Indemnitor to provide broader indemnification rights than the DGCL, or other
applicable law, permitted such Indemnitor to provide prior to such amendment).
<PAGE>
NOW, THEREFORE, in consideration of the foregoing recitals and of the
Indemnitee's continuing to serve the Corporation and/or MGM Inc. as a director
and/or officer, the parties agree as follows:
1. Indemnification. To the fullest extent allowed by law, each of the
---------------
Indemnitors, jointly and severally, shall hold harmless and indemnify the
Indemnitee, his executors, administrators or assigns against any and all
expenses, liabilities and losses (including, without limitation, investigation
expenses, expert witnesses and attorneys' fees and expenses, judgments,
penalties, fines, amounts paid or to be paid in settlement any interest,
assessments, or other charges imposed thereon and any federal, state, local or
foreign taxes imposed as a result of actual or deemed receipt of any payment
hereunder) actually incurred by the Indemnitee (net of any related insurance
proceeds or other amounts received by the Indemnitee or paid by or on behalf of
an Indemnitor on the Indemnitee's behalf in compensation of such expenses,
liabilities or losses) in connection with any actual or threatened action, suit
or proceeding, whether civil, criminal, administrative or investigative or in
arbitration, to which the Indemnitee is a party or participant or is threatened
to be made a party or participant (a "Proceeding"), as a plaintiff, defendant,
----------
respondent, witness or otherwise, based upon, arising from, relating to or by
reason of the fact that the Indemnitee: (a) is, was, shall be or shall have been
a director and/or officer of the Corporation, (b) is or was serving, shall
serve, or shall have served at the request of the Corporation as a director,
officer, partner, trustee, fiduciary, employee or agent ("Affiliate Indemnitee")
--------------------
of another foreign or domestic corporation or non-profit corporation,
cooperative, partnership, joint venture, trust, employee benefit plan, or other
incorporated or unincorporated enterprise (each, a "Company Affiliate") or (c)
-----------------
is, was, shall be or shall have been a director and/or officer of MGM Inc.,
during the period from and after the date on which Indemnitee became an officer
and/or director of MGM Inc. through and until the Closing Date in connection
with the potential sale of MGM Inc. and the Indemnitee's efforts to assemble a
bid group to purchase MGM Inc.; or arising from or relating to any action or
omission to act taken by the Indemnitee in any of the foregoing capacities;
provided, however, that, except as provided in Section 9(b) hereof, an
Indemnitor shall indemnify the Indemnitee in connection with a Proceeding
initiated by the Indemnitee only if such proceeding (or part thereof) was
authorized by a two-thirds vote of the Board of Directors of such Indemnitor.
The Indemnitee shall be presumed to be entitled to such indemnification
under this Agreement upon submission of a written claim pursuant to Section 4
hereof. Thereafter, the Indemnitors shall have the burden of proof to overcome
the presumption that the Indemnitee is so entitled. Such presumption shall only
be overcome by a judgment or other final adjudication, after all appeals and all
time for appeals has expired ("Final Determination"), which is adverse to the
Indemnitee and which establishes (i) that his acts were committed in bad faith,
or were the result of active and deliberate dishonesty, and were material to the
cause of action so adjudicated and (ii) that the Indemnitee in fact personally
gained a financial profit or other advantage to which he was not legally
entitled. If the Indemnitee is not wholly successful in any Proceeding but is
successful on the merits or otherwise, as to one or more but less than all
claims, issues or matters in such Proceeding the Indemnitors agree, jointly and
severally, to indemnify the Indemnitee to the maximum extent permitted by law
against all losses and expenses incurred by the Indemnitee in connection with
each successfully resolved claim, issue or matter. Neither the failure of any of
the Indemnitors (including their respective Boards of Directors, legal counsel
or stockholders) to have made a determination prior to the commencement of such
Proceeding that indemnification of the Indemnitee is proper in the circumstances
because such person has met the applicable standard of conduct set forth in the
DGCL, nor an actual determination by such Indemnitor (including its Board of
Directors, its legal counsel or its stockholders) that the Indemnitee has not
met the applicable standard of conduct, shall be a defense to the action or
create a presumption that the Indemnitee has not met the applicable standard of
conduct. The
2
<PAGE>
purchase, establishment or maintenance of any Indemnification Arrangement shall
not in any way diminish, restrict, limit or adversely affect the rights and
obligations of any of the Indemnitors or of the Indemnitee under this Agreement,
except as expressly provided herein, and the execution and delivery of this
Agreement by the Indemnitors and the Indemnitee shall not in any way diminish,
restrict, limit or adversely affect the Indemnitee's right to indemnification
from the Indemnitors or any other party or parties under any other
Indemnification Arrangement, the Certificate of Incorporation or Bylaws of any
of the Indemnitors, or the DGCL.
2. Period of Limitations. No legal action shall be brought and no
---------------------
cause of action shall be asserted by or on behalf of an Indemnitor or any
affiliate of an Indemnitor against the Indemnitee, Indemnitee's spouse, heirs,
executors, or personal or legal representatives after the expiration of two
years from the date of accrual of such cause of action, or such longer period as
may be required by applicable law under the circumstances. Any claim or cause of
action of the Indemnitor or its affiliate shall be extinguished and deemed
released unless asserted by the timely filing of a legal action within such
period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action the shorter period shall
govern.
3. Insurance. Subject only to the provisions of this Section 3, as
---------
long as the Indemnitee shall continue to serve as a director and/or officer of
an Indemnitor (or shall continue at the request of an Indemnitor to serve as an
Affiliate Indemnitee) and, thereafter, as long as the Indemnitee shall be
subject to any possible Proceeding by reason of the fact that the Indemnitee was
a director and/or officer of the Corporation and/or MGM Inc. (or served in any
of said other capacities), the Indemnitors shall, unless no such policies are
available in any market, purchase and maintain in effect for the benefit of the
Indemnitee one or more valid, binding and enforceable policies (the "Insurance
---------
Policies") of directors' and officers' liability insurance ("D&O Insurance")
- -------- -------------
providing adequate liability coverage for the Indemnitee's acts as a director
and/or officer of the Indemnitors or as an Affiliate Indemnitee. Each Indemnitor
shall promptly notify the Indemnitee of any lapse, amendment or failure to renew
said policy or policies or any provision thereof relating to the extent or
nature of coverage provided thereunder. In the event any Indemnitor does not
purchase and maintain in effect said policy or policies of D&O Insurance
pursuant to the provisions of this Section 3, such Indemnitor shall, in addition
to and not in limitation of the other rights granted the Indemnitee under this
Agreement, hold harmless and indemnify the Indemnitee to the full extent of
coverage which would otherwise have been provided for the benefit of the
Indemnitee pursuant to the Insurance Policies.
4. Claims for Payments. The Indemnitee shall have the right to receive
---------------------
from the Indemnitors on demand or, at his option, to have any of the Indemnitors
pay promptly on his behalf, in advance of a Final Determination of a Proceeding,
all amounts payable by the Indemnitors pursuant to the terms of this Agreement
as corresponding amounts are expended or incurred by the Indemnitee in
connection with any Proceeding or otherwise (such amounts so expended or
incurred being referred to as "Advanced Amounts"). In making any claim for
----------------
payment by the Indemnitors of any amount, including any Advanced Amount,
pursuant to this Agreement, the Indemnitee shall submit to the Indemnitors a
written request for payment (a "Claim") which includes a schedule setting forth
in reasonable detail the dollar amount expended (or incurred or expected to be
expended or incurred). Each item on such schedule shall be supported by the
bill, agreement, or other documentation relating thereto, a copy of which shall
be appended to the schedule as an exhibit.
Where the Indemnitee is requesting Advanced Amounts, the Indemnitee
must also provide an undertaking to repay such Advanced Amounts if a Final
Determination is made that the Indemnitee is not entitled to indemnification
hereunder.
3
<PAGE>
5. Section 16(b) Liability. No Indemnitor shall be liable under this
------------------------
Agreement to make any payment in connection with any claim made against the
Indemnitee for an accounting of profits made from the purchase or sale by the
Indemnitee of securities of an Indemnitor within the meaning of Section 16(b) of
the Securities Exchange Act of 1934, and amendments thereto, or similar
provisions of any state statutory law or common law.
6. Continuation of Indemnity. All agreements and obligations of the
-------------------------
Indemnitors contained herein shall continue during the period the Indemnitee is
a director and/or officer of such Indemnitor (or is serving at the request of an
Indemnitor as an Affiliate Indemnitee) and shall continue thereafter so long as
the Indemnitee shall be subject to any possible Proceeding by reason of the fact
that the Indemnitee was a director or officer of such Indemnitor or served as
such an Affiliate Indemnitee.
7. Successors: Binding Agreement. This Agreement shall be binding on,
-----------------------------
and shall inure to the benefit of and be enforceable by, each of the
Indemnitor's successors and assigns and by the Indemnitee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
divisees and legatees. Each Indemnitor shall require any successor or assignee
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of such Indemnitor, by
written agreement in form and substance reasonably satisfactory to such
Indemnitor and to the Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that such Indemnitor would
be required to perform if no such succession or assignment had taken place.
8. Notification and Defense of Claim. Promptly after receipt by the
---------------------------------
Indemnitee of notice of the commencement of any Proceeding, the Indemnitee
shall, if a claim in respect thereof is to be made against an Indemnitor under
this Agreement, notify such Indemnitor of the commencement thereof, but the
failure to so notify such Indemnitor will not relieve the Indemnitors from any
liability which it may have to the Indemnitee. With respect to any such
Proceeding:
(i) Each Indemnitor shall be entitled to participate therein at its
own expense;
(ii) Except with prior written consent of the Indemnitee, the
Indemnitors shall not be entitled to assume the defense of any Proceeding;
and
(iii) No Indemnitor shall settle any Proceeding in any manner which
would impose any penalty or limitation on the Indemnitee without the
Indemnitee's prior written consent.
The Indemnitee shall not settle any Proceeding with respect to which the
Indemnitee has received indemnified amounts or Advanced Amounts without the
Indemnitors' prior written consent, nor will the Indemnitee unreasonably
withhold consent to any proposed settlement.
9. Enforcement. (a) Each Indemnitor has entered into this Agreement
-----------
and assumed the obligations imposed on such Indemnitor hereby in order to induce
the Indemnitee to act as a director and/or officer of the Corporation and/or MGM
Inc. or as an Affiliate Indemnitee and acknowledges that the Indemnitee is
relying upon this Agreement in continuing in such capacity
(b) All expenses incurred by the Indemnitee in connection with the
preparation and submission of the Indemnitee's request for indemnification
hereunder shall be borne, jointly and severally, by the Indemnitors. In the
event the Indemnitee has requested payment
4
<PAGE>
of any amount under this Agreement and has not received payment thereof within
thirty (30) days of such request, the Indemnitee may bring any action to enforce
rights or collect moneys due under this Agreement, and, if the Indemnitee is
successful in such action, the Indemnitors shall reimburse the Indemnitee for
all of the Indemnitee's fees and expenses in bringing and pursuing such action.
If it is determined that the Indemnitee is entitled to indemnification for part
(but not all) of the indemnification so requested, expenses incurred in seeking
enforcement of such partial indemnification shall be reasonably prorated among
the claims issues or matters for which the Indemnitee is entitled to
indemnification for claims, issues or matter for which the Indemnitee is not so
entitled. The Indemnitee shall be entitled to the advancement of such amounts to
the full extent contemplated by Section 4 hereof in connection with such
Proceeding.
10. Separability. If any provision or provisions of this Agreement
------------
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of
this Agreement (including, without limitation, all portions of any sections or
subsections of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not by themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby, and (ii) to
the fullest extent possible, the provisions of any section or subsections of
this Agreement containing any such provisions held to be invalid, illegal or
unenforceable shall be construed so as to give effect to the intent of the
parties that the Indemnitors (or any of them) provide protection to the
Indemnitee to the fullest extent enforceable.
11. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such modification, waiver or discharge is agreed to
in writing signed by the Indemnitee and an officer of each of the Indemnitors
designated by the Board of Directors of such Indemnitor. No waiver by either
party at any time of any breach by the other party of, or of compliance with,
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same time or at any prior or subsequent time. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Delaware, without giving effect to the principles of conflicts of
laws thereof. The Indemnitee may bring an action seeking resolution of disputes
or controversies arising under, or in any way related to, this Agreement in the
state or federal court jurisdiction in which the Indemnitee resides or in which
his place of business is located and in any related appellate courts, and each
of the Indemnitors hereby consents to the jurisdiction of such courts and to
such venue.
12. Notices. For the purposes of this Agreement, notices and all other
-------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
5
<PAGE>
If to the Indemnitee: Michael Gleason
c/o Culman Group L.P.
201 Main Street
Suite 1955
Fort Worth, TX 76102
If to the Corporation: P&F Acquisition Corp.
Fifth Floor
2500 Broadway
Santa Monica, CA 90404
Attn: General Counsel
If to MGM Inc.: Metro-Goldwyn-Mayer Inc.
Fifth Floor
2500 Broadway
Santa Monica, CA 90404
Attn: General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Effectiveness. This Agreement shall be effective as of the day and
-------------
year first above written.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
P&F ACQUISITION CORP.
By: /s/ Robert Brada
-----------------------------------
Name: Robert Brada
Title: Senior Vice President & Deputy
General Counsel
METRO-GOLDWYN-MAYER INC.
By: /s/ Robert Brada
-----------------------------------
Name: Robert Brada
Title: Senior Vice President & Deputy
General Counsel
INDEMNITEE
/s/ Michael Gleason
------------------------------------
Michael Gleason
6
<PAGE>
EXHIBIT 10.19
JOINT AND SEVERAL INDEMNITY AGREEMENT
AGREEMENT dated as of October 10, 1996 by and between P&F Acquisition
Corp., a Delaware corporation (the "Corporation") and Metro-Goldwyn-Mayer Inc.,
-----------
a Delaware corporation ("MGM Inc." and together with the Corporation, the
-------
"Indemnitors") on the one hand, and Kirk Kerkorian (the "Indemnitee"), on the
----------- ----------
other.
RECITALS
The Indemnitee is a director and/or officer of the Corporation, MGM
Inc. and/or an Affiliate Indemnitee (as hereinafter defined). Each of the
Indemnitors and the Indemnitee recognize the increased risk of litigation and
other claims being asserted against directors and officers in today's
environment.
The Bylaws of the Corporation requires the Corporation and the Bylaws
of MGM Inc. requires MGM Inc. to indemnify its directors and officers as
currently provided therein, and the Indemnitee has been serving and continues to
serve as a director and/or officer of the Corporation and/or MGM Inc. in part in
reliance on such provisions. The Bylaws of each of the Indemnitors permit such
Indemnitor to purchase and maintain insurance or to furnish similar protection
or make other arrangements (any such insurance, protection or arrangement, an
"Indemnification Arrangement") on behalf of the Indemnitee against personal
---------------------------
liability (including, but not limited to, providing for Advanced Amounts as
hereinafter defined) asserted against him or incurred by or on behalf of him in
such capacity as a director or officer of such Indemnitor or as an Affiliate
Indemnitee, or arising out of his status as such, whether or not such Indemnitor
would have the power to indemnify him against such liability under the
provisions of this Agreement or under the Delaware General Corporation Law (the
"DGCL"), as it may then be in effect.
In part to provide the Indemnitee with specific contractual assurance
of substantial protection against personal liability (regardless of, among other
things, any amendment to or revocation of the aforementioned provisions of any
of the Indemnitor's Bylaws or any change in the composition of such Indemnitor's
Board of Directors or control of such Indemnitor), each of the Indemnitors
desires to enter into this Agreement. DGCL Section 145(f) expressly recognizes
that the indemnification provisions of the DGCL are not exclusive of any other
rights to which a person seeking indemnification may be entitled under the
Certificate of Incorporation or Bylaws of any of the Indemnitors, or an
agreement providing for indemnification, or a resolution of stockholders or
directors, or otherwise, and the Bylaws of each of the Indemnitors expressly
recognizes that the indemnification provisions of the Bylaws of such Indemnitor
shall not be deemed exclusive of, and shall not affect, any other rights to
which a person seeking indemnification may be entitled under any agreement, and
this Agreement is being entered into pursuant to the Bylaws of each of the
Indemnitors, as permitted by the DGCL, and has been authorized by the
stockholders of the Indemnitors.
In order to induce the Indemnitee to serve as a director and/or
officer of the Corporation and/or MGM Inc. and in consideration of the
Indemnitee's so serving, each of the Indemnitors desires jointly and severally
to hold harmless and indemnify the Indemnitee and to make arrangements pursuant
to which the Indemnitee may be advanced or reimbursed expenses incurred by the
Indemnitee in certain proceedings, in every case to the fullest extent
authorized or permitted by the DGCL, or any other applicable law, or by any
amendment thereof or other statutory provisions authorizing or permitting such
indemnification which are adopted after the date hereof (but, in the case of
any such amendment, only to the extent that such amendment permits the
Indemnitor to provide broader indemnification rights than the DGCL, or other
applicable law, permitted such Indemnitor to provide prior to such amendment).
<PAGE>
NOW, THEREFORE, in consideration of the foregoing recitals and of the
Indemnitee's continuing to serve the Corporation and/or MGM Inc. as a director
and/or officer, the parties agree as follows:
1. Indemnification. To the fullest extent allowed by law, each of the
---------------
Indemnitors, jointly and severally, shall hold harmless and indemnify the
Indemnitee, his executors, administrators or assigns against any and all
expenses, liabilities and losses (including, without limitation, investigation
expenses, expert witnesses' and attorneys' fees and expenses, judgments,
penalties, fines, amounts paid or to be paid in settlement any interest,
assessments, or other charges imposed thereon and any federal, state, local or
foreign taxes imposed as a result of actual or deemed receipt of any payment
hereunder) actually incurred by the Indemnitee (net of any related insurance
proceeds or other amounts received by the Indemnitee or paid by or on behalf of
an Indemnitor on the Indemnitee's behalf in compensation of such expenses,
liabilities or losses) in connection with any actual or threatened action, suit
or proceeding, whether civil, criminal, administrative or investigative or in
arbitration, to which the Indemnitee is a party or participant or is threatened
to be made a party or participant (a "Proceeding"), as a plaintiff, defendant,
----------
respondent, witness or otherwise, based upon, arising from, relating to or by
reason of the fact that the Indemnitee: (a) is, was, shall be or shall have been
a director and/or officer of the Corporation, (b) is or was serving, shall
serve, or shall have served at the request of the Corporation as a director,
officer, partner, trustee, fiduciary, employee or agent ("Affiliate Indemnitee")
--------------------
of another foreign or domestic corporation or non-profit corporation,
cooperative, partnership, joint venture, trust, employee benefit plan, or other
incorporated or unincorporated enterprise (each, a "Company Affiliate") or (c)
-----------------
is, was, shall be or shall have been a director and/or officer of MGM Inc.,
during the period from and after the date on which Indemnitee became an officer
and/or director of MGM Inc. through and until the Closing Date in connection
with the potential sale of MGM Inc. and the Indemnitee's efforts to assemble a
bid group to purchase MGM Inc.; or arising from or relating to any action or
omission to act taken by the Indemnitee in any of the foregoing capacities;
provided, however, that, except as provided in Section 9(b) hereof, an
Indemnitor shall indemnify the Indemnitee in connection with a Proceeding
initiated by the Indemnitee only if such proceeding (or part thereof) was
authorized by a two-thirds vote of the Board of Directors of such Indemnitor.
The Indemnitee shall be presumed to be entitled to such
indemnification under this Agreement upon submission of a written claim pursuant
to Section 4 hereof. Thereafter, the Indemnitors shall have the burden of proof
to overcome the presumption that the Indemnitee is so entitled. Such presumption
shall only be overcome by a judgment or other final adjudication, after all
appeals and all time for appeals has expired ("Final Determination"), which is
-------------------
adverse to the Indemnitee and which establishes (i) that his acts were committed
in bad faith, or were the result of active and deliberate dishonesty, and were
material to the cause of action so adjudicated and (ii) that the Indemnitee in
fact personally gained a financial profit or other advantage to which he was not
legally entitled. If the Indemnitee is not wholly successful in any Proceeding
but is successful on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding the Indemnitors agree, jointly
and severally, to indemnify the Indemnitee to the maximum extent permitted by
law against all losses and expenses incurred by the Indemnitee in connection
with each successfully resolved claim, issue or matter. Neither the failure of
any of the Indemnitors (including their respective Boards of Directors, legal
counsel or stockholders) to have made a determination prior to the commencement
of such Proceeding that indemnification of the Indemnitee is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in the DGCL, nor an actual determination by such Indemnitor (including its
Board of Directors, its legal counsel or its stockholders) that the Indemnitee
has not met the applicable standard of conduct, shall be a defense to the action
or create a presumption that the Indemnitee has not met the applicable standard
of conduct. The
2
<PAGE>
purchase, establishment or maintenance of any Indemnification Arrangement shall
not in any way diminish, restrict, limit or adversely affect the rights and
obligations of any of the Indemnitors or of the Indemnitee under this Agreement,
except as expressly provided herein, and the execution and delivery of this
Agreement by the Indemnitors and the Indemnitee shall not in any way diminish,
restrict, limit or adversely affect the Indemnitee's right to indemnification
from the Indemnitors or any other party or parties under any other
Indemnification Arrangement, the Certificate of Incorporation or Bylaws of any
of the Indemnitors, or the DGCL.
2. Period of Limitations. No legal action shall be brought and no
---------------------
cause of action shall be asserted by or on behalf of an Indemnitor or any
affiliate of an Indemnitor against the Indemnitee, Indemnitee's spouse, heirs,
executors, or personal or legal representatives after the expiration of two
years from the date of accrual of such cause of action, or such longer period as
may be required by applicable law under the circumstances. Any claim or cause of
action of the Indemnitor or its affiliate shall be extinguished and deemed
released unless asserted by the timely filing of a legal action within such
period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action the shorter period shall
govern.
3. Insurance. Subject only to the provisions of this Section 3, as
---------
long as the Indemnitee shall continue to serve as a director and/or officer of
an Indemnitor (or shall continue at the request of an Indemnitor to serve as an
Affiliate Indemnitee) and, thereafter, as long as the Indemnitee shall be
subject to any possible Proceeding by reason of the fact that the Indemnitee was
a director and/or officer of the Corporation and/or MGM Inc. (or served in any
of said other capacities), the Indemnitors shall, unless no such policies are
available in any market, purchase and maintain in effect for the benefit of the
Indemnitee one or more valid, binding and enforceable policies (the "Insurance
---------
Policies") of directors' and officers' liability insurance ("D&O Insurance")
- -------- -------------
providing adequate liability coverage for the Indemnitee's acts as a director
and/or officer of the Indemnitors or as an Affiliate Indemnitee. Each Indemnitor
shall promptly notify the Indemnitee of any lapse, amendment or failure to
renew said policy or policies or any provision thereof relating to the extent or
nature of coverage provided thereunder. In the event any Indemnitor does not
purchase and maintain in effect said policy or policies of D&O Insurance
pursuant to the provisions of this Section 3, such Indemnitor shall, in addition
to and not in limitation of the other rights granted the Indemnitee under this
Agreement, hold harmless and indemnify the Indemnitee to the full extent of
coverage which would otherwise have been provided for the benefit of the
Indemnitee pursuant to the Insurance Policies.
4. Claims for Payments. The Indemnitee shall have the right to receive
-------------------
from the Indemnitors on demand or, at his option, to have any of the Indemnitors
pay promptly on his behalf, in advance of a Final Determination of a Proceeding,
all amounts payable by the Indemnitors pursuant to the terms of this Agreement
as corresponding amounts are expended or incurred by the Indemnitee in
connection with any Proceeding or otherwise (such amounts so expended or
incurred being referred to as "Advanced Amounts"). In making any claim for
----------------
payment by the Indemnitors of any amount, including any Advanced Amount,
pursuant to this Agreement, the Indemnitee shall submit to the Indemnitors a
written request for payment (a "Claim") which includes a schedule setting forth
-----
in reasonable detail the dollar amount expended (or incurred or expected to be
expended or incurred). Each item on such schedule shall be supported by the
bill, agreement, or other documentation relating thereto, a copy of which shall
be appended to the schedule as an exhibit.
Where the Indemnitee is requesting Advanced Amounts, the Indemnitee
must also provide an undertaking to repay such Advanced Amounts if a Final
Determination is made that the Indemnitee is not entitled to indemnification
hereunder.
3
<PAGE>
5. Section 16(b) Liability. No Indemnitor shall be liable under this
-----------------------
Agreement to make any payment in connection with any claim made against the
Indemnitee for an accounting of profits made from the purchase or sale by the
Indemnitee of securities of an Indemnitor within the meaning of Section 16(b) of
the Securities Exchange Act of 1934, and amendments thereto, or similar
provisions of any state statutory law or common law.
6. Continuation of Indemnity. All agreements and obligations of the
-------------------------
Indemnitors contained herein shall continue during the period the Indemnitee is
a director and/or officer of such Indemnitor (or is serving at the request of an
Indemnitor as an Affiliate Indemnitee) and shall continue thereafter so long as
the Indemnitee shall be subject to any possible Proceeding by reason of the fact
that the Indemnitee was a director or officer of such Indemnitor or served as
such an Affiliate Indemnitee.
7. Successors: Binding Agreement. This Agreement shall be binding on,
-----------------------------
and shall inure to the benefit of and be enforceable by, each of the
Indemnitor's successors and assigns and by the Indemnitee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
divisees and legatees. Each Indemnitor shall require any successor or assignee
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of such Indemnitor, by
written agreement in form and substance reasonably satisfactory to such
Indemnitor and to the Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that such Indemnitor would
be required to perform if no such succession or assignment had taken place.
8. Notification and Defense of Claim. Promptly after receipt by the
---------------------------------
Indemnitee of notice of the commencement of any Proceeding, the Indemnitee
shall, if a claim in respect thereof is to be made against an Indemnitor under
this Agreement, notify such Indemnitor of the commencement thereof, but the
failure to so notify such Indemnitor will not relieve the Indemnitors from any
liability which it may have to the Indemnitee. With respect to any such
Proceeding:
(i) Each Indemnitor shall be entitled to participate therein at its
own expense;
(ii) Except with prior written consent of the Indemnitee, the
Indemnitors shall not be entitled to assume the defense of any Proceeding;
and
(iii) No Indemnitor shall settle any Proceeding in any manner which
would impose any penalty or limitation on the Indemnitee without the
Indemnitee's prior written consent.
The Indemnitee shall not settle any Proceeding with respect to which the
Indemnitee has received indemnified amounts or Advanced Amounts without the
Indemnitors' prior written consent, nor will the Indemnitee unreasonably
withhold consent to any proposed settlement.
9. Enforcement. (a) Each Indemnitor has entered into this Agreement
-----------
and assumed the obligations imposed on such Indemnitor hereby in order to induce
the Indemnitee to act as a director and/or officer of the Corporation and/or MGM
Inc. or as an Affiliate Indemnitee and acknowledges that the Indemnitee is
relying upon this Agreement in continuing in such capacity.
(b) All expenses incurred by the Indemnitee in connection with the
preparation and submission of the Indemnitee's request for indemnification
hereunder shall be borne, jointly and severally, by the Indemnitors. In the
event the Indemnitee has requested payment
4
<PAGE>
of any amount under this Agreement and has not received payment thereof within
thirty (30) days of such request, the Indemnitee may bring any action to enforce
rights or collect moneys due under this Agreement, and, if the Indemnitee is
successful in such action, the Indemnitors shall reimburse the Indemnitee for
all of the Indemnitee's fees and expenses in bringing and pursuing such action.
If it is determined that the Indemnitee is entitled to indemnification for part
(but not all) of the indemnification so requested, expenses incurred in seeking
enforcement of such partial indemnification shall be reasonably prorated among
the claims, issues or matters for which the Indemnitee is entitled to
indemnification for claims, issues or matter for which the Indemnitee is not so
entitled. The Indemnitee shall be entitled to the advancement of such amounts to
the full extent contemplated by Section 4 hereof in connection with such
Proceeding.
10. Separability. If any provision or provisions of this Agreement
------------
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of
this Agreement (including, without limitation, all portions of any sections or
subsections of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not by themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby, and (ii) to
the fullest extent possible, the provisions of any section or subsections of
this Agreement containing any such provisions held to be invalid, illegal or
unenforceable shall be construed so as to give effect to the intent of the
parties that the Indemnitors (or any of them) provide protection to the
Indemnitee to the fullest extent enforceable.
11. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such modification, waiver or discharge is agreed to
in writing signed by the Indemnitee and an officer of each of the Indemnitors
designated by the Board of Directors of such Indemnitor. No waiver by either
party at any time of any breach by the other party of, or of compliance with,
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same time or at any prior or subsequent time. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Delaware, without giving effect to the principles of conflicts of
laws thereof. The Indemnitee may bring an action seeking resolution of disputes
or controversies arising under, or in any way related to, this Agreement in the
state or federal court jurisdiction in which the Indemnitee resides or in which
his place of business is located and in any related appellate courts, and each
of the Indemnitors hereby consents to the jurisdiction of such courts and to
such venue.
12. Notices. For the purposes of this Agreement, notices and all other
-------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
5
<PAGE>
If to the Indemnitee: Kirk Kerkorian
4835 Koval Lane
Las Vegas, NV 89109
If to the Corporation: P&F Acquisition Corp.
Fifth Floor
2500 Broadway
Santa Monica, CA 90404
Attn: General Counsel
If to MGM Inc.: Metro-Goldwyn-Mayer Inc.
Fifth Floor
2500 Broadway
Santa Monica, CA 90404
Attn: General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Effectiveness. This Agreement shall be effective as of the day and
-------------
year first above written.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
P&F ACQUISITION CORP.
By: /s/ David G. Johnson
----------------------------
Name: David G. Johnson
Title: Executive Vice President
METRO-GOLDWYN-MAYER INC.
By: /s/ David G. Johnson
----------------------------
Name: David G. Johnson
Title: Executive Vice President
INDEMNITEE
/s/ Kirk Kerkorian
------------------------------
Kirk Kerkorian
<PAGE>
EXHIBIT 10.20
JOINT AND SEVERAL INDEMNITY AGREEMENT
AGREEMENT dated as of October 10, 1996 by and between P&F Acquisition
Corp., a Delaware corporation (the "Corporation") and Metro-Goldwyn-Mayer Inc.,
-----------
a Delaware corporation ("MGM Inc." and together with the Corporation, the
--------
"Indemnitors") on the one hand, and Kerry M. Stokes (the "Indemnitee"), on the
----------- ----------
other.
RECITALS
The Indemnitee is a director and/or officer of the Corporation, MGM
Inc. and/or an Affiliate Indemnitee (as hereinafter defined). Each of the
Indemnitors and the Indemnitee recognize the increased risk of litigation and
other claims being asserted against directors and officers in today's
environment.
The Bylaws of the Corporation requires the Corporation and the Bylaws
of MGM Inc. requires MGM Inc. to indemnify its directors and officers as
currently provided therein, and the Indemnitee has been serving and continues to
serve as a director and/or officer of the Corporation and/or MGM Inc. in part in
reliance on such provisions. The Bylaws of each of the Indemnitors permit such
Indemnitor to purchase and maintain insurance or to furnish similar protection
or make other arrangements (any such insurance, protection or arrangement, an
"Indemnification Arrangement") on behalf of the Indemnitee against personal
---------------------------
liability (including, but not limited to, providing for Advanced Amounts as
hereinafter defined) asserted against him or incurred by or on behalf of him in
such capacity as a director or officer of such Indemnitor or as an Affiliate
Indemnitee, or arising out of his status as such, whether or not such Indemnitor
would have the power to indemnify him against such liability under the
provisions of this Agreement or under the Delaware General Corporation Law (the
"DGCL"), as it may then be in effect.
----
In part to provide the Indemnitee with specific contractual assurance
of substantial protection against personal liability (regardless of, among other
things, any amendment to or revocation of the aforementioned provisions of any
of the Indemnitor's Bylaws or any change in the composition of such Indemnitor's
Board of Directors or control of such Indemnitor), each of the Indemnitors
desires to enter into this Agreement. DGCL Section 145(f) expressly recognizes
that the indemnification provisions of the DGCL are not exclusive of any other
rights to which a person seeking indemnification may be entitled under the
Certificate of Incorporation or Bylaws of any of the Indemnitors, or an
agreement providing for indemnification, or a resolution of stockholders or
directors, or otherwise, and the Bylaws of each of the Indemnitors expressly
recognizes that the indemnification provisions of the Bylaws of such Indemnitor
shall not be deemed exclusive of, and shall not affect, any other rights to
which a person seeking indemnification may be entitled under any agreement, and
this Agreement is being entered into pursuant to the Bylaws of each of the
Indemnitors, as permitted by the DGCL, and has been authorized by the
stockholders of the Indemnitors.
In order to induce the Indemnitee to serve as a director and/or
officer of the Corporation and/or MGM Inc. and in consideration of the
Indemnitee's so serving, each of the Indemnitors desires jointly and severally
to hold harmless and indemnify the Indemnitee and to make arrangements pursuant
to which the Indemnitee may be advanced or reimbursed expenses incurred by the
Indemnitee in certain proceedings, in every case to the fullest extent
authorized or permitted by the DGCL, or any other applicable law, or by any
amendment thereof or other statutory provisions authorizing or permitting such
indemnification which are adopted after the date hereof (but, in the case of
any such amendment, only to the extent that such amendment permits the
Indemnitor to provide broader indemnification rights than the DGCL, or other
applicable law, permitted such Indemnitor to provide prior to such amendment).
<PAGE>
NOW, THEREFORE, in consideration of the foregoing recitals and of the
Indemnitee's continuing to serve the Corporation and/or MGM Inc. as a director
and/or officer, the parties agree as follows:
1. Indemnification. To the fullest extent allowed by law, each of the
---------------
Indemnitors, jointly and severally, shall hold harmless and indemnify the
Indemnitee, his executors, administrators or assigns against any and all
expenses, liabilities and losses (including, without limitation, investigation
expenses, expert witnesses' and attorneys' fees and expenses, judgments,
penalties, fines, amounts paid or to be paid in settlement any interest,
assessments, or other charges imposed thereon and any federal, state, local or
foreign taxes imposed as a result of actual or deemed receipt of any payment
hereunder) actually incurred by the Indemnitee (net of any related insurance
proceeds or other amounts received by the Indemnitee or paid by or on behalf of
an Indemnitor on the Indemnitee's behalf in compensation of such expenses,
liabilities or losses) in connection with any actual or threatened action, suit
or proceeding, whether civil, criminal, administrative or investigative or in
arbitration, to which the Indemnitee is a party or participant or is threatened
to be made a party or participant (a "Proceeding"), as a plaintiff, defendant,
----------
respondent, witness or otherwise, based upon, arising from, relating to or by
reason of the fact that the Indemnitee: (a) is, was, shall be or shall have been
a director and/or officer of the Corporation (b) is or was serving, shall serve,
or shall have served at the request of the Corporation as a director, officer,
partner, trustee, fiduciary, employee or agent ("Affiliate Indemnitee") of
--------------------
another foreign or domestic corporation or non-profit corporation, cooperative,
partnership, joint venture, trust, employee benefit plan, or other incorporated
or unincorporated enterprise (each, a "Company Affiliate") or (c) is, was, shall
-----------------
be or shall have been a director and/or officer of MGM Inc., during the period
from and after the date on which Indemnitee became an officer and/or director of
MGM Inc. through and until the Closing Date in connection with the potential
sale of MGM Inc. and the Indemnitee's efforts to assemble a bid group to
purchase MGM Inc.; or arising from or relating to any action or omission to act
taken by the Indemnitee in any of the foregoing capacities; provided, however,
that, except as provided in Section 9(b) hereof, an Indemnitor shall indemnify
the Indemnitee in connection with a Proceeding initiated by the Indemnitee only
if such proceeding (or part thereof) was authorized by a two-thirds vote of the
Board of Directors of such Indemnitor.
The Indemnitee shall be presumed to be entitled to such
indemnification under this Agreement upon submission of a written claim pursuant
to Section 4 hereof. Thereafter, the Indemnitors shall have the burden of proof
to overcome the presumption that the Indemnitee is so entitled. Such presumption
shall only be overcome by a judgment or other final adjudication, after all
appeals and all time for appeals has expired ("Final Determination"), which is
-------------------
adverse to the Indemnitee and which establishes (i) that his acts were committed
in bad-faith, or were the result of active and deliberate dishonesty, and were
material to the cause of action so adjudicated and (ii) that the Indemnitee in
fact personally gained a financial profit or other advantage to which he was not
legally entitled. If the Indemnitee is not wholly successful in any Proceeding
but is successful on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding the Indemnitors agree, jointly
and severally, to indemnify the Indemnitee to the maximum extent permitted by
law against all losses and expenses incurred by the Indemnitee in connection
with each successfully resolved claim, issue or matter. Neither the failure of
any of the Indemnitors (including their respective Boards of Directors, legal
counsel or Stockholders) to have made a determination prior to the commencement
of such Proceeding that indemnification of the Indemnitee is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in the DGCL, nor an actual determination by such Indemnitor (including its
Board of Directors, its legal counsel or its stockholders) that the Indemnitee
has not met the applicable standard of conduct, shall be a defense to the action
or create a presumption that the Indemnitee has not met the applicable standard
of conduct. The
2
<PAGE>
purchase, establishment or maintenance of any Indemnification Arrangement shall
not in any way diminish, restrict, limit or adversely affect the rights and
obligations of any of the Indemnitors or of the Indemnitee under this Agreement,
except as expressly provided herein, and the execution and delivery of this
Agreement by the Indemnitors and the Indemnitee shall not in any way diminish,
restrict, limit or adversely affect the Indemnitee's right to indemnification
from the Indemnitors or any other party or parties under any other
Indemnification Arrangement, the Certificate of Incorporation or Bylaws of any
of the Indemnitors, or the DGCL.
2. Period of Limitations. No legal action shall be brought and no
---------------------
cause of action shall be asserted by or on behalf of an Indemnitor or any
affiliate of an Indemnitor against the Indemnitee, Indemnitee's spouse, heirs,
executors, or personal or legal representatives after the expiration of two
years from the date of accrual of such cause of action, or such longer period as
may be required by applicable law under the circumstances. Any claim or cause of
action of the Indemnitor or its affiliate shall be extinguished and deemed
released unless asserted by the timely filing of a legal action within such
period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action the shorter period shall
govern.
3. Insurance. Subject only to the provisions of this Section 3, as
---------
long as the Indemnitee shall continue to serve as a director and/or officer of
an Indemnitor (or shall continue at the request of an Indemnitor to serve as an
Affiliate Indemnitee) and, thereafter, as long as the Indemnitee shall be
subject to any possible Proceeding by reason of the fact that the Indemnitee was
a director and/or officer of the Corporation and/or MGM Inc. (or served in any
of said other capacities), the Indemnitors shall, unless no such policies are
available in any market, purchase and maintain in effect for the benefit of the
Indemnitee one or more valid, binding and enforceable policies (the "Insurance
---------
Policies") of directors' and officers' liability insurance ("D&O Insurance")
- -------- -------------
providing adequate liability coverage for the Indemnitee's acts as a director
and/or officer of the Indemnitors or as an Affiliate Indemnitee. Each Indemnitor
shall promptly notify the Indemnitee of any lapse, amendment or failure to
renew said policy or policies or any provision thereof relating to the extent or
nature of coverage provided thereunder. In the event any Indemnitor does not
purchase and maintain in effect said policy or policies of D&O Insurance
pursuant to the provisions of this Section 3, such Indemnitor shall, in addition
to and not in limitation of the other rights granted the Indemnitee under this
Agreement, hold harmless and indemnify the Indemnitee to the full extent of
coverage which would otherwise have been provided for the benefit of the
Indemnitee pursuant to the Insurance Policies.
4. Claims for Payments. The Indemnitee shall have the right to receive
-------------------
from the Indemnitors on demand or, at his option, to have any of the Indemnitors
pay promptly on his behalf, in advance of a Final Determination of a Proceeding,
all amounts payable by the Indemnitors pursuant to the terms of this Agreement
as corresponding amounts are expended or incurred by the Indemnitee in
connection with any Proceeding or otherwise (such amounts so expended or
incurred being referred to as "Advanced Amounts"). In making any claim for
----------------
payment by the Indemnitors of any amount, including any Advanced Amount,
pursuant to this Agreement, the Indemnitee shall submit to the Indemnitors a
written request for payment (a "Claim") which includes a schedule setting forth
-----
in reasonable detail the dollar amount expended (or incurred or expected to be
expended or incurred). Each item on such schedule shall be supported by the
bill, agreement, or other documentation relating thereto, a copy of which shall
be appended to the schedule as an exhibit.
Where the Indemnitee is requesting Advanced Amounts, the Indemnitee
must also provide an undertaking to repay such Advanced Amounts if a Final
Determination is made that the Indemnitee is not entitled to indemnification
hereunder.
3
<PAGE>
5. Section 16(b) Liability. No Indemnitor shall be liable under this
-----------------------
Agreement to make any payment in connection with any claim made against the
Indemnitee for an accounting of profits made from the purchase or sale by the
Indemnitee of securities of an Indemnitor within the meaning of Section 16(b) of
the Securities Exchange Act of 1934, and amendments thereto, or similar
provisions of any state statutory law or common law.
6. Continuation of Indemnity. All agreements and obligations of the
-------------------------
Indemnitors contained herein shall continue during the period the Indemnitee is
a director and/or officer of such Indemnitor (or is serving at the request of an
Indemnitor as an Affiliate Indemnitee) and shall continue thereafter so long as
the Indemnitee shall be subject to any possible Proceeding by reason of the fact
that the Indemnitee was a director or officer of such Indemnitor or served as
such an Affiliate Indemnitee.
7. Successors: Binding Agreement. This Agreement shall be binding on,
-----------------------------
and shall inure to the benefit of and be enforceable by, each of the
Indemnitor's successors and assigns and by the Indemnitee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
divisees and legatees. Each Indemnitor shall require any successor or assignee
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of such Indemnitor, by
written agreement in form and substance reasonably satisfactory to such
Indemnitor and to the Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that such Indemnitor would
be required to perform if no such succession or assignment had taken place.
8. Notification and Defense of Claim. Promptly after receipt by the
---------------------------------
Indemnitee of notice of the commencement of any Proceeding, the Indemnitee
shall, if a claim in respect thereof is to be made against an Indemnitor under
this Agreement, notify such Indemnitor of the commencement thereof, but the
failure to so notify such Indemnitor will not relieve the Indemnitors from any
liability which it may have to the Indemnitee. With respect to any such
Proceeding:
(i) Each Indemnitor shall be entitled to participate therein at its
own expense;
(ii) Except with prior written consent of the Indemnitee, the
Indemnitors shall not be entitled to assume the defense of any Proceeding;
and
(iii) No Indemnitor shall settle any Proceeding in any manner which
would impose any penalty or limitation on the Indemnitee without the
Indemnitee's prior written consent.
The Indemnitee shall not settle any Proceeding with respect to which the
Indemnitee has received indemnified amounts or Advanced Amounts without the
Indemnitors' prior written consent, nor will the Indemnitee unreasonably
withhold consent to any proposed settlement.
9. Enforcement. (a) Each Indemnitor has entered into this Agreement
-----------
and assumed the obligations imposed on such Indemnitor hereby in order to induce
the Indemnitee to act as a director and/or officer of the Corporation and/or MGM
Inc. or as an Affiliate Indemnitee and acknowledges that the Indemnitee is
relying upon this Agreement in continuing in such capacity.
(b) All expenses incurred by the Indemnitee in connection with the
preparation and submission of the Indemnitee's request for indemnification
hereunder shall be borne, jointly and severally, by the Indemnitors. In the
event the Indemnitee has requested payment
4
<PAGE>
of any amount under this Agreement and has not received payment thereof within
thirty (30) days of such request, the Indemnitee may bring any action to enforce
rights or collect moneys due under this Agreement, and, if the Indemnitee is
successful in such action, the Indemnitors shall reimburse the Indemnitee for
all of the Indemnitee's fees and expenses in bringing and pursuing such action.
If it is determined that the Indemnitee is entitled to indemnification for part
(but not all) of the indemnification so requested, expenses incurred in seeking
enforcement of such partial indemnification shall be reasonably prorated among
the claims, issues or matters for which the Indemnitee is entitled to
indemnification for claims, issues or matter for which the Indemnitee is not so
entitled. The Indemnitee shall be entitled to the advancement of such amounts to
the full extent contemplated by Section 4 hereof in connection with such
Proceeding.
10. Separability. If any provision or provisions of this Agreement
------------
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of
this Agreement (including, without limitation, all portions of any sections or
subsections of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not by themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby, and (ii) to
the fullest extent possible, the provisions of any section or subsections of
this Agreement containing any such provisions held to be invalid, illegal or
unenforceable shall be construed so as to give effect to the intent of the
parties that the Indemnitors (or any of them) provide protection to the
Indemnitee to the fullest extent enforceable.
11. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such modification, waiver or discharge is agreed to
in writing signed by the Indemnitee and an officer of each of the Indemnitors
designated by the Board of Directors of such Indemnitor. No waiver by either
party at any time of any breach by the other party of, or of compliance with,
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same time or at any prior or subsequent time. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Delaware, without giving effect to the principles of conflicts of
laws thereof. The Indemnitee may bring an action seeking resolution of disputes
or controversies arising under, or in any way related to, this Agreement in the
state or federal court jurisdiction in which the Indemnitee resides or in which
his place of business is located and in any related appellate courts, and each
of the Indemnitors hereby consents to the jurisdiction of such courts and to
such venue.
12. Notice. For the purposes of this Agreement, notices and all other
------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
5
<PAGE>
If to the Indemnitee: Kerry M. Stokes
c/o Culman Group L.P.
201 Main Street
Suite 1955
Fort Worth, TX 76102
If to the Corporation: P&F Acquisition Corp.
First Floor
2500 Broadway
Santa Monica, CA 90404
Attn: General Counsel
If to MGM Inc.: Metro-Goldwyn-Mayer Inc.
Fifth Floor
2500 Broadway
Santa Monica, CA 90404
Attn: General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Effectiveness. This Agreement shall be effective as of the day
-------------
and year first above written.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
P&F ACQUISITION CORP.
By: /s/ Robert Brada
-----------------------------
Name: Robert Brada
Title: Senior Vice President & Deputy
General Counsel
METRO-GOLDEN-MAYER INC.
By: /s/ Robert Brada
-----------------------------
Name: Robert Brada
Title: Senior Vice President & Deputy
General Counsel
INDEMNITEE
/s/ Kerry M. Stokes
--------------------------------
Kerry M. Stokes
<PAGE>
Exhibit 10.21
JOINT AND SEVERAL INDEMNITY AGREEMENT
AGREEMENT dated as of October 10, 1996 by and between P&F Acquisition
Corp., a Delaware corporation (the "Corporation") and Metro-Goldwyn-Mayer Inc.,
-----------
a Delaware corporation ("MGM Inc." and together with the Corporation, the
-------
"Indemnitors") on the one hand, and Jerome York (the "Indemnitee"), on the
----------- ----------
other.
RECITALS
The Indemnitee is a director and/or officer of the Corporation, MGM
Inc. and/or an Affiliate Indemnitee (as hereinafter defined). Each of the
Indemnitors and the Indemnitee recognize the increased risk of litigation and
other claims being asserted against directors and officers in today's
environment.
The Bylaws of the Corporation requires the Corporation and the Bylaws
of MGM Inc. requires MGM Inc. to indemnify its directors and officers as
currently provided therein, and the Indemnitee has been serving and continues to
serve as a director and/or officer of the Corporation and/or MGM Inc. in part in
reliance on such provisions. The Bylaws of each of the Indemnitors permit such
Indemnitor to purchase and maintain insurance or to furnish similar protection
or make other arrangements (any such insurance, protection or arrangement, an
"Indemnification Arrangement") on behalf of the Indemnitee against personal
---------------------------
liability (including, but not limited to, providing for Advanced Amounts as
hereinafter defined) asserted against him or incurred by or on behalf of him in
such capacity as a director or officer of such Indemnitor or as an Affiliate
Indemnitee, or arising out of his status as such, whether or not such Indemnitor
would have the power to indemnify him against such liability under the
provisions of this Agreement or under the Delaware General Corporation Law (the
"DGCL"), as it may then be in effect.
----
In part to provide the Indemnitee with specific contractual assurance
of substantial protection against personal liability (regardless of, among other
things, any amendment to or revocation of the aforementioned provisions of any
of the Indemnitor's Bylaws or any change in the composition of such Indemnitor's
Board of Directors or control of such Indemnitor), each of the Indemnitors
desires to enter into this Agreement. DGCL Section 145(f) expressly recognizes
that the indemnification provisions of the DGCL are not exclusive of any other
rights to which a person seeking indemnification may be entitled under the
Certificate of Incorporation or Bylaws of any of the Indemnitors, or an
agreement providing for indemnification, or a resolution of stockholders or
directors, or otherwise, and the Bylaws of each of the Indemnitors expressly
recognizes that the indemnification provisions of the Bylaws of such Indemnitor
shall not be deemed exclusive of, and shall not affect, any other rights to
which a person seeking indemnification may be entitled under any agreement, and
this Agreement is being entered into pursuant to the Bylaws of each of the
Indemnitors, as permitted by the DGCL, and has been authorized by the
stockholders of the Indemnitors.
In order to induce the Indemnitee to serve as a director and/or
officer of the Corporation and/or MGM Inc. and in consideration of the
Indemnitee's so serving, each of the Indemnitors desires jointly and severally
to hold harmless and indemnify the Indemnitee and to make arrangements pursuant
to which the Indemnitee may be advanced or reimbursed expenses incurred by the
Indemnitee in certain proceedings, in every case to the fullest extent
authorized or permitted by the DGCL, or any other applicable law, or by any
amendment thereof or other statutory provisions authorizing or permitting such
indemnification which are adopted after the date hereof (but, in the case of any
such amendment, only to the extent that such amendment permits the Indemnitor to
provide broader indemnification rights than the DGCL, or other applicable law,
permitted such Indemnitor to provide prior to such amendment).
<PAGE>
NOW, THEREFORE, in consideration of the foregoing recitals and of the
Indemnitee's continuing to serve the Corporation and/or MGM Inc. as a director
and/or officer, the parties agree as follows:
1. Indemnification. To the fullest extent allowed by law, each of the
---------------
Indemnitors, jointly and severally, shall hold harmless and indemnify the
Indemnitee, his executors, administrators or assigns against any and all
expenses, liabilities and losses (including, without limitation, investigation
expenses, expert witnesses' and attorneys' fees and expenses, judgments,
penalties, fines, amounts paid or to be paid in settlement any interest,
assessments, or other charges imposed thereon and any federal, state, local or
foreign taxes imposed as a result of actual or deemed receipt of any payment
hereunder) actually incurred by the Indemnitee (net of any related insurance
proceeds or other amounts received by the Indemnitee or paid by or on behalf of
an Indemnitor on the Indemnitee's behalf in compensation of such expenses,
liabilities or losses) in connection with any actual or threatened action, suit
or proceeding, whether civil, criminal, administrative or investigative or in
arbitration, to which the Indemnitee is a party or participant or is threatened
to be made a party or participant (a "Proceeding"), as a plaintiff, defendant,
----------
respondent, witness or otherwise, based upon, arising from, relating to or
by reason of the fact that the Indemnitee: (a) is, was, shall be or shall have
been a director and/or officer of the Corporation, (b) is or was serving, shall
serve, or shall have served at the request of the Corporation as a director,
officer, partner, trustee, fiduciary, employee or agent ("Affiliate Indemnitee")
--------------------
of another foreign or domestic corporation or non-profit corporation,
cooperative, partnership, joint venture, trust, employee benefit plan, or other
incorporated or unincorporated enterprise (each, a "Company Affiliate") or (c)
-----------------
is, was, shall be or shall have been a director and/or officer of MGM Inc.,
during the period from and after the date on which Indemnitee became an officer
and/or director of MGM Inc. through and until the Closing Date in connection
with the potential sale of MGM Inc. and the Indemnitee's efforts to assemble a
bid group to purchase MGM Inc.; or arising from or relating to any action or
omission to act taken by the Indemnitee in any of the foregoing capacities;
provided, however, that, except as provided in Section 9(b) hereof, an
Indemnitor shall indemnify the Indemnitee in connection with a Proceeding
initiated by the Indemnitee only if such proceeding (or part thereof) was
authorized by a two-thirds vote of the Board of Directors of such Indemnitor.
The Indemnitee shall be presumed to be entitled to such
indemnification under this Agreement upon submission of a written claim pursuant
to Section 4 hereof. Thereafter, the Indemnitors shall have the burden of proof
to overcome the presumption that the Indemnitee is so entitled. Such presumption
shall only be overcome by a judgment or other final adjudication, after all
appeals and all time for appeals has expired ("Final Determination"), which is
-------------------
adverse to the Indemnitee and which establishes (i) that his acts were committed
in bad faith, or were the result of active and deliberate dishonesty, and were
material to the cause of action so adjudicated and (ii) that the Indemnitee in
fact personally gained a financial profit or other advantage to which he was not
legally entitled. If the Indemnitee is not wholly successful in any Proceeding
but is successful on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding the Indemnitors agree, jointly
and severally, to indemnify the Indemnitee to the maximum extent permitted by
law against all losses and expenses incurred by the Indemnitee in connection
with each successfully resolved claim, issue or matter. Neither the failure of
any of the Indemnitors (including their respective Boards of Directors, legal
counsel or stockholders) to have made a determination prior to the commencement
of such Proceeding that indemnification of the Indemnitee is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in the DGCL, nor an actual determination by such Indemnitor (including its
Board of Directors, its legal counsel or its stockholders) that the Indemnitee
has not met the applicable standard of conduct, shall be a defense to the action
or create a presumption that the Indemnitee has not met the applicable standard
of conduct. The
2
<PAGE>
purchase, establishment or maintenance of any Indemnification Arrangement shall
not in any way diminish, restrict, limit or adversely affect the rights and
obligations of any of the Indemnitors or of the Indemnitee under this Agreement,
except as expressly provided herein, and the execution and delivery of this
Agreement by the Indemnitors and the Indemnitee shall not in any way diminish,
restrict, limit or adversely affect the Indemnitee's right to indemnification
from the Indemnitors or any other party or parties under any other
Indemnification Arrangement, the Certificate of Incorporation or Bylaws of any
of the Indemnitors, or the DGCL.
2. Period of Limitations. No legal action shall be brought and no
---------------------
cause of action shall be asserted by or on behalf of an Indemnitor or any
affiliate of an Indemnitor against the Indemnitee, Indemnitee's spouse, heirs,
executors, or personal or legal representatives after the expiration of two
years from the date of accrual of such cause of action, or such longer period as
may be required by applicable law under the circumstances. Any claim or cause of
action of the Indemnitor or its affiliate shall be extinguished and deemed
released unless asserted by the timely filing of a legal action within such
period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action the shorter period shall
govern.
3. Insurance. Subject only to the provisions of this Section 3, as
---------
long as the Indemnitee shall continue to serve as a director and/or officer of
an Indemnitor (or shall continue at the request of an Indemnitor to serve as an
Affiliate Indemnitee) and, thereafter, as long as the Indemnitee shall be
subject to any possible Proceeding by reason of the fact that the Indemnitee was
a director and/or officer of the Corporation and/or MGM Inc. (or served in any
of said other capacities), the Indemnitors shall, unless no such policies are
available in any market, purchase and maintain in effect for the benefit of the
Indemnitee one or more valid, binding and enforceable policies (the "Insurance
---------
Policies") of directors' and officers' liability insurance ("D&O Insurance")
- -------- -------------
providing adequate liability coverage for the Indemnitee's acts as a director
and/or officer of the Indemnitors or as an Affiliate Indemnitee. Each Indemnitor
shall promptly notify the Indemnitee of any lapse, amendment or failure to renew
said policy or policies or any provision thereof relating to the extent or
nature of coverage provided thereunder. In the event any Indemnitor does not
purchase and maintain in effect said policy or policies of D&O Insurance
pursuant to the provisions of this Section 3, such Indemnitor shall, in addition
to and not in limitation of the other rights granted the Indemnitee under this
Agreement, hold harmless and indemnify the Indemnitee to the full extent of
coverage which would otherwise have been provided for the benefit of the
Indemnitee pursuant to the Insurance Policies.
4. Claims for Payments. The Indemnitee shall have the right to receive
-------------------
from the Indemnitors on demand or, at his option, to have any of the Indemnitors
pay promptly on his behalf, in advance of a Final Determination of a Proceeding,
all amounts payable by the Indemnitors pursuant to the terms of this Agreement
as corresponding amounts are expended or incurred by the Indemnitee in
connection with any Proceeding or otherwise (such amounts so expended or
incurred being referred to as "Advanced Amounts"). In making any claim for
----------------
payment by the Indemnitors of any amount, including any Advanced Amount,
pursuant to this Agreement, the Indemnitee shall submit to the Indemnitors a
written request for payment (a "Claim") which includes a schedule setting forth
-----
in reasonable detail the dollar amount expended (or incurred or expected to be
expended or incurred). Each item on such schedule shall be supported by the
bill, agreement, or other documentation relating thereto, a copy of which shall
be appended to the schedule as an exhibit.
Where the Indemnitee is requesting Advanced Amounts, the Indemnitee
must also provide an undertaking to repay such Advanced Amounts if a Final
Determination is made that the Indemnitee is not entitled to indemnification
hereunder.
3
<PAGE>
5. Section 16(b) Liability. No Indemnitor shall be liable under this
-----------------------
Agreement to make any payment in connection with any claim made against the
Indemnitee for an accounting of profits made from the purchase or sale by the
Indemnitee of securities of an Indemnitor within the meaning of Section 16(b) of
the Securities Exchange Act of 1934, and amendments thereto, or similar
provisions of any state statutory law or common law.
6. Continuation of Indemnity. All agreements and obligations of the
-------------------------
Indemnitors contained herein shall continue during the period the Indemnitee is
a director and/or officer of such Indemnitor (or is serving at the request of an
Indemnitor as an Affiliate Indemnitee) and shall continue thereafter so long as
the Indemnitee shall be subject to any possible Proceeding by reason of the fact
that the Indemnitee was a director or officer of such Indemnitor or served as
such an Affiliate Indemnitee.
7. Successors: Binding Agreement. This Agreement shall be binding on,
-----------------------------
and shall inure to the benefit of and be enforceable by, each of the
Indemnitor's successors and assigns and by the Indemnitee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
divisees and legatees. Each Indemnitor shall require any successor or assignee
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of such Indemnitor, by
written agreement in form and substance reasonably satisfactory to such
Indemnitor and to the Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that such Indemnitor would
be required to perform if no such succession or assignment had taken place.
8. Notification and Defense of Claim. Promptly after receipt by the
---------------------------------
Indemnitee of notice of the commencement of any Proceeding, the Indemnitee
shall, if a claim in respect thereof is to be made against an Indemnitor under
this Agreement, notify such Indemnitor of the commencement thereof, but the
failure to so notify such Indemnitor will not relieve the Indemnitors from any
liability which it may have to the Indemnitee. With respect to any such
Proceeding:
(i) Each Indemnitor shall be entitled to participate therein at its
own expense;
(ii) Except with prior written consent of the Indemnitee, the
Indemnitors shall not be entitled to assume the defense of any Proceeding;
and
(iii) No Indemnitor shall settle any Proceeding in any manner which
would impose any penalty or limitation on the Indemnitee without the
Indemnitee's prior written consent.
The Indemnitee shall not settle any Proceeding with respect to which the
Indemnitee has received indemnified amounts or Advanced Amounts without the
Indemnitors' prior written consent, nor will the Indemnitee unreasonably
withhold consent to any proposed settlement
9. Enforcement. (a) Each Indemnitor has entered into this Agreement
-----------
and assumed the obligations imposed on such Indemnitor hereby in order to induce
the Indemnitee to act as a director and/or officer of the Corporation and/or MGM
Inc. or as an Affiliate Indemnitee and acknowledges that the Indemnitee is
relying upon this Agreement in continuing in such capacity.
(b) All expenses incurred by the Indemnitee in connection with the
preparation and submission of the Indemnitee's request for indemnification
hereunder shall be borne, jointly and severally, by the Indemnitors. In the
event the Indemnitee has requested payment
4
<PAGE>
of any amount under this Agreement and has not received payment thereof within
thirty (30) days of such request, the Indemnitee may bring any action to enforce
rights or collect moneys due under this Agreement, and, if the Indemnitee is
successful in such action, the Indemnitors shall reimburse the Indemnitee for
all of the Indemnitee's fees and expenses in bringing and pursuing such action.
If it is determined that the Indemnitee is entitled to indemnification for part
(but not all) of the indemnification so requested, expenses incurred in seeking
enforcement of such partial indemnification shall be reasonably prorated among
the claims, issues or matters for which the Indemnitee is entitled to
indemnification for claims, issues or matter for which the Indemnitee is not so
entitled. The Indemnitee shall be entitled to the advancement of such amounts
to the full extent contemplated by Section 4 hereof in connection with such
Proceeding.
10. Separability. If any provision or provisions of this Agreement
------------
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of
this Agreement (including, without limitation, all portions of any sections or
subsections of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not by themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby, and (ii) to
the fullest extent possible, the provisions of any section or subsections of
this Agreement containing any such provisions held to be invalid, illegal or
unenforceable shall be construed so as to give effect to the intent of the
parties that the Indemnitors (or any of them) provide protection to the
Indemnitee to the fullest extent enforceable.
11. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such modification, waiver or discharge is agreed to
in writing signed by the Indemnitee and an officer of each of the Indemnitors
designated by the Board of Directors of such Indemnitor. No waiver by either
party at any time of any breach by the other party of, or of compliance with,
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same time or at any prior or subsequent time. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Delaware, without giving effect to the principles of conflicts of
laws thereof. The Indemnitee may bring an action seeking resolution of disputes
or controversies arising under, or in any way related to, this Agreement in the
state or federal court jurisdiction in which the Indemnitee resides or in which
his place of business is located and in any related appellate courts, and each
of the Indemnitors hereby consents to the jurisdiction of such courts and to
such venue.
12. Notices. For the purposes of this Agreement, notices and all other
-------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
5
<PAGE>
If to the Indemnitee: Jerome York
4835 Koval Lane
Las Vegas, NV 89109
If to the Corporation: P&F Acquisition Corp.
Fifth Floor
2500 Broadway
Santa Monica, CA 90404
Attn: General Counsel
If to MGM Inc.: Metro-Goldwyn-Mayer Inc.
Fifth Floor
2500 Broadway
Santa Monica, CA 90404
Attn: General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Effectiveness. This Agreement shall be effective as of the day and
-------------
year first above written.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
P&F ACQUISITION CORP.
By: /s/ David G. Johnson
----------------------------------
Name: David G. Johnson
Title: Executive Vice President
METRO-GOLDWYN-MAYER INC.
By: /s/ David G. Johnson
----------------------------------
Name: David G. Johnson
Title: Executive Vice President
INDEMNITEE
/s/ Jerome York
-------------------------------------
Jerome York
<PAGE>
EXHIBIT 21
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
NAME OF EACH CORPORATION INCORPORATION STATE
- -------------------------------------------------------------------------------
<S> <C>
US CORPORATIONS
P & F ACQUISITION CORP. DE
METRO-GOLDWYN-MAYER, INC. DE
AIDART DISTRIBUTORS CORP. NY
AIDART PICTURES, INC. NY
BLAND CO. I DE
CANDANTINO MUSIC, INC. DE
CANZIONE MUSIC, INC. DE
COSMIC TITLE CORP DE
DAYS PICTURE CORPORATION NY
DAYTON FILM PRODUCTIONS, INC. CA
FAMOUS ARTIST PRODUCTIONS CA
FAMOUS ARTISTS AGENCY, INC. CA
FAMOUS ARTISTS CORPORATION OF NEW YORK NY
LION INDEPENDENT TELEVISION INC. DE
LOPERT PICTURES CORPORATION DE
MAGA ENTERPRISES, INC. NV
METRO-GOLDWYN-MAYER ANIMATION, INC. DE
METRO-GOLDWYN-MAYER DISTRIBUTION CO. DE
METRO-GOLDWYN-MAYER HOME ENTERTAINMENT INC. DE
METRO-GOLDWYN-MAYER INDIA, LTD. NJ
METRO-GOLDWYN-MAYER INTERACTIVE PRODUCTIONS, INC. DE
METRO-GOLDWYN-MAYER LION CORP. DE
METRO-GOLDWYN-MAYER MOTION PICTURE CO. NJ
METRO-GOLDWYN-MAYER OF CHINA, INC. NJ
METRO-GOLDWYN-MAYER OVERSEAS INC. DE
METRO-GOLDWYN-MAYER PICTURES, INC. DE
METRO-GOLDWYN-MAYER TELECOMMUNICATIONS INC. DE
MGM AND UA SERVICES COMPANY DE
MGM DEVELOPMENT, INC. DE
MGM FRANCE HOLDINGS INC. DE
MGM INTERACTIVE INC. DE
MGM INTERNATIONAL INC. DE
MGM LAPTV INC. DE
MGM WORLDWIDE TELEVISION, INC. DE
MGM/UA MUSIC INC. DE
MGM/UA, INC. DE
PARTNERSHIP PICTURE CORP. NY
PATHE ENTERTAINMENT MOVIESONGS, INC. CA
PATHE ENTERTAINMENT MUSIC, INC. CA
PATHE FILMS, INC. NY
PATHE RELEASING CORP. NY
PURPLE PHOTOPLAYS, INC. NY
RED CORNER PRODUCTION INC. DE
SEVENTEEN LEASING CORPORATION DE
TANGLED WEB PRODUCTIONS, INC. DE
THE AZIMUTH COMPANY, INC. WI
THE MIRISCH CORPORATION OF DELAWARE DE
THREE PICTURES CORPORATION DE
U.A. OF BRAZIL, INC. DE
U/A MUSIC INC. DE
UNITED ARTISTS CHINA, INC. DE
UNITED ARTISTS CORPORATION DE
UNITED ARTISTS CORPORATION OF EGYPT DE
UNITED ARTISTS CORPORATION OF PUERTO RICO DE
UNITED ARTISTS EUROPA, INC. DE
UNITED ARTISTS MUSIC (BELGIUM), INC. DE
UNITED ARTISTS OVERSEAS, INC. DE
UNITED ARTISTS PICTURES, INC. DE
UNITED ARTISTS PRODUCTIONS INC. DE
UNITED ARTISTS TELEVISION CORP. DE
UNITED LION MUSIC, INC. DE
WEBSPINNER, INC. DE
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NAME OF EACH CORPORATION INCORPORATION/COUNTRY
- --------------------------------------------------------------------------------
<S> <C>
FOREIGN CORPORATIONS
ALGEMENE FINANCIERINGS-MAATSCHAPPIJ "NEFICO" B.V. Nthrlnd
ARTEMIS FILM GmbH Germany
CAMBRIDGE HOLDINGS LTD U.K.
CANNON DREAMAXE LTD U.K.
CANNON FILM DISTRIBUTION NEDERLAND B.V Nthrlnd
CANNON FILM DISTRIBUTION V.O.F. Nthrlnd
CANNON FILM DISTRIBUTORS (UK) LTD U.K.
CANNON FILM FINANCE LTD U.K.
CANNON FILM SALES LTD U.K.
CANNON INTERNATIONAL B.V. Nthrlnd
CANNON INTERNATIONAL V.O.F. Nthrlnd
CANNON IRISBOOK LTD U.K.
CANNON MUSIC LTD U.K.
CANNON NEXTLOW LIMITED U.K.
CANNON SCREEN ENTERTAINMENT (HOLDINGS) LTD Belgium
CANNON SCREEN ENTERTAINMENT NV/SA Belgium
CANNON S.E. INTERNATIONAL LTD Nthrlnd
CANNON VIDEO BENELUX B.V. France
EUROCITEL SARL U.K.
LES ARTISTES ASSOCIES S.A. France
LES PRODUCTIONS ARTISTES ASSOCIES S.A. France
LONDON CANNON FILMS LTD U.K.
MAUBEE PRODUCTIONS, LIMITED Jamaica
METRO-GOLDWYN-MAYER HOLDINGS LTD. (CANADA) Canada
METRO-GOLDWYN-MAYER IBERICA S.A. Spain
METRO-GOLDWYN-MAYER INTERNATIONAL INC. Panama
MGM INTERNATIONAL B.V. Dutch
MGM NEDERLAND B.V. Dutch
MGM PRODUCTION SERVICES (B.C.) Ltd. Canada
MGM PRODUCTION SERVICES (Canada) Ltd. Canada
MGM TELECOMMUNICATIONS (FRANCE) S.A.R.L. France
MGM/UA FILMAATSCHAPPIJ B.V. Dutch
MGM/UA HOME ENTERTAINMENT (Europe) LIMITED Canada
MGM/UA HOME ENTERTAINMENT GROUP (Canada) LTD Toronto
MGM/US HOME VIDEO (UK) LTD England
MGM/UA SOUTH AMERICA B.V. Dutch
PATHE ENTERTAINMENT NV Curacal
PATHE INTERNATIONAL B.V. Dutch
PRODUZIONI ASSOCIATE DELPHOS SARL Italy
UNITED ARTISTS (Australasia)(Proprietary) LIMITED Australia
UNITED ARTISTS CORPORATION (SouthAfrica)(Proprietary) LIMITED Sth Africa
UNITED ARTISTS CORPORATION GmbH Germany
UNITED ARTISTS CORPORATION LIMITED England
UNITED ARTISTS MUSIC DE MEXICO S.A. Mexico
UNITED ARTISTS SCREEN ENTERTAINMENT LTD U.K.
VIDEO SERVICE MERCHANDISING B.V. Nthrlnd
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ORION SUBSIDIARIES OF MGM
-------------------------
Subsidiary Jurisdiction of Incorporation
- ---------- -----------------------------
<S> <C>
Orion Pictures Corporation (Del.)
Brighton Productions, Inc. (Cal.)
Buckminster Music Limited (U.K.)
Donna Music Publications (Cal.)
F.P. Productions (Cal.)
Musicways, Inc. (Cal.)
OPC Music Publishing, Inc. (Cal.)
Orion Home Entertainment Corporation (Del.)
Orion Music Publishing, Inc. (Cal.)
Orion Pictures Distribution (Canada) Inc. (Canada)
Orion Pictures Distribution Corporation (Delaware)
Orion Productions, Inc. (Del.)
Orion TV Productions, Inc. (N.Y.)
MCEG Sterling Entertainment (Cal.)
MCEG Sterling Productions (Cal.)
MCEG Sterling Development (Cal.)
American International Pictures, Inc. (Del.)
Filmways Pictures (England) Limited (U.K.)
Orion Pictures Corporation (H.K.) Limited (Hong Kong)
Prep 2 Post Production Services (Cal.)
Mintaka Films B.V. (Rotterdam, The Netherlands)
Goldwyn Entertainment Company (Del.) d/b/a Delaware Goldwyn Entertainment Corporation
Heritage Entertainment, Inc. (Del.) d/b/a Del Hert., Inc.
Flipper Productions, Inc. (Cal.)
Ivan Tors Music, Inc. (Cal.)
Media Resources Credit Corporation (Del.)
Motion Picture Corporation of America (Del.) d/b/a Motion Picture Corporation of America (Delaware)
Singles Productions, Inc. (Cal.)
War At Home Productions, Inc. (Cal.)
Goldwyn Entertainment Company, Ltd. (Cal.)
Albino Alligator Productions, Inc. (Cal.)
Midnight Blue Productions, Inc. (Cal.)
Beverly Hills Nija Productions, Inc. (Cal.)
Virgin Vision, Inc. (Cal.)
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Metro-Goldwyn-Mayer Inc.:
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
Form S-1 registration statement.
Arthur Andersen LLP
Los Angeles, California
September 10, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 29, 1996,
except for the restatement described in Note 12 as to which the date is July
31, 1996, relating to the financial statements of Metro-Goldwyn-Mayer Studios
Inc. (formerly known as Metro-Goldwyn-Mayer Inc.) for the years ended December
31, 1995 and 1994, which appears in such Prospectus. We also consent to the
application of such report to the Financial Statement Schedules for the two
years ended December 31, 1995 listed under Item 16(b) of this Registration
Statement when such schedules are read in conjunction with the financial
statements referred to in our report. We also consent to the references to us
under the heading "Experts" and "Selected Consolidated Financial Data" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Consolidated Financial Data."
Price Waterhouse LLP
Century City, California
September 10, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Orion Pictures Corporation:
We consent to the inclusion of our report dated March 31, 1997, with respect
to the consolidated balance sheet of Orion Pictures Corporation and
subsidiaries as of December 31, 1996, and the related consolidated statements
of operations, stockholders' equity (capital deficiency), and cash flows for
the year then ended, which report appears in the Form S-1 of Metro-Goldwyn-
Mayer Inc. dated September 11, 1996 and to the reference to our firm under the
headings "Selected Financial Data" and "Experts" in the Prospectus.
KPMG Peat Marwick LLP
Los Angeles, California
September 11, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> OTHER 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> OCT-11-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 16,381 20,255
<SECURITIES> 0 0
<RECEIVABLES> 282,834 162,650
<ALLOWANCES> 11,728 11,730
<INVENTORY> 1,099,201 1,263,073
<CURRENT-ASSETS> 0 0
<PP&E> 28,765 34,059
<DEPRECIATION> 1,418 4,648
<TOTAL-ASSETS> 1,774,668 1,806,574
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
501,006 502,588
<COMMON> 400,805 402,070
<OTHER-SE> 1,311 (27,950)
<TOTAL-LIABILITY-AND-EQUITY> 1,774,668 1,806,574
<SALES> 228,686 351,014
<TOTAL-REVENUES> 228,686 351,014
<CGS> 195,076 317,912
<TOTAL-COSTS> 215,112 356,873
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 9,062 19,211
<INCOME-PRETAX> 4,512 (25,070)
<INCOME-TAX> 4,346 3,935
<INCOME-CONTINUING> 166 (29,005)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 166 (29,005)
<EPS-PRIMARY> 0.18 (32.11)
<EPS-DILUTED> 0.18 (32.11)
</TABLE>
<PAGE>
EXHIBIT 99.1
September 11, 1997
Metro-Goldwyn-Mayer Inc.
2500 Broadway Street
Santa Monica, California 90404
Re: Consent to Being Named in Registration Statement on Form S-1
Gentlemen:
Pursuant to Rule 438 of the Securities Act of 1933, as amended, I hereby consent
to my being named as a person who is to become a member of the Board of
Directors of Metro-Goldwyn-Mayer Inc. (the "Company") in the Company's
Registration Statement on Form S-1 dated September 11, 1997.
Sincerely,
/s/ A. Robert Pisano
- ------------------------
A. Robert Pisano
