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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 1993 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO ____________________
COMMISSION FILE NO. 1-6739
SPELLING ENTERTAINMENT GROUP INC.
(Exact name of registrant as specified in its charter)
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FLORIDA 59-0862100
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5700 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90036
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(Address of principal executive offices) (Zip Code)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (213) 965-5700
(Formerly One Blockbuster Plaza, Fort Lauderdale, Florida
Telephone: (305) 832-3000)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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Name of each exchange
Title of each class on which registered
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COMMON STOCK, $.10 PAR VALUE NEW YORK AND PACIFIC
STOCK EXCHANGES
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
On March 25, 1993, the registrant had 64,605,268 outstanding shares of
Common Stock, $.10 par value, and at such date, the aggregate market value of
the shares of Common Stock held by non-affiliates of the registrant was
approximately $213,150,000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III--Portions of Registrant's Proxy Statement relative to the 1994
Annual Meeting of Shareholders on May 18, 1994.
Part IV --Portions of previously filed reports and registration
statements.
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SPELLING ENTERTAINMENT GROUP INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
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PART I
Item 1. Business 2
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
Item 8. Financial Statements and Supplementary Data 28
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 56
PART III
Item 10. Directors and Executive Officers of the Registrant 57
Item 11. Executive Compensation 57
Item 12. Security Ownership of Certain Beneficial Owners
and Management 57
Item 13. Certain Relationships and Related Transactions 57
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 58
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Spelling Entertainment Group Inc. (the "Company") is a fully-
integrated producer and distributor of filmed entertainment and has an
extensive library of television series, mini-series, movies-for-television,
pilots and feature films (collectively referred to hereinafter as "film
product"), which are licensed for viewing both in the United States and
international markets. The Company also licenses music and merchandising
rights associated with its film product. The Company's current entertainment
operations are conducted through subsidiaries of Spelling Entertainment
Inc. ("SEI"). The Company acquired 82% of SEI in the first half of 1991 and
the remainder in July 1992 (see Note 2 to the Company's Consolidated Financial
Statements; references to Notes hereinafter refer to the notes to such
financial statements). The Company's production operations are conducted by
Spelling Television and Laurel Entertainment ("Laurel"); distribution
activities are conducted primarily through Worldvision Enterprises, Inc.
("Worldvision") and Spelling Films International ("SFI"); licensing and
merchandising activities are conducted by Hamilton Projects. Unless the
context indicates otherwise, "Spelling" or the "Company" refers to Spelling
Entertainment Group Inc. and its subsidiaries.
The Company's former petroleum operations have been sold and are
classified as discontinued operations in the accompanying financial statements
(see "Discontinued Operations" and Note 11). Approximately 48% of the Company's
Common Stock was owned by American Financial Corporation and its subsidiaries
("AFC") until March 31, 1993, when AFC sold the Common Stock it owned to
Blockbuster Entertainment Corporation and its subsidiaries ("BEC"). BEC
acquired additional Common Stock during 1993, both from third parties and from
the Company (see Note 7). As of March 25, 1994 BEC owned approximately 70.5% of
the Company's outstanding stock.
In September 1993, the Company and Republic Pictures Corporation ("Republic")
entered into an agreement in principle pursuant to which the Company agreed to
acquire by merger all of the outstanding shares of common stock of Republic for
$13 per share in cash (the "Republic Merger"), including the approximate 35%
interest in Republic held by BEC. Additionally, options and warrants to acquire
Republic common stock will be converted into the right to receive, upon payment
of the exercise price, 1.6508 shares of the Company's Common Stock for each
share of Republic common stock into which such option or warrant was
exercisable. Republic common stock will be converted into options to acquire
the Company's Common Stock. In December 1993, the Company and Republic entered
into a definitive agreement covering the Republic Merger, which is expected to
be consummated in the second quarter of 1994.
In January 1994, BEC entered into a merger agreement pursuant to which BEC has
agreed to merge with and into Viacom Inc. ("Viacom"), with Viacom being the
surviving corporation. Upon the closing of the merger, which closing is
subject to customary conditions, including approval of the merger by BEC's
shareholders, Viacom would own a majority of the Company's Common Stock.
Spelling Entertainment Group Inc. (formerly the Charter Company) was
incorporated in Florida in 1959 and has its principal executive offices at 5700
Wilshire Boulevard, Los Angeles, California 90036, telephone (213) 965-5700.
PRODUCTION
Originally established in 1965 as Aaron Spelling Productions, Spelling
Television has a history of successful network television production, including
nearly 3,000 hours of television series, movies-for-television, mini-series and
pilots, as well as feature films. In association with a
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variety of partnerships, Aaron Spelling has been one of the industry's most
creative and profitable producers of network programming, producing such
successful series as "Beverly Hills, 90210," "Melrose Place," "Love Boat,"
"Dynasty," "Hotel," "Vegas," "Matt Houston," "Fantasy Island," "Charlie's
Angels," "Starsky and Hutch," "Family" and "Hart to Hart."
Laurel, which was acquired by SEI in 1989, had been engaged primarily in
the development and production of first-run syndicated series (see below) and
feature films. In recent years however, it has diversified its activities to
include the development and production of network mini-series and
movies-for-television. Laurel has pursued a strategy of lower cost productions
outside of the traditional Hollywood system and showcasing new or emerging
talent. Laurel has produced or is producing several projects based on books or
materials by author Stephen King.
Worldvision finances third party production through the payment of
guaranteed advances in exchange for certain distribution rights. See
"Distribution - Acquiring Distribution Rights." SFI also finances third party
production through the payment of guaranteed advances payable to producers in
exchange for international distribution rights. See "Distribution."
DEVELOPMENT
The Company (primarily through Spelling Television and Laurel) is continually
developing concepts and acquiring properties on which it can base pilots (and
ultimately series), movies-for-television, mini-series and feature films. The
Company may conduct such development internally, or in conjunction with a
television network or motion picture studio/distributor. The development costs
include property acquisition costs and the costs associated with writing a
screenplay or teleplay. The Company has projects in development with a number
of successful writers, producers, and/or individuals including Eric Roth, Joel
Schumacher, Charles Rosen and Kareem Abdul-Jabbar.
NETWORK PROGRAMMING
Scripts for television programming are submitted to the network for
review. If the network accepts the script, it will typically order production
of a pilot or a prototype episode, for which it will pay the Company a
negotiated fixed license fee. The Company's cost of producing such a pilot or
prototype usually exceeds the network license fee. As of March 25, 1994, the
Company had received orders for two new series projects. One is an eight
episode order of a one-hour series for the Fox Broadcasting Company ("Fox")
network tentatively titled "Models, Inc." Another is a six episode order of a
one-hour series, for the Fox network, tentatively entitled "Shock Rock". The
Company has other projects under consideration at the networks including an
half-hour comedy tentatively titled "Madmen of the People."
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If the network decides to order a series, the license agreement generally
provides for a minimum number of episodes to be delivered, with the network
having certain rights to order additional episodes. The license agreement
normally grants the network the right to exhibit the series in the United
States during the license period and all other distribution rights are retained
by the Company, subject to certain network-related holdback periods. The
episodic license fee is normally less than the Company's costs of producing
each series episode. In recent years, the size of the series deficits incurred
by the Company has generally increased; however, in many cases the Company has
been successful in obtaining international sales through Worldvision to
substantially offset such production deficits.
The Company is currently producing the television series "Beverly Hills, 90210"
and "Melrose Place," both of which are being aired on the Fox television
network. "Beverly Hills, 90210" is in its fourth season and has been renewed
for the 1994-95 television season. "Melrose Place," which debuted during the
summer of 1992 as a spin-off of "Beverly Hills, 90210," is in its second
season, and has also been renewed for the 1994-95 television season. The
Company is also producing the television series "Winnetka Road" and "Burke's
Law," both mid-season replacements. The Company has received an order for an
additional 13 episodes of "Burke's Law" from CBS for the 1994-95 television
season.
In 1993, Laurel produced "The Stand," an eight-hour mini-series based
on one of Stephen King's best selling books, which was delivered to the ABC
network in December 1993 and is scheduled to air in May 1994. The Company has
recently received orders for two four hour mini-series from the ABC network,
one based on James Michener's novel, "Texas" and the other based on Stephen
King's novel, "The Langoliers." Laurel also produced a movie-for-television,
"Precious Victims," which aired on the CBS network in September 1993. As with
television series, the network license fees received for mini-series and
movies-for-television are normally less than the costs of production, and the
deficit must be covered by revenue from other markets, primarily through the
exploitation of international rights.
The Company had revenue from the Fox network in 1993, 1992 and 1991
representing 22%, 22% and 13% of revenue, respectively.
FIRST-RUN SYNDICATED PROGRAMMING
First-run syndicated television series are produced and sold directly to
television stations in the United States without any prior network broadcast.
These programs are licensed to individual or groups of television stations, on
a market by market basis, in contrast to network distribution, which provides
centralized access to a national audience.
In first-run snydication, the Company licenses its film product in
exchange for cash payments, advertising time (barter) or a combination of both.
In cash licensing, a broadcaster normally agrees to pay a fixed licensing fee
in one or more installments in exchange for the right to broadcast the product
a specified number of times over an agreed upon set period of time. Where
product is licensed in exchange for advertising time, through what are known as
"barter agreements," a broadcaster agrees to give the Company a specified
amount of advertising time,
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which the Company subsequently sells. Particularly in the initial years of
such programming revenue can be less than the Company's costs of producing
the programming.
Worldvision is currently marketing for first-run barter syndication 22
episodes each of two series, currently titled "Robin's Hoods" and "Heaven Help
Us," to be produced by Spelling Television. Worldvision has also begun to
market these programs to international television markets for cash license
fees. In first-run syndication, the Company retains greater control over
creative and production decisions than is the case with network programming;
however, there is a greater financial risk associated with such programming.
Fixed license fees paid by the networks usually cover approximately 75% of the
Company's production costs. Barter revenue is not fixed but is dependent on
achieving specific ratings in targeted demographic areas. If a show's ratings
are high, the advertising revenue received by the Company through its barter
arrangements could be substantial.
Laurel has produced for first-run syndication a movie-for-television, "The
Vernon Johns Story," starring James Earl Jones, and two television series,
"Tales From The Darkside" and "Monsters," both of which are anthology format
one-half hour programs. The libraries of 90 and 72 episodes of "Tales From The
Darkside" and "Monsters," respectively, represent a sufficient number of
episodes to permit repeat syndication. "Tales From The Darkside" is currently
licensed in the basic cable market by Worldvision.
FEATURE FILMS
The Company or certain of its employees act as producer or executive
producer for feature films. Because of the significant amounts of capital
required to finance the production and distribution of feature films, the
Company generally has not sought to finance feature films entirely on its own,
but rather has arranged for both financing and distribution from a major studio
or other third party. This strategy limits the financial risks and rewards
associated with any single film. The Company's potential
to realize profits from a successful motion picture is also limited since as a
producer it receives a fixed fee and only a contingent profit participation
after the film is released. The Company's aggregate receipts from profit
participations in the feature films it has produced have not been substantial
to date. See "Distribution" for the acquisition of international distribution
rights by SFI.
OTHER MARKETS
As noted above, network licensing fees and first-run syndication revenue are
normally less than the associated costs of production. As a result, successful
exploitation of the Company's television programming in other media and markets
is a key to the profitability of the Company's production activities.
Programming produced by the Company prior to its March 1989 acquisition of
Worldvision is distributed under various distribution
arrangements with third parties such
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as Warner Brothers or Twentieth Century-Fox. Distribution of product produced
subsequent to the acquisition has been handled primarily through Worldvision.
See "Distribution."
As of December 31, 1993, the Company had contractual agreements with licensees
covering film product which provide for approximately $145,000,000 in future
gross license fees (revenue), approximately half of which are expected to be
recognized after 1994.
DISTRIBUTION
Worldvision has been engaged in the distribution of filmed entertainment
for over thirty-five years, originally serving as the distribution arm of
the ABC network. Today, Worldvision is a leading worldwide distributor
for the Company and other independent producers, with rights to more than
4,000 hours of television programming available for domestic distribution
and more than 12,000 hours of television programming for international
distribution. Worldvision currently distributes such programming in 110
countries through offices in New York, Chicago, Atlanta, Los Angeles,
London, Paris, Rome, Toronto, Sydney, Tokyo and Rio de Janeiro.
SFI was formed in 1990 to engage in the international distribution of feature
films. SFI typically acquires all international distribution rights to such
films by agreeing to pay a guaranteed advance to the producer against the
producer's share of distribution receipts. Such advances are normally payable
by SFI upon completion and delivery of the films by the producers. SFI then
sells or licenses the films to various international subdistributors in each
territory in exchange for a guaranteed advance plus, in most cases, a share
of future profits. In certain international territories Worldvision handles
television and home video distribution of SFI's films. SFI has, on a limited
basis, developed feature film projects internally. SFI's revenue during 1993
was primarily generated by its distribution of "Short Cuts," directed by Robert
Altman, and "Shadowlands," starring Anthony Hopkins and Debra Winger.
ACQUIRING DISTRIBUTION RIGHTS
A substantial portion of Worldvision's revenue is derived from fees earned from
the distribution and licensing of television programming produced by the
Company. See "Production." In addition, since 1989, Worldvision has invested
approximately $150 million in the acquisition of distribution rights to film
product from third parties. Worldvision acquires the exhibition rights to film
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product through contracts with the producers or other owners of such product.
These contracts generally give Worldvision the exclusive distribution rights to
license an unlimited number of exhibitions of the film product over a period of
time, typically in excess of twenty years. Worldvision also acquires
distribution rights from third party producers through advances to such
producers which are recovered by Worldvision from revenue earned from
distribution. Usually Worldvision recovers its distribution fees, expenses
and advances before the producers or owners receive any additional proceeds.
As an example, Worldvision contributed certain funding to "Twin Peaks,"
a first-run network series aired by ABC during the 1989-90 and 1990-91
television seasons. Worldvision also advanced funds for thirteen episodes of
"Land of the Lost," aired by ABC during the 1992-93 season, and 52 half-hour
episodes of the animated first-run syndicated series "Camp Candy," featuring
the cartoon image of John Candy.
Worldvision has also funded the production of various home video projects,
including "Golf My Way" and "Golf My Way (II)," starring Jack Nicklaus. Over
350,000 units of these two programs have been distributed in the home video
market. Recently, Worldvision began acquiring domestic distribution rights to
made-for-video feature-length films. Films acquired for release in 1994 were
"Breaking Point," a suspense-thriller starring Gary Busey and Kim Cattrall;
"Crackerjack," featuring Thomas Ian Griffin, Nastassja Kinski and Christopher
Plummer; and "Bulletproof Heart" with Mimi Rogers and Anthony LaPaglia.
In September 1992, Worldvision purchased from Carolco Television Inc.
("Carolco") the domestic television rights to a library of more than 150
feature films, together with certain related receivables. The library includes
box-office hits such as "Terminator 2," "Basic Instinct," "the Rambo trilogy,"
"L.A. Story," "Red Heat," "Total Recall," "Platoon," "The Last Emperor" and
"Universal Soldier." Due to pre-existing licensing agreements covering these
films, Worldvision will not recognize significant revenue from the
exploitation of these rights until after 1996.
MARKETS
The Company generates revenue in addition to the revenue generated from
the initial network or first-run syndicated market by licensing its film
product in the following markets: (i) international television distribution,
(ii) domestic off-network distribution (repeat airings on domestic broadcast
television stations), (iii) worldwide cable and pay television, (iv) worldwide
home video and (v) worldwide licensing and merchandising.
INTERNATIONAL TELEVISION DISTRIBUTION. Demand for American-made film product
in international markets has increased in recent years due to the increase
in the number of television stations in those markets and, in some
territories, the privatization of the local television industry. The Company
typically begins to earn international television revenue from television
programming during the same season such programming is originally broadcast on
domestic television, or soon thereafter. Substantially all of the Company's
television programming is presently being distributed in international
television markets, including "Beverly Hills, 90210" and "Melrose Place,"
which are currently licensed in over seventy countries around the world.
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Television revenue from the distribution of feature films is normally delayed
until after the films have been exploited in the theatrical and home video
markets in each territory.
See "Governmental Regulation" for restrictions placed on exhibition of the
Company's film product in certain markets.
DOMESTIC OFF-NETWORK DISTRIBUTION. The profitability of the Company's network
television programming continues to depend substantially on its ability to
distribute such programming in the domestic syndication television market
after the initial network airing. However, in recent years the license fees
obtainable from this market have declined and are expected to continue to
decline, due in part to the increase in original programming available to
independent stations from the emergence of the Fox network and the increased
production of programming produced specifically for first-run syndication.
Expected revenue per episode in this market normally increases for
longer running series. In the Company's experience, a minimum of 65 episodes
(normally three seasons) is generally required to successfully market repeat
showings of a network series in the syndication market. Therefore, it is
important to produce series which are aired over at least several broadcast
seasons. Episodes from a network series normally become available for
off-network syndication distribution four or five years after the series'
initial network telecast.
In 1992, Worldvision began to market "Beverly Hills, 90210" for off-network
syndication telecast on a combined cash-and-barter basis for delivery in the
third quarter of 1994. The series "Vegas" and "Little House on the Prairie"
and several Worldvision feature film packages were aired in domestic repeat
syndication during 1993.
See also "Production - First-Run Syndicated Programming."
BASIC CABLE TELEVISION. Domestic basic cable television represents an
increasingly significant market for the Company's film product. The series
"Tales From The Darkside," "The Love Boat," "Hotel" and "HeartBeat," among
others, have been licensed to cable television systems. In the past,
licensing a program to a cable exhibitor generally only reduced the amount of
license fees that could be obtained from domestic off-network syndication
distribution; in recent years, cable exhibition has effectively developed as an
alternate market to domestic syndication. Cable exhibitors in some instances
have purchased rights to short-running television series which do not include
sufficient episodes to allow for traditional off-network syndication
distribution.
Cable television operations outside the U.S., while still in the early stages
of development in many countries, have also been growing rapidly. See
"Distribution - Spelling Satellite Networks" regarding the international cable
and satellite television operations conducted by the Company.
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HOME VIDEO. Worldvision also distributes the Company's film product in the
worldwide home video market, generally in the lower-priced sell-through
market. "Monsters," "Tales From The Darkside" and the two-hour pilot and an
episode of "Beverly Hills, 90210" have been successfully distributed in
the home video market. Additionally, the Company distributes third party film
product in this market. "Happily Ever After," an animated feature film, began
distribution in late 1993. Also, by paying a guaranteed advance, the Company
has acquired distribution rights for three films, "Breaking Point,"
"Crackerjack," and "Bulletproof Heart," which are intended for initial
domestic distribution in the home video market. Generally, the budget for
these pictures is under $2,000,000, and the Company puts up less than one-half
of the budget in exchange for all domestic rights.
LICENSING AND MERCHANDISING. Hamilton Projects merchandises products and
licenses music associated with the Company's television properties, including
"Beverly Hills, 90210," and "Melrose Place." Hamilton Projects is a full-
service licensing and merchandising company, providing strategic planning,
concept development and program execution to third parties, including those
outside the entertainment industry.
SPELLING SATELLITE NETWORKS (SSN)
SSN was formed in January 1993 to capitalize on the increased global demand for
American film product and the rapidly expanding technologies and exhibition
outlets in the cable and satellite arena. SSN launched its first cable
channel, TeleUNO, in March 1993. TeleUNO currently reaches more than two
million homes in Latin America, including Mexico, Argentina and Brazil.
TeleUNO generates revenue from both subscription fees and advertising through
multi-year contracts with cable operators throughout Latin America. TeleUNO
conducts its operations in association with Multivision, Mexico's largest
multi-point, multi-channel distribution systems (MMDS). The Company is
responsible for providing the film product which will air on the channel and
for all sales and marketing activities. Multivision is responsible for all
technical operations, including supplying the satellite transponder. The
Company and Multivision will share revenue generated through licensing of the
channel or sale of advertising on the channel. SSN is also currently exploring
the possibility of launching additional channels in partnership with
programmers or others in other markets around the world.
PROGRAMMING LIBRARY
The following tables provide a sampling of significant titles in the
programming library which contains more than 400 titles and over 12,000 hours
of programming to which the Company has certain distribution rights.
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TELEVISION SERIES:
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DISTRIBUTION
TITLE RIGHTS HELD (d)
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Beverly Hills, 90210 (a) (b) All
Melrose Place (a) (b) All
Twin Peaks All
The Love Boat (b) All
The Streets of San Francisco (a) (b) All
Barnaby Jones (b) All
The Fugitive (b) All
Little House on the Prairie (a) All TV
Dark Shadows All TV
General Hospital (a) International TV
All My Children (a) International TV
One Life to Live International TV
Dallas (a) International TV
Highway to Heaven International
Night Heat Domestic TV
The Stand (a) (b) All
Round Table (a) (b) All
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FEATURE FILMS:
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DISTRIBUTION
TITLE STARS RIGHTS HELD (d)
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Terminator 2 (c) Arnold Schwarzenegger, Linda Hamilton Domestic TV
Universal Soldier (c) Jean-Claude Van Damme, Dolph Lundgren Domestic TV
Total Recall (c) Arnold Schwarzenegger, Sharon Stone Domestic TV
Platoon (c) Willem DaFoe, Charlie Sheen Domestic Free TV
The Last Emperor (c) Peter O'Toole, John Lone, Joan Chen Domestic Free TV
Rambo Trilogy (c) Sylvester Stallone Domestic TV
Basic Instinct (c) Michael Douglas, Sharon Stone Domestic TV
Happily Ever After (a) Animated feature Domestic Home Video
Highlander II Sean Connery Domestic TV
Mr. and Mrs. Bridge Paul Newman, Joanne Woodward Domestic TV
My Stepmother is An Alien Dan Aykroyd, Kim Basinger Domestic TV
A Nightmare On Elm Street
- The Dream Master Robert Englund Domestic TV
Scandal John Hurt, Joanne Whalley-Kilmer Domestic TV
Pelle The Conqueror Max Von Sydow Domestic TV
My Left Foot Daniel Day-Lewis, Brenda Fricker Domestic TV
L.A. Story (c) Steve Martin, Victoria Tennant Domestic TV
The Running Man (b) Arnold Schwarzenegger All
Ironweed (b) Jack Nicholson, Meryl Streep All
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The Player Tim Robbins, Whoopi Goldberg International
Twin Peaks:
- Fire Walk With Me Sheryl Lee, Kyle MacLachlan International
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(a) These ten productions in the aggregate accounted for
approximately 53% of the Company's 1993 revenue.
(b) Represents programming owned by the Company.
(c) Acquired in the 1992 purchase of the Carolco film library.
(d) Distribution rights are for varying terms.
COMPETITION
The motion picture and television industry is highly competitive with
respect to access to the available literary properties, creative
personnel, talent, production personnel, television acceptance,
distribution commitments and financing which are essential to produce and
sell film product. Certain of the Company's competitors have greater
financial resources and more people engaged in the acquisition, development,
production and distribution of both television programming and feature films.
The Company's arrangements with the networks provide it with pilot, series and
movies-for-television commitments; however, the networks are under no
obligation to actually broadcast the Company's product. The Company's
successful domestic repeat syndication of a network series generally depends
upon the ratings achieved through network exhibition of such a series over a
number of years sufficient to generate a minimum of 65 episodes. In turn, the
Company's overall success in achieving multiple years of network exhibition of
a series is dependent upon factors such as the viewing public's taste (as
reflected in the ratings) and critical reviews. In addition, see the
discussion in "Government Regulation" regarding the relaxation of certain
government regulations which may permit the television networks to acquire
financial interests in, and syndication rights to, television programs.
The Company must continue to acquire distribution rights to television
programming and feature films to maintain its competitive position. In order
to acquire rights to distribute new third party film product, the Company may
be required to increase its advances to producers or to reduce its distribution
fees.
Licensing television programming to broadcasters and cable networks has also
become increasingly competitive as new products continually enter the
syndication market and certain producers attempt to develop an additional
network to distribute their product.
Likewise, SFI is competing with numerous well-financed, experienced companies
engaged in feature film production and international feature film distribution.
The Company's relative lack of experience and financial strength in
distributing feature films in the international market may hinder its ability
to compete effectively with companies which are more experienced and have
greater financial capabilities.
TRADEMARKS AND SERVICE MARKS
The Company or its subsidiaries own various United States federal trademark or
service mark registrations including SPELLING(R), BEVERLY HILLS, 90210(R),
MELROSE PLACE(R), and has applied for registration for numerous other marks
relating to its film product in the United States and foreign countries. The
Company or its subsidiaries own various foreign trademark or service mark
registrations or have applied for trademark or service mark registrations
include TELE UNO(R). Certain of the Company's trademark and service marks may
offer significant merchandising opportunities. See "Licensing and
Merchandising."
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GOVERNMENT REGULATION
The production and distribution of television programming by independent
producers is not directly regulated by the federal or state governments, but
the marketplace for television programming is substantially affected by
regulations of the Federal Communications Commission ("FCC") applicable to
television stations, television networks and cable television systems. The
FCC's syndicated program exclusivity rules affect the sale of programming to
commercial television stations, regional superstations, and cable networks.
Pursuant to these rules, commercial television stations can bargain for the
right to exclusive showing of programming within a 35-mile radius and to
require cable television systems with 1,000 or more subscribers to black out
showings of the same programming on certain television stations they carry in
order to preserve contracted exclusivity. The FCC also allows regional
superstations (such as WTBS in Atlanta and WGN in Chicago) and group owners to
purchase rights to programming on a nationwide basis. In addition, distributors
of syndicated programming may exercise such rights for a period of one year
after first licensing a particular syndicated program or package in areas where
that programming has not yet been licensed.
The Cable Television Consumer Protection and Competition Act of 1992 ("Cable
Act") prohibits certain unfair or discriminatory practices in the distribution
of satellite superstations or in the sale of satellite cable programming by
entities affiliated with cable operators. The Cable Act also strictly limits
entities affiliated with cable operators in offering exclusive contracts for
satellite cable programming or superstations. Furthermore, the Cable Act
prohibits certain coercive and discriminatory acts by cable operators and other
multichannel video program distributors against program vendors. In addition,
the Cable Act provides all commercial television stations with the right to
bargain for and withhold consent to the retransmission of their signals by
cable television systems, and certain local stations have the option to demand
carriage on cable systems. These provisions are subject to interpretation by
the FCC, and various entities have petitioned the Commission to reconsider
certain aspects of the rules it has adopted to enforce these requirements.
Moreover, judicial appeals relating to various aspects of these rules are
pending. Accordingly, the Company cannot predict the specific impact of the
Cable Act on its business.
In 1989, the twelve-member European Community ("EC") adopted a "directive"
that its member states ensure that more than 50% of the programming shown on
their television stations be European-produced "where practicable." These
guidelines could restrict the amount of American television programming and
feature films that are shown on European television. In the recently-concluded
General Agreement on Trade & Tariffs, the EC refused to make any commitment to
modify these guidelines or to refrain from adopting additional barriers.
Because of significant questions regarding the interpretation and enforcement
of the guidelines, the Company cannot predict what effect they may have on its
business. In addition, certain European countries have adopted individual
national restrictions on broadcasting of programming based on origin. Other
countries in which the Company distributes its programming may adopt similar
restrictions, which may have an adverse effect on its ability to distribute its
programs or create stronger incentives for the Company to establish ventures
with international firms.
12
<PAGE> 14
The effect of the foregoing regulations on the Company's operations cannot
be accurately assessed at this time.
In 1993, the FCC further relaxed its rules governing financial
interests in and syndication of programming by the broadcast television
networks (known as the "fin syn" rules). The relaxed rules still prohibit the
three largest broadcast networks from holding or acquiring financial interests
and syndication rights in any first-run non-network program or series they have
not solely produced; from domestically syndicating any prime time network
first-run non-network program; and from withholding a prime time network
program from syndication for more than a specified period. However, these
remaining restrictions on program syndication by the networks are set to expire
in November of 1995, and are currently the subject of judicial review. In
1993, a Federal district court vacated certain provisions of consent decrees
which prohibited television networks from acquiring financial interests and
syndication rights in television programming produced by non-network suppliers
such as the Company. The effect of the relaxed fin syn rules and the court's
action on the operations of the Company is as yet unclear; however, these
regulatory changes could have a material adverse effect on the operations of
the Company.
EMPLOYEES
At December 31, 1993, Spelling employed or had service agreements with
approximately 223 employees who are employed in administrative or other
positions which are relatively independent of the Company's current level of
production activities. In addition, the Company employs individuals for
particular production projects. As a result, the number of employees and
production project employees providing services to the Company can vary
substantially during the course of a year depending upon the number and
scheduling of its productions. The Company's union representation, wage scales
and fringe benefits follow prevailing industry standards.
Certain subsidiaries of the Company are signatories to collective
bargaining agreements relating to the various types of employees and
independent contractors required to produce television programming and feature
films. These employees include writers, directors, actors, musicians and studio
craftsmen. The following table sets forth the union contracts to which certain
Spelling subsidiaries are parties and the relevant expiration dates:
<TABLE>
<CAPTION>
Contract
Union Expiration Date
----- ---------------
<S> <C>
International Alliance of Theatrical
and Stage Employees (IATSE) . . . . . . . . . . . . . . July 31, 1996
Writers Guild of America . . . . . . . . . . . . . . . . . May 1, 1995
Screen Actors Guild . . . . . . . . . . . . . . . . . . June 30, 1995
American Federation of Musicians . . . . . . . . . . . February 15, 1996
Directors Guild of America . . . . . . . . . . . . . . . June 30, 1996
IATSE Videotape Agreement . . . . . . . . . . . . . . . (*)
</TABLE>
(*) Cancelable by either party subject to one year's notice.
13
<PAGE> 15
Although the Company considers all employee relations to be satisfactory at
present, the renewal of union contracts does not depend on its activities or
decisions alone. If the relevant union and the motion picture and television
industry were unable to come to a new agreement prior to these expiration
dates, any resulting work stoppage could adversely affect the Company's
production activities.
DISCONTINUED OPERATIONS
The Company, formerly known as The Charter Company, was engaged in petroleum
marketing operations, but in 1991 and 1992 sold substantially all of such
operations. Additional information relating to discontinued operations
including information regarding environmental contingencies is provided in the
accompanying financial statements (see Note 11).
PETROLEUM MARKETING. Revenue from the Company's petroleum marketing
operations had been derived primarily from sales of commercial grade fuel oils
such as residual fuel oil and other petroleum products. These operations were
conducted by its wholly-owned subsidiaries, New England Petroleum Corporation
("NEPCO") and Penndel Energy Corporation ("Penndel"). The major portion of
petroleum marketing sales was made under term and spot contracts for the sale
of residual fuel oil to electric utilities and other commercial customers.
During July and August 1992, the Company sold the "Penndel Group," consisting
of two subsidiaries and a terminal facility, for approximately $17.7 million in
cash. In December 1992 and January 1993, NEPCO's major utility supply
contracts were sold. These utility supply contacts comprised the remainder of
the Company's oil operations.
OIL PRODUCING CONCESSION. In April 1991, the Company completed the
sale of its 24.5% interest in an oil producing concession located in the
Persian Gulf (the "Concession") to two Concession partners. The Company
received approximately $23.9 million in cash, including the repayment of $6.1
million in advances made to the Concession in 1991.
MARKETING GROUP AND INVESTMENT IN CIRCLE K. In 1988, the Company sold
its Marketing Group of convenience stores to The Circle K Corporation ("Circle
K"), a former affiliate of the Company's former principal shareholder, for $130
million in cash plus preferred stock originally valued at $50 million. In
May 1990, Circle K and its principal subsidiaries filed for protection under
Chapter 11 of the United States Bankruptcy Code ("Chapter 11") and suspended
dividends on its preferred stock held by the Company.
14
<PAGE> 16
ITEM 2. PROPERTIES
The Company leases office space of approximately 51,000 square feet in Los
Angeles and 63,000 square feet in New York. In addition, the Company leases
offices in other cities in the United States and in various other countries
throughout the world in connection with its international distribution
activities. The Company also rents facilities on a short-term basis for the
production of its film product, including a facility in Vancouver, British
Columbia. Management believes comparable space is readily available should
any lease expire without renewal.
ITEM 3. LEGAL PROCEEDINGS
The Company has become subject to various lawsuits, claims and other legal
matters in the course of conducting its business. The Company believes such
lawsuits, claims and other legal matters should not have a material adverse
effect on the Company's consolidated results of operations or financial
condition.
In September 1993, five purported class action lawsuits were filed in the
Delaware Chancery Court against the Company, Republic, BEC and the members of
the Board of Directors of Republic. The complaints seek preliminary and
permanent injunctive relief against BEC's offer for acquisition and damages
caused to Republic's public stockholders. On March 24, 1994, all parties to the
litigation entered into a Memorandum of Understanding that contemplates the
negotiation of a definitive settlement agreement and a hearing pursuant to the
Delaware Chancery Court Rules to consider the fairness of the settlement. At
such hearing, attorneys for the plaintiff class will apply for fees and
expenses in an amount not to exceed $225,000, and defendants will not oppose
such application.
The Company is also involved in a number of legal actions including threatened
claims, pending lawsuits and contract disputes, environmental clean-up
assessments, damages from alleged dioxin contamination and other matters. While
the outcome of these suits and claims cannot be predicted with certainty, the
Company believes based upon its knowledge of the facts and circumstances and
applicable law that the ultimate resolution of such suits and claims will not
have a material adverse effect on the Company's results of operations or
financial condition. This belief is also based upon allowances that have
been established for estimated losses on disposal of former operations and
remaining Chapter 11 disputed claims, and an insurance-type indemnity agreement
which covers up to $35,000,000 of certain such liabilities in excess of a
threshold amount of $25,000,000, subject to certain adjustments. Substantial
portions of such allowances are intended to cover environmental costs
associated with the Company's former operations. See Note 11 for information
regarding the environmental and remaining Chapter 11 contingencies relating to
the Company's discontinued operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders.
______________________________________________
15
<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York and Pacific Stock
Exchanges under the symbol SP. The table below sets forth the high and low
sales prices for the Common Stock as reported on the Composite Tape.
<TABLE>
<CAPTION>
1993 1992
--------------- --------------
Quarter Low High Low High
------- ----- ------ ----- -----
<S> <C> <C> <C> <C>
First $5.63 $ 7.13 $6.75 $8.63
Second 4.75 6.75 6.63 7.50
Third 6.00 10.00 6.75 8.00
Fourth 8.50 10.38 5.13 7.38
</TABLE>
The number of holders of record of the Company's Common Stock as of
March 25, 1994, was approximately 64,605,268. In the fourth quarter of 1991,
the Company declared and paid an annual cash dividend of $.05 per common share.
In the first quarter of 1992, the Company began paying quarterly cash
dividends of $.02 per common share. There are no restrictions that materially
limit the Company's ability to pay dividends.
16
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain data for the years ended December 31
(in thousands, except per share data):
<TABLE>
<CAPTION>
1993 1992(a) 1991(a) 1990 1989
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
- ----------------------
Revenue from continuing
operations $274,899 $257,546 $122,748 $ -- $ --
======== ======== ======== ======== ========
Operating income $ 39,727 $ 25,315 $ 8,833 $ -- $ --
======== ======== ======== ======== ========
Net income (loss) from:
Continuing operations $ 23,659 $ 7,917 $ 636 $ (1,769) $ (2,112)
Discontinued operations (3,971) (2,043) 7,369 2,553 5,109
Extraordinary items (2,022) 3,948 4,959 242 2,336
-------- -------- --------- -------- --------
Net income $ 17,666 $ 9,822 $ 12,964 $ 1,026 $ 5,333
======== ======== ======== ======== ========
Net income (loss) per
common share:
Continuing operations(b) $ 0.42 $ 0.15 $ -- $ (0.05) $ (0.06)
Discontinued operations (0.07) (0.04) 0.16 0.05 0.11
Extraordinary items (0.04) 0.08 0.11 -- 0.05
-------- -------- --------- -------- --------
Net income $ 0.31 $ 0.19 $ 0.27 $ -- $ 0.10
======== ======== ======== ======== ========
Balance Sheet Data:
- -------------------
Total assets $474,471 $451,661 $389,904 $216,339 $249,867
Long-term debt 49,580 109,915 77,143 21,573 22,793
Shareholders' equity 297,854 197,560 150,683 141,681 149,536
Cash dividends per
common share 0.08 0.08 0.05 0.05 0.05
</TABLE>
(a) Due to the acquisition of SEI in the second quarter of 1991, amounts are
not comparable to prior years.
(b) Per share amounts are calculated after preferred dividends of $810,000,
except for 1993 which is $724,000.
17
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements of the Company and the related Notes.
BUSINESS COMBINATIONS AND ACQUISITIONS
The Company makes its decisions to acquire or invest in businesses based
on financial and strategic considerations. The Company may from time to
time invest in or acquire businesses or assets in addition to those described
below.
In May 1991, the Company acquired ownership of approximately 82% of the
common stock of SEI for approximately $166,800,000 in cash and $22,745,000
principal amount of ten-year notes. This acquisition was accounted for using
the purchase method of accounting and, accordingly, the operations of SEI
have been included in the Company's financial statements from the date of
acquisition. In July 1992, the Company acquired the remaining minority
interest (see Note 2).
In December 1991, the Company acquired Hamilton Projects and ownership of
certain television programming, and received $24,000,000 in cash, in exchange
for its distribution rights to Hanna-Barbera's animated programming (see
Note 2).
In September 1992, the Company purchased from Carolco domestic television
distribution rights for more than 150 feature films, together with certain
18
<PAGE> 20
related receivables. The purchase price for these assets included
$50,000,000 in cash and the assumption of approximately $14,000,000
in related liabilities. The cash portion of the purchase price was
funded through SEI's bank facility (see Notes 3 and 4).
In September 1993, the Company and Republic entered into an
agreement in principle pursuant to which the Company agreed to
acquire by merger all of the outstanding shares of common stock of
Republic for $13 per share in cash, including the approximate
35% interest in Republic held by BEC. Additionally, certain options
to acquire Republic common stock will be converted into options to
acquire the Company's Common Stock. In December 1993, the Company
and Republic entered into a definitive agreement covering the Republic
Merger, which is expected to be consummated in the second quarter of 1994.
The aggregate cash payments to the shareholders of Republic will be
approximately $100,000,000, which will be funded through borrowings under
the Company's credit arrangements with BEC (see Note 4 and "Financial
Condition" below).
RESULTS OF CONTINUING OPERATIONS
The results of operations for any period are significantly affected by the
quantity and performance of the Company's film product which is licensed
to, and available for exhibition by, licensees in various media and
territories. Consequently, results of operations may vary significantly
between periods, and the results of operations in any one period may not be
indicative of results of operations in future periods.
The success of the Company's business depends, in part, upon the network
exhibition of its television series over several years to allow for more
profitable licensing and syndication arrangements. During the initial years of
a television series, network and international license fees normally
approximate the production costs of the series, and accordingly the Company
recognizes only minimal profit or loss during this period. If a sufficient
number of episodes of a series are produced, the Company is reasonably assured
that it will also be able to sell the series in the domestic off-network
market, and the Company would then expect to be able to realize a more
substantial profit with respect to the series.
The Company's business in general may also be affected by the public
taste, which is unpredictable and subject to change, and by conditions within
the filmed entertainment industry, including, but not limited to, the quality
and availability of creative talent and the negotiation and renewal of union
contracts relating to writers, directors, actors, musicians and studio
craftsmen as well as any changes in the law and governmental regulation. In
1993, a Federal district court vacated certain provisions of consent decrees
which prohibited television networks from acquiring financial interests and
syndication rights in television programming produced by non-network suppliers
such as the Company. Accordingly, subject to certain restrictions imposed by
the Federal Communications Commission, the networks will be able to negotiate
with program suppliers to acquire financial interests and syndication rights in
television programs that air on the networks and therefore could become
competitors of the Company.
The following paragraphs discuss significant items in the Consolidated
Statements of Operations for the three years ended December 31, 1993.
REVENUE
The following table sets forth the components of revenue from
the Company's major markets
19
<PAGE> 21
for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991*
-------- -------- --------
<S> <C> <C> <C>
Network $ 91,501 $ 90,024 $ 34,372
Home video 27,949 13,788 5,691
International film distribution 15,955 20,979 --
Licensing and merchandising 16,956 16,090 2,555
Other distribution 122,538 116,665 80,130
-------- -------- --------
$274,899 $257,546 $122,748
======== ======== ========
</TABLE>
* Includes only the eight months following the acquisition of SEI.
Network revenue remained at approximately the same level in 1993 as in
1992, as opposed to the significant increase in such revenue in 1992. In 1993,
the Company delivered fewer hours of programming than in 1992, but the effect
of this decrease was offset by an increase in the average license fee per hour
or episode of programming. The increase in 1992 was attributable to (i) the
fact that the results of operations include SEI's operations for only eight
months in 1991 as compared to 12 months in 1992; and (ii) the delivery of
additional programming in 1992.
20
<PAGE> 22
Network revenue in all three periods included license fees attributable
to "Beverly Hills, 90210." The license fees from "Melrose Place" began in the
fall of 1992. Both of these series have been ordered by the Fox network for the
1994/1995 season, and "Beverly Hills, 90210" is also expected to be released in
the domestic off-network marketplace in the fall of 1994. The Company has
received orders for two new series, "Burke's Law" (13 episodes) and
"Winnetka Road" (six episodes), for the current season, as well as an order for
two four hour mini-series, one based on James Michener's novel "Texas" and
the other based on Stephen King's novel "The Langoliers." The CBS
network has also ordered an additional 13 episodes of "Burke's Law" for the
1994/1995 season.
Home video revenue increased $14,161,000 or 103%, in 1993 as compared
to 1992. This increase was primarily due to the distribution of "Happily Ever
After," an animated feature film, and the international licensing of "The
Stand." The increase in such revenue in 1992 was $8,097,000, or 142%, as
compared to 1991, primarily due to (i) the significant efforts by the Company to
increase its presence in the home video distribution market, and (ii) the fact
that SEI's operations were only included for eight months in 1991.
International film distribution revenue decreased $5,024,000, or 24%,
in 1993 as compared to 1992. During 1993, the Company delivered two feature
films, "Short Cuts" and "Shadowlands," as compared to four during 1992,
including "The Player." There were no comparable distribution activities in
1991.
Licensing and merchandising revenue remained relatively constant in
1993, but increased $13,535,000 or 530%, in 1992 as compared to 1991. The
increase from 1991 to 1992
21
<PAGE> 23
was primarily due to the successful licensing of "Beverly
Hills, 90210," and the acquisition of Hamilton Projects in December 1991.
Other distribution revenue includes revenue from the licensing of the
Company's extensive library of feature films and television programming in
worldwide free and pay television markets other than domestic network
television. The revenue from these markets remained relatively stable
between 1993 and 1992. The increase between 1992 and 1991 was primarily due to
the inclusion of SEI's operations for only eight months in 1991. Generally,
the future growth in these markets is expected to occur in the international
area rather than the domestic market; see Item 1. "Business - Distribution."
FILM AND TELEVISION COSTS
Film and television costs consist primarily of the amortization of
capitalized product costs and the accrual of third party participations and
residuals. Such costs in 1993 increased $4,457,000, or 2%, as compared to
1992, primarily as a result of the overall increase in revenue in 1993,
although the percentage relationship between such costs and the related revenue
decreased to 73% in 1993 from 76% in 1992. Such costs increased $106,924,000,
or 119%, in 1992 as compared to 1991; this increase also resulted primarily
from the increases in the Company's revenue. Additionally, the percentage
relationship between these costs and the related revenue increased from 73% in
1991 to 76% in 1992. This percentage relationship is a function of (i) the
mix of film product generating revenue in each period and (ii) changes in the
projected profitability of individual film product based on the Company's
estimates of such product's ultimate revenue and costs.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative costs in 1993 decreased $1,516,000,
or 4%, as compared to 1992. This decrease primarily resulted from a decrease
in management fees charged to the Company by the Company's former principal
shareholder in
22
<PAGE> 24
1993 following BEC's acquisition of a majority interest in the Company.
Selling, general and administrative costs in 1992 increased $11,392,000, or
48%, as compared to 1991, primarily due to the inclusion of SEI's costs for
only the last eight months of 1991 as compared to a full twelve months for
1992. In addition, a subsidiary recorded a nonrecurring gain from the
relocation of its offices in 1991.
INTEREST INCOME
Interest income increased $1,347,000 in 1993 as compared to 1992, following an
increase of $890,000 in 1992 as compared to 1991. These increases were
principally due to the amortization of discount on receivables acquired from
Carolco for the full year 1993 and from the date of acquisition in 1992.
INTEREST EXPENSE
Interest expense in 1993 decreased $2,019,000, or 20%, despite the Company's
increased level of borrowings during the first three quarters of 1993. This
decrease was primarily due to (i) the lower effective interest rates during
the year and (ii) the repayment or redemption of a substantial amount of the
Company's debt during the fourth quarter of 1993 (see Note 4 and "Financial
Condition" below). Interest expense increased $2,890,000, or 41%, in 1992 due
to the Company's increased level of borrowings during the year. The Company's
borrowings will increase in 1994 as a result of the amounts borrowed to fund
the aquisition of Republic (see Note 15).
MINORITY INTEREST
During 1992 the Company had minority interest expense of $1,327,000 related to
the earnings of SEI for the period up to the date of the Company's acquisition
of the minority interest. In 1991 the similar charge was $932,000. There was no
23
<PAGE> 25
such charge in 1993.
PROVISION FOR INCOME TAXES
During 1993, the Company's provision for income taxes increased $3,871,000, or
42%, over the provision in 1992. This increase was primarily due to the
increase in pre-tax income in 1993, as described in the foregoing paragraphs.
The effective tax rate decreased significantly in 1993, largely as a result of
the effect of a reduction in the valuation allowance against the realizability
of certain tax loss and credit ("tax attribute") carryforwards. Tax benefits
from the utilization of certain tax attribute carryforwards in 1992 and
1991 were recorded as extraordinary items under then applicable accounting
rules. (See Note 10).
The Company adopted Statement of Financial Accounting Standards No. 109
("SFAS 109") effective January 1, 1993. The cumulative effect of adopting SFAS
109 was not material.
During 1992, the provision for income taxes increased by $6,350,000, or
224%, as compared to 1991. This increase is primarily due to the increase in
pre-tax income, partially offset by a decrease in the overall effective tax
rate for the year, as a result of the reduced effect of non-deductible
intangible expenses.
24
<PAGE> 26
DISCONTINUED OPERATIONS
The Company, formerly known as The Charter Company, was engaged in petroleum
marketing operations, but in 1991 and 1992 sold substantially all of the
remaining such operations. (See Note 11.)
In April 1991, the Company completed the sale of its interest in an oil
producing concession to two of its partners in the concession. The Company
recognized a net gain of $8,848,000 after a provision for income taxes of
$4,556,000.
During July and August 1992, the Company sold two subsidiaries and a terminal
facility. In December 1992 and January 1993, the Company sold its remaining
utility supply contracts. No material gain or loss resulted from the overall
disposition of these operations. The Company continues to sell the few
remaining assets of the discontinued operations whenever possible and to
settle remaining obligations associated with the discontinued operations.
The financial position of discontinued operations is presented in the Balance
Sheets under the caption "Net liabilities related to discontinued operations."
Included in such amounts are certain allowances for estimated losses on
disposal of the remaining oil operations and disputed claims relating to the
reorganization in 1986 under Chapter 11 of the Bankruptcy Code. These
allowances totaled approximately $29,621,000 and $30,587,000 at December 31,
1993 and 1992, respectively. See Note 11 regarding the insurance-type
indemnity agreement the Company entered into in early 1993 which covers up to
$35,000,000 in such claims over a threshold of $25,000,000.
The Company is involved in a number of legal actions including threatened
claims, pending lawsuits and contract disputes, environmental clean-up
assessments, damages from alleged dioxin contamination and other matters. Some
of the parties involved in such actions seek significant amounts of damages.
While the outcome of these suits and claims cannot be predicted with certainty,
the Company believes based upon its knowledge of the facts and circumstances
and applicable law that the ultimate resolution of such suits and claims will
not have a material adverse effect on the Company's results of operations or
financial condition. This belief is also based upon allowances that have been
established for estimated losses on disposal of former operations and remaining
Chapter 11 disputed claims and an insurance-type indemnity agreement which
covers up to $35,000,000 of certain such liabilities in excess of a threshold
amount of $25,000,000, subject to certain adjustments. Substantial portions of
such allowances are intended to cover environmental costs associated with the
Company's former operations.
Although there are significant uncertainties inherent in estimating
environmental liabilities, based upon the Company's experience it is considered
unlikely that the amount of possible environmental liabilities and Chapter 11
disputed claims would exceed the amount of the allowances by more than $50
million.
In 1993, the Company had a net loss from discontinued operations of $3,971,000
after an income tax benefit of $2,529,000. This loss resulted primarily from
the premium paid for the insurance-type indemnity described above.
25
<PAGE> 27
EXTRAORDINARY ITEMS
In connection with the early extinguishment of certain indebtedness, the
Company in 1993 recorded an extraordinary loss of $2,022,000 (net of a tax
benefit of $1,287,000) from the write-off of unamortized discount and debt
issuance costs relating to such debt. During 1992 and 1991, the Company had
extraordinary income of $3,948,000 and $4,572,000, respectively, from tax
benefits relating to utilization of certain tax attribute carryforwards; a
similar benefit in 1993 was included in the Company's provision for income
taxes in accordance with the provisions of SFAS 109.
FINANCIAL CONDITION
The Company's operations require the production of film product and the
acquisition of rights to distribute film product produced by others. The
Company's expenditures in this regard totalled $150,648,000 and $154,607,000
in 1993 and 1992, respectively. The cost of producing network television
programming is largely funded through the receipt of the related network
license fees. The cost of other production and acquisition activities is
funded through the Company's operating cash flow and borrowings under its
various credit arrangements.
In connection with the Republic Merger, the Company in October 1993 issued
13,362,215 shares of the Company's Common Stock to BEC in exchange for
3,652,542 shares of BEC common stock. The BEC shares were subsequently resold,
with the Company realizing approximately $100,445,000 in proceeds.
The Company subsequently used these proceeds to prepay or redeem (i) all of
the outstanding principal amount of its 10% Senior Subordinated Notes and 12%
Subordinated Debentures, (ii) approximately $39,500,000 of SEI's bank debt and
(iii) all of its outstanding Preferred Stock. (See Notes 4 and 6). As a
result, the Company will borrow under its credit facilities to fund the
completion of the Republic Merger in the second quarter of 1994.
26
<PAGE> 28
In January 1994, the Company terminated its existing bank credit agreement and
entered into a three-year credit agreement with BEC (the "BEC Facility") (see
Note 4). The BEC Facility provides for a three-year term loan facility of
$100,000,000 to fund the Company's acquisition of Republic and a revolving
credit facility of $75,000,000 to fund the Company's working capital and other
requirements. The entire amount outstanding under the BEC Facility may be
accelerated if BEC's indebtedness is accelerated by its banks. The events which
might result in such an acceleration include the consummation of BEC's merger
with Viacom (see Note 15) without the receipt of a waiver from BEC's banks.
The Company has not been informed as to whether such waiver will be granted by
BEC's lenders. However, the Company is currently exploring and believes it can
obtain credit arrangements with third parties under terms and conditions which
are not materially different from those contained in the BEC Facility.
The Company believes that its financial condition remains strong and that
it has the financial resources necessary to meet its anticipated capital
requirements. In addition to cash provided by operating activities, and the
issuance of Common Stock, the Company has sufficient resources available under
its credit facility to meet its ongoing plans for the production and acquisition
of film product and to take advantage of internal and external development and
acquisition opportunities.
INFLATION
The Company anticipates that its business will be affected by general economic
trends. During a period of high inflation, the Company believes that if costs
increase, it should be able to pass such increases on to its customers.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits," and SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 112 will not
have an effect on the Company's results of operations or financial condition
because the Company does not provide such benefits. However, the adoption of
SFAS No. 115 will require the Company to adjust the carrying value of a common
stock investment to fair market value with a corresponding adjustment to its
Shareholders' Equity (see Note 1).
27
<PAGE> 29
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants -
Year Ended December 31, 1993 29
Report of Independent Auditors -
Years Ended December 31, 1992 and 1991 30
Consolidated Balance Sheets:
December 31, 1993 and 1992 31
Consolidated Statements of Operations:
Years ended December 31, 1993, 1992 and 1991 32
Consolidated Statements of Changes in Shareholders' Equity:
Years ended December 31, 1993, 1992 and 1991 33
Consolidated Statements of Cash Flows:
Years ended December 31, 1993, 1992 and 1991 34
Notes to Consolidated Financial Statements 35
"Selected Quarterly Financial Data" has been included
in Note 13 to the Consolidated Financial Statements
</TABLE>
28
<PAGE> 30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO SPELLING ENTERTAINMENT GROUP INC.
We have audited the accompanying consolidated balance sheet of Spelling
Entertainment Group Inc. (a Florida Corporation) and subsidiaries as of
December 31, 1993, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the year then ended. These financial
statements and the schedules for the year ended December 31, 1993 listed in the
index at Item 14(a) are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
schedules based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Spelling Entertainment Group
Inc. and subsidiaries as of December 31, 1993, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedules for the year ended December 31, 1993
listed in the index at Item 14(a) are presented for purposes of complying with
the Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN & CO.
Los Angeles, California
February 1, 1994
29
<PAGE> 31
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS
SPELLING ENTERTAINMENT GROUP INC.
We have audited the accompanying consolidated balance sheet of Spelling
Entertainment Group Inc. and subsidiaries (formerly The Charter Company) as of
December 31, 1992 and the related consolidated statements of operations,
changes in shareholders' equity, and cash flows for each of the two years in
the period ended December 31, 1992. Our audits also included the financial
statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Spelling Entertainment Group Inc. and subsidiaries at December 31, 1992, and
the consolidated results of their operations and their cash flows for each of
the two years in the period ended December 31, 1992, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
ERNST & YOUNG
Cincinnati, Ohio
March 19, 1993
30
<PAGE> 32
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31,
----------------------------
1993 1992
------------ -----------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 12,682 $ 36,117
Accounts receivable, net 93,242 65,736
Film and television costs, net 204,232 179,171
Property, plant and equipment, net 4,770 4,834
Other assets 4,562 6,512
Intangible assets, net 154,983 159,291
-------- --------
$474,471 $451,661
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable, accrued expenses and other liabilities $ 13,275 $ 20,211
Accrued participation expense 57,547 89,261
Deferred revenue 14,425 11,278
Bank and other debt 49,580 109,915
Income taxes 8,121 -
Net liabilities related to discontinued operations 33,669 23,436
-------- --------
TOTAL LIABILITIES 176,617 254,101
-------- --------
Commitments and contingent liabilities
Shareholders' Equity:
Preferred Stock (at liquidation value) - 9,000
Common Stock, $.10 par value,
-200,000,000 shares authorized
-64,504,838 and 50,841,392 shares outstanding 6,450 5,084
Capital in excess of par value 342,824 242,279
Accumulated deficit (51,420) (58,803)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 297,854 197,560
-------- --------
$474,471 $451,661
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
31
<PAGE> 33
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1993 1992 1991
-------- --------- ---------
<S> <C> <C> <C>
CONTINUING OPERATIONS:
Revenue $274,899 $ 257,546 $ 122,748
Costs and Expenses:
Film and television costs 201,449 196,992 90,068
Selling, general and administrative 33,723 35,239 23,847
-------- --------- ---------
235,172 232,231 113,915
-------- --------- ---------
Operating Income 39,727 25,315 8,833
Interest income 4,808 3,461 2,571
Interest expense (7,872) (9,891) (7,001)
Minority interest - (1,327) (932)
Other, net 52 (456) -
-------- --------- ---------
Income from continuing operations
before income taxes 36,715 17,102 3,471
Provision for income taxes 13,056 9,185 2,835
-------- --------- ---------
Income from continuing operations 23,659 7,917 636
Income (loss) from discontinued operations, net (3,971) (2,043) 7,369
-------- --------- ---------
Income before extraordinary items 19,688 5,874 8,005
Extraordinary items, net (2,022) 3,948 4,959
-------- --------- ---------
Net Income 17,666 9,822 12,964
Preferred dividends 724 810 810
-------- --------- ---------
Net income applicable to Common Stock $ 16,942 $ 9,012 $ 12,154
======== ========= =========
Average number of Common Shares 54,253 47,789 45,260
======== ========= =========
Net income (loss) per Common Share:
Continuing operations $ 0.42 $ 0.15 $ -
Discontinued operations (0.07) (0.04) 0.16
Extraordinary items (0.04) 0.08 0.11
-------- --------- ---------
Net income per Common Share $ 0.31 $ 0.19 $ 0.27
======== ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
32
<PAGE> 34
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
Capital
Common Stock in Excess Accumu- Total
Preferred ---------------------- of Par lated Shareholders'
Stock Number Par Value Value Deficit Equity
--------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1990 $ 9,000 45,560,392 $ 4,556 $201,970 $(73,845) $ 141,681
Shares repurchased and retired - (400,000) (40) (1,480) - (1,520)
Exercise of options - 150,100 15 619 - 634
Cash dividends paid or accrued:
Preferred Stock - - - - (810) (810)
Common Stock - - - - (2,266) (2,266)
Net Income - - - - 12,964 12,964
Other - 11,271 1 (1) - -
-------- ---------- ------- --------- -------- ---------
Balance December 31, 1991 9,000 45,321,763 4,532 201,108 (63,957) 150,683
SEI Merger - 5,842,729 584 43,236 - 43,820
Shares repurchased and retired - (474,400) (47) (2,706) - (2,753)
Exercise of options - 113,200 11 405 - 416
Cash dividends paid or accrued:
Preferred Stock - - - - (810) (810)
Common Stock - - - - (3,858) (3,858)
Net Income - - - - 9,822 9,822
Other - 38,100 4 236 - 240
-------- ---------- ------- --------- -------- ---------
Balance December 31, 1992 9,000 50,841,392 5,084 242,279 (58,803) 197,560
Preferred Stock redemption (9,000) - - - - (9,000)
Exercise of options - 301,231 30 1,436 - 1,466
Issuance of stock - 13,362,215 1,336 99,109 - 100,445
Pension liability adjustment, net - - - - (5,217) (5,217)
Cash dividends paid or accrued:
Preferred Stock - - - - (724) (724)
Common Stock - - - - (4,342) (4,342)
Net Income - - - - 17,666 17,666
-------- ---------- -------- --------- -------- ---------
Balance December 31, 1993 $ - 64,504,838 $ 6,450 $ 342,824 $(51,420) $297,854
======== ========== ======= ========= ======== =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
33
<PAGE> 35
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------
1993 1992 1991
-------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,666 $ 9,822 $ 12,964
Adjustments to reconcile net income to
cash flows from operating activities:
Depreciation and amortization 4,855 3,942 5,007
Amortization of film and television costs 116,066 104,298 39,224
Additions to film and television costs (150,648) (154,607) (66,421)
Gain on sale of oil concession - - (13,404)
(Gain) loss on extinguishment of debt 3,309 - (587)
Decrease (increase) in accounts receivable (11,257) (32,327) 1,710
Increase in petroleum inventories - - (3,535)
Increase (decrease) in accounts payable,
accrued expenses and other liabilities 1,211 (10,084) 17,463
Increase (decrease) in accrued participation
expense (34,015) 22,781 5,517
Increase (decrease) in deferred revenue 3,147 (61) 2,594
Other, net 917 7,934 6,029
-------- -------- ---------
(48,749) (48,302) 6,561
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of SEI, net of cash acquired - - (144,253)
Sale of oil properties - 17,725 17,833
Sale of distribution rights - - 24,000
Purchases of property, plant and equipment (966) (849) (5,754)
Sales of property, plant and equipment and
other assets - - 4,498
Changes in net liabilities
related to discontinued operations 1,653 4,539 (1,065)
-------- -------- ---------
687 21,415 (104,741)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reductions to bank and other debt (106,218) (44,440) (34,565)
Additions to bank and other debt 43,000 76,930 18,000
Cash dividends paid on Common and Preferred Stock (5,066) (4,668) (3,076)
Issuances of Common Stock 101,911 416 634
Purchases of Common Stock - (2,753) (1,520)
Redemption of Preferred Stock (9,000) - -
-------- -------- ---------
24,627 25,485 (20,527)
-------- -------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (23,435) (1,402) (118,707)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 36,117 37,519 156,226
-------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,682 $ 36,117 $ 37,519
======== ======== =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
34
<PAGE> 36
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated financial statements present the
consolidated financial position and results of operations of Spelling
Entertainment Group Inc. and subsidiaries (the "Company" or "Spelling"). All
material intercompany accounts and transactions have been eliminated. Certain
reclassifications have been made to prior periods to conform to the current
year's presentation.
In May 1991, the Company acquired ownership of approximately 82% of the
common stock of Spelling Entertainment Inc. ("SEI"). The acquisition of SEI has
been accounted for as a purchase, and, accordingly, the results of SEI's
operations since its acquisition are included in the accompanying consolidated
financial statements (see Note 2). In July 1992 the Company acquired the
remaining minority interest.
Until March 31, 1993 American Financial Corporation and subsidiaries
("AFC") owned 24,594,215 shares (48%) of the Company's common stock, $.10 par
value ("Common Stock"), and 9,000 shares (100%) of the preferred stock, $.10 par
value ("Preferred Stock"); at that date, AFC sold the shares of Common Stock
to Blockbuster Entertainment Corporation ("BEC"). Subsequently, BEC increased
its ownership to 45,658,640 shares (approximately 70.5%) of the Company's
Common Stock during 1993. (See Note 7).
CASH AND CASH EQUIVALENTS. Cash equivalents consist of interest-bearing
securities with original maturities of less than ninety days.
ACCOUNTS RECEIVABLES, NET. Accounts receivable are net of allowance of
$4,983,000 and $3,974,000 at December 31, 1993 and 1992, respectively.
ACCOUNTING FOR FILM AND TELEVISION COSTS. Film and television costs
include production or acquisition costs (including advance payments to
producers), capitalized overhead and interest, prints and advertising expected
to benefit future periods. These costs are amortized, and third party
participations and residuals are accrued, on an individual product basis in the
ratio that current year gross revenue bears to estimated future gross revenue.
Film and television costs are stated at the lower of cost less amortization or
estimated net realizable value on an individual film product basis. Estimates
of total gross revenue, costs and participations are reviewed quarterly and
revised as necessary. When estimates of total revenue and costs indicate that a
television program or feature film will result in an ultimate loss, additional
amortization is provided to fully recognize such loss in that period.
PROPERTY, PLANT AND EQUIPMENT, NET. The carrying values of property, plant and
equipment are based on cost, and provision for depreciation is made principally
on the straight-line method over estimated useful lives. Property, plant and
equipment are net of accumulated depreciation of $5,003,000 and $4,828,000 at
December 31, 1993 and 1992, respectively.
OTHER ASSETS. Included in other assets is a common stock investment at a
carrying value (at cost) of $1,963,000 at December 31, 1993. The fair value
of such investment, based on the closing over-the-counter market price on
December 31, 1993, was $20,797,000. It is not clear that the Company could
realize such a value if the investment were to be sold due to the relatively
low trading volume of such shares relative to the number of shares owned by
the Company. The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which will be effective in
1994. This statement will require the Company to adjust the carrying value of
this asset, which will be classified as "available for sale" under the
applicable provisions of SFAS No. 115, to fair market value with a
corresponding adjustment to Shareholders' Equity.
INTANGIBLE ASSETS, NET. Intangible assets represent the acquisition cost of
SEI in excess of the market value of its identified net assets. This cost is
being amortized on a straight-line basis over 40 years. Amortization expense
relating to such intangible assets was $3,825,000, $4,086,000 and $2,626,000
for the years ended December 31, 1993 and 1992, and the eight months ended
December 31, 1991, respectively. Intangible assets are net of accumulated
amortization of $10,527,000 and $6,713,000 at December 31, 1993 and 1992,
respectively.
35
<PAGE> 37
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DEFERRED REVENUE. A substantial portion of the network license fees related to
television programming are received prior to the time the programming is
completed or delivered to the network. Such fees, and other fees received prior
to the time that the related television programming or feature film
(collectively, "film product") is available to the licensee, are recorded on
the balance sheet as deferred revenue. Such amounts are normally repayable by
the Company only if it fails to deliver the related film product to the
licensee.
REVENUE RECOGNITION. Revenue from licensing agreements covering film product
owned by the Company is recognized when the film product is available to the
licensee for telecast, exhibition or distribution, and other conditions of the
licensing agreements have been met. Long-term noninterest-bearing receivables
arising from such agreements are discounted to present value. Revenue from
television distribution of film product which is not owned by the Company is
recognized when billed.
Revenue from direct home video distribution is recognized, net of an
allowance for estimated returns, together with related costs, in the period in
which the product is available for rental or sale by the Company's customers.
ACCOUNTING FOR ENVIRONMENTAL MATTERS. The allowances for estimated losses on
disposal and disputed claims reported in Note 11 include accruals for
environmental liabilities, including anticipated remediation costs of
properties held for sale. Such accruals are determined independently of
the estimated net realizable value of any related asset, and are recorded
without discount or offset for either (i) time value of money prior to the
anticipated date of payment, or (ii) expected recoveries from insurance or
contribution claims against unaffiliated entities. The allowances are
reviewed quarterly and revised as necessary.
DEBT DISCOUNT. Debt discount is amortized over the lives of the respective
borrowings, generally on the interest method. There was no unamortized debt
discount at December 31, 1993.
NET INCOME PER COMMON SHARE. Net income per common share amounts are
based on the weighted average common shares outstanding during the respective
period. Primary and fully-diluted net income per common share are not
presented as they result in a dilution of less than 3% from basic net income
per common share.
36
<PAGE> 38
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. BUSINESS COMBINATIONS AND ACQUISITIONS
In May 1991, the Company acquired approximately 27,200,000 shares (82%) of the
common stock and all of the preferred stock ($25,000,000 liquidation value) of
SEI for approximately $166,800,000 in cash and $22,745,000 principal amount of
ten-year, 10% notes (see Note 4 ). The preferred stock and 14,000,000 of the
common shares were purchased from Great American Communications Company
("GACC", an AFC affiliate) for approximately $107,500,000 in cash. In July
1992, the Company issued approximately $43,820,000 (5,843,000 shares) of
Common Stock in exchange for the remaining publicly held SEI common shares.
If the Company had owned 100% of SEI effective at the beginning of 1992, the
unaudited pro forma results of operations of the Company for 1992 would have
been as follows (in thousands, except per share amount):
<TABLE>
<S> <C>
Revenue $257,500
Operating income 33,700
Income from continuing operations 9,000
Income before extraordinary items 7,000
Net income 10,900
Net income per common share .20
</TABLE>
The pro forma results are not necessarily indicative of the results that would
have been realized had the acquisition actually taken place on that date or of
the results which may occur in the future.
In December 1991, the Company acquired Hamilton Projects (a licensing and
merchandising company) and ownership of certain television programming, and
received $24,000,000 in cash, from GACC in exchange for its distribution rights
to Hanna-Barbera's animated programming. No gain or loss was recognized
from this transaction.
See Note 4 regarding the acquisition of film distribution rights from Carolco
Television, Inc. ("Carolco"), Note 11 regarding the disposition of assets
related to the Company's discontinued operations and Note 15 regarding the
Company's agreement to acquire Republic Pictures Corporation ("Republic").
37
<PAGE> 39
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. FILM AND TELEVISION COSTS
Film and television costs are comprised of the following at
December 31 (in thousands):
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Television costs:
Released $ 92,533 $ 68,304
In process and other 22,009 8,863
Film and television rights 89,690 102,004
-------- --------
$204,232 $179,171
======== ========
</TABLE>
Film and television rights include the Company's acquisition from Carolco
in September 1992 of the domestic television rights to more than 150 of
Carolco's feature films. The purchase price for these rights, plus certain
related receivables, was $50,000,000 in cash plus the assumption of
approximately $14,000,000 of related liabilities. Film and television rights
also include advances to producers for distribution rights and other film
product not produced by the Company.
Based on the Company's estimates of future gross revenue as of December 31,
1993, approximately 60% of unamortized released television costs and film and
television rights will be amortized during the three years ending December
31, 1996.
4. DEBT
Debt consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1993 1992
------ --------
<S> <C> <C>
Revolving credit facility $ - $ 26,000
Bank term loans (interest at 5.62% at December 31, 1993) 49,580 35,000
12-1/4% Subordinated Notes due February 1993,
less unamortized discount of $10 - 7,490
12% Subordinated Debentures due March 1999 - 21,575
10% Senior Subordinated Notes due May 2001,
less unamortized discount of $2,873
(imputed interest rate - 12.7%) - 19,850
------- --------
$49,580 $109,915
======= ========
</TABLE>
38
<PAGE> 40
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In July 1992, SEI entered into a five-year bank credit agreement (the "Bank
Agreement") which replaced a prior banking arrangement. The Bank Agreement
provided for a term loan facility and a revolving credit facility, with a
maximum aggregate availability of $90,000,000. The Bank Agreement contained
certain restrictions on the ability of SEI to pay dividends to the parent
company. The Bank Agreement was repaid and terminated in January 1994.
In January 1994, the Company entered into a three-year credit agreement
with BEC (the "BEC Facility"). The BEC Facility provides for (i) a three-year
term loan facility of $100,000,000 to fund the Company's acquisition of
Republic (see Note 15) and (ii) a revolving credit facility of $75,000,000 to
fund the Company's working capital and other requirements. Under the BEC
Facility, the Company pays an annual fee of 0.175 % of the unused portion of
the revolving credit facility and certain facility and administration fees;
interest on the revolving facility is payable at LIBOR plus 1.0%; and interest
on the term loan will be at 6.625%.
Borrowings under the BEC Facility are secured by all of the assets of
the Company. In addition, the Company has agreed to guarantee the obligations
of BEC under BEC's credit facility to the extent of the Company's borrowings
from BEC under the BEC Facility. The fees and interest rate applicable to the
revolving credit portion of the BEC Facility are subject to renegotiation
should BEC's facility be terminated, repaid or restructured, and the entire
amount outstanding under the BEC Facility may be accelerated if BEC's facility
is accelerated by its lenders. The events which might result in an
acceleration of BEC's facility include the consummation of BEC's merger with
Viacom (see Note 15) without the receipt of a waiver from BEC's lenders. The
Company has not been informed as to whether such waiver will be granted by
BEC's lenders. However, the Company is currently exploring and believes it can
obtain arrangements with third parties under terms and conditions which are not
materially different from those contained in the BEC Facility.
In February 1993, the Company redeemed its 12-1/4% Subordinated Notes.
The Company prepaid all of the outstanding principal amount of its 10%
Senior Subordinated Notes and paid or prepaid a substantial portion of its bank
debt in October 1993, and redeemed all of the outstanding principal amount of
its 12% Subordinated Debentures in November 1993.
The Company made cash interest payments of $7,800,000 in 1993, $8,800,000 in
1992 and $7,000,000 in 1991.
At December 31, 1993, the carrying value of all of the Company's term loans
approximated fair value.
39
<PAGE> 41
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. EXTRAORDINARY ITEMS
Details of the extraordinary items for the three years ended December 31
were as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
-------- ------ ------
<S> <C> <C> <C>
Utilization of net operating loss
carryforwards:
Continuing operations $ - $4,945 $ 353
Discontinued operations - (997) 4,019
Extraordinary items - - 200
------- ------- ------
- 3,948 4,572
------- ------ ------
(Loss) Gain on extinguishment of debt (3,309) - 587
(Provision) benefit for income taxes 1,287 - (200)
------- ------ ------
(2,022) - 387
------- ------ ------
$(2,022) $3,948 $4,959
======= ====== ======
</TABLE>
In connection with the early extinguishment of certain indebtedness in 1993
(see Note 4), the Company recorded an extraordinary loss from the write-off of
unamortized discount and debt issuance costs relating to such debt. See
Note 10 regarding the change in 1993 in the Company's method of accounting
for income taxes.
6. PREFERRED STOCK
At December 31, 1993, there were 20,000,000 shares of Preferred Stock
authorized. 9,000 shares of Series A Preferred Stock had been issued by the
Company with a dividend yield of 9% and a liquidation value of $1,000 per
share. The Company redeemed all of the Series A Preferred Stock in
November 1993.
7. COMMON STOCK
The Company declared and paid cash dividends on its Common Stock of $.08,
$.08 and $.05 for the years ended December 31, 1993, 1992 and 1991,
respectively.
SALE OF COMMON STOCK. In October 1993, in connection with the negotiation of
the Republic merger (see Note 15), the Company sold 13,362,215 shares of its
Common Stock to BEC in exchange for 3,652,542 shares of BEC's common stock. The
BEC shares were subsequently sold, with the Company realizing approximately
$100,445,000 in cash.
STOCK OPTION PLAN. The Company has a stock option plan under which both
incentive and nonqualified stock options may be granted to certain key
employees and directors to purchase up to five million shares of Common Stock.
Options may be granted at a price not less than the fair value of the
underlying Common Stock on the date of grant, in the case of incentive stock
options, or 50% thereof, in the case of nonqualified options. Each
40
<PAGE> 42
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
option may be granted subject to various terms and conditions established on
the date of grant, including exercise and expiration dates; provided, however,
that all options will expire no later than ten years from their date of grant.
The options typically become exercisable at the rate of 20% to 25% annually,
beginning one year after date of grant. In October 1992, the Company's
shareholders approved amendments that provided for the issuance of options to
purchase approximately one million shares of Common Stock to replace options
to purchase an identical number of SEI common shares. Stock option data follows:
<TABLE>
<CAPTION>
1993 1992 1991
--------------------------- --------------------------- ---------------------------
Option Prices Option Prices Option Prices
Shares Per Share Shares Per Share Shares Per Share
--------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 1,130,481 $3.00-$19.28 341,900 $3.00-$ 4.75 567,000 $3.00-$4.75
Granted 3,141,480 $6.00-$ 7.34 1,026,131 $3.38-$19.28 - -
Exercised (301,231) $6.00-$ 9.88 (113,200) $3.00-$ 4.63 (150,100) $3.00-$4.63
Terminated (221,468) $3.38-$ 8.38 (124,350) $3.00-$ 7.13 (75,000) $3.00-$4.63
--------- --------- ---------
Outstanding at December 31 3,749,262 $3.38-$19.28 1,130,481 $3.00-$19.28 341,900 $3.00-$4.75
========= ========= =========
Exercisable at December 31 785,780 $3.38-$19.28 1,013,531 $3.00-$19.28 106,600 $3.00-$4.75
========= ========= =========
Available for grant at December 31 579,207 3,499,219 1,401,000
========= ========= =========
</TABLE>
8. BENEFIT PLANS
The Company maintained two defined contribution employee retirement plans which
covered substantially all non-union employees of SEI. Contributions by SEI
were discretionary or set by formula. Effective January 1, 1993, SEI
adopted a new 401(k) Contribution Plan that replaced the two prior plans.
Expenses under the various employee retirement plans were $463,000, $586,000
and $355,000 for the years ended December 31, 1993 and 1992 and eight months
ended December 31, 1991, respectively.
A significant number of the Company's production employees are covered by union
sponsored, collectively bargained, multi-employer pension plans. The Company
contributed approximately $4,259,000, $3,714,000, $1,383,000 for the years ended
December 31, 1993 and 1992 and the eight months ended December 31, 1991,
respectively.
The FASB issued SFAS No. 106, "Employers' Accounting for Postretirement
Benefits other than Pensions" (effective in 1993) and SFAS No. 112 "Employers'
Accounting for Postemployment Benefits" (effective in 1994). The Company does
not have any postretirement or postemployment benefits.
41
<PAGE> 43
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. RELATED PARTY TRANSACTIONS
See Note 4 regarding the Company's credit facility with BEC and Note 7
regarding the Company's sale of Common Stock to BEC.
From their issuance in May 1991 until their prepayment in October 1993
(see Note 4), a director of the Company held $18,287,500 principal amount of
the Company's 10% Senior Subordinated Notes. The Company paid $1,791,000,
$1,828,000, and $914,000 in interest (at 10%) on these obligations during
1993, 1992 and 1991, respectively.
During 1993, the Company recorded revenue of approximately $3,100,000 from the
sale of home videocassettes to BEC.
During 1993 the Company paid AFC a premium of $5,000,000 for an insurance-type
indemnity against up to $35,000,000 of certain costs it may have
to pay (in excess of $25,000,000) in resolving environmental and bankruptcy
related claims over a twelve year period. (See Note 11).
BEC and AFC provided the Company with management services for which the
Company was charged by AFC $1,283,000, $1,493,000 and $928,000 for the years
ended December 31, 1993, 1992 and 1991, respectively. The amount charged by
BEC in 1993 was $380,000. As of December 31, 1993 the Company had a net
receivable from BEC of $1,930,000.
10. INCOME TAXES
The provision for income taxes for continuing operations, discontinued
operations and extraordinary items for each of the three years ending
December 31 include (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
------- ------ ------
<S> <C> <C> <C>
Continuing operations:
Federal $ 5,643 $5,327 $ 353
Foreign 5,023 2,500 2,079
State and local 2,390 1,358 403
------- ------ ------
13,056 9,185 2,835
------- ------ ------
Discontinued operations:
Federal (2,139) (985) 4,037
State and local (390) - -
------- ------ ------
(2,529) (985) 4,037
------- ------ ------
Extraordinary items:
Federal (1,088) - 200
State and local (199) - -
------- ------ ------
(1,287) - 200
------- ------ ------
Provision for income taxes $ 9,240 $8,200 $7,072
======= ====== ======
</TABLE>
42
<PAGE> 44
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes" ("SFAS 109"). SFAS 109 requires an asset and liability approach
in accounting for income taxes. Under this method, deferred income taxes are
recognized, at enacted rates, to reflect the future effects of tax loss and
credit ("tax attribute") carryforwards and temporary differences arising
between the tax bases of assets and liabilities and their financial reporting
amounts at each year-end. Deferred tax assets and liabilities are adjusted for
tax rate changes when they occur. This statement also eliminated the concept of
recognizing the benefits of subsequent period utilization of tax attribute
carryforwards as extraordinary items, by requiring the immediate recognition of
attributes in the year incurred, subject to realization. The cumulative effect
of adopting SFAS 109 was not material.
The temporary differences and tax attribute carryforwards which gave rise to
deferred tax assets and liabilities at December 31, 1993 were as follows (in
thousands):
<TABLE>
<S> <C>
Deferred Tax Assets:
Discontinued operations reserves $ 15,398
Tax attribute carryforwards 29,724
Pension liability adjustment 3,321
Other, net 1,037
--------
49,480
Valuation allowance (25,066)
--------
$ 24,414
========
Deferred Tax Liabilities:
Film and television costs $ 20,209
Revenue recognition 6,570
--------
$ 26,779
========
</TABLE>
The components of income from continuing operations before the provision for
income taxes in 1993 were as follows (in thousands):
<TABLE>
<S> <C>
Domestic $21,300
Foreign 15,415
-------
$36,715
=======
</TABLE>
43
<PAGE> 45
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The primary reasons for the effective tax rates on the income from continuing
operations differing from the statutory federal tax rates for each of the three
years ended December 31 are summarized as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Federal tax rate 35% 34% 34%
Amortization of intangible assets 4 8 28
Adjustment of valuation allowance (11) - -
State and local taxes, net of available
Federal income tax benefit 4 5 8
Foreign taxes, net of available Federal
income tax benefit 5 10 40
Foreign sales corporation benefit (2) (7) (36)
Minority interest - 3 9
Other, net 1 1 (1)
-- -- ---
36% 54% 82%
== === ===
</TABLE>
44
<PAGE> 46
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with adopting SFAS 109, the Company established a valuation
allowance against certain of its tax attribute carryforwards. During the year,
the Company reassessed (under the criteria of SFAS 109) the realizability of
the tax attribute carryforwards in light of factors arising from, or related
to, the acquisition of a majority of the Company's Common Stock by BEC. Based
on this reassessment, the Company reduced the valuation reserve by
approximately $4,200,000 and reflected a corresponding benefit in its provision
for income taxes for the third quarter of 1993.
Under the "deferred" method previously used by the Company, income tax
expense was determined giving effect to differences between income and expense
for financial reporting and tax return purposes. The provision for income taxes
in 1992 and 1991 included provisions for deferred taxes (primarily related to
timing differences in the recognition of film revenue and costs) that would be
required in the absence of tax attribute carryforwards. The tax benefit from
utilization of such carryforwards was reflected as an extraordinary item in such
years.
Total cash income tax payments were $6,300,000, $4,100,000 and $5,200,000,
respectively for 1993, 1992 and 1991.
As of December 31, 1993, the Company had available net operating loss
carryforwards of approximately $54,500,000, capital loss carryforwards of
$9,500,000, foreign tax credit carryforwards of $3,401,000, investment tax
credit carryforwards of $1,773,000 and AMT credit carryforwards of $2,147,000.
The use of these attributes, which except for the AMT credit will expire in
1994 through 2007, is subject to certain limitations as a result of BEC's
acquisition of a majority interest in the Company during 1993.
45
<PAGE> 47
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. DISCONTINUED OPERATIONS
All of the Company's former business segments are reported as discontinued. A
summary of financial data for discontinued operations for each of the three
years ended December 31 follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1993 1992 1991
------- -------- --------
<S> <C> <C> <C>
Revenue:
Petroleum marketing $ $260,654 $394,725
Oil producing concession - - 14,986
Other, including investments - 6,190 12,010
------- -------- --------
- 266,844 421,721
------- -------- --------
Costs and expenses:
Cost of petroleum marketing sales - 261,628 397,682
Cost of foreign petroleum sales - - 3,596
Interest expense - 312 1,215 (a)
Loss on Circle K investment - - 4,900
Other, principally general and administrative 6,500 7,932 16,326
------- -------- --------
6,500 269,872 423,719
------- -------- --------
Loss before income taxes (6,500) (3,028) (1,998)
Income taxes benefit (2,529) (985) (519)
------- -------- --------
Loss before gain on sale of oil
producing concession (3,971) (2,043) (1,479)
Gain on sale of oil producing
concession, net of taxes of $4,556 - - 8,848
------- -------- --------
Net income (loss) from discontinued operations $(3,971) $ (2,043) $ 7,369
======= ======== ========
Net income (loss) per common share:
Net loss before gain on sale of oil
producing concession $ (.07) $ (.04) $ (.03)
Gain on sale of oil producing concession - - .19
------- -------- --------
Net income (loss) per common share from discontinued operations $ (.07) $ (.04) $ .16
======= ======== ========
</TABLE>
(a) Interest expense incurred prior to the acquisition of SEI which is
attributable to discontinued operations.
46
<PAGE> 48
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net assets (liabilities) of discontinued operations which are held for
disposition consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Receivables, net $ 2,714 $ 7,445
Property, plant and equipment, net 4,454 4,572
Other assets 13 247
Accounts payable and other (1,636) (4,023)
Other liabilities (144) (413)
Pension liability (9,449) (677)
Allowances for estimated losses
on disposal and disputed claims (29,621) (30,587)
-------- --------
$(33,669) $(23,436)
======== ========
</TABLE>
In April 1991, the Company completed the sale of its 24.5% interest in an oil
producing concession located in the Persian Gulf (the "Concession") to two
Concession partners. The Company recognized a pretax gain of $13.4 million on
the sale and received approximately $23.9 million in cash, which included the
repayment of $6.1 million in advances made to the Concession in 1991.
In December 1991, the Company's Board of Directors authorized management to
sell the remaining oil operations. During July and August 1992, the Company
sold the "Penndel Group", consisting of two oil group subsidiaries and its
Philadelphia terminal facility, for approximately $17.7 million in cash. During
December 1992 and January 1993, the Company's major utility supply contracts
were sold. No material gain or loss resulted from the overall disposition of
these operations.
The Company received $50 million in preferred stock of the Circle K Corporation
as partial consideration for the sale of its Marketing Group to Circle K in
1988. In May 1990, Circle K and its principal subsidiaries filed for protection
under Chapter 11 of the United States Bankruptcy Code. The Company recorded a
provision for impairment of $25 million in 1989 and an additional provision of
$20 million in 1990. In December 1991, the Company sold the stock and recorded a
$4.9 million pretax loss.
CONTINGENCIES. The Company continues to be involved in a number of legal and
other actions, including threatened claims and pending litigation from matters
such as contract disputes, remaining disputed claims under the joint plan of
reorganization of the Company and certain of its subsidiaries (the "Joint
Plan"), environmental clean-up assessments, damages from alleged dioxin
contamination and others. Some of these parties seek damages from the Company in
very large amounts. The allowances for estimated losses on disposal and disputed
claims set forth above include accruals with respect to these actions. While the
results of such actions cannot be predicted with certainty, based upon its
knowledge of the facts and circumstances and applicable laws, the Company
believes the ultimate resolution of these matters should not have a material
adverse effect on its financial condition and its results of operations. This
belief is also based upon (i) allowances that have been established for
47
<PAGE> 49
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
estimated losses on disposal of former operations and remaining Chapter 11
disputed claims (see table above), and (ii) an insurance-type indemnity
agreement with AFC. Substantial portions of such allowances are intended to
cover environmental liabilities associated with the Company's former
operations. Although there are significant uncertainties inherent in
estimating environmental-related liabilities, based upon the Company's
experience it is considered unlikely that the amount of possible environmental
liabilities and Joint Plan disputed claims would exceed the amount of
allowances by more than $50 million.
The AFC indemnity, which was agreed to in exchange for a one-time
payment of $5 million expensed by the Company as part of discontinued
operations in the first quarter of 1993, provides for the reimbursement to the
Company of certain costs it may have to pay in resolving environmental and
bankruptcy related claims over a twelve year period. The indemnity covers up
to $35 million of such liabilities in excess of a threshold amount of $25
million, subject to certain adjustments.
(A) In December 1986, the Bankruptcy Court for the Middle District of Florida,
Jacksonville Division, confirmed a Joint Plan of Reorganization under Chapter 11
of the Bankruptcy Code for the Company and four of its subsidiaries. There were
$13.2 million of remaining Chapter 11 claims pending at December 31, 1993
(reduced from $111 million at December 31, 1986). To the extent such claims are
allowed by the Bankruptcy Court, additional payments will be required under the
Joint Plan.
(B) A subsidiary of the Company, Independent Petrochemical Corporation ("IPC"),
has been named as a defendant in a number of personal injury and property
damage actions arising from the alleged improper disposal in 1971 of waste
material, which was later determined to contain dioxin, at a number of sites in
Missouri. These actions were brought by approximately 2,450 individual
plaintiffs, the United States (U.S. v. Bliss, et al., U.S. District Court for
the Eastern District of Missouri, filed January 20, 1984), the State of
Missouri and certain codefendants. Substantially all of the claims by
individuals against IPC have been settled by its insurers for an aggregate of
approximately $33 million. Although IPC settled with United States and
Missouri in 1993, agreeing to liability of $106 million plus future costs, the
settlements provide that such amounts are collectible only from insurance
potentially available to IPC. The Company has written off its investment in
IPC.
The Company and two other subsidiaries, Charter Oil Company ("Charter Oil") and
Charter International Oil Company were joined as defendants in many of these
actions and have settled the claims of (i) substantially all the individuals
for $9.5 million, (ii) the United States for $5 million, and (iii) the State of
Missouri for $1 million, principally to assure the feasibility of the Joint
Plan of Reorganization at the time of its confirmation by the Bankruptcy Court
in 1986.
The Company, Charter Oil and IPC brought an action against their insurers to
secure coverage for the dioxin claims (IPC v. Aetna, et al., U.S. District
Court for the District of Columbia,
48
<PAGE> 50
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
filed November 9, 1983). On January 10, 1994, the court granted the insurers'
motion for summary judgment based upon pollution exclusion language in their
policies. Unless this decision is reversed on reconsideration or appeal,
there will be no further insurance coverage for the dioxin claims. The only
counterclaims that were filed in the coverage case, by two insurers seeking
recovery of certain defense costs and $12 million of the settlement amounts
they paid to individuals, have been dismissed voluntarily with prejudice.
(C) The Company has had contact with various governmental agencies
regarding possible contamination of soil and groundwater at eight properties
that are or have been owned or leased by Company's subsidiaries. Private
actions also have been brought or threatened with respect to such
possible contamination at an additional five locations. The Company may be
assessed for cleanup costs under relevant local, state or federal environmental
laws, and future claims could be asserted with respect to other formerly owned
or leased properties. Notification of possible responsibility has also been
received regarding twelve other sites where waste materials allegedly were
delivered. The Company's liability insurers have been placed on notice of many
of these claims and have taken the position that there is no coverage under
their policies. While the Company does not agree that coverage is not available
under its past policies, there is no assurance that pending or future claims
will be covered by such insurance. Although comprehensive evaluations of
liability and of the extent of contamination have not been performed in all
cases, the following claims are believed by the Company at this time to be the
most significant.
A subsidiary has begun the cleanup of a petroleum terminal property owned by
the subsidiary in Tiverton, Rhode Island. The estimated remaining cost is $8
million, which has been fully accrued. The subsidiary is investigating whether
former owners or insurers may be liable for a portion of the cost.
In 1990, a subsidiary declined to join a settlement agreement among the
United States, a state government and 15 companies regarding the Sullivan's
Ledge superfund site in New Bedford, Massachusetts, based upon certain legal
defenses and the belief that any liability the subsidiary may have should be
less than a pro rata allocation among the settling parties. Under the proposed
agreement, the subsidiary would have been obligated to pay between $2 million
and $3 million in cleanup costs. The subsidiary subsequently has agreed with
the United States to settle its potential liability for $215,000, subject to
court approval. The settlement, which is being objected to by members of the
prior settling group, will be asserted by the subsidiary as a defense to any
private cost recovery action filed by the group.
A subsidiary has been informed that it is one of thirteen identified
potentially responsible parties at the Sikes superfund site in Crosby, Texas,
and that a cleanup plan estimated to cost approximately $89 million has been
selected and is being implemented by the EPA. Although joint and several
liability is possible with respect to such sites, and there is little relevant
information presently available, management believes that there are meritorious
defenses against any material liability.
49
<PAGE> 51
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
An unaffiliated company has suggested that a subsidiary of the Company is one
of 18 potentially responsible parties at the Petro-chemical Systems superfund
site in Liberty County, Texas, at which the EPA has selected a cleanup plan
estimated to cost approximately $26 million. Bankruptcy defenses will be
relevant to possible cost recovery actions by the EPA or other parties
concerning this site.
PENSION PLAN. The Company has a noncontributory, defined benefit pension plan
which covers employees of the discontinued operations, a significant number of
which have vested benefits. Contributions are made on an actuarial basis in
amounts primarily based on employees' years of service and average salary when
employed. At December 31, 1992 and 1991, the plan assets exceeded the projected
benefit obligation by $2.5 million and $2.3 million, respectively.
In 1993, the Company recorded an additional minimum pension liability of
$5,217,000 (net of a tax benefit of $3,321,000), with an offsetting charge to
Shareholders' Equity, to reflect the adjustment to pension liability resulting
from the reduction in the discount rate from 8.5% in 1992 to 7% in 1993.
The following table sets forth the plan's funded status and amounts recognized
as of December 31, 1993 (in thousands):
<TABLE>
<S> <C>
Total projected benefit obligation $(55,679)
Market value of assets 46,035
--------
Funded status (9,644)
Transition asset (3,159)
Unrecognized loss 11,880
Unrecognized prior service cost 12
Additional minimum liability (8,538)
--------
Accrued pension cost $ (9,449)
========
</TABLE>
Net pension cost for 1993 which was charged against net liabilities related to
discontinued operations in the balance sheet (in thousands):
<TABLE>
<S> <C>
Service cost $ 43
Interest cost 3,789
Expected return on assets (3,990)
Net amortization and deferrals 391
-------
Pension expense $ 233
=======
</TABLE>
The weighted-average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7% and 6.25%, respectively. The expected
long-term rate of return on assets was 9%. The plan assets are invested
primarily in fixed income securities. Included in the plan assets at
December 31, 1993 and 1992, was $5.5 million principal amount of AFC 12.25%
debentures due 2003.
50
<PAGE> 52
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES
The Company continues to be involved in a number of legal and other actions
including threatened claims and pending litigation. While the results of such
actions cannot be predicted with certainty, based upon its knowledge of the
facts and circumstances and applicable laws, the Company believes that the
ultimate resolution of all disputed claims, pending litigation and threatened
claims will not have a material adverse effect on its financial condition or
its results of operations. See Note 11 for contingencies relating to
discontinued operations.
As of December 31, 1993, SEI had operating leases for offices and equipment.
The rental expense for the years ended December 31, 1993 and 1992, and eight
months ended December 31, 1991, was $4.5 million, $4.0 million and $1.8
million, respectively. The future minimum annual rental commitments under
non-cancelable operating leases, excluding renewal options, for the subsequent
five years and thereafter for continuing operations are as follow (in
thousands):
<TABLE>
<S> <C>
1994 $ 3,786
1995 2,594
1996 2,605
1997 2,525
1998 2,536
Thereafter 13,500
-------
Total $27,546
=======
</TABLE>
51
<PAGE> 53
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. QUARTERLY OPERATING RESULTS (UNAUDITED)
The following table presents quarterly results of operations for the years
ended December 31, 1993 and 1992 (in thousands, except per share data).
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
1993 Quarter Quarter Quarter Quarter
- ---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue (a) $50,818 $71,277 $55,082 $97,722
Income from continuing
operations, net 939 6,081 7,480 9,159
Discontinued operations, net (5,515) 1,805 - (261)
Income (loss) before
extraordinary items (4,576) 7,886 7,480 8,898
Extraordinary items - - - (2,022)
Net income $(4,576) $ 7,886 $ 7,480 $ 6,876
======= ======= ======= =======
Net income (loss) per common share:
Continuing operations $ 0.02 $ 0.12 $ 0.14 $ 0.14
Discontinued operations (0.11) 0.03
Extraordinary items - - - (0.03)
------- ------- ------- -------
Net income (loss) per common share $ (0.09) $ 0.15 $ 0.14 $ 0.11
======= ======= ======= =======
1st 2nd 3rd 4th
1992 Quarter Quarter Quarter Quarter
- ---- ------- ------- ------- -------
Revenue (a) $57,601 $61,135 $74,380 $64,430
Income from continuing
operations, net 1,557 1,505 1,817 3,038
Discontinued operations, net (1,629) - - (414)
Income (loss) before
extraordinary items (72) 1,505 1,817 2,624
Extraordinary items 620 958 1,664 706
Net income $ 548 $ 2,463 $ 3,481 $ 3,330
======= ======= ======= =======
Net income (loss) per common share:
Continuing operations $ 0.03 $ 0.03 $ 0.04 $ 0.06
Discontinued operations (0.04) - - (0.01)
Extraordinary items 0.02 0.02 0.03 0.01
------- ------- ------- -------
Net income (loss) per common share $ 0.01 $ 0.05 $ 0.07 $ 0.06
======= ======= ======= =======
</TABLE>
(a) Certain reclassifications have been made in the financial statements
to the prior presentations of revenue; selling, general and
administrative expense; interest income; and other expense. In this table,
only revenue is affected by these reclassifications.
52
<PAGE> 54
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. BUSINESS SEGMENTS
The Company's continuing business activities consist of one business segment.
The Company had revenue from one customer in 1993, 1992 and 1991 representing
22%, 22% and 13% of revenue, respectively.
Net assets, capital expenditures and depreciation outside the United States
were not material in relation to consolidated amounts. International revenue
is earned primarily from television and theatrical distribution and home video
sales; substantially all of such revenue is earned under license agreements
denominated in U.S. dollars. International export revenue by major geographic
area follows for the years ended December 31 (as a percentage of total
revenue):
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Canada 6.2% 6.9% 7.6%
Europe 17.3 18.8 17.5
Third party distributors (*) 3.2 4.7 8.3
Other 8.9 9.6 14.7
---- ---- ----
Total 35.6% 40.0% 48.1%
==== ==== ====
</TABLE>
(*) Specific sources not available
15. SUBSEQUENT EVENTS
On September 12, 1993, the Company and Republic entered into an agreement in
principle pursuant to which the Company agreed to acquire by merger all of
Republic's outstanding common stock for $13 per share in cash. Additionally,
options and warrants to acquire Republic common stock outstanding prior to the
merger will be converted into the right to receive, upon payment of the exercise
price, 1.6508 shares of the Company's Common Stock for each share of Republic
common stock into which such option or warrant was exercisable. The definitive
merger agreement was signed by the Company and Republic on December 7, 1993.
The actual merger is expected to be consummated in the second quarter of 1994,
with the shareholders of Republic receiving a total consideration of
approximately $100,000,000 in cash.
In January 1994, BEC entered into a merger agreement pursuant to which BEC
has agreed to merge with and into Viacom, Inc. ("Viacom") with Viacom being
the surviving corporation. Under the terms of the agreement each share of BEC's
common stock shall be converted into the right to receive .08 shares of Viacom
Class A common stock, .60615 shares of Viacom Class B common stock and under
certain circumstances, up to an additional .13829 shares of Viacom Class B
common stock. Upon the closing of the merger, which closing is subject to
customary conditions including approval of the merger by the BEC's shareholders,
Viacom would own a majority of the Company's Common Stock.
The Company entered into a credit facility with BEC in January 1994; see
Note 4.
53
<PAGE> 55
SPELLING ENTERTAINMENT GROUP INC.
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED
PARTIES
THREE YEARS ENDED DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993
- ----------------------------------------------------------------------------------------
DEDUCTIONS
-------------------
NAME OF BALANCE AT AMOUNTS BALANCE AT
DEBTOR JANUARY 1 ADDITIONS COLLECTED OTHER DECEMBER 31
------- ---------- --------- --------- ----- -----------
<S> <C> <C> <C> <C> <C>
John T. Brady (a) $250 $ - $250 $ - $ -
Ronald Lightstone (a) 500 - - 142 358
1992
- ----------------------------------------------------------------------------------------
John T. Brady $250 $ - $ - $ - $250
Ronald Lightstone 500 - - - 500
1991
- ----------------------------------------------------------------------------------------
John T. Brady $ - $ 250 (b) $ - $ - $250
Jules Haimovitz (a) - 1,350 (b) - 1,350 -
Ronald Lightstone - 500 (b) - - 500
</TABLE>
(a) Individual ceased being an employee during the year.
(b) Represents secured receivables of SEI acquired in 1991. Represents loans
made for the purchase of personal residences in connection with
relocations. The notes bear interest at 8% and each was secured by trust
deeds on the property.
54
<PAGE> 56
SPELLING ENTERTAINMENT GROUP INC.
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993
- -----------------------------------------------------------------------------------------------------------
Additions Other
Balance charged Deductions adjustments Balance at
at beginning (credited) from during end of
DESCRIPTION of period to income reserves period period
- ----------- ------------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Deducted from accounts receivable:
For doubtful accounts $ 4,661 $1,008 $ (686) $ - $ 4,983
Losses on disposal and
disputed claims 15,058 1,040 (2,050) 15,573(a) 29,621
1992
- -----------------------------------------------------------------------------------------------------------
Deducted from accounts receivable:
For doubtful accounts $ 4,547 $ 686 $ (572) $ - $ 4,661
Losses on disposal 13,849 5,476 (4,267) - 15,058
1991
- -----------------------------------------------------------------------------------------------------------
Deducted from accounts receivable:
For doubtful accounts $ 4,988 $ - $ (441) $ - $ 4,547
Losses on disposal 14,650 355 (1,156) - 13,849
</TABLE>
(a) During 1993, all reserves for disputed claims and other items were
reclassed into losses on disposal and disputed claims.
55
<PAGE> 57
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On June 1, 1993, the Company replaced Ernst & Young with Arthur
Andersen & Co. as its independent accountants. The decision to replace Ernst &
Young was approved by the Board of Directors of the Company.
The report of Ernst & Young dated March 19, 1993 relating to the
Consolidated Financial Statements of the Company for the two years ended
December 31, 1992 contained no adverse opinion or disclaimer of opinion and
was not qualified or modified as to uncertainty, audit scope or accounting
principle. In connection with its audit of the Company for the year ended
December 31, 1992 and through May 31, 1993, there have been no disagreements
with Ernst & Young on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreement if not resolved to the satisfaction of Ernst & Young would have
caused them to make reference thereto in their financial report on the
financial statements for such years.
_____________________________________________
56
<PAGE> 58
PART III
The information required by the following items will be included in the
Company's definitive Proxy Statement, which will be filed with the Securities
and Exchange Commission in connection with the 1994 Annual Meeting of
Shareholders, and is incorporated herein by reference:
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
_____________________________________________
57
<PAGE> 59
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) Documents filed as part of this Report:
1. Financial Statements are included in Part II, Item 8.
2. Financial Statement Schedules:
A. Selected Quarterly Financial Data is included in Note
13 to the Company's Consolidated Financial Statements
B. Schedules filed herewith for 1993, 1992 and 1991:
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
II - Amounts Receivable from Related Parties and Underwriters,
Promoters and Employees other than Related Parties 54
III - Condensed Financial Information of Registrant -
This schedule has been omitted since after the most recently
completed fiscal year the debt which restricted net assets was
repaid (see Note 4). The current debt agreement does not
contain any restrictions in this regard; accordingly, the
schedule is no longer relevant.
VIII- Valuation and Qualifying Accounts 55
</TABLE>
All other schedules for which provisions are made in the
applicable regulation of the Securities and Exchange
Commission have been omitted as they are not applicable, not
required, or the information required thereby is set forth in
the Consolidated Financial Statements or the notes thereto.
3. Exhibits - see Exhibit Index on page 61.
(b) Reports on Form 8-K:
(1) Form 8-K dated October 5, 1993 related to the consummation of
the sale of 13,362,215 shares of the Company's Common Stock to
a subsidiary of Blockbuster Entertainment Corporation.
(2) Form 8-K dated December 8, 1993 related to the Definitive
Agreement and Plan of Merger with Republic Pictures
Corporation.
(3) Form 8-K dated January 31, 1994 related to the Credit
Agreement with Blockbuster Entertainment Corporation.
58
<PAGE> 60
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SPELLING ENTERTAINMENT GROUP INC.
Date: By: /s/ H. STEVEN R. BERRARD
-------------------------------
Steven R. Berrard
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: By: /s/ H. WAYNE HUIZENGA
-------------------------------
H. Wayne Huizenga
Chairman of the Board
By: /s/ AARON SPELLING
-------------------------------
Aaron Spelling
Vice Chairman of the Board
By: /s/ STEVEN R. BERRARD
-------------------------------
Steven R. Berrard
President and Chief
Executive Officer
(Principal Executive Officer)
By: /s/ THOMAS P. CARSON
-------------------------------
Thomas P. Carson
Senior Vice President, Treasurer
and Chief Financial Officer
(Principal Financial Officer)
59
<PAGE> 61
By: /s/ KATHLEEN COUGHLAN
--------------------------------
Kathleen Coughlan
Vice President and
Corporate Controller
(Principal Accounting Officer)
By: /s/ JOHN T. LAWRENCE
--------------------------------
John T. Lawrence
Director
By: /s/ S. CRAIG LINDNER
--------------------------------
S. Craig Lindner
Director
By: /s/ ALFRED W. MARTINELLI
--------------------------------
Alfred W. Martinelli
Director
By: /s/ JOHN L. MEUTHING
--------------------------------
John L. Meuthing
Director
60
<PAGE> 62
SPELLING ENTERTAINMENT GROUP INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
<S> <C>
3(i) Registrant's Amended and Restated Articles of
Incorporation, as amended through December 31, 1982.
3(ii) Registrant's Bylaws, as amended through February 15, 1994.
4.1 Credit Agreement dated as of January 31, 1994, by and
among the Registrant, certain subsidiaries of the
Registrant and Blockbuster Entertainment Corporation
(incorporated by reference to Exhibit 99.1 to the
Registrant's Current Report on Form 8-K dated
January 31, 1994).
4.2 Pledge and Security Agreement dated as of January 31,
1994, by and among the Registrant, certain subsidiaries
of the Registrant and Blockbuster Entertainment
Corporation (incorporated by reference to Exhibit 99.2
to the Registrant's Current Report on Form 8-K dated
January 31, 1994).
4.3 Copyright Mortgage and Assignment; Power of Attorney
dated as of January 31, 1994, by the Registrant and
certain subsidiaries of the Registrant in favor of
Blockbuster Entertainment Corporation (incorporated
by reference to Exhibit 99.3 to the Registrant's
Current Report on Form 8-K dated January 31, 1994
4.4 Guaranty dated as of January 31, 1994, by the
Registrant and certain subsidiaries of the Registrant
in favor of Blockbuster Entertainment Corporation
(incorporated by reference to Exhibit 99.4 to the
Registrant's Current Report on Form 8-K dated
January 31, 1994).
4.5 Guaranty dated as of December 22, 1993, by the
Registrant in favor of Bank of America National Trust
and Savings Association, as agent (incorporated by
reference to Exhibit 99.5 to the Registrant's
Current Report on Form 8-K dated January 31, 1994).
10.1 Registrant's Stock Option Plan and Amendment Nos. 1
through 5 thereto (incorporated by reference to Exhibit
4.03 to the Registrant's Registration Statement No.
33-61914 on Form S-8).
</TABLE>
61
<PAGE> 63
<TABLE>
<CAPTION>
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
<S> <C>
10.2 Concession Interest Purchase and Sale Agreement, dated
April 22, 1991, by and among Charter Oil Eastern
Production, Inc., Total Abu Al Bakhoosh S.A. and
Amerada Hess Oil Corporation of Abu Dhabi (incorporated
by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1991).
10.3 Stock Purchase Agreement, dated April 4, 1991, by and
among Aaron Spelling, Candy Spelling and the Registrant
(incorporated by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991).
10.4 Stock Purchase Agreement, dated April 17, 1991, by and
between E. Duke Vincent and the Registrant (incorporated
by reference to Exhibit 10.4 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1991).
10.5 Stock Purchase Agreement, dated April 17, 1991, by and
between Douglas S. Cramer and the Registrant (incorporated
by reference to Exhibit 10.5 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1991).
10.6 Employment Agreement, dated March 1, 1989, by and between
Spelling Entertainment Inc. and Aaron Spelling (incorporated
by reference to the copy of such document filed as an exhibit
to Spelling Entertainment Inc.'s Registration Statement No.
33-26497 on Form S-4).
10.7 Amendment to Employment Agreement, dated November 7, 1991,
by and among Spelling Entertainment Inc., Aaron Spelling
Productions, Inc. and Aaron Spelling.
10.8 Amendment, No. 2 to Employment Agreement, dated May 6, 1993,
by and among Spelling Entertainment Inc., Aaron Spelling
Productions, Inc. and Aaron Spelling.
10.9 Employment Agreement, dated February 19, 1989, by and between
Aaron Spelling Productions and Ronald Lightstone (incorporated
by reference to the copy of such document filed as an exhibit to
Spelling Entertainment Inc.'s Annual Report on Form 10-K for
the fiscal year ended July 31, 1988).
10.10 Amendment to Employment Agreement, dated June 1, 1989, by and
between Aaron Spelling Productions and Ronald Lightstone
(incorporated by reference to the copy of such document filed
as an exhibit to Spelling Entertainment Inc.'s Annual Report
on Form 10-K for the fiscal year ended July 31, 1988).
</TABLE>
62
<PAGE> 64
<TABLE>
<CAPTION>
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
<S> <C>
10.11 Amended and Restated Agreement and Plan of Merger,
dated May 22, 1992, by and among the Registrant, SE
Acquisition Corp. and Spelling Entertainment Inc.
(incorporated by reference to Spelling Entertainment
Inc.'s Notice of Annual Meeting and Proxy Statement
dated June 24, 1992).
10.12 Stock Purchase Agreement, dated as of March 7, 1993,
among Blockbuster Entertainment Corporation, BPH
Subsidiary, Inc., American Financial Corporation and
certain subsidiaries of American Financial Corporation
(includes insurance-type indemnity referenced in Note 11
to the Registrant's consolidated financial statements)
(incorporated by reference to Exhibit 28.1 to Blockbuster
Entertainment Corporation's Current Report on Form 8-K
dated March 7, 1993).
10.13 Agreement and Plan of Merger, dated December 8, 1993, by
and among the Registrant, DE Acquisition Corporation and
Republic Pictures Corporation (incorporated by reference
to Exhibit 99.1 to the Registrant's Current Report on
Form 8-K dated December 8, 1993).
10.14 Registrant's 1994 Stock Option Plan which is subject to
shareholder approval.
11 Computation of net income per share
21 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen & Co.
23.2 Consent of Ernst & Young.
</TABLE>
63
<PAGE> 1
EXHIBIT 3(i)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
THE CHARTER COMPANY
1. The name of this Corporation is The Charter Company (the
"Corporation").
2. Pursuant to Section 607.197, Florida Statutes (1985), the
Corporation hereby amends and restates its Articles of Incorporation to read as
the Amended and Restated Articles of Incorporation set forth as Exhibit A
hereto (the "Amended and Restated Articles of Incorporation"), which Amended
and Restated Articles of Incorporation are designed to carry out and put into
effect the Corporation's plan of reorganization (the "Plan"). The Plan was
confirmed and the Amended and Restated Articles of Incorporation were approved
on December 18, 1986, by order (the "Order") of the United States Bankruptcy
Court, Middle District of Florida, Jacksonville Division (the "Bankruptcy
Court") in accordance with 11 U.S.C. Section 1129 (1986).
3. The title of the proceeding in which the order was entered is:
In re:
THE CHARTER COMPANY, Case No. 84-289-BK-J-GP
Debtor.
4. The Bankruptcy Court had jurisdiction of the proceedings for
the reorganization of the Corporation pursuant to 28 U.S.C. Section 157
(1986).
5. The Corporation was originally incorporated as a consolidated
corporation pursuant to the laws of the State of Florida under the name of
Pearce-Uible Company. The Corporation's original Articles of Incorporation
were filed with the Florida Department of State on March 31, 1959, and
restatements thereof were filed with the Florida Department of State on May 3,
1974, and July 31, 1981. The Amended and Restated Articles of Incorporation
were duly approved by Order of the Bankruptcy Court and there is no discrepancy
between the provisions of the Corporation's Articles of Incorporation as
heretofore restated and amended (the "Prior Articles") and the provisions of
the Amended and Restated Articles of Incorporation other than the omission of
matters of historical interest and the amendment of Articles II through IX of
the Prior Articles with the following effect:
<PAGE> 2
1. Article II of the Prior Articles is amended to delete
the specific enumeration of purposes of the
Corporation and to provide that the purpose of the
Corporation is to transact any and all lawful
business.
2. Article III of the Prior Articles is amended (i) to
change the par value of the Corporation's authorized
common and preferred stock from $1.00 per share to
$.10 per share, (ii) to change the provisions
relating to the manner in which series of preferred
stock may be issued, (iii) to modify the voting
rights of preferred stock, (iv) to establish special
voting rights of the common stock under certain
circumstances, (v) (a) to add provisions relating to
the authority of the Board of Directors to issue
additional shares of the Corporation's capital stock,
(b) preemptive rights to subscribe for capital stock,
and (c) dividends on shares to capital stock, (vi) to
cancel, in accordance with the Plan, all series of
existing preferred stock, and (vii) to authorize a
new series of preferred stock designated Series A
Preferred Stock. No change is effected in the number
of shares of common and preferred stock the
Corporation is authorized to have outstanding
(200,000,000 and 20,000,000 shares, respectively),
and, upon the effective date of the Amended and
Restated Articles of Incorporation, each share of
common stock, par value $1.00 per share, outstanding
under the Prior Articles will automatically be
reconstituted into one share of common stock having a
par value of $.10 per share, without any action on
the part of the holder of such stock, and all
certificates representing shares of common stock
outstanding under the Prior Articles will
automatically represent shares of common stock as so
reconstituted.
3. Article IV of the Prior Articles regarding preemptive
rights of common stock is deleted in its entirety.
4. Article V of the Prior Articles regarding the amount
of capital with which the Corporation began business
is deleted in its entirety.
5. Article VI of the Prior Articles regarding duration
of the Corporation is deleted in its entirety as
being unnecessary under Section 607.164(b), Florida
Statutes (1985) because the duration of the
Corporation is perpetual.
6. Article VII of the Prior Articles regarding the
address of the Corporation is deleted in its
entirety.
<PAGE> 3
7. Article VIII of the Prior Articles regarding the
number of directors of the Corporation and certain
powers of directors of the Corporation is deleted in
its entirety since the current directors are not
initial directors and the number of directors is
fixed by the bylaws of the Corporation as permitted
by Florida Statutes Section 607.114(l) (1985), and
the powers of directors are to the fullest extent
those fixed by statute.
8. Article IX of the Prior Articles naming the officers
of the Corporation is deleted in its entirety since
Section 607.151, Florida Statutes (1985), provides
that the officers of a corporation shall consist of a
president, a secretary and a treasurer and such other
officers as the bylaws may provide.
6. The effective date of the Amended and Restated Articles of
Incorporation shall be March 31, 1987, the date of consummation of the Plan.
IN WITNESS WHEREOF, the Bankruptcy Court has caused these Articles to
be executed in the Corporation's name by K. C. Caldabaugh and John E. Ross,
Executive Vice President and Chief Financial Officer and Secretary,
respectively, this 24th day of March, 1987.
THE CHARTER COMPANY
/s/ K. C. Caldabaugh
By: ___________________________________
K. C. Caldabaugh
Executive Vice President and
Chief Financial Officer
/s/ John E. Ross
By: ___________________________________
John E. Ross
Secretary
<PAGE> 4
STATE OF FLORIDA
COUNTY OF DUVAL
On this day personally appeared before me, the undersigned officer
duly authorized by the laws of the State of Florida to take acknowledgments, K.
C. Calabaugh, well known to me to be the Executive Vice President and Chief
Financial Officer of The Charter Company, and acknowledged that he executed the
above and foregoing Amended and Restated Articles of Incorporation of The
Charter Company after having been duly authorized to do so.
WITNESS my hand and official seal the 24th day of March, 1987.
___________________________________
Notary Public
My Commission Expires:
STATE OF FLORIDA
COUNTY OF DUVAL
On this day personally appeared before me, the undersigned officer
duly authorized by the laws of the State of Florida to take acknowledgments,
John E. Ross, well known to me to be the Secretary of The Charter Company, and
acknowledged that he executed the above and foregoing Amended and Restated
Articles of Incorporation of The Charter Company after having been duly
authorized to do so.
WITNESS my hand and official seal the 24th day of March, 1987.
___________________________________
Notary Public
My Commission Expires:
<PAGE> 5
EXHIBIT "A"
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
THE CHARTER COMPANY
ARTICLE I - NAME
The name of the Corporation is THE CHARTER COMPANY (the "Corporation").
ARTICLE II - PURPOSE
The Corporation is organized for the purposes of transacting any and
all lawful business.
ARTICLE III - CAPITAL STOCK
A. The maximum number of shares of capital stock which the
Corporation is authorized to have outstanding at any one time is:
1. PREFERRED STOCK - 20,000,000 shares, par value $.10
per share ("Preferred Stock"); and
2. COMMON STOCK - 200,000,000 shares, par value $.10 per
share ("Common Stock").
B. Preferred Stock.
(1) The Preferred Stock may be issued in one or more
series as shall from time to time be created and authorized to be issued by the
Board of Directors as hereinafter provided.
(2) The Board of Directors is hereby expressly
authorized, by resolution or resolutions from time to time adopted providing
for the issuance of shares of Preferred Stock, to fix and state, to the extent
permitted by law and to the extent not fixed or otherwise limited by the
provisions herein set forth, the designations, preferences, limitations and
relative rights of each series of Preferred Stock.
(3) Each share of each series of Preferred Stock shall
have the same relative rights and be identical in all respects with all other
shares of the same series.
<PAGE> 6
(4) Before the Corporation shall issue any shares of
Preferred Stock of any series authorized as hereinbefore provided, a
certificate setting forth a copy of the resolution or resolutions with respect
to such series adopted by the Board of Directors of the Corporation pursuant to
the foregoing authority vested in said board shall be made, filed and recorded
in accordance with the then applicable requirements, if any, of the laws of the
State of Florida, or, if no certificate is then so required, such certificate
shall be signed and acknowledged on behalf of the Corporation by its president
or a vice president and its corporate seal shall be affixed thereto and
attested by its secretary or assistant secretary, and such certificate shall be
filed and kept on file at the principal office of the Corporation and in such
other place or places, if any, as the Board of Directors shall designate and
shall be considered an amendment to these Articles of Incorporation.
(5) Shares of any series of Preferred Stock which shall
be issued and thereafter acquired by the Corporation through purchase,
redemption, conversion or otherwise, may, as provided by resolution or
resolutions of the Board of Directors and upon compliance with applicable law,
be returned to the status of authorized but unissued shares of Preferred Stock,
undesignated as to series, or to the status of authorized but unissued shares
of Preferred Stock of the same series.
(6) Unless otherwise provided in the resolution or
resolutions of the Board of Directors providing for the issue of a series of
Preferred Stock, the number of authorized shares of Preferred Stock of any such
series may be increased or decreased (but not below the number of shares
thereof then outstanding) by resolution or resolutions of the Board of
Directors, and the filing and recording of a certificate, setting forth that
such increase or decrease has been authorized by the Board of Directors in
accordance with applicable law. In case the number of shares of any such
series of Preferred Stock shall be decreased in accordance with the last
sentence, the shares representing such decrease shall, unless otherwise
provided in the resolution or resolutions of the Board of Directors providing
for such decrease, resume the status of authorized but unissued shares of
Preferred Stock, undesignated as to series.
C. Each share of Common Stock shall have one vote on all matters
coming before any meeting of the shareholders or otherwise to be acted upon by
shareholders.
D. Where shareholder approval is required by applicable state law
for any of the following transactions, the vote required for such approval
shall be the affirmative vote of the holders of at least two-thirds of the
voting power of the outstanding shares of common stock:
<PAGE> 7
(1) Any plan of merger or consolidation;
(2) Any sale, lease, transfer or other disposition of all
or substantially all of this Corporation's property
and assets not in the usual and regular course of its
business; or
(3) Any amendment to, or repeal of, all or any portion of
this Section D of Article III;
provided, however, that the requirement of the two-thirds voting approval set
forth in this Section D of Article III shall exist only from March 31, 1987
through March 31, 1989, and shall thereafter be of no further force or effect.
E. (1) The authority of the Board of Directors to provide for
the issuance of any share of the Corporation's capital stock shall include, but
shall not be limited to, authority to issue shares of capital stock of the
Corporation for any purpose and in any manner (including issuance pursuant to
rights, warrants, or other options) permitted by law, for delivery as all or
part of the consideration for or in connection with the acquisition of all or
part of the outstanding securities of another corporation or enterprise or of
all or part of the assets of another corporation or enterprise irrespective of
the amount by which the issuance of such capital stock shall increase the
number of shares outstanding (but not in excess of the number of shares
authorized).
(2) No holder of any share or shares of any class of
capital stock of the Corporation shall have any preemptive right to subscribe
for any shares of capital stock of any class of the Corporation now or
hereafter authorized or for any securities convertible into or carrying any
optional rights to purchase or subscribe for any shares of capital stock of any
class of the Corporation now or hereafter authorized; provided, however, that
no provision of these Articles of Incorporation shall be deemed to deny to the
Board of Directors the right, in its discretion to grant to the holders of
shares of any class of capital stock at the time outstanding the right to
purchase or subscribe for shares of capital stock of any class or any other
securities of the Corporation now or hereafter authorized at such prices and
upon such other terms and conditions as the Board of Directors, in its
discretion, may fix.
(3) Dividends respecting any shares of capital stock of
the Corporation shall be payable only out of earnings or assets of the
Corporation legally available for the payment of such dividends and only as and
when declared by the Board of Directors of the Corporation.
<PAGE> 8
F. The authorized series of Preferred Stock are the following:
1. SERIES A PREFERRED STOCK
The Board of Directors of this Corporation is authorized to
issue a series of Preferred Stock of this Corporation having a par value of
$.10 per share and redemption and liquidation value of $1,000 per share, which
series shall be designated as Series A Preferred Stock ("Series A Preferred
Stock"), shall initially consist of 50,000 shares, which number of shares may
be increased by resolution of the Board of Directors of this Corporation, and
shall have the following dividend rights, dividend rate, voting rights, rights
and terms of redemption, redemption prices and liquidation preferences:
(a) Dividends. The holders of Series A Preferred Stock
shall be entitled to receive, when and as declared by the Board of Directors of
this Corporation, out of funds legally available therefor, cumulative dividends
at a rate equal to nine percent (9%) multiplied by $1,000 payable in additional
Series A Preferred Stock, computed on the basis of the Series A Preferred
Stock's redemption and liquidation value of $1,000 per share and issuable in
fractions of shares, payable quarter-annually on the first days of January,
April, July and October in each year, beginning on the first such date
occurring after the date of issue of the Series A Preferred Stock (the "Issue
Date"); provided, that, at this Corporation's sole option, dividends may be
paid in cash at the above rate if this Corporation's net stockholders' equity,
computed on a consolidated basis in accordance with generally accepted
accounting principles, exclusive of the Series A Preferred Stock outstanding,
is at least $41 million at the end of the fiscal quarter immediately preceding
the date a dividend is declared; and provided further, however, that no
dividend shall be declared or paid or any distribution made on the Common Stock
of this Corporation so long as any of the Series A Preferred Stock remains
outstanding, unless all quarterly dividends on the Series A Preferred Stock
shall have been paid. The dividends on shares of Series A Preferred Stock
shall be cumulative and accrue from the Issue Date.
(b) Redemption and Retirement. The shares of Series A
Preferred Stock may be redeemed, at the option of the Board of Directors of
this Corporation, as a whole or in part from time to time, at a cash price per
share of $1,000 plus all dividends which on the redemption date have accrued on
the shares to be redeemed and have not been paid provided, that this
Corporation's net stockholders' equity, computed on a consolidated basis in
accordance with generally accepted accounting principles, after giving effect
to such redemption is at least $46 million at the end of the fiscal quarter
immediately preceding the date a redemption is approved by this Corporation's
Board of Directors; and provided further, however, that if and whenever any
quarter-annual dividend shall have accrued on the Series A Preferred Stock
which has not been paid, this Corporation may not redeem any shares of Series A
Preferred Stock unless all shares of such series at the time outstanding are so
redeemed.
<PAGE> 9
Notice of any redemption under this paragraph (b) shall be
mailed not less than forty-five (45) nor more than sixty (60) days prior to the
date fixed for redemption to the holders of record of the shares of the Series
A Preferred Stock to be redeemed at their respective addresses as the same
appear upon the books of this Corporation; but no defect in the publication or
mailing of such notice shall affect the validity of the proceedings for the
redemption of any shares of Series A Preferred Stock. In case of a redemption
of a part only of the Series A Preferred Stock at the time outstanding, this
Corporation shall select shares so to be redeemed as nearly as practicable pro
rata, in such manner as the Board of Directors may determine.
If notice of redemption shall have been mailed as hereinbefore
provided and if before the redemption date specified in such notice all funds
necessary for such redemption shall have been set apart so as to be available
therefor and only therefor, then on and after the date fixed for redemption the
shares of Series A Preferred Stock so called for redemption, notwithstanding
that any certificate therefor shall not have been surrendered or cancelled,
shall no longer be deemed outstanding and all rights with respect to such
shares shall forthwith cease and terminate except only the right of the holders
thereof to receive upon surrender of certificates therefor the amount payable
upon redemption thereof, but without interest; provided, however, that if on or
prior to the date fixed for such redemption this Corporation shall deposit, as
a trust fund, with any bank or trust company (organized under the laws of the
United States of America, and which has a capital, undivided profits and
surplus aggregating at least $10,000,000) a sum sufficient to redeem on such
redemption date the shares of Series A Preferred Stock to be redeemed with
irrevocable instructions and authority to the said bank or trust company to
mail the aforesaid notice of redemption thereof and to pay, on and after the
date fixed for such redemption or prior thereto, the redemption price of the
shares of Series A Preferred Stock to be redeemed to their respective holders
upon the surrender of their share certificates, then, from and after the date
of deposit (although prior to the date fixed for redemption) the shares of
Series A Preferred Stock to be redeemed shall be deemed to be redeemed and
dividends on those shares shall cease to accrue after the date fixed for such
redemption. The deposit shall be deemed to constitute full payment of the
shares of Series A Preferred Stock to be redeemed to their holders and from and
after the date of deposit the shares shall be deemed to be no longer
outstanding and the holders thereof shall cease to be shareholders with respect
to such shares and shall have no rights with respect thereto, except the right
to receive from the said bank or trust company payment of the redemption price
of the shares without interest, upon surrender of their certificates therefor.
All shares of Series A Preferred Stock so redeemed shall be
retired and shall be restored to the status of authorized and unissued
preferred shares.
(c) Rights Upon Liquidation or Dissolution. The amounts
payable to holders of Series A Preferred Stock in the event of any voluntary or
involuntary
<PAGE> 10
liquidation, dissolution or winding up of the Corporation, before
any payment shall be made to the holders of common shares, shall be $1,000 per
share plus all dividends thereon which shall have accrued at the time of any
such liquidation, dissolution or winding up and shall have not been paid. The
holders of Series A Preferred Stock shall be entitled to no further
participation in any remaining assets of this Corporation. Neither the
consolidation or merger of this Corporation with or into any other corporation
or corporations, nor the sale or lease of all or substantially all of the
assets of this Corporation shall be deemed to be a liquidation, dissolution or
winding up of this Corporation within the meaning of any of the provisions of
this paragraph (c).
(d) Voting Rights. The holders of Series A Preferred
Stock shall have no voting rights except to the extent as may be provided by
the laws of the State of Florida and to the limited extent provided herein. If
at any time the amount of any dividends on Series A Convertible Preferred Stock
which have accrued and which have not been paid on demand and a sum sufficient
for the payment thereof set apart shall be at least equal to the amount of
twelve quarter-yearly dividends, the holders of Series A Convertible Preferred
Stock, voting with the holders of the outstanding Common Shares and not as a
separate class or series, shall be entitled to one vote per share on all
matters to come before the Shareholders of this Corporation, which vote may be
cast as provided by the laws of the State of Florida.
In addition, without the consent of the holders of at least
sixty-six and two-thirds (66-2/3) of the number of shares of Series A Preferred
Stock at the time outstanding and eligible to vote, given in person or by
proxy, either in writing or by vote at a meeting called for that purpose at
which the holders of Series A Preferred Stock shall vote as a class, the
Articles of Incorporation shall not be changed so as to, nor shall the Board of
Directors take any action so as to:
(i) modify so as to affect adversely the rights
and preferences of the Series A Preferred Stock as
set forth herein;
(ii) establish or enlarge a series of any class of
stock ranking senior to the Series A Preferred Stock;
or
(iii) authorize any additional class of stock
ranking senior to the Preferred Stock or to increase
the authorized number of shares of any class of stock
ranking senior to the Preferred Stock.
For purposes of this paragraph (d), "ranking senior" shall
mean having a prior right to the payment of dividends or to the distribution of
assets in liquidation and shall not mean having a right pari passu to the
payment of dividends or the distribution of assets in liquidation.
<PAGE> 11
(e) No Preemptive Rights. The holders of Series A
Preferred Stock shall not have any preemptive rights.
<PAGE> 12
ARTICLES OF MERGER OF
CHARTER INSURANCE GROUP, INC.
INTO
THE CHARTER COMPANY
Pursuant to the provisions of Section 33-13-70 of the South Carolina
Business Corporation Act and Section 607.234 of the Florida General Corporation
Act, the undersigned corporation certifies as follows:
FIRST, the names of the corporations which are parties to the merger
are:
The Charter Company
a Florida corporation (the "Surviving Corporation");
and
Charter Insurance Group, Inc.
a South Carolina corporation (the "Merging Corporation")
SECOND, the Plan of Merger was approved by resolution of the Board of
Directors of the Surviving Corporation dated December 15, 1987. A copy of the
Plan of Merger is attached hereto as Exhibit A and made a part hereof.
THIRD, the Merging Corporation has 1,000 shares of $100.00 par value
common stock outstanding, all of which are owned by the Surviving Corporation.
FOURTH, as the sole shareholder of the Merging Corporation, the
Surviving Corporation hereby waives the mailing of a copy of the Plan of Merger
to it pursuant to Section 607.227 subsection (4) of the Florida General
Corporation Act.
FIFTH, the Surviving Corporation agrees that it may be served with
process in South Carolina in any proceeding (i) to enforce any obligation of
the participating domestic corporation, and (ii) to enforce the right of
dissenting shareholders of any
<PAGE> 13
participating domestic corporation against the Surviving or new corporation.
SIXTH, the Surviving Corporation irrevocably appoints the Secretary of
State of South Carolina as its agent to accept service of process in any such
proceedings. A copy of such process may be mailed to: Att: Corporate Counsel,
One Charter Plaza, Jacksonville, Florida 32231.
DATED: December 21, 1987.
THE CHARTER COMPANY
/s/ D. Thomas Moody
By: ___________________________________
D. Thomas Moody
President
/s/ John E. Ross
By: ___________________________________
John E. Ross
Secretary
STATE OF FLORIDA
COUNTY OF DUVAL
On this day personally appeared before me, the undersigned officer
duly authorized by the laws of the State of Florida to take acknowledgments, D.
Thomas Moody, well known to me to be the President of The Charter Company, a
corporation organized and existing under the laws of the State of Florida, and
acknowledged that he executed the above and foregoing Articles of Merger, as
such officer for and on behalf of the Corporation after having been duly
authorized to do so.
<PAGE> 14
WITNESS my hand and official seal at Jacksonville, Duval County,
Florida, this 21st day of December, 1987.
/s/ Linda J. Mobley
-----------------------------------
Notary Public
My Commission Expires:
<PAGE> 15
PLAN OF MERGER
The following Plan of Merger, pursuant to Section 607.234 of the
Florida General Corporation Act and Section 33-17-70 of the South Carolina
Business Corporation Act shall be followed in the event it is duly authorized
by the Board of Directors of The Charter Company, a Florida corporation.
1. Charter Insurance Group, Inc., a South Carolina
corporation (the "Merging Corporation") shall be
merged into The Charter Company (the "Surviving
Corporation") and the separate existence of the
Merging Corporation shall cease. The Surviving
Corporation shall assume all obligations and
liabilities of the Merging Corporation.
2. The Merging Corporation has 1,000 shares of $100.00
par value common stock outstanding all of which are
owned by the Surviving Corporation.
3. In the event the Surviving Corporation, the sole
shareholder of the Merging Corporation, dissents from
the Plan of Merger, it is entitled, upon compliance
with Section 33-11-270 of the South Carolina Business
Corporation Act, to be paid the fair value of its
shares.
4. The merger contemplated herein shall be effective the
date the merger documents are filed with the
Secretary of State of Florida (the "Effective Date").
5. On the Effective Date, by virtue of the merger, the
Surviving Corporation will surrender the authorized
and outstanding stock of the Merging Corporation and
shall cause it to be cancelled.
<PAGE> 16
SECRETARY'S CERTIFICATE
I, John E. Ross, Secretary of The Charter Company, a Florida
corporation, do hereby certify that the following resolutions were duly adopted
at a meeting of the Board of Directors of this Corporation on December 15,
1987, and that the resolutions have not been modified or rescinded and are now
in full force and effect:
NOW, THEREFORE, BE IT RESOLVED, that the Plan of Merger
substantially in the form attached hereto as Exhibit A,
providing for the merger of Charter Insurance Group, Inc. into
the Company, is hereby approved, but with such changes,
additions and deletions thereto as the officer executing the
same shall approve the execution thereof to be conclusive
evidence of said approval;
FURTHER RESOLVED, that the Company, at any time prior to the
filing thereof, may abandon the Plan of Merger by resolution
of the Board of Directors; and
FURTHER RESOLVED, that the officers of the Company acting
singly, for and on behalf of the Company, under its corporate
seal or otherwise, be and are hereby authorized to execute any
and all documents and perform any and all acts that they in
their sole discretion, deem necessary or appropriate to effect
the foregoing resolutions.
IN WITNESS WHEREOF, I have set my hand and the seal of this
Corporation this 21st day of December, 1987.
THE CHARTER COMPANY
/s/ John E. Ross
By: ___________________________________
John E. Ross, Secretary
<PAGE> 17
ARTICLES OF AMENDMENT
TO
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
THE CHARTER COMPANY
a. The name of the Corporation is The Charter Company (the
"Corporation")
b. An amendment to Article I of the Amended and Restated Articles
of Incorporation has been adopted by the Board of Directors and Shareholders of
the Corporation pursuant to Section 607.1003, Florida Business Corporation Act,
to change the name to Spelling Entertainment Group Inc. As amended, Article I
now reads:
ARTICLE I - NAME
The name of the Corporation is Spelling Entertainment Group Inc.
(the "Corporation")
c. The date of the adoption of the amendment to Article I by the
Shareholders was October 6, 1992.
d. The amendment to Article I was approved by the holders of
common stock of the Corporation and the number of votes cast for the amendment
was sufficient for approval by the holders of common stock.
IN WITNESS WHEREOF, The Charter Company has caused these Articles of
Amendment to be signed in its name by its President this 7th day of October,
1992.
THE CHARTER COMPANY
/s/ John E. Ross
By: ___________________________________
John E. Ross, Secretary
and Deputy General Counsel
<PAGE> 18
ARTICLES OF CORRECTION
TO
ARTICLES OF AMENDMENT
TO
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
THE CHARTER COMPANY
a. Articles of Amendment to Amended and Restated Articles of
Incorporation of The Charter Company (presently known as Spelling Entertainment
Group Inc.) were filed with the Department of State on October 14, 1992
("Articles of Amendment").
b. Because of a typographical error in the last sentence of the
Articles of Amendment, the word "President" appears instead of the words
"Secretary and Deputy General Counsel."
c. The word "President" in the last sentence of the Articles of
Amendment is hereby deleted and the words "Secretary and Deputy General
Counsel" are inserted in its place.
IN WITNESS WHEREOF, Spelling Entertainment Group Inc. has caused these
Articles of Correction to be signed in its name by its Secretary and Deputy
General Counsel this 27th day of October, 1992.
SPELLING ENTERTAINMENT GROUP INC.
/s/ John E. Ross
By: ___________________________________
John E. Ross, Secretary
and Deputy General Counsel
<PAGE> 1
EXHIBIT 3(ii)
BYLAWS
OF
SPELLING ENTERTAINMENT GROUP INC.
ARTICLE I
Offices
The principal office of the corporation shall be in such city and
state as the Board of Directors may from time to time designate. The
corporation may also have offices at such other places as the Board of
Directors may from time to time designate, or as the business of the
corporation may require.
ARTICLE II
Stockholders' Meetings
Section 1. The place of all meetings of the stockholders shall be the
principal office of the corporation, or such other place as shall be
determined, from time to time, by the Board of Directors, and the place at
which such meeting shall be held shall be stated in the notice and call of the
meeting.
Section 2(a). The annual meeting of the stockholders of the
corporation for the election of directors to succeed those whose terms expire
and for the transaction of such other business as may properly come before the
meeting shall be held on the second Monday of June in each year or such other
date as shall be established by the Board of Directors.
Section 2(b). Only persons who are nominated in accordance with the
procedures set forth in this Section shall be eligible for election by
stockholders as directors. Nominations of persons for
1
<PAGE> 2
election to the Board of Directors of the corporation may be made at a meeting
of stockholders by or at the direction of the Board of Directors or by any
stockholder of the corporation entitled to vote for the election of directors
at the meeting who complies with the notice procedures set forth in this
Section. Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the corporation. To be timely, a stockholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
corporation not less than sixty (60) days nor more than ninety (90) days prior
to the meeting; provided, however, that, in the event that less than seventy
(70) day's notice or prior public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to be timely must be
so received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. Such stockholder's notice shall set forth (a)
as to each person whom the stockholder proposes to nominate for election or
re-election as a director, (i) the name, age and business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of the corporation which are
beneficially owned by such person and (iv) any other information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
2
<PAGE> 3
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
without limitation such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (b) as to
the stockholder giving the notice (i) the name and address, as they appear on
the corporation's books, of such stockholder and (ii) the class and number of
shares of the corporation which are beneficially owned by such stockholder. At
the request of the Board of Directors any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary of the
corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee. No person shall be eligible for
election as a director of the corporation unless nominated in accordance with
the procedures set forth in this Section. The Chairman of the meeting shall, if
the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by the Bylaws, and, if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 3. The voting at all meetings of stockholders may be viva
voce, but any qualified voter may demand a stock vote, whereupon such stock
vote shall be taken by ballot, each of which shall state the name of the
stockholder voting and the number of shares voted by him, and, if such ballot
be cast by proxy, it shall also state the name of such proxy.
3
<PAGE> 4
At any meeting of the stockholders, every stockholder having the right
to vote shall be entitled to vote in person, or by proxy appointed by an
instrument in writing subscribed by such stockholder and bearing a date not
more than one year prior to said meeting. Each stockholder shall have one vote
for each share of common stock ($0.10 par value) of the corporation, registered
in his name on the books of the corporation, and, except where the transfer
books of the corporation shall have been closed or a date shall have been fixed
as a record date for the determination of its stockholders entitled to vote, no
share of stock shall be voted on which shall have been transferred on the books
of the corporation within twenty (20) days next preceding such vote.
Section 4. The order of business at the annual meeting of
stockholders shall be as follows:
(a) Calling the meeting to order.
(b) Proof of notice of meeting.
(c) Reading of minutes of last previous meeting.
(d) Reports of officers.
(e) Reports of committees.
(f) Election of directors.
(g) Miscellaneous business.
Section 5. Special meetings of the stockholders may be called at any
time by the Chairman of the Board, the President, a majority of the Board of
Directors, the holders of not less than one-tenth of all the shares entitled to
vote at the meeting, or otherwise as provided by law.
Section 6. Notice of the time and place of the annual meeting of
stockholders shall be given by mailing written or printed notice of the same at
least ten (10) days, and not more than sixty (60)
4
<PAGE> 5
days, prior to the meeting, and notice of the time and place and purpose of a
special meeting shall be given by written or printed notice of the same at
least ten (10) days, and not more than sixty (60) days, prior to the meeting,
with postage prepaid, to each stockholder of record of the corporation entitled
to vote at such meeting, and addressed to the stockholder's last known post
office address, or to the address appearing on the corporate books of the
corporation; but notice of meeting may be waived. The Board of Directors may
fix in advance a date, not exceeding sixty (60) days preceding the date of any
meeting of stockholders, as a record date for the determination of the
stockholders entitled to notice of and to vote at any such meeting.
Section 7. A quorum at any annual or special meeting of stockholders
shall consist of stockholders representing, either in person or by proxy, a
majority of the shares entitled to vote at the meeting, except as otherwise
specifically provided by law or in the Amended and Restated Articles of
Incorporation. When a specified item of business is required to be voted on by
a class or series of stock, a majority of the shares of such class or series
shall constitute a quorum for the transaction of such item of business by that
class or series.
Section 8. At an annual meeting of stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To
be properly brought before an annual meeting, business must be (a) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the
5
<PAGE> 6
Board of Directors, (b) otherwise properly brought before the meeting by or at
the direction of the Board of Directors, or (c) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought
before an annual meeting by a stockholder, the stockholder must have given
timely notice thereof in writing to the Secretary of the corporation. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation, not less than sixty (60)
days nor more than ninety (90) days prior to the meeting; provided, however,
that, in the event that less than seventy (70) days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the tenth (10th) day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth, as to each matter the
stockholder proposes to bring before the annual meeting, (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (c) the class and number of shares of the corporation
which are beneficially owned by the stockholder, and (d) any material interest
of the stockholder in such business. Notwithstanding anything in these Bylaws
to the contrary, no business shall be
6
<PAGE> 7
conducted at an annual meeting except in accordance with the procedures set
forth in this Section. The Chairman of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Section,
and, if he should so determine, he shall so declare to the meeting, and any
such business not properly brought before the meeting shall not be transacted.
ARTICLE III
Board of Directors
Section 1. The management of all of the affairs, property and
business of the corporation shall be vested in a Board of Directors, consisting
of not less than three (3) nor more than twenty (20) persons. In addition to
the powers and authorities by these Bylaws and the Amended and Restated
Articles of Incorporation expressly conferred upon it, the Board of Directors
may exercise all such powers of the corporation and do all such lawful acts and
things as are not by statute or by the Amended and Restated Articles of
Incorporation or by these Bylaws directed or required to be exercised or done
by the stockholders. No director need be a stockholder.
Section 2. The number of directors shall be no less than three (3)
nor more than twenty (20) persons in number. The number of directors to be
elected at each annual meeting of stockholders shall be fixed by the Board of
Directors. The Board of Directors shall have the right at any time during the
ensuing year to
7
<PAGE> 8
increase the number of directors by not more than three (3) additional
directors. A director elected at the annual meeting shall hold office until
his successor is elected and qualified unless he earlier resigns or is removed.
Section 3. All vacancies in the Board of Directors, whether caused by
resignation, death or otherwise, may be filled by the remaining directors or a
majority of the remaining directors attending a stated or special meeting
called for that purpose, even though less than a quorum be present. A director
thus elected to fill any vacancy shall hold office for the unexpired term of
his predecessor, and until his successor is elected and qualified.
Section 4. Regular meetings of the Board of Directors may be held at
the principal office of the corporation or at such other place or places as the
Board of Directors may designate from time to time.
Section 5. Special meetings of the Board of Directors may be called
at any time by the Chairman of the Board, the President or a majority of the
directors, to be held at the principal office of the corporation, or at such
other place or places as the notice calling the meeting may designate.
Section 6. Notice of all special meetings of the Board of Directors
shall be given to each director by five (5) days' service of the same by
telegram, by letter delivered by mail or by a commercial delivery service, or
personally, and notice of meetings may be waived.
8
<PAGE> 9
Section 7. A quorum at all meetings of the Board of Directors shall
consist of a majority of the directors, but less than a quorum may adjourn any
meeting, which may be held on subsequent dates without further notice, provided
a quorum be present at such deferred meeting.
Section 8. Standing or temporary committees may be appointed from its
own number by the Board of Directors from time to time, and the Board of
Directors may from time to time invest such committees with such powers as it
may see fit, subject to such conditions as may be prescribed by such Board. An
executive committee may be appointed by resolution passed by a majority of the
directors, and it shall have all the powers provided by statute except as
specially limited by the Board. All committees so appointed shall keep regular
minutes of the transactions of their meetings, and shall cause them to be
recorded in books kept for that purpose in the office of the corporation, and
shall report same to the Board of Directors at its next meeting.
ARTICLE IV
Officers
Section 1. The officers of the corporation shall consist of a
Chairman of the Board, a President, a Chief Financial Officer, one or more Vice
Presidents (which may include senior and executive vice presidents), a
Secretary and a Treasurer, who shall be elected for one year by the directors
at their first meeting after the annual meeting of the stockholders, and who
shall hold office until their successors are elected and qualify. The Board of
Directors
9
<PAGE> 10
may also designate the President as Chief Executive Officer of the corporation.
The Board of Directors may also choose Assistant Vice Presidents, Assistant
Secretaries and Assistant Treasurers. No officer, except the Chairman of the
Board, need be a member of the Board of Directors. The same person may hold two
or more offices.
Section 2(a). The Chairman of the Board shall be the Chairman of the
Executive Committee and shall preside at all meetings of the Board of Directors
or the Executive Committee when present. He shall provide leadership to the
Board of Directors and shall oversee the deliberations and activities of the
Board. He shall advise and counsel with the President of the corporation on
all matters of corporate interest. The Chairman of the Board shall also
perform such other duties as may be assigned to him by the Board of Directors.
Section 2(b). The President shall be chief operating officer charged
with the actual operation of all of the corporation's affairs, directly or
through delegation of authority to other officers, within the framework of
directives and policies prescribed from time to time by the Board of Directors.
He shall also perform such other duties as may be specifically directed by the
Board of Directors or are incidental to his office and not prescribed in these
Bylaws.
Section 2(c). The Chief Financial Officer shall be charged with the
duties of obtaining necessary financing for the corporation and coordinating,
directing and administering the corporation's financial operations within the
framework of
10
<PAGE> 11
directives and policies, prescribed from time to time by the President or the
Board of Directors. The Chief Financial Officer shall be responsible to the
President and the Board of Directors for the efficient and satisfactory
discharge of all of his duties. He shall perform other duties incidental to
his office and not prescribed in these Bylaws, as may be directed by the
President or the Board of Directors. He shall report to the President and the
Board of Directors as to the financial condition of the corporation at such
time and in such manner as directed by the President or the Board of Directors.
Section 3. The Vice President or Vice Presidents shall perform such
duties as are assigned by the President or the Board of Directors, and such
other duties that are incidental to the office of Vice President.
Section 4. The Secretary shall issue notice for all meetings, shall
keep minutes of all meetings, shall have charge of the seal and the corporate
books, and shall make such reports and perform such other duties as are
incidental to his office, or are properly required of him by the Board of
Directors.
Section 5. The Treasurer shall have the custody of all moneys and
securities of the corporation and shall keep regular books of account. He
shall disburse the funds of the corporation in payment of the just demands
against the corporation, or as may be ordered by the President or the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors from time to time as may be required
of him an
11
<PAGE> 12
account of all his transactions as Treasurer and of the financial condition of
the corporation. He shall perform all duties incidental to this office or
which are properly required of him by the Board of Directors.
Section 6. In the case of absence or inability to act of any officer
of the corporation, the Board of Directors may from time to time delegate the
powers or duties of such officer to any other officer, or any director or other
person whom it may select.
Section 7. Vacancies in any office arising from any cause may be
filled by the directors at any regular or special meeting.
Section 8. The Board of Directors may appoint such other officers and
agents as it shall deem necessary or expedient, who shall hold their offices
for such terms and shall exercise such powers and perform such duties as shall
be determined from time to time by the Board of Directors.
Section 9. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by
the Board of Directors may be removed at any time with or without cause, by the
affirmative vote of a majority of the whole Board of Directors.
Section 10. The Board of Directors may, be resolution, require any
and all of the officers to give bonds to the corporation, with sufficient
surety or sureties, conditioned for the faithful performance of the duties of
their respective offices, and to comply with such other duties as may from time
to time be required by the Board of Directors.
12
<PAGE> 13
ARTICLE V
Stock
Section 1. Certificates of stock shall be issued in numerical order,
and each stockholder shall be entitled to a certificate signed by the President
or a Vice President and the Secretary or an Assistant Secretary, certifying to
the number of shares owned by him. Where, however, such certificate is signed
by a transfer agent or an assistant transfer agent, or by a transfer clerk
acting in behalf of the corporation, and a registrar, the signatures of any of
the above-named officers may be facsimile.
In case any officer who has signed, or whose facsimile signature has
been used on a certificate, has ceased to be an officer before the certificate
has been delivered, such certificates may, nevertheless, be adopted and issued
and delivered by the corporation as though the officer who signed such
certificate or certificates, or whose facsimile signature or signatures shall
have been used thereon, had not ceased to be such officer of the corporation.
Section 2. Transfer of stock shall be made only upon the transfer
books of the corporation, kept at the office of the corporation or respective
transfer agents designated to transfer the stock of the corporation.
Section 3. Registered stockholders only shall be entitled to be
treated by the corporation as the holders in fact of the stock standing in
their respective names, and the corporation shall not be bound to recognize any
equitable or other claim to or interest
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<PAGE> 14
in any share on the part of any other person, whether or not it shall have
express or other notice thereof, except as expressly provided by the laws of
Florida.
Section 4. In case of loss or destruction of any certificate of
stock, another may be issued in its place upon proof of such loss or
destruction, and upon the giving of a satisfactory bond of indemnity to the
corporation and/or to the transfer agent and registrar of such stock in such
sum as the officers of the corporation may provide. An officer of the
corporation, within the discretion provided for in the determination of whether
or not a bond is "satisfactory" and whether the sum thereof is adequate, may
waive the requirement of a bond.
Section 5. The Board of Directors shall have the power to close the
stock transfer books of the corporation for a period not exceeding forty (40)
days preceding the date of any meeting of stockholders, or the date for payment
of any dividend, or the date for the allotment of rights, or the date when any
change or conversion or exchange of capital stock shall go into effect, or for
a period of not exceeding forty (40) days in connection with obtaining the
consent of the stockholders for any purpose; provided, however, that, in lieu
of closing the stock transfer books as aforesaid, the Board of Directors may
fix in advance a date, not exceeding sixty (60) days preceding the date of any
meeting of stockholders, or the date for the payment of any dividend, or the
date for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into
14
<PAGE> 15
effect, or a date in connection with obtaining such consent, as a record date
for the determination of the stockholders entitled to notice of and to vote at
any such meeting, and any adjournment thereof, or entitled to receive payment
of any such dividend, or to any such allotment of rights, or to exercise the
rights in respect of any change, conversion, or exchange of capital stock, or
to give such consent without actually closing such transfer books, and in such
case such stockholders, and only such stockholders as shall be stockholders of
record on the date so fixed, shall be entitled to such notice of and to vote at
such meeting, and any adjournment thereof, or to receive payment of such
dividend, or to receive such allotment of rights, or to exercise such rights,
or to give such consent, as the case may be, notwithstanding any transfer of
any stock on the books of the corporation after any such record date fixed as
aforesaid.
ARTICLE VI
Dividends and Finances
Section 1. Before making any distribution of profits, there may be
set aside out of the net profits of the corporation, such sum or sums as the
directors may from time to time, in their absolute discretion, deem expedient,
as a reserve fund to meet contingencies, or for equalizing dividends, or for
maintaining any property of the corporation, or for any other purpose, and any
profits of any year not distributed as dividends shall be deemed to have been
thus set apart until otherwise disposed of by the Board of Directors.
15
<PAGE> 16
Section 2. The monies of the corporation shall be deposited in the
name of the corporation in such bank or banks or trust company or trust
companies as the Board of Directors shall designate, and shall be drawn out
only by check signed by persons designated by resolution by the Board of
Directors.
ARTICLE VII
Books and Records
The books, accounts and records of the corporation except as may be
otherwise required by the laws of the State of Florida may be kept outside of
the State of Florida at such place or places as the Board of Directors may from
time to time designate. The Board of Directors shall determine whether and to
what extent the accounts and books of the corporation, or any of them other
than the stock ledger, shall be open to the inspection of the stockholders, and
no stockholder shall have any right to inspect any account or book or document
of the corporation, except as conferred by law or by resolution of the
stockholders or directors, provided that the provisions of this paragraph shall
not be construed as changing in any way the duty of the Treasurer to make
proper reports to the stockholders at the annual meeting.
ARTICLE VIII
Notices
Section 1. Whenever the provisions of a statute or these Bylaws
require notice to be given to any director, officer or stockholder, they shall
not be construed to mean personal notice; such notice may be given in writing
by depositing the same in a
16
<PAGE> 17
post office or letter box, in a postage paid, sealed wrapper, addressed to such
director, officer or stockholder at his or her address as the same appears on
the books of the corporation, and the time when the same shall be mailed shall
be deemed to be the time of the giving of such notice.
Section 2. A waiver of any notice in writing, signed by a
stockholder, director or officer, whether before or after the time stated in
said waiver for holding a meeting, shall be deemed equivalent to a notice
required to director, officer or stockholder.
ARTICLE IX
Seal
The corporate seal shall consist of the name THE CHARTER COMPANY and
the figures 1959, together with the words CORPORATE SEAL and FLORIDA.
ARTICLE X
Amendment of Bylaws
Alteration, amendment or repeal of the Bylaws may be made by a
majority of the stockholders entitled to vote at any meeting, or by the Board
of Directors by unanimous written consent or by a majority vote of the
directors at any regular or special meeting, provided notice of such
alteration, amendment or repeal has been given to each director in writing at
least two (2) days prior to said meeting.
17
<PAGE> 18
ARTICLE XI
Indemnification
Indemnification of directors, officers, employees and agents of the
corporation may be made to the full permitted by Florida law.
ARTICLE XII
Control-share Acquisitions
The Florida Control-share Acquisitions statute, Statutes Section
607.0902 (1991), as it subsequently may be amended, and any successor provision
(the "Statute"), shall not apply to control-share acquisitions (as defined in
the Statute) of shares of the corporation.
18
<PAGE> 1
Exhibit 10.7
AMENDMENT TO EMPLOYMENT AGREEMENT
This AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment"), dated as of
November 7, 1991, by and between Spelling Entertainment Inc., a Delaware
corporation (the "Company"), Aaron Spelling Productions, Inc., a California
corporation ("ASP") and Aaron Spelling (the "Executive"), is entered into with
reference to the following facts and circumstances:
A. The Executive has been the Chairman of the Board and Chief
Executive Officer of each of the Company and ASP pursuant to an Employment
Agreement dated as of March 1, 1989 by and among the Company, ASP and Executive
(the "Agreement").
B. The Executive is also the Chairman of the Board and Chief
Executive Officer of Torand Productions, Inc., a Delaware corporation
("Torand"), and JBS Productions, Inc. ("JBS"), as well as various other
affiliates (as defined in Rule 12b-2 promulgated under the Securities Exchange
Act of 1934, as amended) controlled by the Company. The affiliates controlled
by the Company which engage in substantial television production, whether
currently existing or hereafter formed or acquired, and including ASP and
Torand are collectively referred to herein as the "Production Affiliates".
Notwithstanding the foregoing, the term "Production Affiliates" shall not
include Laurel Entertainment, Inc. and its subsidiaries and, so long as their
production activities are limited to first run syndication programming,
Worldvision Enterprises, Inc. and its subsidiaries.
C. The Company wishes to have Carl H. Lindner as its Chairman of
the Board and S. Craig Lindner as its Chief Executive Officer. Carl H. Lindner
and S. Craig Lindner are collectively referred to herein as the "Lindners".
D. The Company, ASP and Executive desire to amend the Employment
Agreement on terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual premises and the mutual
agreements hereinafter contained, the parties hereto hereby agree as follows:
1. Executive hereby resigns all offices and positions which he
currently holds with the Company, including his Chief Executive position and
directorship.
2. Executive shall remain as Chairman of the Board and Chief
Executive Officer of ASP, Torand, JBS and all other Production Affiliates for
which he currently serves in those capacities. Section 2.1 of the Agreement
shall be amended to read in full as follows:
<PAGE> 2
2.1 Officer and Director. During the Term, the Executive
shall serve as Chairman of the Board and Chief Executive
Officer of ASP, Torand and JBS and shall serve in his
discretion as Chairman of the Board and Chief Executive
Officer of any of the other Production Affiliates. During the
Term, ASP, Torand, JBS and the Production Affiliates
designated by the Executive shall employ or engage no one
other than the Executive with the Executive's title or
function under this Agreement without the Executive's prior
written approval. During the Term, all officers and employees
(who shall include all persons traditionally employed by such
entities prior to the date hereof and the persons performing
all of the principal functions of a stand-alone production
company, including but not limited to development, production
(including wardrobe, transportation, etc.), merchandising
business affairs, legal affairs and the like) of ASP, Torand
and the designated Production Affiliates shall report to the
Executive (directly or through such channels as the Executive
shall designate in consultation with the Lindners and the
appropriate board of directors) and not to any other
individual or entity. During the Term the Company agrees it
will not, without the prior written consent of the Executive,
cease to have the production of television programming as one
of its principal lines of business.
3. The Company and ASP acknowledge that Executive would have the
right currently to terminate his employment pursuant to Section 4.2.1 of the
Employment Agreement, because of the Lindners becoming Chairman of the Board
and Chief Executive Officer of the Company. Executive hereby agrees not to
terminate his employment as a result of this change, but his right to do so for
other events shall not be lost, and the first sentence of Section 4.2.1 shall
be amended to read as follows:
The Executive shall have the right to terminate his employment
under this Agreement effective upon 7 days written notice if,
at any time during the Term, the Company shall be in material
breach of its material obligations under this Agreement
(including, but not limited to, the Executive not being
elected or retained or otherwise not actually having the
authority contemplated in this Agreement as
<PAGE> 3
the Chairman of the Board, Chief Executive Officer of ASP,
Torand, JBS or the designated Production Subsidiaries, or
being obligated to report to any person other than S. Craig
Lindner or Carl H. Lindner) or there occurs "Change in
Control".
The remainder of Section 4.2.1 shall remain unchanged.
4. The parties acknowledge that the Executive may not have taken
the full Service Fees to which he has been entitled under Section 3.2 of the
Agreement, and agree that this practice shall not be a waiver of the
Executive's rights in the future, or obligate the Executive to accept less than
he is entitled to under the Agreement.
5. In all other respects and except as otherwise inconsistent
with this Amendment, the Agreement shall remain in full force and effect,
except that the term "Agreement" as used therein shall specifically include
this Amendment and any future written amendments executed by the parties.
IN WITNESS WHEREOF, the Company, ASP and the Executive have executed
this Amendment as of the date first above written.
SPELLING ENTERTAINMENT INC.,
(Company)
By: __________________________________
Name:
Title:
AARON SPELLING PRODUCTIONS, INC.
(ASP)
By: __________________________________
Name:
Title:
______________________________________
AARON SPELLING
(Executive)
<PAGE> 1
EXHIBIT 10.8
Conformed Copy
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT (the "Amendment") is made
and entered into this 6th day of May, 1993, by and among Spelling Entertainment
Inc., a Delaware corporation (the "Company"), Aaron Spelling Productions, Inc.,
a California corporation ("ASP") and Aaron Spelling (the "Executive").
RECITALS:
A. The Executive has been employed by the Company and ASP
pursuant to an Employment Agreement, dated as of March 1, 1989, by and among
the Company, ASP and the Executive.
B. The Employment Agreement was amended by Amendment to
Employment Agreement, dated as of November 7, 1991 (the Employment Agreement
and Amendment to Employment Agreement are referred to, collectively, as the
"Agreement").
C. The Agreement will expire by its terms on March 1, 1994.
D. The Company, ASP and Executive desire to extend the term of
and otherwise amend the Employment Agreement on the terms and conditions set
forth herein.
AGREEMENT:
For and in consideration of the foregoing Recitals, the mutual
covenants expressed below and other valuable consideration, receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. SECTION 1 OF THE AGREEMENT IS HEREBY DELETED, IN ITS ENTIRETY,
AND REPLACED WITH THE FOLLOWING:
"1. Term of Employment. The Company shall employ
Executive for a consecutive period commencing at the Effective
Time (as defined in the Merger Agreement) and ending on April
30, 1996, unless earlier terminated pursuant to Sections 4.1
or 4.2 below (the "Term")."
2. THE LAST SENTENCE OF SECTION 3.1 OF THE AGREEMENT IS HEREBY
DELETED, IN ITS ENTIRETY, AND REPLACED WITH THE FOLLOWING:
"The Executive's Base Salary, as previously increased from
time to time in accordance with the Agreement, shall be
increased by
1
<PAGE> 2
ten percent (10%) on each of the fifth and sixth
anniversaries of the Effective Time."
3. SECTION 4.2.1 OF THE AGREEMENT IS HEREBY DELETED, IN ITS
ENTIRETY, AND REPLACED WITH THE FOLLOWING:
"The Executive shall have the right to terminate his
employment under this Agreement effective upon seven (7) days
written notice if, at any time during the Term, the Company
shall be in material breach of its material obligations under
this Agreement (including, but not limited to, the Executive
not being elected or retained or otherwise not actually having
the authority contemplated in this Agreement as the Chairman
of the Board, Chief Executive Officer of ASP, Torand, JBS or
the designated Production Subsidiaries, or being obligated to
report to any person other than H. Wayne Huizenga or Steven R.
Berrard) or there occurs a "Change in Control". For purposes
of this Agreement, the term "Change in Control" means: (a) the
control by any person or "group," within the meaning of
Section 13(d) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), of beneficial ownership
(within the meaning of the Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, of voting securities of
the Company representing 50% or more of the combined voting
power of the Company's then outstanding voting securities
entitled to vote generally in the election of directors;
provided, however, that this clause shall not apply to any
shares held by Blockbuster Entertainment Corporation or its
affiliates; or (b) such time as a majority of the Board of
Directors of the Company (the "Board") shall be comprised of
persons who were not elected to such offices as part of the
"Company nominated slate" of directors (i.e. the slate of
nominees proposed by the Board in office immediately prior to
the election; provided, however, that this clause shall not
apply in the event one or more directors voluntarily resigns
from the Board and such resignation or resignations would
otherwise come within the provisions of this Section
4.2.1(b)."
4. SECTION 9.7 OF THE AGREEMENT IS HEREBY DELETED, IN ITS
ENTIRETY, AND REPLACED WITH THE FOLLOWING:
"9.7 Waivers.
9.7.1 General. The waiver by either party of a breach of
any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach of this
Agreement.
9.7.2 Credits. In the event Executive waives his right to
receive
2
<PAGE> 3
credit for any television program or theatrical film made by
the Company or the Affiliates including, without limitation,
Executive's right to receive credit as executive producer
thereof, such waiver shall in no way prejudice Executive's
other rights under this Agreement.
9.7.3 Service Fees. The parties acknowledge that the
Executive may not have taken the full Service Fees to which he
has been entitled under Section 3.2 of the Agreement, and
agree that this practice shall not be a waiver of the
Executive's rights in the future, or obligate the Executive to
accept less than he is entitled to under the Agreement."
5. THE PARTIES ACKNOWLEDGE THAT JBS PRODUCTIONS, INC. IS NOW
KNOWN AS SPELLING TELEVISION INC.
6. THE AGREEMENT SHALL BE AMENDED ONLY IN THE FOREGOING RESPECTS.
ALL OTHER PROVISIONS NOT SPECIFICALLY REFERENCED IN THIS AMENDMENT SHALL NOT BE
AFFECTED AND SHALL REMAIN AS PROVIDED THEREIN. ALL CAPITALIZED TERMS USED
HEREIN SHALL HAVE THE MEANINGS SET FORTH IN THE AGREEMENT UNLESS OTHERWISE
NOTED.
IN WITNESS WHEREOF, the Company, ASP and the Executive have executed
this Amendment as of the date first written above.
SPELLING ENTERTAINMENT INC.
By: /s/ Steven R. Berrard
-----------------------------------
Title: President
--------------------------
AARON SPELLING PRODUCTIONS, INC.
By: /s/ Steven R. Berrard
-----------------------------------
Title: President
--------------------------
/s/ Aaron Spelling
-----------------------------------
AARON SPELLING
3
<PAGE> 1
EXHIBIT 10.14
SPELLING ENTERTAINMENT GROUP INC.
1994 STOCK OPTION PLAN
1. STATEMENT OF PURPOSE. The purpose of this Stock Option Plan
(the "Plan") is to benefit Spelling Entertainment Group Inc., a Florida
corporation (the "Company"), and its subsidiaries through the maintenance and
development of their respective businesses by offering certain present and
future key individuals and employee members of the Board of Directors of the
Company (individually an "Employee Director" and collectively "Employee
Directors") a favorable opportunity to become holders of stock in the Company
over a period of years, thereby giving them a permanent stake in the growth and
prosperity of the Company and encouraging the continuance of their involvement
with the Company or its subsidiaries.
2. ADMINISTRATION. The Plan shall be administered by the
Compensation Committee (the "Committee"), consisting of two or more
non-employee directors of the Company appointed by the Board of Directors,
whose interpretation of the terms and provisions of the Plan shall be final and
conclusive. The selection of officers and Employee Directors for participation
in the Plan and all decisions concerning the timing, pricing and amount of any
grant or award under the Plan shall be made solely by the Committee.
3. ELIGIBILITY. Options shall be granted only to key employees
of the Company and its subsidiaries (including officers of the Company and its
subsidiaries and Employee Directors but excluding non-employee directors of the
Company) selected initially and from time to time by the Committee on the basis
of their importance to the business of the Company or its subsidiaries.
4. GRANTING OF OPTIONS. The Committee may grant options under
which a total of not in excess of 4,500,000 shares of the $.10 par value common
stock of the Company ("Common Stock") may be purchased from the Company,
subject to adjustment as provided in Section 11; provided that the Committee
may not grant to any individual options to purchase more than 1,215,000 shares
of Common Stock or more than 27% of the total number of options to purchase
shares of Common Stock granted under the Plan. Options granted under the Plan
are intended not to be treated as incentive stock options as defined in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
In the event that an option expires or is terminated or cancelled
unexercised as to any shares, such released shares may again be optioned
(including a grant in substitution for a cancelled option); provided that none
of such options may be granted to any of the top employees of the Company (as
determined pursuant to the Code). Shares subject to options may be made
available from unissued or reacquired shares of Common Stock.
Nothing contained in the Plan or in any option granted pursuant
thereto shall confer upon any optionee any right to be continued in the
employment of the Company or any subsidiary of the Company, or interfere in any
way with the right of the Company or its subsidiaries to terminate his
employment at any time.
<PAGE> 2
5. OPTION PRICE. The option price shall be determined by the
Committee and, subject to the provisions of Section 11 hereof, shall be not
less than the fair market value, at the time the option is granted, of the
shares of Common Stock subject to the option.
6. DURATION OF OPTIONS, INCREMENTS AND EXTENSIONS. Subject to
the provisions of Section 9 hereof, each option shall be for such term of not
less than five years nor more than ten years, as shall be determined by the
Committee. Each option shall become exercisable with respect to 25% of the
total number of shares subject to the option twelve months after the date of
its grant and with respect to each additional 25% at the end of each
twelve-month period thereafter during the succeeding three years.
Notwithstanding the foregoing, the Committee may in its discretion (i)
specifically provide for another time or times of exercise; (ii) accelerate the
exercisability of any option subject to such terms and conditions as the
Committee deems necessary and appropriate; or (iii) at any time prior to the
expiration or termination of any option previously granted, extend the term of
any option (including such options held by officers or Employee Directors) for
such additional period as the Committee in its discretion shall determine. In
no event, however, shall the aggregate option period with respect to any
option, including the original term of the option and any extensions thereof,
exceed ten years. Subject to the foregoing, all or any part of the shares to
which the right to purchase has accrued may be purchased at the time of such
accrual or at any time or times thereafter during the option period.
7. RIGHT OF COMPANY TO REPURCHASE. Notwithstanding any other
provision in the Plan to the contrary, in the event the employment of the
optionee (or former optionee) with the Company or any of its subsidiaries is
terminated for any reason other than death, permanent disability or retirement,
the Company shall have the right to purchase from the optionee, at the option
price paid by him, any shares acquired upon the exercise of an option granted
to any employee or Employee Director hereunder which the optionee could not
have acquired if such option had become exercisable with respect to 25% of the
total number of shares subject to the option twelve months after the date of
its grant and with respect to an additional 25% at the end of each twelve-month
period thereafter during the succeeding three years. If not sooner exercised,
the Company's right to repurchase shall expire with respect to 25% of the total
number of shares subject to the option twelve months after the date of its
grant and with respect to an additional 25% at the end of each of the next
three twelve-month periods thereafter.
8. EXERCISE OF OPTION. As a condition to the exercise of any
option, the "Quoted Price" (as defined below) per share of Common Stock on the
date of exercise must equal or exceed the option price referred to in Section 5
hereof. An option may be exercised by giving written notice to the Company,
attention of the Secretary, specifying the number of shares to be purchased,
accompanied by the full purchase price for the shares to be purchased either in
cash, by check, by a promissory note in a form specified by the Company and
payable to the Company no later than 15 business days after the date of
exercise of the option or, if so approved by the Committee, by shares of the
Common Stock of the Company or by a
2
<PAGE> 3
combination of these methods of payment. The "Quoted Price" and the per share
value of Common Stock for purposes of paying the option price in accordance
with the immediately preceding sentence shall equal the closing selling price
per share of Common Stock on the date in question on the stock exchange upon
which the Company's Common Stock is listed (the "Exchange"). The right to pay
the purchase price of shares by delivery of a promissory note shall not be
available to any optionee who is a person described in Section 16(a) of the
Securities Exchange Act of 1934 (the "1934 Act").
At any time of any exercise of any option, the Company may, if it
shall determine it necessary or desirable for any reason, require the optionee
(or his heirs, legatees, or legal representative, as the case may be) as a
condition upon the exercise thereof, to deliver to the Company a written
representation of present intention to purchase the shares for investment and
not for distribution. In the event such representation is required to be
delivered, an appropriate legend may be placed upon each certificate delivered
to the optionee upon his exercise of part or all of the option and a stop
transfer order may be placed with the transfer agent. Each option shall also
be subject to the requirement that, if at any time the Company determines, in
its discretion, that the listing, registration or qualification of the shares
subject to the option upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of or in connection with, the issue or
purchase of shares thereunder, the option may not be exercised in whole or in
part unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Company.
At the time of the exercise of any option the Committee may require,
as a condition of the exercise of such option, the optionee to (x) pay the
Company an amount equal to the amount of tax the Company may be required to
withhold to obtain a deduction for federal income tax purposes as a result of
the exercise of such option by the optionee or (y) make such other arrangements
with the Company which would enable the Company to pay such withholding tax,
including, without limitation, holding back a number of shares issuable upon
exercise of the option equal to the amount of such withholding tax, or
permitting the optionee to deliver a promissory note in a form specified by the
Committee, or (z) a combination of the foregoing.
9. TERMINATION OF RELATIONSHIP-EXERCISE THEREAFTER. In the event
the relationship between the Company and an officer or employee or Employee
Director who is an optionee is terminated for any reason other than death,
permanent disability or retirement such optionee's option shall expire and all
rights to purchase shares pursuant thereto shall terminate immediately. The
Committee may, in its sole discretion, permit any option to remain exercisable
for such period after such termination as the Committee may prescribe, but in
no event after the expiration date of the option. Temporary absence from
employment because of illness, vacation, approved leaves of absence, and
transfers of employment among the Company and its subsidiaries, shall not be
considered to terminate employment or to interrupt continuous employment.
3
<PAGE> 4
In the event of termination of said relationship because of death,
permanent disability (as that term is defined in Section 22(e)(3) of the Code,
as now in effect or as subsequently amended), or retirement the option may be
exercised in full, without regard to any installments established under Section
6 hereof, by the optionee or, if he is not living, by his heirs, legatees or
legal representative (as the case may be) during its specified term prior to
three years after the date of death, permanent disability or retirement, or
such longer period as the Committee may prescribe, but in no event after the
expiration date of the option.
10. NON-TRANSFERABILITY OF OPTIONS. During the lifetime of the
optionee, options shall be exercisable only by the optionee, and options shall
not be assignable or transferable by the optionee otherwise than by will or by
the laws of descent and distribution, or pursuant to a qualified domestic
relations order as defined by the Code, or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder.
11. ADJUSTMENT. The number of shares subject to the Plan and to
options granted under the Plan shall be adjusted as follows: (a) in the event
that the outstanding shares of Common Stock of the Company is changed by any
stock dividend, stock split or combination of shares, the number of shares
subject to the Plan and to options granted hereunder shall be proportionately
adjusted; (b) in the event of any merger, consolidation or reorganization of
the Company with any other corporation or corporations, there shall be
substituted, on an equitable basis as determined by the Committee, for each
share of Common Stock then subject to the Plan, whether or not at the time
subject to outstanding options, the number and kind of shares of stock or other
securities to which the holders of shares of Common Stock of the Company will
be entitled pursuant to the transaction; and (c) in the event of any other
relevant change in the capitalization of the Company, the Committee shall
provide for an equitable adjustment in the number of shares of Common Stock
then subject to the Plan, whether or not then subject to outstanding options.
In the event of any such adjustment the purchase price per share shall be
proportionately adjusted.
12. NO IMPAIRMENT OF RIGHTS. Nothing contained in the Plan or any
option granted pursuant to the Plan shall confer upon any optionee any right to
be continued in the employment of the Company or any subsidiary of the Company
or interfere in any way with the right of the Company or its subsidiaries to
terminate such employment and/or to remove any optionee who is an Employee
Director from service on the Board of Directors of the Company at any time in
accordance with the provisions of applicable law.
13. AMENDMENT OF PLAN. The Board of Directors of the Company may
amend or discontinue the Plan at any time. However, no such amendments or
discontinuance shall be made without the requisite stockholder approval of the
stockholders of the Company if stockholder approval is required as a condition
to the Plan continuing to comply with the provisions of Rule 16b-3 or Section
162(m) of the Code.
4
<PAGE> 5
14. GOVERNANCE BY RULE 16B-3. The Plan is intended to and shall
be governed by Rule 16b-3 promulgated under the 1934 Act.
15. EFFECTIVE DATE. On February 15, 1994 this Plan was adopted
and authorized by the Board of Directors of the Company for submission to the
stockholders of the Company. If this Plan is approved by the affirmative vote
of the holders of a majority of the outstanding shares of Common Stock voting
in person or by proxy at a duly held stockholders' meeting, this Plan shall be
deemed to have become effective on February 15, 1994. With respect to any
options granted on or after such effective date and prior to stockholder
approval, if this Plan is not approved by stockholders all such options shall
be cancelled and void.
5
<PAGE> 1
SPELLING ENTERTAINMENT GROUP INC.
EXHIBIT 11 - COMPUTATION OF NET INCOME PER SHARE
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1993 1992 1991
-----------------------------------
<S> <C> <C> <C>
Net income:
Income from continuing operations $23,659 $ 7,917 $ 636
Dividends on preferred stock 724 810 810
------- ------- -------
Income (loss) from continuing operations
applicable to common stock 22,935 7,107 (174)
Income (loss) from discontinued operations (3,971) (2,043) 7,369
Extraordinary items (2,022) 3,948 4,959
------- ------- -------
Net income applicable to common stock $16,942 $ 9,012 $12,154
======= ======= =======
Shares:
Basic shares - weighted average of
common shares outstanding 54,253 47,789 45,260
Additional shares assuming
conversion of stock options 427 139 132
------- ------- -------
Primary shares 54,680 47,928 45,392
Additional shares assuming
full dilution of stock options 524 -- --
------- ------- -------
Fully-diluted shares 55,204 47,928 45,392
======= ======= =======
Basic, primary, and fully-diluted net
income (loss) per common share:
Continuing operations $ 0.42 $ 0.15 $ --
Discontinued operations (0.07) (0.04) 0.16
Extraordinary Items (0.04) 0.08 0.11
------- ------- -------
Net income per common share $ 0.31 $ 0.19 $ 0.27
======= ======= =======
</TABLE>
Note 1: This calculation is submitted in accordance with the Securities
Exchange Act of 1934 although not required by footnote 2 to
paragraph 14 of APB Opinion No. 15 because the calculation of primary
and fully-diluted net income per share results in a dilution of less
than 3%.
<PAGE> 1
SPELLING ENTERTAINMENT GROUP INC.
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT
The following is a list of the Company's subsidiaries at December 31, 1993.
At that date, all corporations were 100%-owned subsidiaries and, if indented,
subsidiaries of the company under which they are listed.
State of
Name of Company Incorporation
- --------------- --------------
Charter Oil Company Florida
Charter International Oil Company Texas
Charter Oil Eastern Corporation Delaware
Spelling Entertainment Inc. Delaware
Aaron Spelling Productions, Inc. California
Laurel Entertainment, Inc. Delaware
Spelling Films International Inc. Delaware
Torand Productions Inc. Delaware
Spelling Television Inc. Delaware
Worldvision Enterprises, Inc. New York
The names of certain subsidiaries are omitted, as such subsidiaries in the
aggregate would not constitute a significant subsidiary.
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Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report (dated February 1, 1994) included in this Form 10-K, into the
Company's previously filed Registration Statement on Form S-8 (Registration
No. 33-61914).
ARTHUR ANDERSEN & CO.
Los Angeles, California
March 30, 1994
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EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Forms S-8 No. 33-24650 and No. 33-61914) of our report dated March
19, 1993, with respect to the consolidated financial statements and schedules
of Spelling Entertainment Group Inc. (formerly The Charter Company) included in
this Annual Report on Form 10-K for the year ended December 31, 1993.
ERNST & YOUNG
Cincinnati, Ohio
March 30, 1994
