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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, 1994 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 NUMBER: 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
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE 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 the Form 10-K or any
amendment to this Form 10-K. [ ]
On March 24, 1995, the registrant had 88,291,950 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 $211,337,000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - Portions of Registrant's Proxy Statement relating to the
1995 Annual Meeting of Shareholders on May 23, 1995.
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 16
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 17
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 57
PART III
Item 10. Directors and Executive Officers of the Registrant 58
Item 11. Executive Compensation 58
Item 12. Security Ownership of Certain Beneficial Owners
and Management 58
Item 13. Certain Relationships and Related Transactions 58
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 59
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ITEM 1. BUSINESS
INTRODUCTION
Spelling Entertainment Group Inc. (the "Company") is a fully-integrated
producer and distributor of television series, mini-series, movies-
for-television, interactive video games and feature films (collectively
referred to hereinafter as "entertainment product"). The Company has an
extensive library of entertainment product, which it distributes worldwide.
The Company also licenses and otherwise exploits ancillary rights in this
product, such as music and merchandising rights. Unless the context indicates
otherwise, "Spelling" or the "Company" refers to Spelling Entertainment Group
Inc. and its subsidiaries.
The Company began production and distribution of entertainment product when it
acquired 82% of Spelling Entertainment Inc. ("SEI") in May 1991. It acquired
the remaining shares of SEI in July 1992. The Company acquired, by merger, all
of the stock of Republic Entertainment Inc. (formerly Republic Pictures
Corporation, hereinafter "Republic") on April 26, 1994 and approximately 90% of
the ordinary shares of Virgin Interactive Entertainment Limited ("VIEL") on
July 30, 1994. (See Note 2 to the Company's Consolidated Financial Statements;
references to Notes hereinafter are to the notes to such financial statements.)
The Company's production operations are conducted by Spelling Television Inc.
and its subsidiaries ("Spelling Television"); Big Ticket Television Inc. and
its subsidiaries ("Big Ticket Television"); Laurel Entertainment, Inc. and its
subsidiaries ("Laurel"); Spelling Films International Inc. ("Spelling Films");
and VIEL and its subsidiaries (collectively, "VIE"). Distribution operations
are conducted by Spelling Films; Republic and its subsidiaries; Worldvision
Enterprises, Inc. and its subsidiaries ("Worldvision"); and VIE. The Company's
licensing and merchandising operations are conducted by Hamilton Projects, Inc.
("Hamilton Projects").
The Company was formerly engaged in petroleum marketing operations, but
substantially all of its remaining operations in this area were sold in 1992.
(See Note 10.) Currently, the Company operates in a single industry segment,
the entertainment industry. (See Note 13.)
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 ("BEC").
BEC acquired additional Common Stock during 1993 and 1994, both from third
parties and from the Company. (See Note 6.) Effective as of September 29,
1994, BEC merged with and into Viacom Inc. ("Viacom"), with Viacom being the
surviving corporation. As a result of the merger, Viacom currently owns
approximately 77% of the Company's Common Stock.
Spelling (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. A proposal will be presented at
the 1995 Annual Meeting of Shareholders to change the state of incorporation of
the Company to Delaware.
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DEVELOPMENT AND PRODUCTION
NETWORK PROGRAMMING
Aaron Spelling, Chairman and Chief Executive Officer of 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
variety of partnerships, Aaron Spelling has consistently been one of the
industry's most creative and prolific producers of network television
programming, producing such successful series as "Beverly Hills, 90210,"
"Melrose Place," "The Love Boat," "Dynasty," "Hotel," "Vegas" and "Matt
Houston." He has also produced "Fantasy Island," "Charlie's Angels," "Starsky
and Hutch," "Family" and "Hart to Hart," in which the Company no longer has any
financial interest.
Big Ticket Television was established in November 1994 primarily to develop and
produce half-hour comedy programming for the networks, but also to develop and
produce programming for cable and first-run syndication television (see below).
Big Ticket Television has or has had projects in development at the four
networks (ABC, NBC, CBS and FBC) as well as the recently launched United
Paramount Network ("UPN") and Warner Broadcasting ("WB"). It will be producing
twenty-six episodes of an original nighttime comedy entitled "Night Stand," to
be distributed by Worldvision, which will premiere across the country in
September 1995 in first-run syndication.
Scripts for potential television programming are usually developed in
conjunction with and submitted to a network for review. If the network accepts
the script, it will typically order production of the programming, for which it
will pay the Company a negotiated fixed license fee. 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 episodes a limited number of times in the United States
during the license period; all other ownership and distribution rights are
retained by the Company, subject to certain network-related holdbacks. Network
license fees are normally less than the Company's costs of producing the
related programming, resulting in a deficit for the Company. In recent years,
the size of the series deficits incurred by the Company has generally increased
as escalations in license fees have failed to keep pace with escalations in
production costs. However, in the case of its drama series, the Company has
been successful in obtaining revenue from Worldvision's international sales
efforts to substantially offset such production deficits. See "Distribution."
Spelling Television is currently producing three one-hour drama television
series, all of which are licensed to FBC. "Beverly Hills, 90210," which is
currently in its fifth season, has been ordered by FBC for an additional two
seasons. "Melrose Place," which debuted as a spin-off of "Beverly Hills,
90210," is now in its third season, and has also been ordered by FBC for two
additional seasons. "Models Inc." debuted in the summer of 1994 as a spin-off
of
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"Melrose Place." Spelling Television also produced a total of 26 episodes of
"Burke's Law," a one-hour drama for CBS; 16 episodes of "Madman of the People,"
a half-hour comedy for NBC; and "James A. Michener's TEXAS ("Texas")," a
four-hour mini-series for ABC.
In 1993, Laurel produced "The Stand," an eight-hour mini-series based on one of
Stephen King's best selling books, which aired on ABC in May 1994. In 1994,
Laurel produced a four-hour mini-series, "The Langoliers," based on another
Stephen King novel, which is expected to air in May 1995. In late 1994, the
Company ceased operating Laurel as a separate entity, and its development
projects were assumed by other units of the Company.
Worldvision acquires programming by financing a portion of third-party
production costs in exchange for certain distribution rights. Worldvision is
currently financing the production of two one-hour television series which are
being produced by Spelling Television for airing initially in the first-run
syndication market. See "First-Run Syndicated Programming."
The Company had revenue from FBC in 1994, 1993 and 1992 representing 15%, 22%
and 22% 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 syndication, product is licensed in exchange for cash payments,
advertising time ("barter") or a combination of both. In cash licensing, a
broadcaster normally agrees to pay a fixed license fee in one or more
installments in exchange for the right to broadcast the product a specified
number of times over an agreed upon term. Where product is licensed on a
barter basis, a broadcaster agrees to give the producer a specified amount of
advertising time, which the producer subsequently sells.
As compared to programming produced for the network, the Company exercises
greater control over creative and production decisions related to its first-run
syndicated programming. However, there is much greater financial risk
associated with such programming, as there is no third-party network to share
the production costs. While the license fees paid by a network for television
programming are fixed by contract, barter revenue derived from distribution of
first-run syndicated programming is not fixed in amount, but varies depending
on the ratings success of the programming. Such ratings may vary significantly
between individual programs as well as types of programs. Even when a
first-run syndicated program is ultimately successful, during the initial years
of the program its revenue is often less than the Company's costs of producing
the program. However, if a program has strong ratings, the advertising
revenue which may be realized by the Company through its barter arrangements
could be substantial.
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Worldvision is currently distributing in first-run barter syndication two
one-hour drama series, "Robin's Hoods" and "University Hospital," both produced
by Spelling Television. "University Hospital" is a mid-season replacement for
a prior series which ceased production because it did not have sufficient
commercial appeal. Worldvision is distributing these programs in
international television markets for cash license fees.
INTERACTIVE ENTERTAINMENT
The interactive entertainment market in which the Company competes consists
primarily of video games for use on Nintendo and Sega and other home
entertainment systems, as well as for use on multimedia personal computers.
There has been an ongoing evolution in hardware platforms. Nintendo and Sega
have improved their hardware platforms to increasing levels of sophistication
and other hardware manufacturers (e.g., 3DO, Sony, Apple, Atari, etc.) seek to
compete with them for market share. In recent years an increasing number of
games have been developed for use on systems equipped with CD-ROM drives,
instead of cartridges and floppy disks. As compared to games developed for
cartridge platforms, games developed for CD-based platforms require a
significantly longer development period, and accordingly the Company's
development costs for each game are proportionately higher. However, the cost
of manufacturing the individual games for CD-based platforms is significantly
lower than the cost of manufacturing game cartridges, thereby often offsetting
the additional development costs. VIE's strategy is to develop content that
is platform independent and adapt these titles to different commercially
successful platforms in order to minimize its reliance on the success of any
one hardware system. This strategy minimizes the risk associated with platform
failure or obsolescence.
The Company believes that VIE's entertainment product must become increasingly
sophisticated and challenging in order to remain competitive in meeting
consumer expectations. In order to meet these expectations, VIE has been
expanding its internal resources to develop and produce (publish) titles over a
wide range of genres including action, strategy, sports simulation,
role-playing and licensed character-based games. VIE's internal development
gives it the control to enable it to improve its design capabilities, better
manage the development process and create and enhance unique tools and
techniques relating to key and emerging technologies. While VIE will
occasionally distribute edutainment or infotainment product created by third
parties, it does not develop or publish these types of products.
In addition to its internal product development, VIE continues to obtain a
considerable portion of its entertainment product from third-party software
developers. Development agreements are established for each project, either on
a work-for-hire basis, whereby flat fees are paid to the developer, or under a
royalty arrangement, whereby advances are paid to the developer against
royalties to be earned from the exploitation of the related product.
VIE also seeks to obtain licenses for properties which enjoy a high degree of
consumer awareness, in order to incorporate these licensed characters,
trademarks, themes and/or personalities into its products to capitalize on
their name recognition. Many of VIE's designs
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and products have been inspired by well-known animated and feature films,
famous sports personalities, prominent corporate logos and popular board games.
During 1994, VIE released, among other titles, "The Lion King," "Jungle Book,"
"NASCAR Racing," "Creature Shock," "Lands of Lore," "Monopoly" and "Scrabble."
During 1995, VIE expects to release, among other titles, "11th Hour," "Command
& Conquer," "Daedelus Encounter" and "Lands of Lore 2."
FEATURE FILMS
Spelling Films primarily engages in the distribution of feature films in the
international marketplace. Spelling Films 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 Spelling Films upon completion and
delivery of the films by the producers.
Spelling Films is presently increasing the number of feature films it will
distribute. It has initiated the development of projects in conjunction with
domestic studios, whereby Spelling Films will co-finance the production costs
of such films and distribute them in the international marketplace. Spelling
Films is also developing various other projects with the intention of fully
financing their production, and retaining distribution rights on a worldwide
basis.
Republic acquires distribution rights to entertainment product primarily for
initial release in the domestic videocassette market, in exchange for the
payment of guaranteed advances upon completion and delivery of the product.
Generally, the production budget for this product is in the range of $1,500,000
to $3,000,000 per film, and the guaranteed advance payable by Republic is
normally a percentage of the film's production cost, proportionate to the
distribution rights and territories it acquires.
DISTRIBUTION
In addition to its production activities, the Company is actively engaged in
the worldwide distribution of entertainment product, either directly or
through subdistributors. Historically, the Company's distribution activities
have focused on the distribution of its network television programming.
However, with the formation of Spelling Films and the acquisition of Republic
and VIE, the Company's distribution activities have been extended to include
both feature films and interactive entertainment product. As a result of these
activities, as of December 31, 1994, the Company had contractual agreements
with licensees covering entertainment product which provide for approximately
$237,792,000 in future revenue, approximately half of which is expected to be
recognized after 1995. As of December 31, 1993, the Company had contractual
agreements which provided for approximately $161,526,000 in future revenue.
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THEATRICAL DISTRIBUTION
Spelling Films generally sells or licenses the theatrical, home video and/or
television rights to its films to various international subdistributors in each
territory in exchange for a guaranteed advance plus, in most cases, a share of
future profits. In some cases, Spelling Films alternatively may elect to enter
into a distribution arrangement in certain territories. In those instances,
Spelling Films receives no advance; however, the subdistributor retains a lower
distribution fee and Spelling Films receives the balance of any revenue
generated. In certain cases where Spelling Films is able to retain the
television rights, Worldvision handles television distribution for Spelling
Films.
To the extent that Spelling Films and/or Republic desire to exploit feature
films in the United States and Canadian theatrical markets, they will engage
a third party to handle such distribution.
HOME VIDEO DISTRIBUTION
Republic has been engaged in the distribution of entertainment product for over
sixty years. Its library includes more than 1,400 films and over 1,000 hours
of off-network television programs, as well as certain distribution rights
to over 2,000 hours of pre-1974 NBC television series and specials
("Republic Library"). Republic currently handles the marketing and sale,
either directly or through licensees, of all the Company's entertainment
product in the worldwide videocassette market.
Domestically, the videocassettes are sold to independent wholesalers for
resale to retail outlets, or in some instances directly to retailers.
Internationally, the Company licenses third parties to distribute its product
in the home video market, generally in exchange for a minimum guarantee against
a royalty. The Republic Library has previously been licensed in most
territories outside of North America, and little additional revenue is
anticipated in this regard.
TELEVISION DISTRIBUTION
Worldvision has been engaged in the distribution of entertainment product in
the worldwide television market for over thirty-five years, originally serving
as the distribution arm of the ABC network. Today, Worldvision is a leading
worldwide distributor with rights to more than 8,000 hours of television
programming available for domestic television distribution and more than 18,000
hours of television programming for international television distribution,
including both the original ABC library and the original NBC library recently
acquired through Republic. Worldvision currently distributes such programming
in 110 countries through offices or representatives in New York, Chicago,
Atlanta, Los Angeles, London, Paris, Rome, Toronto, Sydney, Tokyo and Rio de
Janeiro.
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INTERNATIONAL TELEVISION DISTRIBUTION. Demand for American-made entertainment
product in international markets has increased in recent years due to the
increase in the number of international television stations, cable systems and
satellite delivery systems in those markets and, in some territories, the
privatization of the local television industry. The Company typically begins
to earn international television revenue from its 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 has been or is presently being distributed by Worldvision in
international television markets. The Republic Library has previously been
licensed for various terms in many territories around the world and will not be
available for the Company's exploitation in the near term.
Television revenue from the distribution of feature films is generally 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 entertainment product in certain markets.
DOMESTIC OFF-NETWORK DISTRIBUTION. The profitability of the Company's
television programming continues to depend substantially on the consumer's
acceptance of the programming in the domestic marketplace after initial
network exhibition or first-run syndication. However, in recent years the
revenue obtainable from this secondary market has declined, and is expected to
continue to decline, due in part to the increase in original programming
available to independent stations from the emergence of UPN and WB, 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, at least four broadcast
seasons of a series are generally required to successfully market repeat
showings of a series in the syndication market. Episodes from a series
normally become available for secondary syndication distribution four or five
years after the series' initial telecast.
The off-network syndication telecast of "Beverly Hills, 90210" began on a
combined cash-and-barter basis in the third quarter of 1994. The series
"Little House On The Prairie" and several Worldvision feature film packages
were aired in domestic repeat syndication during 1993 and 1994.
BASIC CABLE TELEVISION. Domestic basic cable television potentially represents
an increasingly significant market for the Company's film product. The series
"Melrose Place," "Tales From The Darkside," "Hotel," "Vegas," "Dynasty" and
"HeartBeat," among others, have been licensed to cable television. Cable
exhibition has effectively developed as an alternative market, albeit a less
lucrative one than domestic syndication. Each year a greater number of
relatively successful network television series are being licensed to basic
cable in lieu of domestic syndication. Additionally, cable exhibitors in
some instances have purchased rights to short-running television series which
do not include sufficient episodes to allow for
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traditional off-network syndication distribution.
Cable television operations outside the U.S., while still in 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.
INTERACTIVE ENTERTAINMENT
VIE has traditionally sold its entertainment product in North America using a
combination of both its in-house sales organization and independent
manufacturers' representatives. VIE continues to expand its in-house sales
force with the aim of selling through it exclusively and eliminating the use of
manufacturer's representatives. VIE believes this approach will reduce its
costs, while at the same time strengthen its distribution capabilities, which
helps to attract third-party developers and publishers to VIE. VIE's primary
retail accounts include toy stores, general or mass merchandise retailers,
electronics appliance stores, computer software and specialty stores, warehouse
clubs, office supply warehouses and video rental stores, including Blockbuster
Video stores, which are owned and operated by Viacom.
VIE sells its product directly through its in-house sales force in the U.K.,
France, Germany and Japan to various local distributors and retailers through
offices in London, Paris, Hamburg and Tokyo. In other countries VIE has
appointed national or territorial distributors to serve customers in those
markets. These operations normally generate revenue denominated in foreign
currencies and, accordingly, the Company may experience gains and losses
resulting from foreign currency exchange rate fluctuations.
The Company released "The Lion King" interactive game on various cartridge
formats in October, 1994. This game comprised a very significant portion of
the revenue realized by VIE during 1994.
LICENSING AND MERCHANDISING
Hamilton Projects is a full service consumer product and promotional licensing
agency, providing its clients with strategic planning, concept development and
product marketing program management. Hamilton Projects typically earns its
fees through a commission based upon the royalties earned by its clients from
the sale of licensed consumer products, promotions and books based upon the
copyrights, trademarks and tradenames of the companies it represents. In
addition to managing the consumer product merchandising programs for "Beverly
Hills, 90210" and "Melrose Place," Hamilton Projects also represents several
third parties, such as Jeep(R), Dr. Scholl's(R) and the United States Postal
Service. Through the efforts of Hamilton Projects the Company has taken
advantage of various consumer product and promotional opportunities such as a
dedicated show on the Q2 channel of QVC and phone cards to market "Melrose
Place" merchandise, the operation in 1995 of World Wide Web sites on the
Internet, the introduction of the Melrose Place Fragrance, as well as the
traditional merchandising of clothing, posters, calendars and books.
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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. In March 1993, SSN launched its
first cable channel, TeleUNO. 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 system. 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, including direct to home satellite
transmission.
COMPETITION
The entertainment industry is highly competitive with many companies
competing for available literary properties, creative personnel, talent,
production personnel, distribution channels and financing which are essential
to acquire, develop, produce and sell entertainment product. The Company's
competitors include major motion picture and television companies as well as a
broad range of independent production and distribution companies. Certain of
the Company's competitors have greater financial resources and larger
organizations engaged in the acquisition, development, production and
distribution of entertainment product. Moreover, the relaxation of certain
governmental regulations may permit the television networks to acquire
financial interests in, and syndication rights to, television programs. This
may further intensify competition in the television industry. See
"Governmental Regulation."
Despite the fact that the Company may receive an order from the networks for
the production of a pilot, series, movie or mini-series, the networks are under
no obligation to actually broadcast the Company's product. The Company's
successful off-network domestic sale of a network series generally depends upon
the ratings achieved through network exhibition of such a series over a number
of years. In turn, the Company's overall success in achieving multiple years
of network exhibition of a series is dependent upon unpredictable factors such
as the viewing public's acceptance as reflected in the ratings and critical
reviews.
In addition to its internally produced product, the Company must continue to
acquire distribution rights to entertainment product produced by third parties
to maintain its competitive position. In order to acquire rights to distribute
new third-party product, the Company may be required to increase its guaranteed
advance payments to producers and/or reduce the distribution fees it charges.
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Licensing television programming to broadcasters and cable networks has also
become increasingly competitive as new programming continually enters the
market and certain of the Company's competitors attempt to develop their own
programming services and/or align themselves with the existing networks.
Likewise, Spelling Films is competing with numerous well-financed, established
companies engaged in feature film production and distribution. The Company has
had a short operating history in this area and does not possess the
distribution capabilities, financial strength and corporate infrastructure of
some of its competitors.
The Company's ability to compete in certain countries is affected by local
restrictions and quotas. Governments of certain countries require that a
minimum percentage of locally produced programming be broadcast.
In addition to the competitive facts applicable to all areas of the
entertainment industry, the market for interactive entertainment is also
characterized by the frequent introduction of new, ever-evolving hardware
systems. Among VIE's principal competitors are Nintendo and Sega, both of whom
manufacture and sell such hardware systems in addition to publishing and
distributing interactive entertainment software product.
TRADEMARKS, SERVICE MARKS AND COPYRIGHTS
The Company or its subsidiaries own various United States federal trademark or
service marks registrations including SPELLING(R), BEVERLY HILLS, 90210(R),
MELROSE PLACE(R), and has applied for registration for numerous other marks
relating to its film products 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
including TELEUNO(R). Certain of the Company's trademarks and service marks
may offer significant merchandising opportunities. The Company registers and
endeavors to take the necessary actions to protect the marks created and
acquired in its businesses. See "Distribution - Licensing and Merchandising."
VIE regards the titles that it develops or licenses as proprietary and relies
on a combination of trade secret, trademark and copyright laws, license
agreements and confidentiality agreements to protect its rights in such titles.
VIE owns copyrights in its various titles and has or has filed U.S.
registrations on various trademarks for certain titles (and characters) such as
THE 7TH GUEST(R).
The Company regularly obtains copyright protection for each episode of its
television programs, for its feature films and for other entertainment product.
Certain of the Company's copyrights, trademarks and service marks may be
considered material to the Company's business.
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TECHNOLOGY
The Company is dependent on various forms of technology for the production and
distribution of its entertainment product. As a result, the Company is subject
to business risks as a result of changing technologies in the media,
communications and computer industries. Changes in the hardware platforms, new
digital disk systems, direct to home satellite systems and other new delivery
systems also provide new opportunities and markets for the Company. The
Company endeavors to minimize the risk of technological change to or
obsolescence of a particular hardware platform or media and take advantage of
new markets created by changing technologies. Additionally, the risk of
illegal manufacture and distribution ("piracy") of the Company's entertainment
product may increase with the advancement and proliferation of various
technologies. It is difficult for the Company to determine the impact of such
piracy and there can be no assurance that such activities do not have a
material impact on the Company.
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 generally within a 35-mile radius and
separately 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 satellite program vendors against
multichannel video program distributors. In addition, the Cable Act
provides all
12
<PAGE> 14
commercial television stations with the right to bargain for and
withhold consent to the local 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. 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.
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 or 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. The
decision of the FCC to permit the expiration of the "fin syn" rules was
recently upheld by the United States Court of Appeals for the Seventh Circuit.
While the FCC is required to institute a new proceeding six months prior to the
expiration of the "fin syn" rules, the burden of persuasion will be on any
party advocating continued restrictions of the networks. In view of the
appellate court's recognition of the FCC's broad discretion in regulating the
market in television programming, it is unlikely that the FCC will determine
that any of the restrictions should be continued or
13
<PAGE> 15
that other restrictions should be imposed.
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, 1994, the Company had approximately 700 employees. In addition,
the Company employs a large number of individuals for particular television and
feature film productions. As a result, the total number of employees can vary
substantially during the course of a year depending upon the number and
scheduling of its productions.
Certain of the Company's subsidiaries are signatories to collective bargaining
agreements relating to the engagement of various individuals in the many
different job classifications required to produce entertainment product. These
agreements set forth wage scales and fringe benefits which are generally
applicable to the production of television programming and feature films. In
the United States, the agreements are industrywide, whereas in Canada they are
negotiated on a company by company basis. These employees include writers,
directors, actors, musicians and studio technicians and craftsmen. The
following table sets forth the union contracts to which certain of the
Company's subsidiaries are parties, and the relevant expiration dates:
<TABLE>
<CAPTION>
Contract
Union Expiration Date
----- ---------------
<S> <C>
International Alliance of Theatrical
and Stage Employees (IATSE) (United States) . . . . . . . . . . . . . . . . . . . July 31, 1996
IATSE Local 891 (Canada) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May 31, 1996 (b)
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
Directors Guild of Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31, 1994 (c)
IATSE Videotape Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . September 30, 1996 (a)
American Federation of Television and Radio Artists . . . . . . . . . . . . . . November 15, 1997
Union of B.C. Performers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May 31, 1995 (b)
International Photographers of the Motion
Picture and Television Industries Local 669 . . . . . . . . . . . . . . . . . . . . July 7, 1995 (b)
Teamsters Local Union No. 155 . . . . . . . . . . . . . . . . . . . . . . . . . . . May 31, 1997 (b)
</TABLE>
(a) Cancelable by one year's notice.
(b) Canadian guilds.
(c) Extended by mutual agreement.
14
<PAGE> 16
Although the Company considers its guilds and union relationships to be
satisfactory at present, the renewal of union contracts does not depend on its
activities or decisions alone and is largely out of the Company's control. 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 historically engaged in
petroleum marketing operations, all of which have been sold or discontinued.
The last of these operations were sold in 1992 for approximately $18 million
in cash, without material gain or loss. Additional information relating to
discontinued operations, including information regarding environmental
contingencies, is provided in the accompanying financial statements. (See Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Discontinued Operations" and Note 10.)
ITEM 2. PROPERTIES
The Company leases office space of approximately 166,000 square feet in
Southern California, and 68,000 square feet in New York City. 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 the prospect of renewal.
The Company also owns a 43,000 square foot building in Los Angeles, formerly
occupied by Republic, which is now housed at the Company's corporate offices.
The Company intends to sell the building in the near future.
ITEM 3. LEGAL PROCEEDINGS
The Company has become subject to various lawsuits, claims and other legal
matters in the course of conducting its entertainment business operations. 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.
The Company is involved in a number of legal actions including threatened
claims, pending lawsuits and contract disputes in connection with
certain bankruptcy and environmental matters relating to the Company's
discontinued operations, as well as environmental clean-up assessments, damages
from alleged dioxin contamination and other matters. Some of the parties
involved in such actions seek damages in very large amounts. 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.
15
<PAGE> 17
This belief is also based upon the allowances described above and the Company's
coverage under an insurance-type indemnity agreement which covers up to $35
million of certain such liabilities in excess of a threshold amount of $25
million, subject to certain adjustments. Substantial portions of such
allowances and indemnity are intended to cover environmental costs associated
with the Company's former petroleum 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, a substantial portion of
which would be covered by the indemnity discussed above. (See Note 10.)
Four putative class actions were filed by alleged shareholders of the Company
in November 1994. By Order dated February 15, 1995, the four actions were
consolidated under the caption IN RE SPELLING SHAREHOLDER LITIGATION, Master
File 94-8764(AH), Circuit Court, Palm Beach County, Florida. Defendants in all
actions include the Company, Viacom and the members of the Board of Directors
of the Company. All complaints allege that Viacom intends to acquire the 23%
shares of the Company it does not currently hold for inadequate consideration
and in breach of the defendants' fiduciary duties. Two of the actions also
allege that the acquisition of Viacom's 77% interest in the Company was done
improperly so as to avoid payment of a control premium to the shareholders.
Plaintiffs seek declaratory and injunctive relief preventing the alleged
acquisition plan and damages. The Company believes that plaintiffs'
allegations are speculative and without merit and intends to defend the claims
vigorously. The plaintiffs have been directed to serve a single consolidated
class action complaint to supersede all existing complaints and to move for
class certification on or before May 18, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders.
------------------
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<PAGE> 18
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 low and high
sales prices for the Common Stock as reported on the Composite Tape.
<TABLE>
<CAPTION>
1994 1993
------------------ ------------------
QUARTER LOW HIGH LOW HIGH
------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
First $ 9 1/4 $12 1/8 $ 5 5/8 $ 7 1/8
Second 8 1/2 10 7/8 4 3/4 6 3/4
Third 8 1/2 12 1/8 6 10
Fourth 10 3/4 12 1/4 8 1/2 10 3/8
</TABLE>
The number of holders of record of the Company's Common Stock as of March 24,
1995, was approximately 10,600. In the first quarter of 1992, the Company
began paying quarterly cash dividends of $.02 per common share. Dividend
payments were discontinued by the Board of Directors as of the fourth quarter
of 1994 in order to reinvest available capital in the operations of the
Company.
17
<PAGE> 19
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>
1994 (c) 1993 1992 (a) 1991 (a) 1990
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue from continuing
operations $ 599,839 $ 274,899 $ 257,546 $ 122,748 $ -
=========== ========= ========= ========= =========
Operating income $ 50,743 $ 39,727 $ 25,315 $ 8,833 $ -
=========== ========= ========= ========= =========
Net income (loss) from:
Continuing operations $ 24,108 $ 23,659 $ 7,917 $ 636 $ (1,769)
Discontinued operations - (3,971) (2,043) 7,369 2,553
Extraordinary items - (2,022) 3,948 4,959 242
----------- --------- --------- --------- ---------
Net income $ 24,108 $ 17,666 $ 9,822 $ 12,964 $ 1,026
=========== ========= ========= ========= =========
Net income (loss) per
common share:
Continuing operations (b) $ 0.32 $ 0.42 $ 0.15 $ - $ (0.05)
Discontinued operations - (0.07) (0.04) 0.16 0.05
Extraordinary items - (0.04) 0.08 0.11 -
----------- --------- --------- --------- ---------
Net income $ 0.32 $ 0.31 $ 0.19 $ 0.27 $ -
=========== ========= ========= ========= =========
Balance Sheet Data:
Total assets $ 1,026,760 $ 474,471 $ 451,661 $ 389,904 $ 216,339
Long-term debt 248,853 49,580 109,915 77,143 21,573
Shareholders' equity 528,447 297,854 197,560 150,683 141,681
Cash dividends per
common share 0.06 0.08 0.08 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 for 1990, 1991 and 1992 are calculated after preferred
dividends of $810,000, and in 1993 after preferred dividends of $724,000.
(c) The Company acquired Republic on April 26, 1994 and VIE on July 30, 1994,
and, accordingly, amounts are not comparable to prior years.
18
<PAGE> 20
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.
The Company acquired ownership, in May 1991, of approximately 82% of the common
stock of SEI and acquired the remainder in July 1992. (See Note 2.) 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 April 1994, the Company and Republic consummated a merger (the "Merger") in
which the Company acquired 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. The total consideration was approximately $101,000,000,
which was funded through borrowings under the Company's credit arrangements
with BEC (now Viacom). (See Notes 2 and 4 and "Financial Condition" below.)
On July 30, 1994, the Company and BEC entered into an exchange agreement (the
"Exchange Agreement") and consummated the transactions contemplated thereby
(the "Acquisition"). Pursuant to the Exchange Agreement, BEC delivered to the
Company 8,686,984 ordinary shares (the "Ordinary Shares") of VIEL and an option
to acquire 550,000 Ordinary Shares of VIEL (collectively, the "VIE Interests")
in exchange for 22,015,062 shares of the Company's Common Stock. BEC had
acquired a majority of the VIE Interests from third parties on July 29, 1994.
As a result of the Acquisition, the Company acquired approximately 90% of
VIEL's Ordinary Shares.
RESULTS OF CONTINUING OPERATIONS
The results of operations for any period are significantly affected by the
quantity and performance of the Company's entertainment product which is
licensed or sold to, and available for exhibition by, licensees or customers 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 television programming business depends, in large
part, upon the successful network exhibition of its television series over
several years to allow for additional licensing and off-network exhibition
opportunities. During the initial years of a
19
<PAGE> 21
one-hour 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. With respect to
half-hour network programming, the production costs can substantially exceed
the combination of the network and international license fees. 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 is affected by the public taste and
acceptance of its product, which is unpredictable and subject to change, and by
conditions within the 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
technicians and craftsmen as well as any changes in the law and governmental
regulation. In 1993, a Federal district court vacated certain provisions of a
consent decree which prohibited television networks from acquiring financial
interests and syndication rights in television programming produced by program
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 interest and syndication
rights in television programs, and actually own the programming which they
broadcast, and increasingly become competitors of the Company in the production
and distribution of programming.
The following paragraphs discuss significant items in the Consolidated
Statements of Operations for the three years ended December 31, 1994.
REVENUE
The following table sets forth the components of revenue from the Company's
major media and markets for the three years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1994* 1993 1992
-------- --------- --------
<S> <C> <C> <C>
U.S. Networks $133,829 $ 88,299 $ 90,024
Other domestic television distribution 80,095 40,494 36,599
International television distribution 113,240 79,269 76,242
Worldwide interactive entertainment 183,394 - -
Worldwide home video 57,353 31,150 13,788
International film distribution 11,593 15,955 20,979
Worldwide licensing and merchandising 18,074 16,956 16,090
Other 2,261 2,776 3,824
-------- -------- --------
$599,839 $274,899 $257,546
======== ======== ========
</TABLE>
* Includes eight months of operations of Republic and five months of
operations of VIE.
20
<PAGE> 22
Network revenue increased significantly in 1994 after remaining at
approximately the same level in 1993 and 1992. The increase in 1994 was
primarily due to the fact that the Company delivered substantially more hours
of programming than it delivered in 1993. 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.
Network revenue in all three periods included full year 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 FBC for
the 1995-96 and 1996-97 broadcast years. The Company also produced three new
series, "Madman Of The People," "Models Inc." and "Burke's Law" during 1994.
The Company produced two four-hour mini-series in 1994, one based on James
Michener's novel "Texas," which is expected to air in April 1995, and the other
based on Stephen King's novel "The Langoliers."
Other domestic television distribution revenue increased $39,601,000 in 1994
after remaining relatively stable in 1993 compared to 1992. The increase in
1994 was primarily attributable to (i) the release of "Beverly Hills, 90210"
in domestic syndication; (ii) the distribution of two one-hour dramas, "Robin's
Hoods" and "Heaven Help Us," in first-run syndication; and (iii) exploitation
of the Republic Library.
International television distribution revenue increased $33,971,000 in 1994
after remaining relatively stable in 1993 compared to 1992. The increase in
1994 was primarily attributable to (i) the increase in network and first-run
syndication programming available for international distribution and
(ii) international cable revenue with respect to the Company's library of
entertainment product.
Worldwide interactive entertainment revenue represents five months of
operations of VIE, which was acquired on July 30, 1994. In general, VIE's
revenue is highest in the fourth quarter of each year. VIE released "The Lion
King" interactive game on various cartridge formats in October, 1994. This
game contributed a very significant portion of the worldwide interactive
entertainment revenue realized by the Company during 1994. Given the ongoing
evolution in hardware platforms, the Company expects that a substantial portion
of its interactive entertainment revenue in 1995 will be generated through the
sale of its interactive entertainment product for CD-based platforms, rather
than the various cartridge formats which predominated in 1994. The Company
continues to actively work with hardware manufacturers to develop and adapt its
titles to different platforms as they become commercially viable.
Home video revenue increased $26,203,000 or 84% in 1994 as compared to 1993
and $17,362,000 or 126%, in 1993 as compared to 1992. The increase in 1994 was
primarily the result of the merger with Republic, which had significant home
video distribution operations. In addition, the Company released "Texas" and
"The Stand" in the domestic home video marketplace in 1994. The increase in
1993 was primarily due to the distribution of "Happily Ever After," an
animated feature film, and the international licensing of "The Stand."
International film distribution revenue decreased $4,362,000, or 27%, in 1994
as compared to 1993 and decreased $5,024,000, or 24%, in 1993 as compared to
1992. During 1994 the Company released a group of ten films with the overall
title of "The Young and The
21
<PAGE> 23
Reckless." Such films individually generated relatively modest levels of
revenue. During 1993, the Company delivered two feature films, "Short Cuts"
and "Shadowlands," as compared to four during 1992, which included "The
Player."
Licensing and merchandising revenue increased $1,118,000 in 1994 as compared to
1993 after remaining relatively constant in 1993 compared to 1992. The
increase from 1993 to 1994 was primarily due to revenue related to third-party
product, which more than offset the decline in licensing revenue related to
"Beverly Hills, 90210."
Certain of the operations of the Company generate significant revenue
denominated in foreign currencies, and, as a result, fluctuations in foreign
currency exchange rates may affect operating results. In particular, the
Company generates revenue denominated in pounds sterling, French francs,
deutschmarks, Canadian dollars, Mexican pesos and Japanese yen, among others.
These currency exposures are partially offset by the fact that certain of the
Company's manufacturing costs and overhead are also denominated in the same
currencies, and certain of the Company's bank debt is denominated in foreign
currencies.
ENTERTAINMENT PRODUCT COSTS
Entertainment product costs consist primarily of the amortization of
capitalized product costs and the accrual of third-party participations and
residuals. (See Note 1.) Such costs in 1994 increased $282,078,000, or 140%,
after remaining stable in 1993 compared to 1992. The increase in 1994
primarily resulted from the increase in revenue discussed above, including the
worldwide interactive entertainment revenue as a result of the acquisition of
VIE. Additionally, the percentage relationship between such costs and the
related revenue increased to 81% in 1994 as compared to 73% in 1993. This
percentage relationship is a function of (i) the mix of entertainment product
generating revenue in each period and (ii) changes in the projected
profitability of individual entertainment product based on the Company's
estimates of such product's ultimate revenue and costs. The Company recorded
write-downs to net realizable value with respect to its entertainment product
of $25,687,000 in 1994 versus $6,177,000 in 1993 and $5,226,000 in 1992. The
increase in 1994 was primarily attributable to the Company's increased
activities in first-run syndication and half-hour comedy programming.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative costs in 1994 increased $31,846,000, or
94%, as compared to 1993 and in 1993 decreased $1,516,000, or 4%, as compared
to 1992. The increase in 1994 resulted primarily from the selling, general and
administrative costs related to the operations of VIE and Republic, including
the amortization of intangible assets. In addition, there were increased
administrative costs commensurate with the Company's growth. Such costs will
increase again in 1995 as the Company will have a full year of selling, general
and administrative costs associated with the operations of VIE and Republic.
The decrease in 1993 primarily resulted from a decrease in management fees
charged to the Company by the Company's former principal shareholder following
BEC's acquisition of a majority interest in the Company.
22
<PAGE> 24
INTEREST INCOME
Interest income decreased $2,559,000 in 1994 as compared to 1993 and increased
$1,347,000 in 1993 as compared to 1992. The decrease in 1994 resulted from
lower interest rates on certain international cash balances and lower discount
amortization on certain acquired receivables, as a portion of these receivables
was collected in 1994. The increase in 1993 was principally due to the
amortization of discount on acquired receivables for the full year 1993 and
only from the date of acquisition in 1992.
INTEREST EXPENSE
Interest expense in 1994 increased $665,000, or 8%, and in 1993 decreased
$2,019,000, or 20%. The increase in 1994 was attributable to higher average
borrowings during 1994, which was partially offset by a lower average interest
rate. The decrease in 1993 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.) The Company's interest expense
is dependent upon the interest rates on its outstanding obligations, which
are largely tied to the interest rates under Viacom's separate credit
facilities, and the Company could experience significant increases or decreases
resulting solely from increases or decreases in such interest rates.
MINORITY INTEREST
During 1994, the Company had minority interest expense of $680,000 relating to
the operations of VIE, as it owns approximately 90% of VIE. The Company
entered into put- and call- option agreements with BEC (now Viacom) with
respect to the remaining minority interest outstanding in VIE. (See Note 2.)
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 remaining interest in July 1992. There was no such charge in 1993.
PROVISION FOR INCOME TAXES
During 1994, the Company's provision for income taxes increased $6,639,000, or
51%, as compared to 1993. The effective tax rate increased to 44% in 1994 from
36% in 1993 primarily as a result of the effect of a non-recurring favorable
adjustment to a valuation allowance in 1993 (see below). The provision
increased in 1994 largely as a result of the increase in income from continuing
operations and the increase in the effective tax rate. (See Note 9.)
During 1993, the Company's provision for income taxes increased $3,871,000, or
42%, over the provision in 1992. The effective tax rate decreased
significantly to 36% in 1993 from 54% in 1992, largely as a result of the
effect of a reduction in the valuation allowance against
23
<PAGE> 25
the realizability of certain tax loss and credit ("tax attribute")
carryforwards. Tax benefits from the utilization of certain tax attribute
carryforwards in 1992 were recorded as extraordinary items under then
applicable accounting rules. (See Note 9.)
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.
DISCONTINUED OPERATIONS
The Company, formerly known as The Charter Company, was engaged in petroleum
marketing operations, but in 1992 sold substantially all of the remaining such
operations without material gain or loss. The Company continues to sell the
few remaining assets of the discontinued operations whenever possible and to
resolve remaining claims and liabilities. (See Note 10.)
The financial position of the 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 $20,368,000 and $29,621,000 at December 31,
1994 and 1993, respectively. (See Note 10.)
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 damages in very large amounts.
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 the allowances described
above and the Company's coverage under an insurance-type indemnity agreement
which covers up to $35 million of certain such liabilities in excess of a
threshold amount of $25 million, subject to certain adjustments. Substantial
portions of such allowances and indemnity are intended to cover environmental
costs associated with the Company's former petroleum 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, a
substantial portion of which would be covered by the indemnity discussed above.
(See Note 10.)
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.
24
<PAGE> 26
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, the Company had
extraordinary income of $3,948,000 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 entertainment product and
the acquisition of distribution rights to entertainment product produced by
third parties. The Company's expenditures in this regard totaled $481,128,000
and $150,648,000 in 1994 and 1993, respectively. The cost of producing network
television programming is largely funded through the receipt of the related
network license fees. The deficit financing of its network programming and the
cost of other production and acquisition activities is funded through the
Company's operating cash flow and borrowings under its credit arrangements.
In connection with the 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 the 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 2, 4 and 6.) The Company borrowed
the funds required to complete the Merger in the second quarter of 1994.
The Company's principal credit agreement is with Viacom (the "Viacom
Facility"). (See Note 4.) The Viacom Facility provides for a three-year term
loan facility of $100,000,000 which funded the Company's acquisition of
Republic and a revolving credit facility of $100,000,000 (increased in December
1994 from $75,000,000) to fund the Company's working capital and other
requirements.
A wholly-owned subsidiary of VIEL has a multi-currency credit agreement for
$75,000,000 with a bank in the U.S. (the "Credit Agreement"). As of December
31, 1994, the Company had $5,816,000 in letters of credit outstanding under the
Credit Agreement to guarantee its purchases of entertainment product. Viacom
has guaranteed all of the borrowings under the Credit Agreement, which are due
June 30, 1995. (See Note 4.) The Company has entered into negotiations with
this bank to extend the term of the loan for at least twelve months. The
Company believes that it will be able to obtain this extension, or,
alternatively, obtain similar financing from Viacom.
Another wholly-owned subsidiary of VIEL has a 10,000,000 pound sterling credit
facility (the "UK Facility") with a bank in the United Kingdom, which the
Company has guaranteed. The UK
25
<PAGE> 27
Facility has been extended until 2005. (See Note 4.)
As a result of the merger of BEC into Viacom in September 1994, Viacom
currently owns approximately 77% of the Company's Common Stock. Pursuant to
the separate credit facilities under which Viacom is a borrower, certain
subsidiaries of Viacom, including the Company, are restricted from incurring
indebtedness (other than indebtedness owing to Viacom) without the prior
consent of Viacom's lenders. Such consent has been given with respect to the
Credit Agreement and the UK Facility.
The Company believes that its financial condition remains strong and that it
has the financial resources necessary to meet its anticipated capital
requirements. The Company has sufficient resources available from the cash
provided by operating activities and that available under its credit facility
to meet its ongoing plans for the production and acquisition of entertainment
product and to take advantage of internal and external development and growth
opportunities.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 1994, the Company became subject to SFAS No. 112, "Employers'
Accounting for Postemployment Benefits," and SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 112 did 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 required the Company to adjust the carrying value of a common stock
investment to fair market value with a corresponding adjustment, net of tax, to
its Shareholders' Equity. (See Notes 1 and 6.)
26
<PAGE> 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants:
Year Ended December 31, 1994 28
Report of Independent Public Accountants:
Year Ended December 31, 1993 29
Report of Independent Auditors:
Year Ended December 31, 1992 30
Consolidated Balance Sheets:
December 31, 1994 and 1993 31
Consolidated Statements of Operations:
Years ended December 31, 1994, 1993 and 1992 32
Consolidated Statements of Changes in Shareholders' Equity:
Years ended December 31, 1994, 1993 and 1992 33
Consolidated Statements of Cash Flows:
Years ended December 31, 1994, 1993 and 1992 34
Notes to Consolidated Financial Statements 35
"Selected Quarterly Financial Data" has been included
in Note 13 to the Consolidated Financial Statements
</TABLE>
27
<PAGE> 29
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF 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, 1994, and the related consolidated statements of operations, of
shareholders' equity and of cash flows for the year then ended. These
financial statements and the schedule for the year ended December 31, 1994
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 schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements audited by us present
fairly, in all material respects, the financial position of Spelling
Entertainment Group Inc. and subsidiaries as of December 31, 1994, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
Our audit also included an audit of the financial statement schedule listed in
item 14(a) of this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
PRICE WATERHOUSE LLP
Los Angeles, California
February 17, 1995
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 schedule 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
schedule 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 schedule for the year ended December 31, 1993
listed in the index at Item 14 (a) is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 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, (not
presented separately herein) as of December 31, 1992, and the related
consolidated statements of operations, changes in shareholders' equity, and
cash flows for the year then ended. Our audit also included the 1992 financial
statement schedule listed in the Index at Item 14 (a). These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the 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 the year
then ended, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule for 1992, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
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,
--------------------------
1994 1993
----------- ---------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 22,400 $ 12,682
Accounts receivable, net 242,127 93,242
Entertainment product, net 325,643 204,232
Property, plant and equipment, net 16,161 4,770
Other assets 19,678 4,562
Intangible assets, net 400,751 154,983
----------- ---------
$ 1,026,760 $ 474,471
=========== =========
Liabilities and Shareholders' Equity:
Accounts payable, accrued expenses and other liabilities $ 101,484 $ 13,275
Accrued participation expense 83,493 57,547
Deferred revenue 11,275 14,425
Bank and other debt 248,853 49,580
Income and other taxes 24,355 8,121
Net liabilities related to discontinued operations 27,061 33,669
----------- ---------
Total Liabilities 496,521 176,617
----------- ---------
Minority Interest 1,792 -
Commitments and contingent liabilities
Shareholders' Equity:
Preferred Stock - -
Common Stock, $.10 par value,
- 300,000,000 shares authorized
- 87,983,329 and 64,504,838 shares issued and outstanding 8,798 6,450
Capital in excess of par value 546,843 342,824
Accumulated deficit (27,287) (51,420)
Cumulative translation adjustment 93 -
----------- ---------
Total Shareholders' Equity 528,447 297,854
----------- ---------
$ 1,026,760 $ 474,471
=========== =========
</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,
-----------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Revenue $ 599,839 $ 274,899 $ 257,546
Costs and Expenses:
Entertainment product costs 483,527 201,449 196,992
Selling, general and administrative 65,569 33,723 35,239
--------- --------- ---------
549,096 235,172 232,231
--------- --------- ---------
Operating Income 50,743 39,727 25,315
--------- --------- ---------
Interest income 2,249 4,808 3,461
Interest expense (8,537) (7,872) (9,891)
Other, net 28 52 (456)
--------- --------- ---------
Income from continuing operations
before income taxes and minority interest 44,483 36,715 18,429
Provision for income taxes (19,695) (13,056) (9,185)
--------- --------- ---------
Income from continuing operations before
minority interest 24,788 23,659 9,244
Minority interest (680) - (1,327)
--------- --------- ---------
Income from continuing operations 24,108 23,659 7,917
Loss from discontinued operations, net - (3,971) (2,043)
--------- --------- ---------
Income before extraordinary items 24,108 19,688 5,874
Extraordinary items, net - (2,022) 3,948
--------- --------- ---------
Net Income 24,108 17,666 9,822
Preferred dividends - (724) (810)
--------- --------- ---------
Net income applicable to common stock $ 24,108 $ 16,942 $ 9,012
========= ========= =========
Average number of common and common equivalent shares 74,377 54,253 47,789
========= ========= =========
Income (loss) per common
and common equivalent share:
Continuing operations $ 0.32 $ 0.42 $ 0.15
Discontinued operations - (0.07) (0.04)
Extraordinary items - (0.04) 0.08
--------- --------- ---------
Net income per common and common equivalent share $ 0.32 $ 0.31 $ 0.19
========= ========= =========
</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> Common Stock Capital In Cumulative Total
----------------------- Excess of Accumulated Translation Shareholders'
Number Par Value Par Value Deficit Adjustment Equity
---------- --------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1991 45,321,763 $ 4,532 $ 201,108 $ (63,957) $ - $ 150,683 (a)
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 50,841,392 5,084 242,279 (58,803) - 197,560 (a)
Preferred stock redemption - - - - - (9,000)(a)
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
Exercise of options 1,463,429 147 8,218 - - 8,365
Pension liability adjustment, net - - - 380 - 380
Cash dividends paid or accrued:
Common Stock - - - (4,334) - (4,334)
Merger with Republic - - (6,670) - (6,670)
Acquisition of VIE 22,015,062 2,201 202,471 - - 204,672
Unrealized holding gain, net - - - 3,979 - 3,979
Cumulative translation adjustment - - - - 93 93
Net income - - - 24,108 - 24,108
---------- --------- ---------- ---------- ----------- ----------
Balance December 31, 1994 87,983,329 $ 8,798 $ 546,843 $ (27,287) $ 93 $ 528,447
========== ========= ========== ========== =========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
(a) Includes 9,000 shares of preferred stock at $9,000,000 which were redeemed
in 1993.
33
<PAGE> 35
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 24,108 $ 17,666 $ 9,822
Adjustments to reconcile net income to cash flows
from operating activities:
Depreciation and amortization 10,125 4,855 3,942
Amortization of entertainment product costs 420,188 116,066 104,298
Additions to entertainment product costs (481,128) (150,648) (154,607)
Loss on extinguishment of debt - 3,309 -
Increase in accounts receivable (110,902) (11,257) (32,327)
Increase (decrease) in accounts payable,
accrued expenses, other liabilities and income taxes 63,249 1,211 (10,084)
Increase (decrease) in accrued
participation expense 13,032 (34,015) 22,781
Increase (decrease) in deferred revenue (3,697) 3,147 (61)
Other, net (3,082) 917 7,934
---------- ---------- ----------
(68,107) (48,749) (48,302)
---------- ---------- ----------
Cash Flows From Investing Activities:
Merger with Republic, net of cash acquired (102,299) - -
Cash acquired in acquisition of VIE 2,197 - -
Sale of discontinued operations properties 2,703 - 17,725
Purchases of property, plant and equipment (6,705) (966) (849)
Changes in net liabilities related to
discontinued operations (8,696) 1,653 4,539
---------- ---------- ----------
(112,800) 687 21,415
---------- ---------- ----------
Cash Flows From Financing Activities:
Borrowings under the Viacom Facility 208,305 - -
Additions to bank and other debt 66,698 43,000 76,930
Reductions to bank and other debt (88,409) (106,218) (44,440)
Cash dividends paid on Common and Preferred Stock (4,334) (5,066) (4,668)
Issuances of Common Stock 8,365 101,911 416
Purchases of Common Stock - - (2,753)
Redemption of Preferred Stock - (9,000) -
---------- ---------- ----------
190,625 24,627 25,485
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,718 (23,435) (1,402)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 12,682 36,117 37,519
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 22,400 $ 12,682 $ 36,117
========== ========== ==========
</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.
Assets and liabilities of international operations are translated at current
rates of exchange while results of operations are translated at average rates
of exchange in effect for the applicable period. Translation gains or losses
are shown as a separate component of Shareholders' Equity.
In May 1991, the Company acquired ownership of approximately 82% of the common
stock of Spelling Entertainment Inc. ("SEI"). In July 1992, the Company
acquired the remaining minority interest in 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.)
See Note 2 regarding the acquisition of Republic Entertainment Inc. (formerly
Republic Pictures Corporation, "Republic") and Virgin Interactive Entertainment
Limited ("VIEL," together with its subsidiaries, "VIE").
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 Company's 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 67,673,702 shares of the Company's Common Stock.
(See Note 6.)
On September 29, 1994, BEC merged with and into Viacom Inc. ("Viacom"), with
Viacom being the surviving corporation. As a result of the merger, Viacom
currently owns approximately 77% of the Company's Common Stock.
CASH AND CASH EQUIVALENTS. Cash equivalents consist of interest-bearing
securities with original maturities of less than ninety days.
ACCOUNTS RECEIVABLE, NET. Accounts receivable are net of allowances for
doubtful accounts and returns of $25,364,000 and $4,983,000 at December 31,
1994 and 1993, respectively.
35
<PAGE> 37
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ENTERTAINMENT PRODUCT, NET. Entertainment product, net includes production or
acquisition costs (including advance payments to producers), capitalized
overhead and interest, home video and interactive manufacturing costs, and
prints, advertising and other related distribution costs 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.
Entertainment product, net is stated at the lower of cost less amortization or
estimated net realizable value, generally on an individual 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 an individual product will realize 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 $10,160,000 and $5,003,000 at
December 31, 1994 and 1993, 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 and (at fair value)
of $8,712,000 at December 31, 1994. 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
became effective in 1994. This statement requires the Company to adjust the
carrying value of this asset, which is classified as "available for sale" under
the applicable provisions of SFAS No. 115, to fair market value based on its
over-the-counter market price, with a corresponding adjustment, net of tax, to
Shareholders' Equity. It is not clear that the Company could realize such a
value if the investment were to be sold due to the low trading volume of such
shares relative to the number of shares owned by the Company. Additionally,
Viacom owns a significant number of shares in the same investment.
INTANGIBLE ASSETS, NET. Intangible assets represent the acquisition costs of
SEI, Republic and VIE in excess of the value of their identified net assets.
(See Note 2.) These costs are being amortized on a straight-line basis over 40
years. Amortization expense relating to such intangible assets was $7,144,000,
$3,825,000 and $4,086,000 for the three years ended December 31, 1994,
respectively. Intangible assets are net of accumulated amortization of
$17,671,000 and $10,527,000 at December 31, 1994 and 1993, respectively. It is
the Company's policy to evaluate the carrying value of such costs on a regular
basis, and to recognize impairment if it becomes probable that such costs would
not be recoverable.
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
36
<PAGE> 38
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
network. Such fees, and other fees received prior to the time that the related
entertainment 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 product to the licensee.
REVENUE RECOGNITION. Revenue from licensing agreements covering entertainment
product owned by the Company is recognized when the entertainment 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 entertainment product
which is not owned by the Company is recognized when billed.
Revenue from direct distribution of home video and interactive entertainment
product is recognized, net of an allowance for estimated returns and discounts,
together with related costs, in the period in which the product is shipped to
the Company's customers.
ACCOUNTING FOR ENVIRONMENTAL MATTERS. The allowances for estimated losses on
disposal and disputed claims reported in Note 10 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.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE. Net income per common and
common equivalent share amounts are based on the weighted average common and
common equivalent shares outstanding during the respective period. Primary and
fully-diluted net income per common and common equivalent share are not
presented as they result in a dilution of less than 3% from basic net income
per common and common equivalent share.
2. BUSINESS COMBINATIONS AND ACQUISITIONS
On April 26, 1994, DE Acquisition Corporation, a wholly-owned subsidiary of the
Company, merged with and into Republic (the "Merger"). As a result of the
Merger, Republic became a wholly-owned subsidiary of the Company, and each
share of the common stock of Republic (the "Republic Common Stock") outstanding
immediately prior to the Merger was converted into the right to receive $13.00
in cash, without interest.
Immediately prior to the Merger, BEC indirectly owned 2,550,000 shares of
Republic Common Stock and warrants to purchase 810,000 additional shares of
Republic Common Stock at an exercise price of $11.50 per share. In accordance
with the terms of the Merger,
37
<PAGE> 39
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the Company purchased the 2,550,000 shares of Republic Common Stock from BEC
for $33,150,000 and the warrants owned by BEC were converted into warrants to
purchase 1,337,148 shares of the Company's Common Stock at an exercise price of
$6.97 per share. Certain other parties held warrants to purchase 500,000
shares of Republic Common Stock at an exercise price of $12.50 per share. In
accordance with the terms of the Merger, these warrants were converted into
warrants to purchase 825,400 shares of the Company's Common Stock at an
exercise price of $7.57 per share.
On July 30, 1994, the Company and BEC entered into an exchange agreement (the
"Exchange Agreement") and consummated the transactions contemplated thereby
(the "Acquisition"). Pursuant to the Exchange Agreement, BEC delivered to the
Company 8,686,984 ordinary shares (the "Ordinary Shares") of VIEL and an option
to acquire 550,000 Ordinary Shares of VIEL (collectively, the "VIE Interests")
in exchange for 22,015,062 shares of the Company's Common Stock. BEC had
acquired a majority of the VIE Interests from third parties on July 29, 1994.
As a result of the Acquisition, the Company acquired approximately 90% of
VIEL's Ordinary Shares.
In connection with the Acquisition, the Company also entered into put- and
call-option agreements with BEC (now Viacom) with respect to the Ordinary
Shares of VIEL not owned by the Company. Under these agreements, at certain
dates over the next three years the Company may acquire, or be required to
purchase, these shares at an agreed-upon price. At the option of the Company,
such purchase price may be paid to BEC (now Viacom) in cash or shares of the
Company's Common Stock.
The Company has accounted for the Merger and the Acquisition under the purchase
method of accounting. However, with respect to the Merger, the Company has
recorded an adjustment of $6,670,000 to Shareholders' Equity to reflect the
excess of the cash consideration paid for BEC's ownership interest in Republic
Common Stock (see above) over BEC's carrying value for such interest. Further,
because BEC controlled both the Company and VIE at the time of the Acquisition,
the Company's purchase price for the VIE Interests has been determined by
reference to the purchase price paid by BEC for the VIE Interests.
The assets and liabilities of Republic and VIE are included in the accompanying
consolidated balance sheet as of December 31, 1994 at estimated fair value,
with the preliminary differences between purchase price and such fair values
being included in intangible assets. The Company has completed a preliminary
evaluation of the assets and liabilities of Republic and VIE. The excess of
the purchase price over net assets and liabilities acquired is being amortized
on a straight-line basis over forty years.
The results of operations of Republic since April 26, 1994, and the results of
operations of VIE since July 30, 1994, are included in the accompanying
consolidated statements of
38
<PAGE> 40
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
operations. The following table presents the unaudited pro forma results of
operations assuming that the Merger and the Acquisition had both occurred on
January 1, 1993 (in thousands, except per share amounts).
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------
1994 1993
-------- --------
<S> <C> <C>
Revenue $657,200 $472,400
Income from continuing operations 17,300 34,300
Income per share from continuing operations 0.22 0.39
</TABLE>
The pro forma results set forth in the preceding tables are not necessarily
indicative of the results that would have been realized had these transactions
actually taken place on the applicable dates or of the results which may occur
in the future.
In May 1991, the Company acquired approximately 27,200,000 shares (82%) of the
common stock and all of the preferred stock of SEI. In July 1992, the Company
issued 5,842,729 shares of Common Stock in exchange for the remaining publicly
held SEI common shares.
3. ENTERTAINMENT PRODUCT, NET
Entertainment product, net is comprised of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Entertainment product:
Released $162,147 $ 92,533
In process and other 53,615 22,009
Entertainment product rights 109,881 89,690
-------- --------
$325,643 $204,232
======== ========
</TABLE>
Entertainment product rights include the Company's acquisition from Carolco
Television, Inc. ("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.
Entertainment product rights also include advances to producers for
distribution rights and other entertainment product not produced by the
Company.
Based on the Company's estimates of future gross revenue as of December 31,
1994, approximately 70% of unamortized released entertainment product and
entertainment product rights will be amortized during the three years ending
December 31, 1997.
39
<PAGE> 41
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. DEBT
Debt consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Viacom Facility, average interest at
7.12% at December 31, 1994 $181,805 $ -
Credit Agreement, average interest
at 6.76% at December 31, 1994 54,313 -
UK Facility, interest
at 7.75% at December 31, 1994 8,943 -
Other credit facilities 3,792 -
Bank term loans, interest at
5.62% at December 31, 1993 - 49,580
-------- -------
$248,853 $49,580
======== =======
</TABLE>
In January 1994, the Company entered into a three-year credit agreement with
BEC. As a result of the merger of BEC with and into Viacom, Viacom succeeded
to BEC's position under the credit agreement (the "Viacom Facility"). This
agreement was amended and restated in January 1995 to reflect certain
amendments to the facility which were effective as of December 7, 1994,
including a $25,000,000 increase in the amount available under the facility.
The Viacom Facility, as amended, provides for (i) a term loan facility of
$100,000,000 which funded the Company's merger with Republic (see Note 2) and
(ii) a revolving credit facility of $100,000,000 to fund the Company's working
capital and other requirements. All outstanding borrowings mature on March 31,
1997. Under the Viacom Facility, the Company pays an annual fee (currently
0.375%) based on the unused portion of the facility, as well as certain
facility and administration fees, all based on the similar fees payable by
Viacom under its separate credit facilities. Interest on all outstanding
borrowings is payable, at the Company's option, at LIBOR plus a spread
(currently 1.25%) or at the prime rate; both rates are determined by
reference to the corresponding rates payable by Viacom under its separate
credit facilities.
Borrowings under the Viacom Facility are secured by all of the assets of the
Company and its domestic subsidiaries and the entire amount outstanding under
the Viacom Facility may be accelerated if Viacom's borrowings under its
separate credit facilities were to be accelerated.
On December 23, 1993, a wholly-owned subsidiary of VIEL established a
multi-currency credit agreement with a bank in the U.S. (the "Credit
Agreement"). The Credit Agreement initially provided for maximum borrowings of
$15,000,000, subject to a borrowing base test. Following the Acquisition, the
amount of borrowings allowable under the Credit Agreement was increased to
$75,000,000, and the borrowing base test and other ratio tests were eliminated,
based on the guarantee of all borrowings under the Credit Agreement by BEC (now
Viacom). All outstanding borrowings under the Credit Agreement are due June
30, 1995. Interest is payable monthly at the bank's reference rate or, at the
Company's option,
40
<PAGE> 42
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
certain alternative rates. Additionally, the Company must pay a commitment fee
of 0.125% on the unused portion of the available credit. As of December 31,
1994, the Company had approximately $5,816,000 in letters of credit outstanding
under the Credit Agreement to guarantee its purchases of interactive
entertainment product.
On September 8, 1993, another wholly-owned subsidiary of VIEL established a
L.5,000,000 credit facility (the "UK Facility") with a bank in the United
Kingdom. On April 12, 1994, the UK Facility was increased to L.10,000,000,
based in part on the personal guarantee of two of the directors of the
subsidiary. Following the Acquisition the Company guaranteed the UK Facility
and the guarantees of the two directors were terminated. (See Note 2.)
Advances under the credit facility bear interest at the bank's prime rate plus
1.5% and are due on demand. The UK Facility matures on April 30, 2005.
During the first quarter of 1995, the Company's other credit facilities were
paid off and terminated.
Pursuant to the separate credit facilities under which Viacom is a borrower,
certain subsidiaries of Viacom, including the Company, are restricted from
incurring indebtedness (other than indebtedness owing to Viacom) without the
prior consent of Viacom's lenders. Such consent has been given with respect to
the Credit Agreement and the UK Facility.
As of December 31, 1993, the Company had a credit facility with a group of
banks. This facility was terminated in January 1994 when the Company entered
into the Viacom Facility. In February 1993, the Company redeemed its 12- 1/4%
Subordinated Notes. The Company also 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 $8,436,000 in 1994, $7,800,000 in
1993 and $8,800,000 in 1992.
At December 31, 1994, the carrying value of all of the Company's debt
approximated fair value.
41
<PAGE> 43
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. EXTRAORDINARY ITEMS
The extraordinary items for the years ended December 31, 1993 and 1992 include
the following (in thousands):
<TABLE>
<CAPTION>
1993 1992
------- ------
<S> <C> <C>
Utilization of net operating loss carryforwards:
Continuing operations $ - $4,945
Discontinued operations - (997)
------- ------
- 3,948
------- ------
Loss on extinguishment of debt (3,309) -
Benefit for income taxes 1,287 -
------- ------
(2,022) -
------- ------
$(2,022) $3,948
======= ======
</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 9
regarding the change in 1993 in the Company's method of accounting for income
taxes.
6. SHAREHOLDERS' EQUITY
PREFERRED STOCK. At December 31, 1994 and 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, but the Company redeemed all of the Series A Preferred
Stock in November 1993.
COMMON STOCK. The Company declared and paid cash dividends on its Common Stock
of $.06, $.08 and $.08 for the years ended December 31, 1994, 1993 and 1992,
respectively. Dividends were discontinued by the Board of Directors as of the
fourth quarter of 1994.
At the Company's Annual Meeting of Shareholders on May 18, 1994, the
shareholders approved an increase in the number of authorized shares of the
Company's Common Stock from 200,000,000 to 300,000,000.
See Note 2 regarding the existence of certain warrants to purchase 2,162,548
shares of Common Stock.
42
<PAGE> 44
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SALE OF COMMON STOCK. In October 1993, in connection with the negotiation of
the Republic merger 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. (See Note 2.) The
BEC shares were subsequently sold, with the Company realizing approximately
$100,445,000 in cash.
ISSUANCE OF COMMON STOCK. See Note 2 regarding the issuance of 22,015,062 and
5,842,729 shares of the Company's Common Stock in connection with the
acquisitions of VIE and SEI, respectively.
CAPITAL IN EXCESS OF PAR VALUE. See Note 2 regarding the adjustment related to
the acquisition of Republic Common Stock from BEC.
ACCUMULATED DEFICIT. See Note 10 regarding the adjustment related to the
Company's pension plan. See Note 1 regarding the adjustment related to a
common stock investment.
STOCK OPTION PLAN. The Company has stock option plans under which both
incentive and nonqualified stock options may be granted to certain key
employees and directors to purchase up to approximately 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
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% or 25% annually,
beginning one year after the 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>
1994 1993 1992
---------------------------- --------------------------- ----------------------------
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 3,749,262 $3.38 - $19.28 1,130,481 $3.00 - $19.28 341,900 $3.00 - $ 4.75
Granted 3,384,181 $0.29 - $10.38 3,141,480 $6.00 - $ 7.34 1,026,131 $3.38 - $19.28
Exercised (1,463,429) $3.38 - $ 9.99 (301,231) $3.00 - $ 9.88 (113,200) $3.00 - $ 4.63
Terminated (21,345) $5.93 - $ 6.74 (221,468) $3.38 - $ 8.38 (124,350) $3.00 - $ 7.13
--------- --------- ---------
Outstanding at December 31 5,648,669 $0.29 - $19.28 3,749,262 $3.38 - $19.28 1,130,481 $3.00 - $19.28
========= ========= =========
Exercisable at December 31 1,069,847 $3.38 - $19.28 785,780 $3.38 - $19.28 1,013,531 $3.00 - $19.28
========= ========= =========
Available for grant at
December 31 4,380,542 579,207 3,499,219
========= ========= =========
</TABLE>
43
<PAGE> 45
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with the Merger and the Acquisition, the Company converted
outstanding options, under the respective stock option plans of Republic and
VIE, to options to purchase the Company's Common Stock, which are included in
options granted in the 1994 table above.
Options to acquire shares of Republic common stock outstanding under the
Republic stock options plan(s) were converted into the right to receive, upon
payment of the exercise price as adjusted, 1.6508 shares of the Company's
Common Stock for each share of Republic common stock into which such option was
exercisable. The exercise price of Republic options was adjusted by
multiplying such exercise price by .6058.
Options to acquire ordinary shares of VIE outstanding under the VIE stock
option plan(s) were converted into the right to receive, upon payment of the
adjusted exercise price, shares of the Company's Common Stock. A conversion
ratio of 2.4022 was determined based on the relative fair values of the
ordinary shares to the shares of the Company's Common Stock at that time. The
exercise price of VIE options was adjusted by dividing by the conversion ratio.
The times at which the previously outstanding Republic and VIE options may be
exercised remains unchanged. No additional options may be granted pursuant to
the pre-existing Republic and VIE plans, and the issuance of options to acquire
the Company's Common Stock to Republic and VIE plan participants did not reduce
the amounts available under the Company's current plans.
7. BENEFIT PLANS
The Company previously 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 $552,000,
$463,000 and $586,000 for the three years ended December 31, 1994, 1993 and
1992, respectively.
The Company's contribution to the 401(k) Contribution Plan and discretionary
profit-sharing contributions to such plan are made in cash and are restricted
to investment in the Company's Common Stock, which is purchased in the open
market.
A significant number of the Company's production employees are covered by union
sponsored, collectively bargained, multi-employer pension plans. The Company
contributed approximately $8,771,000, $4,259,000, and $3,714,000 for the three
years ended December 31, 1994, 1993 and 1992, respectively.
44
<PAGE> 46
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The FASB has 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 provide any postretirement or postemployment benefits.
8. RELATED PARTY TRANSACTIONS
See Note 4 regarding the Company's credit facility with Viacom and Viacom's
guarantee of the Company's credit agreement with a bank, and Note 6
regarding the Company's sale and issuance of Common Stock to BEC in 1993 and
1994, respectively.
From their issuance in May 1991 until their repayment in October 1993, 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 and $1,828,000, in
interest on these obligations during 1993 and 1992, respectively.
During 1994 and 1993, the Company recorded revenue of approximately $6,723,000
and $3,100,000, respectively from the sale of home videocassettes and
interactive entertainment product to BEC (subsequent to September 29, 1994,
Blockbuster Entertainment Group, a division of Viacom). At December 31, 1994,
the Company had a net receivable due from Viacom of approximately $1,824,000
related to these sales and associated returns.
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, subject to certain adjustments, in resolving
environmental and bankruptcy related claims through March 31, 2005. (See Note
10.)
Viacom (BEC) and AFC provided the Company with management services for which
the Company was charged by AFC $1,283,000 and $1,493,000 for the years ended
December 31, 1993 and 1992, respectively. The amount charged by Viacom (BEC)
in 1994 was $500,000 and by BEC in 1993 was $380,000. As of December 31, 1994
the Company had a net payable to Viacom of $354,000 with respect to such
expenses.
Prior to the merger of BEC into Viacom, the Company licensed certain
entertainment product to Showtime Network Inc., a subsidiary of Viacom, and
certain television stations owned by Viacom. Revenue from sales to Showtime
Network Inc. were not material for the year ended December 31, 1994. Sales
to the television stations consist of both cash and barter contracts.
Revenue from cash contracts was $1,890,000 for the year ended December 31,
1994 and the Company has a receivable due from Viacom of $1,786,000 as of
December 31, 1994. The Company realized revenue from third-party advertisers
with respect to the sale of advertising time received under the barter
contracts.
Additionally, prior to the merger of BEC into Viacom, the Company licensed
certain entertainment product to USA Network and Sci-Fi Channel in which Viacom
has equity interests. Revenue from such sales were $3,878,000 for the year
ended December 31, 1994, and the Company has a receivable due from USA Network
and Sci-Fi Channel of $4,545,000 associated with such sales.
45
<PAGE> 47
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES
The provision for income taxes for continuing operations, discontinued
operations and extraordinary items for each of the three years ended December
31 include (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- ------
<S> <C> <C> <C>
Continuing operations:
Federal $11,305 $ 5,643 $5,327
Foreign 6,494 5,023 2,500
State and local 1,896 2,390 1,358
------- ------- ------
19,695 13,056 9,185
------- ------- ------
Discontinued operations:
Federal - (2,139) (985)
State and local - (390) -
------- ------- ------
- (2,529) (985)
------- ------- ------
Extraordinary items:
Federal - (1,088) -
State and local - (199) -
------- ------- ------
- (1,287) -
------- ------- ------
Total $19,695 $ 9,240 $8,200
======= ======= ======
</TABLE>
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.
46
<PAGE> 48
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The temporary differences and tax attribute carryforwards which gave rise to
deferred tax assets and liabilities at December 31, 1994 and 1993 were as
follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Deferred Tax Assets:
Discontinued operations allowances $ 9,286 $ 15,398
Tax attribute carryforwards 37,281 29,724
Pension liability adjustment 3,027 3,321
Other, net - 1,037
-------- --------
49,594 49,480
Valuation allowance (27,219) (25,066)
-------- --------
$ 22,375 $ 24,414
======== ========
Deferred Tax Liabilities:
Entertainment product, net $ 23,112 $ 20,209
Revenue recognition 8,880 6,570
Unrealized holding gain 2,770 -
Other, net 2,407 -
-------- --------
$ 37,169 $ 26,779
======== ========
</TABLE>
In connection with adopting SFAS 109, the Company established a valuation
allowance against certain of its tax attribute carryforwards. During 1993, 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 allowance by approximately
$4,200,000 and reflected a corresponding benefit in its provision for income
taxes for the third quarter of 1993.
The increase in the valuation allowance in 1994 was caused by the acquisition
of VIE, which had previously recorded an allowance in the amount of $2,153,000,
which the Company's management has determined is reasonable.
The components of income from continuing operations before the provision for
income taxes in 1994 and 1993 were as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Domestic $27,503 $21,300
Foreign 16,980 15,415
------- -------
$44,483 $36,715
======= =======
</TABLE>
47
<PAGE> 49
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>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Federal tax rate 35% 35% 34%
Amortization of intangible assets 6 4 8
Adjustment of valuation allowance - (11) -
State and local taxes, net of available
Federal income tax benefits 4 4 5
Foreign taxes, net of available Federal
income tax benefits - 5 10
Foreign sales corporation benefit - (2) (7)
Minority interest - - 3
Other (1) 1 1
-- -- --
44% 36% 54%
== == ==
</TABLE>
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 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.
As of December 31, 1994, the Company had available net operating loss
carryforwards of approximately $51,800,000, capital loss carryforwards of
$9,500,000, foreign tax credit carryforwards of $10,984,000, investment tax
credit carryforwards of $1,773,000 and AMT credit carryforwards of $3,166,000.
The use of these attributes, which except for the AMT credit will expire in
1995 through 2007, is subject to certain limitations as a result of BEC's
acquisition of a majority interest in the Company during 1993 and Viacom's
acquisition of BEC during 1994.
Total cash income tax payments were $7,661,000, $6,300,000 and $4,100,000,
respectively for 1994, 1993 and 1992. In addition, the Company received
$8,950,000 of income tax refunds during 1994, the receipt of which had
previously been accrued. However, the Company did recognize a benefit of
$547,000 as a result of the favorable resolution of certain tax matters.
Additionally, the Company is subject to audit by taxing authorities for varying
periods in various tax jurisdictions. Management believes that any required
adjustments to the Company's tax liabilities resulting from such audits will
not have a material adverse impact on its financial position or results of
operations.
48
<PAGE> 50
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. DISCONTINUED OPERATIONS
All of the Company's former industry segments are reported as discontinued. A
summary of financial data for discontinued operations for the years ended
December 31, 1993 and 1992 follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Revenue
Petroleum marketing $ - $260,654
Other, including investments - 6,190
-------- --------
- 266,844
-------- --------
Costs and expenses:
Cost of petroleum marketintg sales - 261,628
Interest expense - 312
Other, principally general and administrative 6,500 7,932
-------- --------
6,500 269,872
-------- --------
Loss before income taxes (6,500) (3,028)
Income taxes benefit 2,529 985
-------- --------
Net loss from discontinued operations $ (3,971) $ (2,043)
======== ========
Net loss per common share from discontinued operations $ (.07) $ (.04)
======== ========
</TABLE>
Net assets (liabilities) of discontinued operations which are held for
disposition consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Receivables, net $ 608 $ 2,714
Property, plant and equipment, net 3,161 4,467
Accounts payable and other (1,749) (1,780)
Pension liability (8,713) (9,449)
Allowances for estimated losses on disposal
and disputed claims (20,368) (29,621)
-------- --------
$(27,061) $(33,669)
======== ========
</TABLE>
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.
49
<PAGE> 51
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONTINGENCIES. Contingent liabilities relating to discontinued operations
include 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 the parties seek damages from the Company in
very large amounts, however, as discussed below, management does not believe
the ultimate resolution of these matters should have a material adverse effect
on its financial condition and its results of operations.
(A) 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 co-defendants. 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 the 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, 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 appeal, there will be no further insurance coverage for the dioxin
claims.
(B) The Company has had contact with various governmental agencies regarding
possible contamination of soil and groundwater at seven properties that are or
have been owned or leased by the Company's subsidiaries. Private actions also
have been brought or threatened with respect to such possible contamination at
an additional two locations. Notification of possible responsibility has also
been received regarding nine other sites where waste materials allegedly were
delivered. 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
50
<PAGE> 52
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
other properties. 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 is engaged in the cleanup of a petroleum terminal property owned
by the subsidiary in Tiverton, Rhode Island. The remaining cost could be as
much as $8 million, which is fully provided for in the allowances for estimated
losses of disposal of former operations. The subsidiary has filed a cost
recovery action against a former owner of the terminal, and is continuing to
investigate whether other 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 agreed with the United
States to settle its potential liability for $215,000, subject to court
approval. The settlement is being asserted by the subsidiary as a defense to
a private cost recovery action that has been filed by the parties to the
proposed settlement agreement.
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.
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.
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
51
<PAGE> 53
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and its results of operations. This belief is also based upon (i) allowances
that have been established for 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 petroleum 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 the allowances by more than $50 million, a substantial portion of
which would be covered by the AFC indemnity.
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 liabilities
it may have to pay in resolving environmental and bankruptcy related claims
through March 31, 2005. The indemnity covers up to $35 million of such
liabilities in excess of a threshold amount of $25 million, subject to certain
adjustments.
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, the plan assets exceeded the projected benefit
obligation by $2.5 million.
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. An
increase in the discount rate to 8.25% resulted in an adjustment to reduce the
additional minimum liability and related tax benefit with an offsetting credit
to Shareholders' Equity of $380,000 in 1994.
The following table sets forth the plan's funded status and amounts recognized
as of December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Total projected benefit obligation $(44,313) $(55,679)
Market value of assets 35,600 46,035
-------- --------
Funded status (8,713) (9,644)
Transition asset (2,764) (3,159)
Unrecognized loss 10,680 11,880
Unrecognized prior service cost 7 12
Additional minimum liability (7,923) (8,538)
-------- --------
Accrued pension cost $ (8,713) $ (9,449)
======== ========
</TABLE>
52
<PAGE> 54
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During 1994, the Company transferred all obligations and assets relating to
annuities guaranteed by insurance to a third party. Such obligations or assets
are therefore not reflected in the plan balances on December 31, 1994.
Net pension costs for the years ended December 31, which were charged against
net liabilities related to discontinued operations in the balance sheet, are as
follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Service cost $ -- $ 43
Interest cost 3,750 3,789
Expected return on assets (3,547) (3,990)
Net amortization and deferrals (105) 391
------- -------
Pension expenses $ 98 $ 233
======= =======
</TABLE>
The weighted-average discount rates used in determining the actuarial present
value of the projected benefit obligation were 8.25% and 7% for the years ended
December 31, 1994 and 1993, respectively. The expected long-term rates of
return on assets were 8% and 9%, respectively. The plan assets are invested
primarily in fixed income securities. Included in the plan assets at December
31, 1993 was $5.5 million principal amount of AFC 12.25% debentures due 2003.
This asset was sold in 1994.
11. 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 10 for contingencies relating to
discontinued operations.
As of December 31, 1994, the Company had operating leases for offices and
equipment. The rental expense, net of amounts capitalized, for the three years
ended December 31, 1994 was $4.2 million, $3.3 million and $2.9 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):
53
<PAGE> 55
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C>
1995 $ 7,043
1996 5,873
1997 5,382
1998 4,610
1999 3,943
Thereafter 17,421
-------
Total $44,272
=======
</TABLE>
12. INDUSTRY SEGMENTS
The Company's continuing business activities consist of one industry segment,
the entertainment industry. The Company had revenue from one customer in 1994,
1993 and 1992 representing 15%, 22% and 22% of revenue, respectively.
Revenue, operating profit and identifiable assets of the Company's
international operations were not material related to consolidated amounts as
of and for the years ended December 31, 1993 and 1992. Due to the acquisition
of VIE in 1994, international operations, primarily in Europe, have increased
in significance related to the consolidated operations of the Company.
Information with respect to the revenue, operating profit and identifiable
assets by geographic area, as of and for the year ended December 31, 1994,
follows (in thousands):
<TABLE>
<CAPTION>
United States Europe All Other Total
------------- ------ --------- -----
<S> <C> <C> <C> <C>
Revenue $499,115 $ 94,735 $ 5,989 $ 599,839
Operating income 43,949 6,608 186 50,743
Identifiable assets 824,698 188,438 13,624 1,026,760
</TABLE>
Export sales for the years ended December 31, 1994, 1993 and 1992 totaled
approximately $120,903,000, $97,813,000 and $97,283,000, respectively. Export
sales to Europe for the years ended December 31, 1994, 1993 and 1992 were
$67,952,000, $47,579,000 and $48,504,000, respectively.
54
<PAGE> 56
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents quarterly results of operations for the years
ended December 31, 1994 and 1993 (in thousands, except per share data).
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
1994 Quarter Quarter Quarter Quarter
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenue $ 80,413 $ 84,232 $136,744 $298,450
Income (loss) from continuing
operations, net $ 6,854 $ 8,707 $ (531) $ 9,078
Net income (loss) $ 6,854 $ 8,707 $ (531) $ 9,078
Net income (loss) per common
and common equivalent share $ 0.11 $ 0.13 $ (0.01) $ 0.10
1st 2nd 3rd 4th
1993 Quarter Quarter Quarter Quarter
-------- -------- -------- ---------
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, net $ - $ - $ - $ (2,022)
Net income (loss) $ (4,576) $ 7,886 $ 7,480 $ 6,876
Net income (loss) per common
and common equivalent share:
Continuing operations $ 0.02 $ 0.12 $ 0.14 $ 0.14
Discontinued operations (0.11) 0.03 - -
Extraordinary items - - - (0.04)
-------- -------- -------- ---------
Net income (loss) per common
and common equivalent share: $ (0.09) $ 0.15 $ 0.14 $ 0.10
======== ======== ======== ========
</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.
55
<PAGE> 57
SPELLING ENTERTAINMENT GROUP INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31,
(In Thousands)
<TABLE>
<CAPTION>
1994
----------------------------------------------------------------------------------------------------------
Other
Balance Additions Deductions adjustments Balance at
at beginning charged 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 and returns $ 4,983 $13,452 $(5,888) $12,817(a) $25,364
Losses on disposal and
disputed claims $29,621 $ - $(9,253) $ - $20,368
1993
----------------------------------------------------------------------------------------------------------
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(b) $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
</TABLE>
(a) Existing allowances at the dates of acquisition of Republic and VIE.
(b) During 1993, all allowances for disputed claims and other items were
reclassed into losses on disposal and disputed claims.
56
<PAGE> 58
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On November 1, 1994, the Company replaced Arthur Andersen LLP with Price
Waterhouse LLP as its independent accountants. The decision to replace Arthur
Andersen LLP was approved by the Board of Directors of the Company.
The report of Arthur Andersen LLP dated February 1, 1994 relating to the
Consolidated Financial Statements of the Company for the year ended December
31, 1993 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,
1993, there have been no disagreements with Arthur Andersen LLP 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 Arthur Andersen LLP would have caused them to make reference
thereto in their financial report on the financial statements for such year.
------------------
57
<PAGE> 59
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 1995 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
58
<PAGE> 60
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 1994, 1993 and 1992:
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
I - Condensed Financial Information of Registrant -
This schedule has been omitted since in 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.
II - Valuation and Qualifying Accounts 56
</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
(b) Reports on Form 8-K:
1. Form 8-K/A dated July 30, 1994 and filed with the Commission
on October 14, 1994, amendment to Form 8-K dated July 30, 1994
regarding consummation of the exchange transaction with
Blockbuster Entertainment Corporation in which shares of the
Company's common stock were exchanged for ordinary shares of
Virgin Interactive Entertainment plc.
2. Form 8-K dated November 14, 1994 related to the change in
certifying accountants, changes in the membership to the
Company's Board of Directors and revision of the Company's
dividend policy.
3. Form 8-K dated December 7, 1994 regarding an amendment to the
Credit Agreement, dated as of January 31, 1994, between the
Company and Viacom Inc.
59
<PAGE> 61
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: March 30, 1995 By: /s/ 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: March 30, 1995 By: /s/ H. Wayne Huizenga
--------------------------------
H. Wayne Huizenga
Chairman of the Board
Date: March 30, 1995 By: /s/ Aaron Spelling
--------------------------------
Aaron Spelling
Vice Chairman of the Board
Date: March 30, 1995 By: /s/ Steven R. Berrard
--------------------------------
Steven R. Berrard
President and Chief Executive
Officer (Principal Executive
Officer)
Date: March 30, 1995 By: /s/ Thomas P. Carson
--------------------------------
Thomas P. Carson
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
60
<PAGE> 62
Date: March 30, 1995 By: /s/ Kathleen Coughlan
--------------------------------
Kathleen Coughlan
Senior Vice President and
Corporate Controller
(Principal Accounting Officer)
Date: March 30, 1995 By: /s/ Sumner Redstone
--------------------------------
Sumner Redstone
Director
Date: March 30, 1995 By: /s/ John L. Muething
--------------------------------
John L. Muething
Director
Date: March 30, 1995 By: /s/ Philippe Dauman
--------------------------------
Philippe Dauman
Director
Date: March 30, 1995 By: /s/ Frank Biondi, Jr.
--------------------------------
Frank Biondi, Jr.
Director
Date: March 30, 1995 By: /s/ J. Brian McGrath
--------------------------------
J. Brian McGrath
Director
61
<PAGE> 63
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, 1992 (incorporated
by reference to Exhibit 3(i) to Registrant's Form 10-K for fiscal year ended December 31, 1993).
3(ii) Registrant's Bylaws, as amended through February 15, 1994 (incorporated by reference to Exhibit 3(ii) to
Registrant's Form 10-K for fiscal year ended December 31, 1993).
4.1 Amended and Restated Credit Agreement dated as of January 31, 1995, by and among the Registrant, certain
subsidiaries of the Registrant and Viacom Inc.
4.2 Amended and Restated Pledge and Security Agreement dated as of January 31, 1995, by and among the Registrant,
certain subsidiaries of the Registrant and Viacom Inc.
4.3 Amended and Restated Copyright Mortgage and Assignment; Power of Attorney dated as of January 31, 1995, by the
Registrant and certain subsidiaries of the Registrant in favor of Viacom Inc.
10.1 Registrant's Stock Option Plan and Amendment Nos. One through Five thereto (incorporated by reference to
Exhibit 4.03 to the Registrant's Registration Statement No. 33-61914 on Form S-8).
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).
</TABLE>
62
<PAGE> 64
SPELLING ENTERTAINMENT GROUP INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER EXHIBIT DESCRIPTION
------ -------------------
<S> <C>
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 Exhibit 10.50 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 (incorporated by reference to Exhibit 10.7 to Registrant's Form 10-K for fiscal year
ended December 31, 1993).
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 (incorporated by reference to Exhibit 10.8 to Registrant's Form 10-K for fiscal year
ended December 31, 1993).
10.11 Amended and Restated Agreement and Plan of Merger, dated May 22, 1992, by and among the Registrant, SEI 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).
</TABLE>
63
<PAGE> 65
SPELLING ENTERTAINMENT GROUP INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER EXHIBIT DESCRIPTION
------ -------------------
<S> <C>
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 reference 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 (incorporated by reference to Annex A to Registrant's Notice of Annual Meeting and
Proxy Statement dated April 27, 1994).
10.15 Employment Agreement dated as of September 26, 1994, between Registrant and Peter Bachmann.
10.16 Employment Agreement dated as of September 1, 1994, between Registrant and Tom Carson.
10.17 Exchange Agreement dated July 30, 1994, by and among Spelling Entertainment Group Inc., Blockbuster Entertainment
Corporation and Blockbuster Interactive Entertainment, Inc. (incorporated by reference to Exhibit 2 to Registrant's
Form 8-K dated July 30, 1994).
11 Computation of net income per share.
21 Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
</TABLE>
64
<PAGE> 1
EXHIBIT 4.1
==============================================================================
SPELLING ENTERTAINMENT GROUP INC.
AND ITS SUBSIDIARIES, AS BORROWERS
AMENDED AND RESTATED
CREDIT AGREEMENT
DATED AS OF JANUARY 31, 1995
VIACOM INC., AS LENDER
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C> <C>
1. Definitions; Certain Rules of Construction . . . . . . . . . . . . . . . . . . . . . . 1
2. The Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1 Revolving Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1.1 Revolving Loan . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1.2 Borrowing Requests . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1.3 Revolving Note . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2 Term Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2.1 Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2.2 Term Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3 Conversion/Continuation Option . . . . . . . . . . . . . . . . . . . . . . 9
2.4 Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.4.1 Revolving Loan . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.4.2 Specifically Prohibited Applications . . . . . . . . . . . . . . . 10
3. Interest; Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1.2 Interest on Overdue Amounts . . . . . . . . . . . . . . . . . . . 11
3.1.3. Limitation by Applicable Law . . . . . . . . . . . . . . . . . . . 11
3.2 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2.1 Commitment Fees . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2.2 Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2.3 Annual Administrative Fee . . . . . . . . . . . . . . . . . . . . 11
3.3 Computations of Interest and Fees . . . . . . . . . . . . . . . . . . . . 11
3.4 Break-Funding Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4. Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1 Payment at Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Contingent Required Prepayments . . . . . . . . . . . . . . . . . . . . . 12
4.3 Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.4 Reborrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.5 Payment with Accrued Interest . . . . . . . . . . . . . . . . . . . . . . 12
4.6 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.7 Payment on Non-Banking Days . . . . . . . . . . . . . . . . . . . . . . . 13
5. Conditions to Extending Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 Conditions to Each Extension of Credit . . . . . . . . . . . . . . . . . . 13
5.1.1 Proper Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1.2 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C> <C>
5.1.3 Representations and Warranties . . . . . . . . . . . . . . . . . . 13
6. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.1 Non-Borrower Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 13
6.2 Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.1 Borrower's Representations and Warranties . . . . . . . . . . . . . . . . 14
7.1.1 Organization, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 14
7.1.2 No Legal Obstacle to Agreements . . . . . . . . . . . . . . . . . 14
7.1.3 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.1.4 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.1.5 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . 15
7.1.6 Material Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 15
7.2 Lender's Representations and Warranties . . . . . . . . . . . . . . . . . 15
7.2.1 Organization, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 15
7.2.2 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.2 Certain Actions Following an Event of Default . . . . . . . . . . . . . . 18
8.2.1 No Obligation to Extend Credit . . . . . . . . . . . . . . . . . . 18
8.2.2 Specific Performance; Exercise of Rights . . . . . . . . . . . . . 18
8.2.3 Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.2.4 Enforcement of Payment; Setoff . . . . . . . . . . . . . . . . . . 19
8.2.5 Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . 19
8.3 Annulment of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.4 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9. Expenses; Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.2 General Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12. Course of Dealing; Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . 22
13. Venue; Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
ii
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<TABLE>
<CAPTION>
Page
<S> <C> <C>
14. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
iii
<PAGE> 5
SPELLING ENTERTAINMENT GROUP INC.
EXHIBITS
--------
Exhibit 2.1.3 - Revolving Note
Exhibit 2.2.2 - Term Note
SCHEDULES
---------
Schedule 7.1.6 - Material Subsidiaries
iv
<PAGE> 6
SPELLING ENTERTAINMENT GROUP INC.
AMENDED AND RESTATED
CREDIT AGREEMENT
This Agreement, dated as of January 31, 1995 is among Spelling
Entertainment Group Inc., a Florida corporation, its subsidiaries that are from
time to time party hereto and Viacom Inc., a Delaware corporation ("Lender").
The parties agree as follows:
1. Definitions; Certain Rules of Construction. Except as otherwise explicitly
specified to the contrary, (a) the capitalized term "Section" refers to sections
of this Agreement, (b) the capitalized term "Exhibit" refers to exhibits to this
Agreement, (c) references to a particular Section include all subsections
thereof, (d) the word "including" shall be construed as "including without
limitation", (e) accounting terms not otherwise defined herein shall have the
respective meanings provided under GAAP and (f) terms defined in the UCC and not
otherwise defined herein shall have the respective meanings provided under the
UCC. Certain capitalized terms are used, in this Agreement as specifically
defined as follows:
1.1 "Affiliate" means, with respect to any Person (or other specified
Person), any other Person directly or indirectly controlling, controlled by or
under direct or indirect common control with, that Person, and shall include (a)
any officer or director or general partner of that Person and (b) any Person of
which that Person or any Affiliate (as defined in clause (a) above) of that
Person shall, directly or indirectly, beneficially own either (i) at least 10%
of the outstanding equity securities having the general power to vote or (ii) at
least 10% of all equity interests; provided, however, that for purposes of the
Credit Documents, none of Lender or its officers, directors, shareholders,
Affiliates and Subsidiaries (other than Company and its Subsidiaries) shall be
deemed Affiliates of the Company, the other Borrowers or the Company's other
Subsidiaries.
1.2 "Agreement" means this Amended and Restated Credit Agreement, as
amended, supplemented or modified from time to time.
1.3 "Applicable Eurodollar Rate Margin" means 1.25%, to be reduced to a
minimum of 1%, or increased, as warranted by a corresponding reduction or
increase in Lender's cost of funds.
1.4 "Applicable Rate" means: (a) with respect to each Eurodollar Rate
Loan hereunder, the Eurodollar Rate and (b) with respect to each Base Rate Loan
hereunder, the Base Rate.
1.5 "Articles" means the articles of organization, certificate of
incorporation, trust indenture statute, constitution, joint venture agreement,
partnership agreement or other charter
<PAGE> 7
document of any Person other than an individual, each as from time to time in
effect.
1.6 "Banking Day" means any day other than Saturday, Sunday or a day on
which banks in Los Angeles, California and New York City, New York are
authorized or required by law or other governmental action to close.
1.7 "Bankruptcy Code" means Title 11 of the United States Code (or any
successor statute) and the rules and regulations thereunder, all as from time to
time in effect.
1.8 "Bankruptcy Default" means an Event of Default referred to in
Section 8.1.7.
1.9 "Base Rate" means, for any day, a fluctuating interest rate per
annum as shall be in effect for such day, which rate per annum shall be equal at
all times to the higher of:
(i) the rate of interest announced publicly by the Administrative Agent
of the Viacom Credit Facilities in New York, New York as the
Administrative Agent's base rate in effect for such day; or
(ii) the Federal Funds Rate for such day plus 1/2 of 1% per annum.
1.10 "Base Rate Loan" means any Loan or portion thereof that bears
interest with reference to the Base Rate.
1.11 "Borrower" or "Borrowers" means the Company and each of the
Company's Subsidiaries indicated as Borrowers on the signature pages hereof (or
pursuant to a joinder hereto) on a joint and several basis.
1.12 "By-laws" means all written by-laws, rules, regulations and all
other documents relating to the management, governance or internal regulation of
any Person other than an individual, or interpretive of the Articles of such
Person, all as from time to time in effect.
1.13 "Closing Date" means each date on which any extension of credit is
made pursuant to Section 2.1.1.
1.14 "Collateral" has the meaning assigned to that term in the Pledge
and Security Agreement or any other Security Document.
1.15 "Commitment" means Lender's obligations to extend the credits
contemplated by the Credit Documents.
1.16 "Company" means Spelling Entertainment Group Inc., a Florida
corporation.
1.17 "Copyright Mortgages and Assignments" has the meaning assigned to
that term in the Pledge and Security Agreement.
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<PAGE> 8
1.18 "Credit Agreement" means the Credit Agreement dated as of January
31, 1994, as amended by Amendment No.1, dated December 7, 1994, as in effect
immediately prior to the execution hereof, among Spelling Entertainment Group
Inc., its Subsidiaries party thereto, and Viacom Inc.
1.19 "Credit Documents" means:
(a) this Agreement, the Notes, and the Guaranty, each as
from time to time in effect;
(b) all Security Documents, reports, notices, mortgages,
assignments, UCC financing statements or certificates delivered to the Lender by
the Company or any of its Subsidiaries or Affiliates in connection herewith or
therewith; and
(c) any other present or future agreement or instrument from
time to time entered into among the Company, any of its Subsidiaries or (so long
as the Company or its Subsidiary is also party thereto) any Affiliate of any of
them, on one hand, and the Lender, on the other hand, relating to, amending or
modifying this Agreement or any other Credit Document referred to above or which
is stated to be a Credit Document, each as from time to time in effect.
1.20 "Credit Obligations" means all present and future liabilities,
obligations and Indebtedness of the Company, any of its Subsidiaries or any of
their respective Affiliates party to a Credit Document owing to Lender or any
other Indemnified Party under or in connection with this Agreement or any other
Credit Document, including obligations in respect of principal, interest,
commitment fees, and other fees, charges, indemnities and expenses from time to
time owing hereunder or under any other Credit Document (whether accruing before
or after a Bankruptcy Default).
1.21 "Credit Security" means all assets now or from time to time
hereafter subjected to a security interest, mortgage or charge (or intended or
required so to be subjected pursuant to this Agreement, the Security Documents
or any other Credit Document) to secure the payment or performance of any of the
Credit Obligations, including the Collateral described in the Security
Documents.
1.22 "Default" means any Event of Default and any event or condition
which with the passage of time or giving of notice, or both, would become an
Event of Default.
1.23 "Effective Time" has the meaning assigned to that term in the
Merger Agreement.
1.24 "Eurodollar Rate" means for each day of the applicable Interest
Period for such Loan, the rate of interest per annum determined by the
Administrative Agent of the Viacom Credit Facilities to be the offered rate per
annum at which deposits in dollars appears on the
3
<PAGE> 9
Telerate Page 3750 (or any successor page) as of 11:00 A.M. (London Time), or in
the event such offered rate is not available from the Telerate Page, the average
(rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such
percentage is not such a multiple) of the rates offered by the principal office
of each of the Reference Banks (as defined in the Viacom Credit Facilities) in
the London interbank market at 11:00 A.M. (London time), two Banking Days before
the first day of such Interest Period for deposit in dollars in an amount
substantially equal to the aggregate of the Eurodollar Rate Loans to which such
Interest Period relates and for a period equal to such Interest Period.
1.25 "Eurodollar Rate Loan" means any Loan or portion thereof that
bears interest at a rate determined with reference to the Eurodollar Rate.
1.26 "Event of Default" is defined in Section 8.1.
1.27 "Final Loan Maturity Date" means March 31, 1997.
1.28 "Financing Debt" means:
(a) Indebtedness in respect of borrowed money;
(b) Indebtedness in respect of notes, debentures or similar
instruments;
(c) Indebtedness in respect of capitalized leases;
(d) Indebtedness in respect of the deferred purchase price
of assets (other than normal trade accounts payable in the ordinary course of
business);
(e) Indebtedness in respect of mandatory redemption or
dividend rights on capital stock (or other equity); and
(f) Indebtedness in respect of unfunded pension liabilities.
1.29 "GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or such other
practices as may be in general use by significant segments of the U.S.
accounting profession, which are applicable to the circumstances as of the date
of determination.
1.30 "Guarantee" means, with respect to the Company (or other specified
Person):
(a) any guarantee by the Company of the payment or
performance of, or any contingent obligation by the Company in respect of, any
Indebtedness or other obligation of any other Person;
4
<PAGE> 10
(b) any other arrangement whereby credit is extended to a
Person on the basis of any promise or undertaking of the Company (including any
"comfort letter" or "keep well agreement" written by the Company to a creditor
or prospective creditor of such Person) to (i) pay the Indebtedness of such
Person, (ii) purchase an obligation owed by such Person, (iii) pay for the
purchase or lease of assets or services regardless of the actual delivery
thereof or (iv) maintain the capital, working capital, solvency or general
financial condition of such Person, in each case whether or not such arrangement
is disclosed in the balance sheet of the Company or referred to in a footnote
thereto;
(c) any liability of the Company as a general partner of a
partnership in respect of Indebtedness or other obligations of such partnership;
(d) any liability of the Company as a joint venturer of a
joint venture in respect of Indebtedness or other obligations of such joint
venture; and
(e) reimbursement obligations with respect to letters of
credit, surety bonds and other financial guarantees; provided, however, that the
term "Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Guarantee and the amount of
Indebtedness resulting from such Guarantee shall be the greater of (i) the
amount which should be carried on the balance sheet of the Guarantor in respect
of such Guarantee or (ii) the amount which should be carried on the balance
sheet of the obligor whose obligations were guaranteed in respect of such
obligations, in each case as determined in accordance with GAAP.
1.31 "Guarantor" means the Company, the Borrowers and each other
Subsidiary of Company from time to time indicated as a Guarantor on the
signature pages to the Guaranty (or pursuant to a joinder thereto).
1.32 "Guaranty" means the Guaranty of even date hereof among Lender,
Borrowers and the other Guarantors, as from time to time in effect.
1.33 "Indebtedness" means all obligations, contingent, or otherwise,
which in accordance with GAAP are required to be carried upon the balance sheet
of the Company (or other specified Person) as liabilities, but in any event
including;
(a) liabilities secured by any Lien existing on property
owned or acquired by the Company or any Subsidiary, whether or not the liability
secured thereby shall have been assumed;
(b) obligations under capitalized leases;
(c) mandatory redemption, repurchase or dividend,
obligations with respect to capital stock (or other evidence of beneficial
interest); and
5
<PAGE> 11
(d) all Guarantees and endorsements in respect of
Indebtedness of others.
1.34 "Indemnified Party" is defined in Section 9.2.
1.35 "Interest Period" means: (a) in the case of Base Rate Loans, the
period commencing on the date such loans are made or on the date of conversion
from Eurodollar Rate Loans and ending on the last day of each fiscal quarter and
(b) with respect to any Eurodollar Rate Loan, any period, selected as provided
in Section 2.1.2, of one, two or three months commencing on any Banking Day and
ending on the corresponding date in the subsequent calendar month so selected
or, if such subsequent calendar month has no corresponding date, on the last
date of such subsequent calendar month); provided, however, with respect to any
Base Rate Loans or Eurodollar Rate Loans, that if any Interest Period so
selected would otherwise begin or end on a date which is not a Banking Day, such
Interest Period shall instead begin or end, as the case may be, on the
immediately preceding or succeeding Banking Day as determined by Lender.
1.36 "Lender" means Viacom Inc. and its successors and assignees.
1.37 "Loan or Loans" means one or more of the Revolving Loans or the
Term Loan or any combination thereof.
1.38 "Margin Stock" means "margin stock" within the meaning of
Regulations G, T, U or X (or any successor provisions) of the Board of Governors
of the Federal Reserve System, or any regulations, interpretations or rulings
thereunder, all as from time to time in effect.
1.39 "Material Adverse Change" means a material adverse change since
December 31, 1994 in the business, assets, financial condition, income or
prospects of the Company and its Subsidiaries (on a consolidated basis).
1.40 "Material Subsidiary" means a Subsidiary with assets having a book
value exceeding One Million Dollars ($1,000,000) (calculated after the deduction
of all assets constituting amounts payable from an Affiliate).
1.41 "Notes" means the Revolving Note and the Term Note.
1.42 "Notice of Borrowing" is defined in Section 2.1.2.
1.43 "Notice of Continuation or Conversion" is defined in Section 2.3.
1.44 "Obligor" means the Company, each other Borrower, each other
Guarantor and each other Person guaranteeing or granting collateral to secure
any Credit Obligations.
1.45 "Person" means any present or future natural person or any
corporation,
6
<PAGE> 12
association, partnership, joint venture, company, business trust, trust,
organization, business or government or any governmental agency or political
subdivision thereof.
1.46 "Pledge and Security Agreement means the Pledge and Security
Agreement of even date hereof among Lender, Borrowers and the other Guarantors,
as from time to time in effect.
1.47 "Product" has the meaning assigned to that term in the Pledge and
Security Agreement.
1.48 "Product Rights" has the meaning assigned to that term in the
Pledge and Security Agreement.
1.49 "Revolving Loan" is defined in Section 2.1.1.
1.50 "Revolving Note" is defined in Section 2.1.3.
1.51 "Security Documents" means the Pledge and Security Agreement, the
Guaranty, the Copyright Mortgages and Assignments, and any other present or
future agreements, instruments or documents from time to time between any
Borrower, any other Guarantor, any of their respective Subsidiaries or
Affiliates, or any other Person and Lender relating to the guaranty of or pledge
of a security interest or assignment to secure the payment and performance of
the Credit Obligations, as such agreements, instruments or documents are from
time to time in effect.
1.52 "Stated Amount of Revolving Credit" means, at any date, the lesser
of (a) One Hundred Million Dollars ($100,000,000) or (b) such lesser amount (in
an integral multiple of $1,000,000) specified by irrevocable written notice from
the Borrowers to the Lender permanently reducing the Stated Amount of Revolving
Credit.
1.53 "Subsidiary" of any Person means any other Person of which such
Person or other specified Person shall at the time, directly or indirectly
through one or more of its Subsidiaries, (a) own at least 50% of the outstanding
capital stock (or other shares of beneficial interest) entitled to vote
generally, (b) hold at least 50% of the partnership, joint venture or similar
interests or (c) be a general partner or joint venturer; provided, however, that
the term Subsidiary shall not include any joint venture.
1.54 "Term Loan" is defined in Section 2.2.1
1.55 "Term Note" is defined in Section 2.2.2
1.56 "Trademark Mortgages and Assignments" has the meaning assigned to
that term in the Pledge and Security Agreement.
7
<PAGE> 13
1.57 "UCC" means the Uniform Commercial Code as in effect in New York
on the date hereof.
1.58 "Unused Availability" means, at any date, the excess of the Stated
Amount of Revolving Credit over the Revolving Loan.
1.59 "Viacom Credit Facilities" means (i) the $6.489 Billion Credit
Agreement, dated as of July 1, 1994, as amended as of August 5, 1994 by
Amendment No. 1 and as of September 29, 1994 by Amendment No. 2, among Viacom,
each of the several Banks parties thereto, The Bank of New York, as a Managing
Agent and as the Documentation Agent, Citibank, N.A. as a Managing Agent and as
the Administrative Agent, Morgan Guaranty Trust Company of New York, as a
Managing Agent, JP Morgan Securities Inc., as the Syndication Agent, Bank of
America NT & SA, as a Managing Agent, the Banks identified as Agents on the
signature pages thereof, as Agents, and the Banks identified as Co-Agents on the
signature pages thereof, as Co-Agents, (ii) the $1.8 Billion Credit Agreement,
dated as of September 29, 1994, among Viacom, each of the several Banks
indicated on the signature pages thereof, The Bank of New York, as a Managing
Agent and as the Documentation Agent, Citibank, N.A. as a Managing Agent and as
the Administrative Agent, Morgan Guaranty Trust Company of New York, as a
Managing Agent, JP Morgan Securities Inc., as the Syndication Agent, Bank of
America NT & SA, as a Managing Agent and the Banks identified as Agents on the
signature pages thereof and (iii) any successor credit facilities obtained by
Viacom.
2. The Credits.
2.1 Revolving Credit.
2.1.1 Revolving Loan. Subject to all of the terms and
conditions of this Agreement and so long as no Default exists, the Lender will
make loans to the Borrowers, who shall borrow on a joint and several basis, from
time to time prior to the Final Loan Maturity Date, in an aggregate principal
amount equal to the amount requested in accordance with Section 2.1.2, but not
to exceed at any time an aggregate amount equal to Stated Amount of Revolving
Credit then in effect. The aggregate principal amount of the loans made pursuant
to this Section 2.1.1 at any time outstanding is referred to as the "Revolving
Loan".
2.1.2 Borrowing Requests. Revolving Loans will be made to
the Borrowers by the Lender under Section 2.1.1 on any Banking Day prior to the
Final Loan Maturity Date. With respect to Eurodollar Rate Loans, not later than
noon (New York time) on the fourth Banking Day prior to the requested Closing
Date for any such Loan, and with respect to Base Rate Loans, not later than noon
(New York time) on the second Banking Day prior to the requested Closing Date
for any such Loan, Company, for and on behalf of all the Borrowers, will give
the Lender notice (either written notice, or telephonic notice promptly
confirmed in writing) of their request (a "Notice of Borrowing") specifying (a)
the amount of the requested loan (not less than $1,000,000 and in integral
multiples of $500,000), (b) whether such Loan
8
<PAGE> 14
shall be a Base Rate Loan or a Eurodollar Rate Loan, (c) the requested Closing
Date therefor, and (d) with respect to Eurodollar Rate Loans the requested
Interest Period; provided that (i) Interest Periods shall be selected so that
there shall be no more than five (5) Interest Periods outstanding at any time;
(ii) no Interest Period with respect to any Revolving Loan shall expire later
than the Final Loan Maturity Date; and (iii) in the event Borrowers fail to
specify an Interest Period for any Revolving Loan in the applicable Notice of
Borrowing, Borrowers shall be deemed to have selected an Interest Period of one
month.
2.1.3 Revolving Note. The Revolving Loan shall be evidenced
by a promissory note in substantially the form of Exhibit 2.1.3 (the "Revolving
Note") payable by the Borrowers (on a joint and several basis) to the order of
the Lender.
2.2 Term Credit.
2.2.1 Term Loan. Pursuant to the terms of the Credit
Agreement, the Lenders lent to the Company as a term loan the sum of One Hundred
Million Dollars ($100,000,000) effective as of April 26, 1994. The aggregate
principal amount of the loan made pursuant to Section 2.2.1 of the Credit
Agreement at any time outstanding is referred to as the "Term Loan".
2.2.2 Term Note. Concurrent with the execution of this
Agreement, Borrowers shall deliver to Lender a promissory note in substantially
the form of Exhibit 2.2.2 (the "Amended and Restated Term Note") payable by the
Borrowers (on a joint and several basis) to the order of the Lender which
Amended and Restated Term Note shall replace the Term Note delivered by
borrowers pursuant to the Credit Agreement.
2.3 Conversion/Continuation Option. The Borrower may elect (i) at any
time to convert Base Rate Loans or any portion thereof to Eurodollar Rate Loans
or (ii) at the end of any Interest Period with respect thereto, to convert
Eurodollar Rate Loans or any portion thereof into Base Rate Loans, or to
continue such Eurodollar Rate Loans or any portion thereof as Eurodollar Rate
Loans for an additional Interest Period; provided, however, that the aggregate
of the Eurodollar Rate Loans of the Borrower so converted or so continued for
each Interest Period must be not less than $1,000,000 and in integral multiples
of $500,000 in excess thereof. Each such election (a "Notice of Conversion or
Continuation") shall be made by giving the Lender at least two Banking Days', in
the case of a conversion to or a continuation of a Base Rate Loan, and four
Banking Days,' in the case of a conversion to or a continuation of a Eurodollar
Rate Loan, prior written notice thereof specifying (A) the amount and type of
conversion or continuation, (B) in the case of a conversion to or a continuation
of Eurodollar Rate Loans, the Interest Period therefor, and (C) in the case of a
conversion, the date of conversion (which date shall be a Banking Day and, if a
conversion from a Eurodollar Rate Loan, shall also be the last day of the
Interest Period therefor). Notwithstanding the foregoing, no conversion in whole
or in part of Base Rate Loans to Eurodollar Rate Loans, and no continuation in
whole or in part of Eurodollar Rate Loans upon the expiration of any Interest
Period therefor, shall be permitted at any time at which an Event of Default
shall have occurred
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<PAGE> 15
and be continuing. If, within the time period required under the terms of this
Section 2.3, the Lender does not receive a Notice of Conversion or Continuation
from the Borrower containing an election to continue all or any portion of the
Eurodollar Rate Loans for an additional Interest Period or to convert all or any
portion of such Loans, then, upon the expiration of the Interest Period
therefor, such Loans or the portions thereof for which an election to continue
or convert has not been made will be automatically continued for a period of one
month. Each Notice of Conversion or Continuation shall be irrevocable. In the
case of immediately successive Interest Periods applicable to a Eurodollar Rate
Loan continued pursuant to a Notice of Conversion or Continuation (or in the
absence of a Notice of Conversion or Continuation as provided in this Section
2.3) each successive Interest Period shall commence on the day on which the next
preceding Interest Period expires.
2.4 Application of Proceeds.
2.4.1 Revolving Loan. The Borrowers will apply the proceeds
of the Revolving Loan for working capital and for other lawful corporate
purposes of the Company and its Subsidiaries.
2.4.2 Specifically Prohibited Applications. The Borrowers
will not, directly or indirectly, apply any part of the proceeds of any
extension of credit made pursuant to the Credit Documents to purchase or to
carry Margin Stock or to any transaction prohibited by any laws or regulations
applicable to the Borrowers.
3. Interest; Fees.
3.1 Interest.
3.1.1 The Borrower shall pay interest on the unpaid
principal amount of each Loan from the date thereof until the principal amount
thereof shall be paid in full, at the following rates per annum, on such dates
as specified below (each a "Payment Date"):
(a) Base Rate Loans. For Base Rate Loans, at a rate
per annum equal at all times to the Base Rate in effect from
time to time, payable quarterly in arrears on the last day
of September, December, March and June, on the Final Loan
Maturity Date and on the date any Base Rate Loan is
converted or paid in full.
(b) Eurodollar Rate Loans. For Eurodollar Rate
Loans, at a rate per annum equal at all times during the
Interest Period for each Eurodollar Rate Loan to the sum of
the Eurodollar Rate for such Interest Period plus the
Applicable Eurodollar Rate Margin, payable in arrears on the
last day of such Interest Period.
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3.1.2 Interest on Overdue Amounts. The Borrowers will on
demand pay daily interest (including post-petition interest in any proceeding
under applicable bankruptcy laws) on any overdue installments of principal and,
to the extent not prohibited by applicable law, on any overdue installments of
interest and fees owed under any Credit Document at a rate per annum which
equals the sum of 2% plus the highest Applicable Rate then in effect.
3.1.3. Limitation by Applicable Law. Anything in this
Agreement or the Notes to the contrary notwithstanding, the interest rates on
the Loans shall in no event be in excess of the maximum permitted by applicable
law.
3.2 Fees.
3.2.1 Commitment Fees. In consideration of the Lender's
commitments to make the extensions of credit provided for in Section 2.1, while
such commitments are outstanding, the Borrowers (jointly and severally) will pay
to the Lender, quarterly in arrears on the last day of each fiscal quarter, a
commitment fee equal to daily interest at the rate of .375% per annum on the
amount by which (a) the daily Stated Amount of Revolving Credit during the
three-month period or portion thereof ending on such date exceeded (b) the daily
Revolving Loans outstanding during such period or portion thereof; provided,
however that such commitment fee shall be reduced or increased to correspond
with any reductions or increases in the commitment fees payable by Lender to its
lenders under the Viacom Credit Facilities.
3.2.2 Facility Fee. Borrowers (jointly and severally) agree
to pay to Lender, payable annually on January 31 of each year, a facility fee
equal to Four Hundred Thousand Dollars ($400,000) per annum (i.e., .20% of
$200,000,000). If Borrowers permanently and irrevocably terminate Lender's
obligations to make the Revolving Loans and Term Loan hereunder and Borrowers
repay all Credit Obligations hereunder and under the other Credit Documents,
then Lender agrees to repay to Borrowers a portion of the annual facility fee
paid to Lender pursuant to this Section 3.2.2 with respect to the applicable one
year period, pro-rated on the basis of a 360-day year for the actual number of
days remaining in the year.
3.2.3 Annual Administrative Fee. Borrowers (jointly and
severally) agree to pay Lender an annual administrative fee equal to $15,000 on
January 31 of each year prior to the Final Loan Maturity Date.
3.3 Computations of Interest and Fees. For purposes of this Agreement,
all computations of the Commitment Fee or of interest based on the rate of
interest specified in clause (i) of the definition of Base Rate shall be made on
the basis of a year of 365 or 366 days as the case may be, and all computations
of interest based on the Eurodollar Rate or clause (ii) of the definition of
Base Rate shall be made on the basis of a year of 360 days, in each case for the
actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest and fees are payable; provided
that if a Loan is repaid on the same day on which it is made, one day's interest
shall be paid on that Loan.
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3.4 Break-Funding Costs. If Lender receives any payment of principal
of, or is subject to a conversion of, any Eurodollar Rate Loan other than on
the last day of an Interest Period relating to such Loan, as a result of any
payment or conversion made by the Borrower or acceleration of the maturity of
the amounts due under this Agreement pursuant to Section 8.2.3 or for any other
reason, the Borrower shall, upon demand by Lender, pay to the Lender any
amounts required to compensate Lender for any additional losses, costs or
expenses which it may reasonably incur as a result of such payment or
conversion, including, without limitation, any loss (excluding any loss of the
margin payable in accordance with Section 3.1.1(b) on the amount of principal
so paid, or any loss), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by Lender to fund or maintain
such Loan. The obligations of the Borrower contained in this Section 3.4 shall
survive payment of the Loans.
4. Payment.
4.1 Payment at Maturity. On the stated or any accelerated maturity of
the Notes, the Borrowers will pay to the Lender for credit to the applicable
Note an amount equal to the principal evidenced by the applicable Note then due,
together with all accrued and unpaid interest thereon and all other Credit
Obligations in respect thereof then outstanding.
4.2 Contingent Required Prepayments. If at any time the aggregate of
the Revolving Loans outstanding exceeds the Stated Amount of Revolving Credit
then in effect, the Borrowers will promptly pay the amount of such excess to
Lender.
4.3 Voluntary Prepayments. In addition to the prepayments required by
Section 4.2, the Borrowers may from time to time prepay all or any portion of
the Eurodollar Rate Loans or the Base Rate Loans, without premium; provided,
however, that any such prepayments are made in accordance with Section 3.4
hereof and further provided that the Borrower, making such a prepayment, shall
give the Lender at least four (4) Banking Days', in the case of Eurodollar Rate
Loans, or two (2) Banking Days', in the case of Base Rate Loans, prior notice of
its intention to prepay, specifying the date of payment, the total principal
amount of the Loan to be paid on such date and the amount of interest to be paid
with such prepayment.
4.4 Reborrowing. The amounts of the Revolving Loan repaid or prepaid
pursuant to Section 4.3 may be reborrowed from time to time prior to the Final
Loan Maturity Date in accordance with Section 2.1. Amounts of the Term Loan
repaid or prepaid pursuant to Section 4.3 may not be reborrowed.
4.5 Payment with Accrued Interest. Upon all prepayments of the Loans,
the Borrower making the prepayment shall pay to the Lender the principal amount
to be prepaid together with unpaid interest in respect thereof accrued to the
date of prepayment. Notice of prepayment having been given in accordance with
Section 4.3 and whether or not notice is given of prepayments pursuant to
Section 4.2, the amount specified to be prepaid shall become due and payable on
the date specified for prepayment.
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4.6 Payments. The Borrowers shall make each payment of principal,
interest and fees hereunder and under the Notes, without defense, setoff or
counterclaim, not later than 12 noon, New York time, on the day when due in
lawful money of the United States of America to the Lender at an account of the
Lender designated from time to time in immediately available funds.
4.7 Payment on Non-Banking Days. Whenever any payment to be made
hereunder or under the Notes shall be stated to be due on a day that is not a
Banking Day, such payment may be made on the next succeeding Banking Day, and
with respect to payments of principal, interest thereon shall be payable at the
then applicable rate during such extension.
5. Conditions to Extending Credit.
5.1 Conditions to Each Extension of Credit. The obligations of Lender
to make any Loan pursuant to Section 2 shall be subject to the satisfaction, on
or before the Closing Date for such Loan, of the following conditions:
5.1.1 Proper Proceedings. This Agreement, each other Credit
Document and the transactions contemplated hereby and thereby shall have been
authorized by all necessary proceedings of each Obligor and any of their
respective Affiliates party thereto. All necessary consents, approvals and
authorizations of any governmental or administrative agency or any other Person
of any of the transactions contemplated hereby or by any other Credit Document
shall have been obtained and shall be in full force and effect. Lender shall
have received copies of all documents that Lender may have reasonably requested
in connection with the foregoing.
5.1.2 No Default. No Default shall have occurred and be
continuing, or would result from such borrowing.
5.1.3 Representations and Warranties. All representations
and warranties contained in this Agreement and the other Credit Documents shall
be true and correct in all material respects on the date of such Loan to the
same extent as though made on and as of that date.
6. Covenants.
6.1 Non-Borrower Subsidiaries. Each of the Borrowers covenants that,
until all of the Credit Obligations shall have been paid in full and until
Lender's commitments to extend credit under this Agreement and any other Credit
Document shall have been irrevocably terminated, it and its respective present
and future Subsidiaries will cause any present and future Material Subsidiary to
become a Borrower hereunder (other than a Material Subsidiary organized under
the laws of a jurisdiction outside of the United States) by executing a joinder
to this Agreement, the Security Documents and such other documents as the Lender
may reasonably request.
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6.2 Disposition of Assets. Neither the Company nor any of its
Subsidiaries will sell, lease, license, convey or otherwise dispose of, in one
transaction or a series of transactions, all or a substantial part of its
business or assets whether now owned or hereafter acquired; provided, however,
that Company and its Subsidiaries may sell, distribute or otherwise exploit
Product and Product Rights in the ordinary course of business.
7. Representations and Warranties.
7.1 Borrower's Representations and Warranties. In order to induce the
Lender to extend credit to the Borrowers hereunder, each of the Borrowers
jointly and severally represents and warrants that:
7.1.1 Organization, Etc. Each Borrower is a duly organized
and validly existing corporation, in good standing under the laws of the state
of its incorporation, with all power and authority, corporate or otherwise,
necessary to (a) enter into and perform this Agreement and each other Credit
Document to which it is party, (b) guarantee the Credit Obligations, (c) grant
the Lender the security interests in the Credit Security owned by it to secure
the Credit Obligations and (d) own its properties and carry on the business now
conducted or proposed to be conducted by it. Each Borrower has taken all
corporate action required to execute, deliver and perform this Agreement and
each other Credit Document to which it is party.
7.1.2 No Legal Obstacle to Agreements. Neither the execution
and delivery of this Agreement or any other Credit Document, nor the making of
any borrowings hereunder, nor the guaranteeing of the Credit Obligations, nor
the securing of the Credit Obligations with the Credit Security, nor the
fulfillment of the terms hereof or of any other Credit Document, has constituted
or resulted in or will constitute or result in:
(a) any breach or termination of the provisions of
any agreement, instrument, deed or lease to which the Company or any of
its Subsidiaries is a party or by which it is bound;
(b) the violation of any law, statute, judgment,
decree or governmental order, rule or regulation applicable to the
Company or any of its Subsidiaries;
(c) the creation under any agreement, instrument,
deed or lease of any Lien (other than Liens on the Credit Security
which secure the Credit Obligations) upon any of the assets of the
Company or any of its Subsidiaries; or
(d) any redemption, retirement or other repurchase
obligation of the Company or any of its Subsidiaries under any
Articles, By-law, agreement, instrument, deed or lease.
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Other than filings to perfect the security interests in the Credit Security, no
approval, authorization or other action by, or declaration to or filing with,
any governmental or administrative authority or any other Person is required to
be obtained or made by the Company or any Subsidiary in connection with the
execution, delivery and performance of this Agreement, the Notes or any other
Credit Document, or the making of any borrowing hereunder.
7.1.3 Defaults. Neither the Company nor any of its
Subsidiaries is in default under any provision of its Articles or By-laws or of
this Agreement or any other Credit Document. Neither the Company nor any of its
Subsidiaries is in default under any provision of any agreement, instrument,
deed or lease to which it is party or by which it or its property is bound, or
has violated any law, judgment, decree or governmental order, rule or
regulation, in each case, so as to result, or pose a material risk of resulting,
in any Material Adverse Change.
7.1.4 Validity. Each of the Credit Documents has been duly
executed and delivered by each Obligor and is the legally valid and binding
obligation of each Obligor, enforceable against each Obliger in accordance with
its respective terms; except in each case as such enforceability may be limited
by bankruptcy, insolvency, reorganization, liquidation, moratorium or other
similar laws of general application and equitable principles relating to or
affecting creditors' rights.
7.1.5 No Material Adverse Change. No event or change has
occurred that represents, either in any case or in the aggregate, a Material
Adverse Change.
7.1.6 Material Subsidiaries. Attached hereto as Schedule
7.1.6 is a true and complete list of all Persons who are Material Subsidiaries
of Spelling Entertainment Group Inc.
7.2 Lender's Representations and Warranties. In order to induce the
Borrowers to enter into this Agreement and the other Credit Documents, Lender
represents and warrants that:
7.2.1 Organization, Etc. Lender is a duly organized and
validly existing corporation, in good standing under the laws of the state of
its incorporation, with all power and authority, corporate or otherwise,
necessary to enter into and perform this Agreement and each other Credit
Document to which it is party. Lender has taken all corporate action required to
execute, deliver and perform this Agreement and each other Credit Document to
which it is party.
7.2.2 Validity. Each of the Credit Documents to which Lender
is a party has been duly executed and delivered by Lender and is the legally
valid and binding obligation of Lender, enforceable against Lender in accordance
with its respective terms; except in each case as such enforceability may be
limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or
other similar laws of general application and equitable principles relating to
or affecting creditors' rights.
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8. Defaults.
8.1 Events of Default. The following events are referred to as "Events
of Default":
8.1.1 Any Borrower shall fail to make any payment in respect
of: (a) interest on any of the Credit Obligations owed by it as the same shall
become due and payable, and such failure shall continue for a period of five
consecutive days, or (b) any fee on, or any expense or indemnity in respect of,
any of the Credit Obligations as the same shall become due and payable and such
failure shall continue for a period of five consecutive days after notice
thereof by the Lender to the Company, or (c) principal of any of the Credit
Obligations owed by it as the same shall become due, whether at maturity or by
acceleration or otherwise.
8.1.2 The Company or any of its Subsidiaries or any of their
respective Affiliates party to any Credit Document shall fail to perform or
observe any other covenant, agreement or provision to be performed or observed
by it under this Agreement or any other Credit Document, and such failure shall
not be cured within 30 days after notice thereof by Lender to the Company.
8.1.3 Any material representation or material warranty of or
with respect to the Company, any of its Subsidiaries or any of their respective
Affiliates party to any Credit Document made to Lender in, pursuant to or in
connection with this Agreement or any other Credit Document shall be materially
false on the date as of which it was made.
8.1.4 (a) The Company or any of its Subsidiaries shall fail
to make any payment when due (after giving effect to any applicable
grace periods) in respect of any Financing Debt (other than the Credit
Obligations) outstanding in an aggregate amount of principal and
accrued and unpaid interest exceeding $1,000,000;
(b) The Company or any of its Subsidiaries shall
fail to perform or observe the terms of any agreement relating to such
Financing Debt, and such failure or condition shall continue, without
having been duly cured, waived or consented to, beyond the period of
grace, if any, specified in such agreement, and such failure or
condition shall permit the acceleration of such Financing Debt in an
aggregate amount of principal and accrued and unpaid interest exceeding
$1,000,000;
(c) any such Financing Debt of the Company or any
of its Subsidiaries in an aggregate amount of principal and accrued and
unpaid interest exceeding $1,000,000 shall be accelerated or become due
or payable prior to its stated maturity for any reason whatsoever
(other than voluntary prepayments thereof);
(d) any lien on any property of the Company or any
of its Subsidiaries securing any such Financing Debt in an aggregate
amount of principal and accrued and unpaid interest exceeding
$1,000,000 shall be enforced by foreclosure or
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similar action; or
(e) any holder of any such Financing Debt in an
aggregate amount of principal and accrued and unpaid interest exceeding
$1,000,000 shall exercise any right of rescission with respect to the
issuance thereof.
8.1.5 Any Credit Document shall cease, for any reason (other
than the scheduled termination thereof in accordance with its terms), to be in
full force and effect; or the Company, any of its Subsidiaries or any of their
respective Affiliates party thereto shall so assert in a judicial or similar
proceeding; or the security interests created by this Agreement and the other
Credit Documents shall cease to be enforceable and of the same effect and
priority purported to be created hereby, except solely as a result of failure by
the Lender to file continuation statements with respect to financing statements
or to take other similar administrative steps within its sole control.
8.1.6 A final judgment:
(a) which, with other outstanding final judgments
against the Company and any of its Subsidiaries, exceeds an aggregate
of $3,000,000 shall be rendered against the Company or any of its
Subsidiaries or Affiliates party to any Credit Document, or
(b) which grants injunctive relief that results in,
or poses a material risk of resulting in, a Material Adverse Change
shall be rendered,
and if, within 60 days after entry thereof, such judgment shall not have been
discharged or execution thereof stayed pending appeal, or if, within 60 days
after the expiration of any such stay, such judgment shall not have been
discharged.
8.1.7 The Company, any of its Material Subsidiaries or any
of their respective Affiliates obligated with respect to any Credit Obligation
shall:
(a) commence a voluntary case under the Bankruptcy
Code or authorize, by appropriate proceedings of its board of directors
or other governing body, the commencement of such a voluntary case;
(b) have filed against it a petition commencing an
involuntary case under the Bankruptcy Code which shall not have been
dismissed within 60 days after the date on which such petition is
filed; or file an answer or other pleading within such 60-day period
admitting or failing to deny the material allegations of such a
petition or seeking, consenting to or acquiescing in the relief therein
provided;
(c) have entered against it an order for relief in
any involuntary case commenced under the Bankruptcy Code;
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(d) seek relief as a debtor under any applicable
law, other than the Bankruptcy Code, of any jurisdiction relating to
the liquidation or reorganization of debtors, or to the modification or
alteration of the rights of creditors, or consent to or acquiesce in
such relief;
(e) have entered against it an order by a court of
competent jurisdiction (i) finding it to be bankrupt or insolvent, (ii)
ordering or approving its liquidation, reorganization or any
modification or alteration of the rights of its creditors or (iii)
assuming custody of, or appointing a receiver or other custodian for,
all or a substantial portion of its property; or
(f) make an assignment for the benefit of, or enter
into a composition with, its creditors, or appoint, or consent to the
appointment of, or suffer to exist a receiver or other custodian for,
all or a substantial portion of its property.
8.1.8 Lender and its Affiliates shall cease to beneficially
own and control a majority of the issued and outstanding shares of capital stock
of Company entitled (without regard to the occurrence of any contingency) to
vote for the election of members of the board of directors of Company.
8.1.9 Lender shall fail to make any payment when due in
respect of or should otherwise be in breach or default of (in each case, after
giving effect to any applicable grace period) the Viacom Credit Facilities.
8.2 Certain Actions Following an Event of Default. If any one or more
Events of Default shall occur and be continuing, then in each and every such
case:
8.2.1 No Obligation to Extend Credit. Lender may terminate
the obligations of Lender to make any further extensions of credit under the
Credit Documents by furnishing notice thereof to the Borrowers; provided,
however, that the obligations of Lender to make any further extensions of credit
under the Credit Documents shall automatically terminate without notice to the
Borrowers upon the occurrence of a Bankruptcy Default.
8.2.2 Specific Performance; Exercise of Rights. Lender may
proceed to protect and enforce Lender's rights by suit in equity, action at law
and/or other appropriate proceeding, either for specific performance of any
covenant or condition contained in this Agreement or any other Credit Document
or in any instrument or assignment delivered to the Lender pursuant to this
Agreement or any other Credit Document, or in aid of the exercise of any power
granted in this Agreement or any other Credit Document or any such instrument or
assignment.
8.2.3 Acceleration. Lender may, by notice in writing to the
Borrowers, declare all or any part of the unpaid balance of the Credit
Obligations then outstanding to be immediately due and payable, and thereupon
such unpaid balance or part thereof shall become
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so due and payable without presentation, protest or further demand or
notice of any kind, all of which are hereby expressly waived; provided, however,
that if a Bankruptcy Default shall have occurred, the unpaid balance of the
Credit Obligations shall automatically become immediately due and payable;
provided, however, that if an Event of Default described in Section 8.1.9 has
occurred and is continuing but at the applicable time of determination the
Indebtedness incurred under the Viacom Credit Facilities has not been
accelerated, then Lender may not by reason of such Event of Default, declare all
or any part of the unpaid balance of the Credit Obligations then outstanding to
be immediately due and payable until such time, if ever, that the Indebtedness
under the Viacom Credit Facilities is accelerated.
8.2.4 Enforcement of Payment; Setoff. Lender may proceed to
enforce payment of the Credit Obligations in such manner as it may elect and to
realize upon any and all rights in the Credit Security. Lender may offset and
apply toward the payment of the Credit Obligations (and/or toward the curing of
any Event of Default) any Indebtedness from Lender to the respective Obligors,
regardless of the adequacy of any security for the Credit Obligations. Lender
shall have no duty to determine the adequacy of any such security in connection
with any such offset.
8.2.5 Cumulative Remedies. To the extent not prohibited by
applicable law which cannot be waived, all of the Lender's rights hereunder and
under each other Credit Document shall be cumulative.
8.3 Annulment of Defaults. Any Default or Event of Default shall be
deemed to exist and to be continuing for any purpose of this Agreement until
such Default or Event of Default has been completely cured in every respect or
the Lender shall have waived such Default or Event of Default in writing or
entered into an amendment to this Agreement which by its express terms cures
such Default or Event of Default. No such action by the Lender shall extend to
or affect any subsequent Default or Event of Default or impair any rights of the
Lender upon the occurrence thereof. The making of any extension of credit during
the existence of any Default or Event of Default shall not constitute a waiver
thereof.
8.4 Waivers. Each of the Borrowers waives to the extent not prohibited
by the provisions of applicable law that cannot be waived:
(a) all presentments, demands for performance,
notices of nonperformance (except to the extent required by the
provisions of this Agreement or any other Credit Document), protests,
notices of protest and notices of dishonor;
(b) any requirement of diligence or promptness in
the part of Lender in the enforcement of its rights under this
Agreement, the Notes or any other Credit Document;
(c) any and all notices of every kind and
description which may be required to be given by any statute or rule of
law.
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9. Expenses; Indemnity.
9.1 Expenses. Whether or not the transactions contemplated hereby shall
be consummated (unless such transactions are not consummated solely by reason of
the gross negligence or willful misconduct of Lender), the Borrowers will pay:
(a) all reasonable expenses of Lender (including
the reasonable fees, expenses and disbursements of counsel to Lender
including allocated costs of internal counsel) in connection with the
preparation, negotiation, execution, delivery and administration of
this Agreement, each other Credit Document, the transactions
contemplated hereby and thereby and operations hereunder and
thereunder;
(b) all recording and filing fees and transfer and
documentary stamp and similar taxes at any time payable in respect of
this Agreement, any other Credit Document, any Credit Security or the
incurrence of the Credit Obligations; and
(c) to the extent not prohibited by applicable law
that cannot be waived, all other reasonable expenses incurred by Lender
or the holder of any Credit Obligation in connection with the
enforcement of any rights hereunder or under any other Credit Document,
including costs of collection and reasonable attorneys' fees (including
a reasonable allowance for the hourly cost of attorneys employed by
Lender on a salaried basis) and expenses.
9.2 General Indemnity. The Borrowers will, jointly and severally,
indemnify Lender and hold Lender harmless from any liability, loss or damage
resulting from the violation by the Borrowers of Section 2.4. The Borrowers will
also, jointly and severally, indemnify Lender, each of the Lender's directors,
officers, employees, attorneys, and Affiliates and each Person, if any, who
controls Lender (Lender and each of such directors, officers, employees and
Affiliates and control Persons is referred to as an "Indemnified Party") and
hold each of them harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including,
without limitation, the reasonable fees and disbursements of counsel (including
allocated costs of internal counsel) for such Indemnified Party in connection
with any investigative, administrative or judicial proceeding commenced or
threatened, whether or not such Indemnified Party shall be designated a party
thereto), that may be imposed on, incurred by, or asserted against that
Indemnified Party, in any manner relating to or arising out of this Agreement or
the other Credit Documents, Lender's agreement to make the Loans as provided
herein, or the use or intended use of the proceeds of any of the Loans hereunder
(the "Indemnified Liabilities"); provided that Borrowers shall have no
obligation to an Indemnified Party hereunder with respect to Indemnified
Liabilities arising from (i) the gross negligence or willful misconduct of that
Indemnified Party or (ii) an investigative proceeding related primarily to the
activities of Lender. To the extent that the undertaking to indemnify, pay and
hold harmless set forth in the preceding sentence may be unenforceable because
it is violative of any law or public policy, and Borrower shall contribute the
maximum portion that it is permitted to
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pay and satisfy under applicable law, to the payment and satisfaction of all
Indemnified Liabilities incurred by the Indemnified Parties or any of them. The
indemnities contained in this subsection shall survive the termination of the
other provisions of this Agreement, shall constitute separate and independent
obligations of each Borrower from its other obligations under this Agreement and
shall give rise to separate and independent causes of action against each
Borrower.
10. Successors and Assigns. Any reference in this Agreement to any of the
parties hereto shall be deemed to include the successors and assigns of such
party, including without limitation any assignee or transferee of any of the
Loans, and all covenants and agreements by or on behalf of the Borrowers or
Lender that are contained in this Agreement shall bind and inure to the benefit
of their respective successors and assigns; provided, however, that the Company
and its Subsidiaries may not assign their rights or obligations under this
Agreement.
11. Notices. Except as otherwise specified in this Agreement, any notice
required to be given pursuant to this Agreement shall be given in writing. Any
notice, demand or other communication in connection with this Agreement shall be
deemed to be given if given in writing (including telex, telecopy or similar
teletransmission) addressed as provided below (or to the addressee at such other
address as the addressee shall have specified by notice actually received by the
addressor), and if either (a) actually delivered in fully legible form to such
address (evidenced in the case of a telex by receipt of the correct answer back)
or (b) in the case of a letter, five days shall have elapsed after the same
shall have been deposited in the United States mails, with first-class postage
prepaid and registered or certified.
If to the Company or any of its Subsidiaries, to it in care of the
Company at its address set forth on the signature page hereof, to the attention
of the chief financial officer.
If to Lender, to it at its address set forth on the signature page of
this Agreement, to the attention of the chief financial officer with a copy to
the assistant treasurer and director of cash management.
12. Course of Dealing; Amendments and Waivers. No course of dealing between
Lender, on one hand, and the Company or any of its Subsidiaries or their
respective Affiliates, on the other hand, shall operate as a waiver of any of
Lender's rights under this Agreement or any other Credit Document or with
respect to the Credit Obligations. Each of the Company and its Subsidiaries
acknowledges that if the Lender, without being required to do so by this
Agreement or any other Credit Document, gives any notice or information to, or
obtains any consent from, any of the Company and its Subsidiaries or any of
their respective Affiliates, Lender shall not by implication have amended,
waived or modified any provision of this Agreement or any other Credit Document,
or created any duty to give any such notice or information or to obtain any such
consent on any future occasion. No delay or omission on the part of Lender in
exercising any right under this Agreement or any other Credit Document or with
respect to the Credit Obligations shall operate as a waiver of such right or any
other right hereunder or thereunder. A waiver on any one occasion shall not be
construed as a bar to or waiver of any right or
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remedy on any future occasion. No waiver, consent or amendment with respect to
this Agreement or any other Credit Document shall be binding unless it is in
writing and signed by Lender.
13. Venue; Service of Process. Each of the Borrowers:
(a) Irrevocably submits to the nonexclusive
jurisdiction of the state and federal courts located in the States of
New York, Florida and California for the purpose of any suit, action or
other proceeding arising out of or based upon this Agreement or any
other Credit Document or the subject matter hereof or thereof.
(b) Waives to the extent not prohibited by
applicable law, and agrees not to assert, by way of motion, as a
defense or otherwise, in any such proceeding brought in any of the
above-named courts, any claim that it is not subject personally to the
jurisdiction of such court, that its property is exempt or immune from
attachment or execution, that such proceeding is brought in an
inconvenient forum, that the venue of such proceeding is improper, or
that this Agreement or any other Credit Document, or the subject matter
hereof or thereof, may not be enforced in or by such court.
Each of the Borrowers and the Lender consents to service of process in any such
proceeding in any manner permitted by applicable state or federal law and agrees
that service of process by registered or certified mail, return receipt
requested, at its address specified in or pursuant to Section 11 is reasonably
calculated to give actual notice.
14. General. All covenants, agreements, representations and warranties made in
this Agreement or any other Credit Document or in certificates delivered
pursuant hereto or thereto shall be deemed to have been relied on by Lender,
notwithstanding any investigation made by Lender on its behalf, and shall
survive the execution and delivery to the Lender hereof and thereof. The
invalidity or unenforceability of any other provision hereof shall not affect
the validity or enforceability of any other provision hereof. The headings in
this Agreement are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof. This Agreement and the other Credit
Documents constitute the entire understanding of the parties with respect to the
subject matter hereof and thereof and supersede all prior and current
understandings and agreements, whether written or oral. Section 9 shall survive
the termination of this Agreement. This Agreement may be executed in any number
of counterparts which together shall constitute one instrument. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (OTHER
THAN THE CONFLICT OF LAWS RULES) OF THE STATE OF NEW YORK.
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<PAGE> 28
SCHEDULE 7.1.6
MATERIAL SUBSIDIARIES OF SPELLING ENTERTAINMENT GROUP INC.
Aaron Spelling Productions, Inc.
Laurel Entertainment, Inc.
Spelling Films International, Inc.
Spelling Television Inc.
Torand Productions Inc.
Worldvision Entertainment, Inc.
Hamilton Projects, Inc.
Laurel TV, Inc.
Laurel-King, Inc.
Laurel Pictures Inc.
Spelling Entertainment Inc.
Republic Entertainment Inc.
Repix, Inc.
Republic Distribution Corporation
Republic Pictures Entertainment Inc.
Republic Pictures Television
Virgin Interactive Entertainment plc.
Virgin Interactive Entertainment, Inc.
Virgin Interactive Entertainment (Europe) Ltd.
Laurel Pictures Inc.
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The parties hereto, including the Borrowers and all guarantors and
endorsers, hereby waive presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, acceptance, performance and
enforcement of this Amended and Restated Term Note, except as specifically
otherwise provided in the Amended and Restated Credit Agreement, and assent to
extensions of time of payment, or forbearance or other indulgence without
notice.
BORROWERS
---------
SPELLING ENTERTAINMENT GROUP INC.
SPELLING ENTERTAINMENT INC.
AARON SPELLING PRODUCTIONS, INC.
LAUREL ENTERTAINMENT, INC.
SPELLING FILMS INTERNATIONAL, INC.
SPELLING TELEVISION INC.
TORAND PRODUCTIONS INC.
WORLDVISION ENTERPRISES, INC.
HAMILTON PROJECTS, INC.
LAUREL TV, INC.
LAUREL-KING, INC.
LAUREL PICTURES INC.
REPUBLIC ENTERTAINMENT INC.
REPIX, INC.
REPUBLIC DISTRIBUTION CORPORATION
REPUBLIC PICTURES ENTERTAINMENT INC.
REPUBLIC PICTURES TELEVISION
BY: REPUBLIC PICTURES
ENTERTAINMENT INC.
ITS: GENERAL PARTNER
VIRGIN INTERACTIVE ENTERTAINMENT, INC.
By: /s/ Thomas P. Carson
-----------------------------------
As an authorized officer of each
of the foregoing corporations
5700 Wilshire Boulevard
Los Angeles, California 90036
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EXHIBIT 2.2.2
AMENDED AND RESTATED
TERM NOTE
$100,000,000 as of January 31, 1995
FOR VALUE RECEIVED, each of the undersigned, Spelling Entertainment
Group Inc., a Florida corporation (the "Company"), and certain of its
subsidiaries listed on the signature page hereof (together with the Company, the
"Borrowers"), jointly and severally, hereby promises to pay Viacom Inc. (the
"Lender") or order, on the Final Loan Maturity Date (as defined in the Amended
and Restated Credit Agreement referred to below), the aggregate unpaid principal
amount of the Term Loan made by the Lender to the Borrowers pursuant to the
Amended and Restated Credit Agreement. The Borrowers jointly and severally
promise to pay daily interest, computed as provided in such Amended and Restated
Credit Agreement, on the aggregate principal amount of such loans from time to
time unpaid at the per annum rate applicable to such unpaid principal amount as
provided in such Amended and Restated Credit Agreement and to pay interest on
overdue principal and, to the extent not prohibited by applicable law, on
overdue installments of interest and fees at the rate specified in such Amended
and Restated Credit Agreement, all such interest being payable at the times
specified in such Amended and Restated Credit Agreement, except that all accrued
interest shall be paid at the stated or accelerated maturity hereof or upon the
prepayment in full hereof.
Payments hereunder shall be made to Lender at such account of Lender as
is specified by Lender in writing from time to time.
This Amended and Restated Term Note evidences borrowings under, and is
entitled to the benefits and security of, and is subject to the provisions of,
the Amended and Restated Credit Agreement dated as of January 31, 1995, as from
time to time in effect (the "Amended and Restated Credit Agreement"), among the
Borrowers and Lender and the Security Documents (as defined in the Amended and
Restated Credit Agreement). The principal of this Amended and Restated Term Note
is prepayable in the amounts and under the circumstances set forth in the
Amended and Restated Credit Agreement, and may be prepaid in whole or from time
to time in part, all as set forth in the Amended and Restated Credit Agreement.
Terms defined in the Amended and Restated Credit Agreement and not otherwise
defined herein are used herein with the meanings so defined.
In case an Event of Default shall occur and be continuing, the entire
principal of this Amended and Restated Term Note may become or be declared due
and payable in the manner and with the effect provided in the Amended and
Restated Credit Agreement.
THIS AMENDED AND RESTATED TERM NOTE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS (OTHER THAN THE CONFLICT OF LAWS RULES) OF THE STATE
OF NEW YORK.
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The parties hereto, including the Borrowers and all guarantors and
endorsers, hereby waive presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, acceptance, performance and
enforcement of this Revolving Note, except as specifically otherwise provided in
the Amended and Restated Credit Agreement, and assent to extensions of time of
payment, or forbearance or other indulgence without notice.
BORROWERS
---------
SPELLING ENTERTAINMENT GROUP INC.
SPELLING ENTERTAINMENT INC.
AARON SPELLING PRODUCTIONS, INC.
LAUREL ENTERTAINMENT, INC.
SPELLING FILMS INTERNATIONAL, INC.
SPELLING TELEVISION INC.
TORAND PRODUCTIONS INC.
WORLDVISION ENTERPRISES, INC.
HAMILTON PROJECTS, INC.
LAUREL TV, INC.
LAUREL-KING, INC.
LAUREL PICTURES INC.
REPUBLIC ENTERTAINMENT INC.
REPIX, INC.
REPUBLIC DISTRIBUTION CORPORATION
REPUBLIC PICTURES ENTERTAINMENT INC.
REPUBLIC PICTURES TELEVISION
BY: REPUBLIC PICTURES
ENTERTAINMENT INC.
ITS: GENERAL PARTNER
VIRGIN INTERACTIVE ENTERTAINMENT, INC.
By: /s/ Thomas P. Carson
---------------------------------------
As an authorized officer of each
of the foregoing corporations
5700 Wilshire Boulevard
Los Angeles, California 90036
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<PAGE> 32
EXHIBIT 2.1.3
REVOLVING NOTE
$100,000,000 as of January 31, 1995
FOR VALUE RECEIVED, each of the undersigned, Spelling Entertainment
Group Inc., a Florida corporation (the "Company"), and certain of its
subsidiaries listed on the signature page hereof (together with the Company, the
"Borrowers"), jointly and severally, hereby promises to pay Viacom Inc. (the
"Lender") or order, on the Final Loan Maturity Date (as defined in the Amended
and Restated Credit Agreement referred to below), the aggregate unpaid principal
amount of the loans made by the Lender to the Borrowers pursuant to the Amended
and Restated Credit Agreement. The Borrowers jointly and severally promise to
pay daily interest, computed as provided in such Amended and Restated Credit
Agreement, on the aggregate principal amount of such loans from time to time
unpaid at the per annum rate applicable to such unpaid principal amount as
provided in such Amended and Restated Credit Agreement and to pay interest on
overdue principal and, to the extent not prohibited by applicable law, on
overdue installments of interest and fees at the rate specified in such Amended
and Restated Credit Agreement, all such interest being payable at the times
specified in such Amended and Restated Credit Agreement, except that all accrued
interest shall be paid at the stated or accelerated maturity hereof or upon the
prepayment in full hereof.
Payments hereunder shall be made to Lender at such account of Lender as
is specified by Lender in writing from time to time.
This Revolving Note evidences borrowings under, and is entitled to the
benefits and security of, and is subject to the provisions of, the Amended and
Restated Credit Agreement dated as of January 31, 1995, as from time to time in
effect (the "Amended and Restated Credit Agreement"), among the Borrowers and
Lender and the Security Documents (as defined in the Amended and Restated Credit
Agreement). The principal of this Revolving Note is prepayable in the amounts
and under the circumstances set forth in the Amended and Restated Credit
Agreement, and may be prepaid in whole or from time to time in part, all as set
forth in the Amended and Restated Credit Agreement. Terms defined in the Amended
and Restated Credit Agreement and not otherwise defined herein are used herein
with the meanings so defined.
In case an Event of Default shall occur and be continuing, the entire
principal of this Revolving Note may become or be declared due and payable in
the manner and with the effect provided in the Amended and Restated Credit
Agreement.
THIS REVOLVING NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS (OTHER THAN THE CONFLICT OF LAWS RULES) OF THE STATE OF NEW YORK.
S-1
<PAGE> 33
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.
BORROWERS
---------
SPELLING ENTERTAINMENT GROUP INC.
SPELLING ENTERTAINMENT INC.
AARON SPELLING PRODUCTIONS, INC.
LAUREL ENTERTAINMENT, INC.
SPELLING FILMS INTERNATIONAL, INC.
SPELLING TELEVISION INC.
TORAND PRODUCTIONS INC.
WORLDVISION ENTERPRISES, INC.
HAMILTON PROJECTS, INC.
LAUREL TV, INC.
LAUREL-KING, INC.
LAUREL PICTURES INC.
REPUBLIC ENTERTAINMENT INC.
REPIX, INC.
REPUBLIC DISTRIBUTION CORPORATION
REPUBLIC PICTURES ENTERTAINMENT INC.
REPUBLIC PICTURES TELEVISION
BY: REPUBLIC PICTURES
ENTERTAINMENT INC.
ITS: GENERAL PARTNER
VIRGIN INTERACTIVE ENTERTAINMENT, INC.
By: /s/ Thomas P. Carson
-------------------------------------
As an authorized officer of each
of the foregoing corporations
5700 Wilshire Boulevard
Los Angeles, California 90036
LENDER
VIACOM INC.
By: /s/ Vaughn A. Clarke
-------------------------------------
Title: Vaughn A. Clarke
Senior Vice President, Treasurer
Address: 1515 Broadway
New York, New York 10036
S-1
<PAGE> 1
EXHIBIT 4.2
AMENDED AND RESTATED
PLEDGE AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (the
"AGREEMENT"), dated as of January 31, 1995, made among SPELLING ENTERTAINMENT
GROUP INC. ("SEGI"), SPELLING ENTERTAINMENT INC. ("SEI"), AARON SPELLING
PRODUCTIONS, INC. ("ASP"), SPELLING FILMS INTERNATIONAL, INC. ("SFI"), SPELLING
TELEVISION INC. ("STI"), TORAND PRODUCTIONS INC. ("TPI"), WORLDVISION
ENTERPRISES, INC. ("WORLDVISION"), LAUREL ENTERTAINMENT, INC. ("LAUREL"),
HAMILTON PROJECTS, INC. ("HAMILTON"), LAUREL TV, INC. ("LTV"), LAUREL-KING, INC.
("LKI"), LAUREL PICTURES INC. ("LPI"), REPUBLIC ENTERTAINMENT INC. ("RPI"),
REPIX, INC. ("RI"), REPUBLIC DISTRIBUTION CORPORATION ("RDC"), REPUBLIC PICTURES
ENTERTAINMENT INC. ("RPEI") REPUBLIC PICTURES TELEVISION ("RPT") and VIRGIN
INTERACTIVE ENTERTAINMENT, INC. ("VIE") the other present and future
subsidiaries of SEGI that are from time to time party hereto (the "OTHER
SUBSIDIARIES") (SEGI, SEI, ASP, SFI, STI, TPI, Worldvision, Laurel, Hamilton,
LTV, LKI, LPI, RPI, RI, RDC, RPEI, RPT and VIE and any other present and future
subsidiary of SEGI which becomes a borrower under the Amended and Restated
Credit Agreement (as hereinafter defined) are sometimes individually referred to
herein as a "GRANTOR" and collectively as "GRANTORS") and VIACOM INC., a
Delaware corporation ("LENDER").
PRELIMINARY STATEMENTS:
(1) Lender has entered into an Amended and Restated Credit
Agreement dated as of January 31, 1995 (said Agreement, as it may hereafter be
amended, supplemented or otherwise modified from time to time, including,
without limitation, by the joinder of additional present or future subsidiaries
of SEGI as borrowers thereunder, being the "AMENDED AND RESTATED CREDIT
AGREEMENT," the terms defined therein and not otherwise defined herein being
used herein as therein defined) with the Grantors thereunder pursuant to which
Lender has made certain commitments, subject to the terms and conditions set
forth in the Amended and Restated Credit Agreement, to extend certain credit
facilities to the Grantors.
(2) Grantors have executed and delivered an Amended and
Restated Guaranty dated as of even date herewith (said Amended and Restated
Guaranty, as it may hereafter be amended, supplemented or modified from time to
time, including, without limitation, by the joinder of additional present or
future subsidiaries of SEGI as guarantors thereunder, being the "AMENDED AND
RESTATED GUARANTY") in favor of Lender, pursuant to which, inter alia, the
Grantors have guaranteed the Guaranteed Obligations (as that term is defined in
the Amended and Restated Guaranty).
(3) The Amended and Restated Credit Agreement requires
Grantors to enter into this Agreement prior to the making of the initial Loans
thereunder and the Grantors shall have granted the security interests and
undertaken the obligations contemplated by this Agreement.
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<PAGE> 2
NOW, THEREFORE, in consideration of the premises and in order
to induce Lender to make Loans under the Amended and Restated Credit Agreement,
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, each Grantor hereby agrees with Lender as follows:
SECTION 1. ASSIGNMENT AND PLEDGE. Each Grantor hereby mortgages,
pledges, assigns and grants to Lender a continuing security interest in all of
such Grantor's right, title and interest in and to (but none of its obligations
or liabilities with respect to) all of its personal property including, without
limitation, the items and type of present and future property of such Grantor
described in Sections l(A) through 1(0) (subject, however, to Section l(P)),
whether now or hereafter existing or in which any Grantor now has or hereafter
acquires an interest and wherever the same may be located including, without
limitation, the following (the "COLLATERAL"):
(A) Rights to Payment of Money. All rights to receive the
payment of money, including accounts (as defined in the UCC, receivables, rights
to receive the payment of money under contracts, franchises, licenses, permits,
subscriptions or other agreements (whether or not earned by performance), and
rights to receive payments from any other source;
(B) Chattel Paper. All writings which evidence both a monetary
obligation and a security interest in or lease of specific goods; when a
transaction is evidenced both by a security agreement or a lease and by an
instrument (as described in Section l(F) below) or series of such instruments,
the group of writings taken together constitutes chattel paper;
(C) Documents. All documents of title, including any bill of
lading, dock warrant, dock receipt, laboratory pledgeholder agreement,
laboratory access agreement, warehouse receipt or order for the delivery of
inventory, and also any other document or receipt which in the regular course of
business or financing is treated as adequately evidencing that the Person in
possession of it is entitled to receive, hold and dispose of the document and
the goods it covers;
(D) Tangible Personal Property. All goods, machinery,
electrical and electronic components, equipment, computers, computer equipment,
furniture, office machinery, appliances, implements and all other tangible
personal property of every kind and description and used or anticipated to be
used in its businesses wherever located, and all goods of like kind or type
hereafter acquired in substitution or replacement thereof and all additions and
accessions thereto;
(E) General Intangibles. All other personal property
(including things in action) which is not elsewhere described in this Section 1.
General intangibles includes, without limitation, all United States and foreign
inventions, processes, formulae, computer software, designs, trade secrets,
rights in proprietary information, licenses, patents, patent rights, patent
applications, copyrights, copyright rights, copyright applications, trademarks,
trademark rights, trademark applications, and all related goodwill, service
marks, service mark rights, service mark applications, and all related goodwill,
trade names, trade name rights, business names, and other like business property
rights, including to the extent such security interest and the related
assignment are permitted
2
<PAGE> 3
by law, all permits, licenses and entitlements necessary for operation of
equipment, and all applications to acquire any such rights or on file or for
which application may at any time be made in the future, contracts, franchises,
licenses, permits, subscriptions and other agreements and all rights thereunder,
rights granted by others which permit the Grantor to sell or market items of
personal property, documents, good will, judgments, causes in action and claims,
whether or not inchoate, and all other general intangibles (as defined in the
UCC) and intangible property and all rights thereunder;
(F) Instruments. All drafts, checks, certificates of deposit,
notes, bills of exchange and other writings which evidence a right to the
payment of money and are not themselves security agreements or leases and are of
a type which is in the ordinary course of business transferred by delivery with
any necessary endorsement or assignment;
(G) Inventory. All inventory in all of its forms (including,
but not limited to, (1) all goods held by Grantor for sale or lease or to be
furnished under contracts of service or so leased or furnished, (2) all raw
materials, work in process, finished goods, and materials used or consumed in
the manufacture, packing, shipping, advertising, selling, leasing, furnishing or
production of such inventory or otherwise used or consumed in Grantor's
business, (3) all goods in which Grantor has an interest in mass or a joint or
other interest or right of any kind, and (4) all goods which are returned to or
repossessed by Grantor and all accessions thereto and products thereof (all such
inventory, accessions and products being the "INVENTORY");
(H) Fixtures. All plant fixtures, business fixtures and other
fixtures and storage and office facilities, and all accessions thereto and
products thereof;
(I) Pledged Securities. Except as provided for in Section
1(P)(4) below, the shares of stock of any present or future Subsidiary of such
Grantor or any other Person and similar evidences of other securities or
investments in any present or future Subsidiary of such Grantor or any other
Person which is a corporation, and all partnership, joint venture or similar
interests in any present or future Subsidiary of such Grantor or any other
Person which is a partnership or joint venture, and all Indebtedness from time
to time owing to such Grantor by any present or future Subsidiary of such
Grantor or any other Person (collectively, the "PLEDGED SECURITIES"),
certificates representing such Pledged Securities or other evidences of
ownership of such Pledged Securities, including, without limitation, investments
and Indebtedness, and all cash, securities, dividends and other property at any
time and from time to time received, receivable or otherwise distributed in
respect of or in exchange or substitution for any or all of said Pledged
Securities.
(J) Film Collateral. All of the following to the extent not
included in any other subsection of this Section 1: without limiting the
generality of subsections l(A) through I, the Collateral shall include all of
the right, title and interest of any kind or nature whatsoever of any Grantor in
and to (but none of Grantor's obligations or liabilities with respect to) all
items of Product (as used herein the term "PRODUCT" means any feature or
non-feature motion picture, whether produced for theatrical, non-theatrical or
television release or for release in any other medium, and
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<PAGE> 4
any film, videotape, cassette, cartridge, disk or on or by any other means,
method, process or device whether now known or hereafter developed, which any
Grantor or any Subsidiary of any Grantor has produced or is to produce or with
respect to which any Grantor or any Subsidiary of any Grantor has or acquires or
is to acquire all or part of the theatrical, videotape, cassette, disc,
television or other distribution rights)) and Product Rights (as used herein the
term "PRODUCT RIGHTS" means (a) any rights, whether arising under written
contracts or otherwise, to sell, produce, distribute, subdistribute, exhibit,
lease, sublease, license, sublicense or otherwise exploit Product, including
rights under so-called "pick up" arrangements and other contracts and agreements
relating to the acquisition of Product or any interest therein in any market,
including the theatrical, non-theatrical, stage, television (including
broadcast, cable and pay television) and home markets, whether by film,
videotape, cassette cartridge, disc or by any other means, method, process or
device now known or hereafter developed, (b) any rights to sell trailer and
advertising accessories relating to Product, (c) any sequel, series, serial,
re-issue or re-make rights relating to Product, and (d) any rights to exploit
any element or component of Product or any ancillary rights relating to Product,
including merchandising and character rights, stage rights, sound track
recording rights and music publishing rights relating to any music embodied in
or written for Product, including the right to grant; licenses to print, perform
or mechanically reproduce such music) and all goods, tangible property and
intangible property related to such items of Product and Product Rights, whether
now owned or in existence or hereafter made, acquired or created (collectively,
the "FILM COLLATERAL"), including, without limitation, the following:
(1) All rights of every kind and nature (including, without
limitation, copyrights) in and to any literary, trademark, service
mark, literary property right, personal right, musical, dramatic or
other literary material of any kind or nature upon which, in whole or
in part, any item of Product or Product Rights is or may be based, or
from which it is or may be adapted or inspired or which may be or has
been used or included in any item of Product or Product Rights
including, without limitation, all scripts, scenarios, screenplays,
bibles, stories, treatments, novels, outlines, books, titles, concepts,
manuscripts or other properties or materials of any kind or nature in
whatever state of completion and all drafts, versions and variations
thereof (collectively, the "Literary Property");
(2) All tangible personal property and physical properties of
every kind or nature of or relating to any item of Product or Product
Rights and all versions thereof, including, without limitation, all
physical properties relating to the development, production, comple-
tion, delivery, exhibition, distribution or other exploitation of any
item of Product or Product Rights, and all versions thereof or any part
thereof, including, without limitation, the Literary Property, exposed
film, developed film, positives, negatives, prints, answer prints,
special effects, preprint materials (including interpositives,
negatives, videotapes, duplicate nega- tives, internegatives, color
reversals, intermediates, lavenders, fine grain master prints and
matrices, video masters and all other forms of preprint elements which
may be necessary or useful to produce prints or other copies or
additional preprint elements, whether now known or hereafter devised),
sound tracks, recordings, audio and video tapes and discs of all types
and gauges, cutouts, trims, all contracts, credit lists, music
licenses, all promotional materials
4
<PAGE> 5
relating to any item of Product or Product Rights, including, without
limitation, transpar- encies, posters, press books, publicity kits,
still photographs and promotional trailers and any and all other
physical properties of every kind and nature relating to any item of
Product in whatever state of completion, and all duplicates, drafts,
versions, variations and copies of each thereof (hereinafter referred
to collectively as the "PHYSICAL PROPERTIES");
(3) All rights of every kind or nature in and to any and all
music and musical compositions created for, used in or to be used in
connection with any item of Product or Product Rights including,
without limitation, all copyrights therein and all rights to perform,
copy, record, rerecord, produce, publish, reproduce or synchronize any
or all of said music and musical compositions as well as all other
rights to exploit such music including record, soundtrack recording,
and music publishing rights;
(4) All collateral, allied, ancillary, subsidiary, publishing
and merchandising rights of every kind and nature, without limitation,
derived from, appurtenant to or related to any item of Product, Product
Rights or the Literary Property, including, without limitation, all
production, exploitation, reissue, remake, sequel, serial or series
production rights by use of film, tape or any other recording devices
now known or hereafter devised, whether based upon, derived from or
inspired by any item of Product, Product Rights, the Literary Property
or any part thereof; all rights to use, exploit and license others to
use or exploit any and all novelization, publishing, merchandising
rights and commercial tie-ups arising out of or connected with or
inspired by any item of Product, Product Rights, the Literary Property,
the title or titles of any item of Product, or said Literary Property,
the characters appearing in the item of Product, Product Rights or said
Literary Property and/or the names or characteristics of said
characters, and including further, without limitation, any and all
commercial exploit- ation in connection with or related to any item of
Product, all remakes or sequels thereof, any Product Rights and/or said
Literary Property;
(5) All rights of every kind or nature, present and future, in
and to all agreements relating to the development, production,
completion, delivery and exploitation of any item of Product,
including, without limitation, all agreements for personal services,
including the services of writers, directors, cast, producers, special
effects personnel, personnel, animators, cameramen and other creative,
artistic and technical staff and agreements for the use of studio
space, equipment, facilities, locations, animation services, special
effects services and laboratory contracts;
(6) All insurance and insurance policies heretofore or
hereafter placed upon any item of Product, Product Rights, the Physical
Properties or the insurable properties thereof and/or any person or
persons engaged in the development, production, completion, delivery or
exploitation of any item of Product or Product Rights and the proceeds
thereof;
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<PAGE> 6
(7) All copyrights, rights in copyrights, interests in
copyrights, applications for copyrights, and renewals and extensions of
copyrights, domestic and foreign, heretofore or hereafter obtained upon
any item of Product, Product Rights or the Literary Property or any
part thereof, and the right (but not the obligation) to make
publication thereof for copyright purposes, to register claims under
copyright, and the right (but not the obligation) to renew and extend
such copyrights, and the right (but not the obligation) to sue in the
name of any Grantor or any of its Subsidiaries or in the name of Lender
for past, present and future infringements of copyright;
(8) All rights to produce, acquire, release sell, distribute,
subdistribute, lease, sublease, market, license, sublicense, exhibit,
broadcast, transmit, reproduce, publicize or otherwise exploit any item
of Product, Product Rights, the Literary Property and any and all
rights therein (including, without limitation, the rights referred to
in Section l(J)(4) above) in perpetuity, without limitation, in any
manner and in any media whatsoever throughout the universe, including,
without limitation, by projection, radio, all forms of television
(including, without limitation, free, pay-per-view, pay, toll, cable,
sustaining subscription, sponsored and direct satellite broadcast), in
theaters, non-theatrically, or cassettes, cartridges and discs and by
any and all other scientific, mechanical or electronic means, methods,
processes or devices now known or hereafter conceived, devised or
created;
(9) All rights of any Grantor or any of its Subsidiaries, of
any kind or nature, direct or indirect, to acquire, produce, develop,
reacquire, finance, release, sell, distribute, subdistribute, lease,
sublease, market, license, sublicense, exhibit, broadcast, transmit,
reproduce, publicize, or otherwise exploit any item of Product, Product
Rights or any other rights in any item of Product, including, without
limitation, pursuant to agreements entered into by any Grantor or any
of its Subsidiaries, which relate to the ownership, production,
distribution or financing of the item of Product, including without
limitation, (a) all rights of any Grantor or any of its Subsidiaries to
receive moneys due or to become due pursuant to any such agreement, (b)
all rights of any Grantor or any of its Subsidiaries to receive
proceeds of any insurance, indemnity, warranty or guaranty with respect
to any such agreement, (c) claims of any Grantor or any of its
Subsidiaries for damages arising out of or for breach of or default
under any such agreement and (d) all rights of any Grantor or any of
its Subsidiaries to terminate any such agreement, to perform thereunder
and to compel performance and otherwise exercise any and all rights and
remedies thereunder;
(10) Any and all tangible and intangible personal property
including without limitation general intangibles (as defined in the
UCC), not elsewhere included in this definition, constituting or
relating to any item of Product or Product Rights which may arise in
connection with the creation, production, completion, delivery,
financing, ownership, possession or exploitation of any item of Product
or Product Rights;
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(11) The pledgeholder, laboratory access, or film warehousing
agreements relating to any item of Product or Product Rights and any
and all documents, receipts or books and records, including, without
limitation, documents or receipts of any kind or nature issued by any
pledgeholder, warehouseman or bailee with respect to any item of
Product, Product Rights and any Physical Property relating thereto;
(12) All contract rights and general intangibles (and all
proceeds and products thereof) relating to the grant or license by any
Grantor or any of its Subsidiaries to any Person of any right to
release, sell, distribute, subdistribute, lease, sublease, market,
license, sublicense, exhibit, broadcast, transmit, reproduce,
publicize, or otherwise exploit any item of Product or Product Rights
or any rights in any item of Product or Product Rights pursuant to any
agreements entered into by any Grantor or any of its Subsidiaries which
relate to the ownership, production, distribution or financing of any
item of Product or Product Rights including, without limitation, (a)
all rights of any Grantor or any of its Subsidiaries to receive moneys
due or to become due pursuant to any such agreement, (b) all rights of
any Grantor or any of its Subsidiaries to receive proceeds of any
insurance, indemnity, warranty or guaranty with respect to any such
agreement, (c) claims of any Grantor or any of its Subsidiaries for
damages arising out of or for breach of or default under any such
agreement and (d) the right of any Grantor or any of its Subsidiaries
to terminate any such agreement, to perform thereunder and to compel
performance and otherwise exercise any and all rights and remedies
thereunder (collectively, the "ASSIGNED AGREEMENTS");
(13) All machines, electrical and electronic components,
equipment, fixtures, trailers, implements and other tangible personal
property of every kind and description now owned or hereafter acquired
by any Grantor or any of its Subsidiaries (including, without
limitation, all wardrobe, props, mikes, scenery, sound stages, movable,
permanent or vehicular dressing rooms, sets, lighting equipment,
cameras and other photographic, sound recording and editing equipment,
projectors, film developing equipment and machinery), and all goods of
like kind or type hereafter acquired by any Grantor or any of its
Subsidiaries in substitution or replacement thereof, and all additions
and accessions thereto relating to the production or exploitation of
items of Product and/or Product Rights; and
(14) The following personal property, whether now owned or
hereafter acquired: (a) the title or titles of any item of Product or
Product Rights and all rights of any Grantor or any of its Subsidiaries
to the exclusive use thereof including rights protected pursuant to
trademark, service mark, unfair competition and/or other laws, rules or
principles of law or equity and (b) all inventions, processes,
formulae, licenses, patents, patent rights, trademarks, trademark
rights, service marks, service mark rights, trade names, trade name
rights, logos, indicia, corporate and company names, business source or
business identifiers and renewals and extensions thereof, domestic and
foreign, whether now owned or hereafter acquired, and the accompanying
goodwill and other like business property rights relating to any item
of Product or Product Rights, and the right (but not the obligation) to
register a claim under
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trademark or patent and to renew and extend such trademarks or patents
and the right (but not the obligation) to sue in the name of any
Grantor or any of its Subsidiaries or in the name of Lender for past,
present or future infringement of trademark or patents.
(K) Bank Accounts: Cash and Cash Equivalents.
(1) All deposit and other accounts and any extension or
renewal of such accounts and all certificates and instruments, if any,
from time to time representing or evidencing such accounts opened in
the name of any Grantor with any bank or other financial institution
(collectively, the "BANK ACCOUNTS");
(2) All monies on deposit in any Bank Account, all account
investments relating thereto from time to time and all certificates and
instruments, if any, from time to time representing or evidencing the
account investments;
(3) All notes, commercial paper, certificates of deposit,
bankers' acceptances and other instruments from time to time delivered
to or otherwise possessed by Grantor for or on behalf of any Grantor in
addition to or in substitution for any account investment; and
(4) All interest, dividends, cash, instruments and other
property from time to time received, receivable or otherwise
distributed or distributable in respect of or in exchange for any or
all of the Collateral described in this Section 1(K).
(L) Books and Records. All books, records, ledger cards, files,
correspondence, computer programs, tapes, disks and related data processing
software that at any time evidence or contain information relating to any of the
Collateral or are otherwise necessary or helpful in the collection thereof or
realization thereupon;
(M) Other General Intangibles. To the extent not included in any other
paragraph of this Section 1, all other general intangibles (including, without
limitation, tax refunds, rights to payment or performance, choses in action and
judgments taken on any rights or claims included in the Collateral);
(N) All Other Property. All other property, assets and items of value
of every kind and nature, tangible or intangible, absolute or contingent, legal
or equitable;
(O) Proceeds and Products. All proceeds, products, rents and profits of
or from any and all of the foregoing Collateral and, to the extent not otherwise
included, all payments under insurance (whether or not Lender is the loss payee
thereof), or any indemnity, warranty or guaranty, payable by reason of loss or
damage to or otherwise with respect to any of the foregoing Collateral. For
purposes of this Agreement, the term "PROCEEDS" includes whatever is receivable
or received when Collateral or proceeds are sold, exchanged, collected or
otherwise disposed of, whether such disposition is voluntary or involuntary;
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(P) Excluded Property. Notwithstanding Sections 1(A) through 1(O), the
payment and performance of the Secured Obligations (as hereinafter defined)
shall not be secured by:
(1) any rights arising under, and any property, tangible or
intangible, acquired under, any agreement executed by any Grantor to
the extent that such agreement validly prohibits the creation by any
Grantor of a security interest in such rights or property.
(2) any rights or property to the extent that any valid and
enforceable law or regulation applicable to such rights or property
prohibits the creation of a security interest therein.
(3) the items described in Section 1(Q) (but only to the
extent Lender has not specified that such items be included in the
Collateral pursuant thereto).
(4) capital stock of other companies in the entertainment
industry which are not Affiliates of any Grantor having a cost to the
Grantor not exceeding $25,000 in the aggregate.
(Q) Additional Collateral. As additional Collateral, each Grantor
covenants that it will mortgage, pledge and collaterally grant and assign to the
Lender and will create a security interest in favor of the Lender in, all of its
right, title and interest in and to (but none of its liabilities or obligations
with respect to) such of the following present or future items as the Lender may
from time to time specify by notice to SEGI, whether now owned or hereafter
acquired, and the proceeds and products thereof (except to the extent consisting
of rights or property of the types referred to in Section l(P)), all of which
shall thereupon be included in the term "COLLATERAL":
(1) Real Property. All real property and immovable property
and fixtures, leasehold interests and easements wherever located,
together with any and all estates and interests of the Grantor therein,
including lands, buildings, stores, manufacturing facilities and other
structures erected on such property, fixed plant, fixed equipment and
all permits, rights, licenses, benefits and other interests of any kind
or nature whatsoever in respect of such real and immovable property.
(2) Motor Vehicles and Airplanes. All motor vehicles and
airplanes.
SECTION 2. SECURITY FOR OBLIGATIONS.
(A) With respect to each Grantor which is also a Borrower (a
"BORROWER/GRANTOR") the following shall apply:
(1) Primary Secured Obligations. This Agreement secures, and
the Collateral granted by such Borrower/Grantor is collateral security
for, the prompt payment and performance in full when due, whether at
stated maturity, by acceleration or otherwise
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(including the payment of amounts which would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy
Code, 11 U.S.C. ss.362(a) or the operation of any other provision of
law of any jurisdiction which would otherwise cause a stay of the
payment of such amounts), of all Credit Obligations of such
Borrower/Grantor now or hereafter existing under or in respect of the
Amended and Restated Credit Agreement and the Notes, whether for
principal, premium, interest (including, without limitation, interest
which, but for the filing of a petition in bankruptcy with respect to
such Borrower/Grantor would accrue on such fees, expenses or otherwise)
and all obligations of such Borrower/Grantor now or hereafter existing
under this Agreement (all such obligations of such Borrower/Grantor
being such Borrower/Grantor's "PRIMARY SECURED OBLIGATIONS").
(2) Secondary Secured Obligations. This Agreement secures, and
the Collateral granted by such Borrower/Grantor is collateral security
for the prompt payment and performance in full when due, whether at
stated maturity, by acceleration or otherwise (including the payment of
amounts which would become due but for the operation of the automatic
stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. ss.362(a)
or the operation of any other provision of law of any jurisdiction
which would otherwise cause a stay of the payment of such amounts), of
all obligations of such Borrower/Grantor now or hereafter existing
under or in respect of the Amended and Restated Guaranty, whether for
principal, premium, interest (including, without limitation, interest
which, but for the filing of a petition in bankruptcy with respect to
any other Borrower, would accrue on such obligations), fees, expenses
or otherwise (all such obligations of such Borrower/Grantor being such
Borrower/Grantor's "SECONDARY SECURED OBLIGATIONS").
(B) With respect to each Grantor which is not a Borrower (a
"NON-BORROWER/GRANTOR"), the following shall apply: this Agreement secures, and
the Collateral granted by such Non-Borrower Grantor is collateral security for,
the prompt payment and performance in full when due, whether at stated maturity,
by acceleration or otherwise (including the payment of amounts which would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. ss.362(a) or the operation of any other provision
of law of any jurisdiction which would otherwise cause a stay of the payment of
such amounts), of (i) all Credit Obligations (as defined in the Amended and
Restated Credit Agreement), including, without limitation, (a) all such Credit
Obligations now or hereafter existing under or in respect of the Amended and
Restated Credit Agreement and the Notes, whether for principal, premium,
interest (including, without limitation, interest which, but for the filing of a
petition in bankruptcy with respect to any Borrower, would accrue on such
Obligations), fees, expenses or otherwise and (b) all such Credit Obligations,
now or hereafter existing under or in respect of the Amended and Restated
Guaranty and (ii) all obligations of Grantors now or hereafter existing under
this Agreement, the Amended and Restated Credit Agreement or any other Credit
Document (all such obligations being the "NON-BORROWER/GRANTOR OBLIGATIONS"; the
Borrower/ Grantor Primary Secured Obligations, the Borrower/Grantor Secondary
Secured Obligations and the Non-Borrower/Guarantor Obligations are collectively
referred to herein as the "SECURED OBLIGATIONS").
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SECTION 3. REPRESENTATION AND WARRANTIES. Each Grantor represents and
warrants as follows:
(A) Each Grantor has full power, authority and legal right to pledge
all of the Collateral pledged pursuant to this Agreement.
(B) Each Grantor is, and at the time of delivery of any Collateral
required to be delivered to the Lender pursuant to Sections 5 or 12 of this
Agreement will be, the legal and beneficial owner of the Collateral pledged by
such Grantor hereunder.
(C) The chief place of business and chief executive office of each
Grantor and the office where each Grantor keeps its records concerning the
Collateral described in Section l(A) hereof is located at the address specified
for such Grantor on Schedule 3(c) hereto and the address of each of the offices
where each Grantor does business is set forth on Schedule 3(C) annexed hereto
and no Grantor, except Republic Entertainment Inc. (formerly known as Republic
Pictures Inc.) and Laurel Pictures Inc. (formerly known as Big Apple Films
Inc.), has changed its name since September 30, 1993.
(D) All of the Pledged Securities have been duly authorized and validly
issued and are fully paid and nonassessable.
(E) This Agreement creates a valid and perfected security interest in
the Collateral, securing the payment of the Obligations, and all filings and
other actions necessary or desirable to perfect and protect such security
interests have been duly taken or waived by Lender.
(F) No consent of any other party (including, without limitation,
stockholders or creditors of any Grantor or any Subsidiary of any Grantor) and
no consent, authorization, approval, or other action by, and no notice to or
filing with any governmental authority or regulatory body is required either (x)
for the pledge by Grantors of the Collateral pursuant to this Agreement or for
the execution, delivery or performance of this Agreement by Grantors or (y) for
the exercise by the Lender of the voting or other rights provided for in this
Agreement or the remedies in respect of the Collateral pursuant to this
Agreement; except (a) as may be required in connection with such disposition by
laws affecting the offering and sale of securities generally, (b) UCC-1 filings
with the Secretary of State of the State of California and the State of New York
which filings have been made and (c) filings with the United States Copyright
Office.
(G) The Pledged Securities consisting of the stock of the Subsidiaries
of SEGI constitute one hundred percent (100%) of the issued and outstanding
shares of stock of the respective issuers thereof.
(H) All information set forth herein relating to the Collateral is
accurate and complete in all material respects.
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(I) The pledge of the Collateral, if any, constituting Margin Stock
pursuant to this agreement does not violate Regulation U of the Federal Reserve
Board.
SECTION 4. DELIVERY OF CERTAIN COLLATERAL. All certificates, or
instruments, if any, representing or evidencing the Collateral described in
Sections l(F) and (I) or the proceeds of such Collateral shall be delivered to
and held by or on behalf of Lender pursuant hereto and shall be in suitable form
for transfer by delivery, or shall be accompanied by duly executed undated
instruments of transfer or assignment in blank, all in form and substance
satisfactory to Lender. Lender shall have the right, at any time in its
discretion and without notice to any Grantor, to transfer to or to register in
the name of Lender or any of its nominees any or all of such Collateral. In
addition, Lender shall have the right at any time to exchange certificates or
instruments representing or evidencing such Collateral for certificates or
instruments of smaller or larger denominations. All additional certificates or
instruments, if any, representing or evidencing Collateral described in Sections
1(F) and (I) acquired from time to time after the date hereof in any manner
shall be delivered to Lender promptly after each such acquisition, and held by
or on behalf of Lender in accordance with the provisions of this Section 4.
SECTION 5. ASSIGNED AGREEMENTS. RECEIVABLES AND OTHER COLLATERAL
PLEDGED UNDER SECTION 1.
(A) Place of Perfection; Records. Each Grantor shall keep its chief
place of business and chief executive office and the office where it keeps its
records concerning the Collateral at the location therefor specified in Section
3(C) or, upon 30 days' prior written notice to Lender, at such other location in
a jurisdiction where all action required by this Agreement shall have been taken
with respect to the Collateral. Each Grantor will hold and preserve such records
and will permit representatives of Lender at any time during normal business
hours after prior notice to inspect and make abstracts from such records.
(B) Grantors Remain Liable Under Assigned Agreements. Anything herein
to the contrary notwithstanding, (1) each Grantor shall remain liable under the
Assigned Agreements to the extent set forth therein to perform all of its duties
and obligations thereunder to the same extent as if this Agreement had not been
executed, (2) the exercise by Lender of any of the rights hereunder shall not
release any Grantor from any of its duties or obligations under the Assigned
Agreements, and (3) Lender shall not have any obligation or liability under the
Assigned Agreements by reason of this Agreement, nor shall Lender be obligated
to perform any of the obligations or duties of any Grantor thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder.
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SECTION 6. LOCATION OF FILM COLLATERAL; PLEDGEHOLDER AGREEMENT;
COPYRIGHT OFFICE FILINGS.
(A) Each Grantor agrees, with respect to all Film Collateral, to at all
times maintain and to cause its Subsidiaries to maintain, at a laboratory or
other commercial storage facility at least one complete set of all preprint
material (including all necessary film, video and sound track materials)
necessary to make copies of the Product for exhibition and other exploitation in
the applicable media to which the Grantor owns or controls exploitation rights.
With respect to completed items of Product, the Grantors hereby agree that at
all times at least one complete copy of all preprint materials required to make
exhibition copies with respect to any such item of Product shall be located in a
jurisdiction where either (i) UCC-1 financing statements or similar evidence of
the Lender's security interest under applicable law have been filed against the
Grantors, or (ii) Lender has otherwise acquired a perfected security interest or
analogous rights in the Film Collateral under applicable foreign law.
(B) Each Grantor will, and will cause each of its Subsidiaries to, act
as pledgeholder for the Lender with the same effect as if the Lender were a
pledgee in possession of all Film Collateral which are now or hereafter in the
(actual or constructive) possession of any Grantor or any of its Subsidiaries,
subject to such access of such Grantors and other third parties as shall be
necessary to produce and exploit any item of Product.
(C) Copyright Filings. With respect to any item of Product the
copyright of which is owned by any Grantor or any of its Subsidiaries, such
Grantor (or such Subsidiary) shall execute and file an application for copyright
registration with the United States Copyright Office (the "COPYRIGHT OFFICE").
With respect to any item of Product in which any Grantor or any of its
Subsidiaries has acquired any distribution, exploitation or other rights, such
Grantor (or such Subsidiary) acquiring any such rights shall file an instrument
of transfer for recordation with the Copyright Office. Such instrument of
transfer shall be duly authorized, executed and acknowledged by the transferor
of any such rights and in the event such item of Product has not been registered
for copyright, such Grantor (or such Subsidiary) shall register or shall cause
the transferor of such rights to register such item of Product in the Copyright
Office. Each such Grantor shall use and shall cause its Subsidiaries to use best
efforts to comply with all requirements of the federal Copyright Act, the rules
and regulations promulgated thereunder and any other applicable laws or
regulations, and shall take all steps necessary to validly register the
ownership of the copyright to such item of Product or to record the instrument
of transfer transferring distribution, exploitation or other rights to such item
of Product, as applicable, in the United States Copyright Office. Concurrently
with the filing of the copyright registration application or the instrument of
transfer, as applicable, such Grantor will file, or, if ownership of such item
of Product or distribution, exploitation or other rights are held by its
Subsidiary, such Grantor will cause such Subsidiary to file with the Copyright
Office, a Copyright Mortgage and Assignment in form and substance satisfactory
to Lender, duly executed, notarized and in proper form for recordation in the
Copyright Office. Except as otherwise set forth in the
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Amended and Restated Credit Agreement, each Grantor will submit and cause each
of its Subsidiaries to submit the above-referenced copyright filings to the
Copyright Office in accordance with the following:
(1) With respect to each item of Product produced or financed,
and the copyright of which is owned (in whole or in part), by such
Grantor (or such Subsidiary) and which is intended for initial general
theatrical release, filing of the application for copyright
registration, the Copyright Mortgage and Assignment and any other
documents required to effect the valid registration/recordation of same
will be made not later than 60 days following the availability of the
answer print of such item of Product; provided, however, that unless
there shall have occurred an Event of Default, such copyright filings
may be delayed not later than the date 30 days after the initial
general theatrical release of such item of Product in the United States
of America.
(2) With respect to each item of Product produced or financed
by, and the copyright of which is owned (in whole or in part) by, such
Grantor (or such Subsidiary) and which is intended for initial
exhibition on television (e.g., a television motion picture,
mini-series, each episode of a series or otherwise), such filing of the
application for copyright registration, the Copyright Mortgage and
Assignment and any other documents required to effect the valid
registration/recordation of same will be made not later than thirty
(30) days following delivery of the individual item of Product (e.g.
each episode of a series, each television motion picture, etc.) to the
applicable network or other licensee licensing such item of Product.
(3) With respect to each other item of Product or Product
Rights which is acquired by such Grantor (or such Subsidiary) not
otherwise provided for in clause (1) or (2) above, filing of the
application for copyright registration, the instrument of transfer, the
Copyright Mortgage and Assignment and any other documents required to
effect the valid registration/recordation of same shall be made as soon
as reasonably practicable under the circumstances but in no event later
than (i) 30 days following the execution of a written agreement
pursuant to which the Grantor or any of its Subsidiaries acquired
rights in such item of Product; provided, however, with respect to each
item of Product intended for initial exhibition on television such
filings will be made not later than thirty (30) days following delivery
to the Grantor or any of its Subsidiaries of such item of Product.
Copies of all such applications for copyright registration,
instruments of transfer and Copyright Mortgage and Assignments and all other
documents filed with the Copyright Office pursuant to the provisions of this
Section 6(C) by any Grantor and/or any Subsidiary of any Grantor shall be sent
to Lender concurrently with the submission to the Copyright Office of the
applicable documents. Copies of all such documents when validly registered or
recorded, as applicable, in the Copyright Office shall be promptly sent to
Lender when received by any Grantor or any Subsidiary of any Grantor from the
Copyright Office.
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SECTION 7. PLEDGED SECURITIES.
(A) So long as no Event of Default or Potential Event of Default shall
have occurred and be continuing:
(1) Each Grantor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Pledged Securities
or any part thereof for any purpose not inconsistent with the terms of
this Agreement or the Amended and Restated Credit Agreement.
(2) Each Grantor shall be entitled to receive and retain any
and all dividends and interest paid in respect of the Pledged
Securities.
(B) Upon the occurrence and during the continuance of an Event of
Default or a Default all rights of any Grantor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise pursuant to
Section 7(A)(1) and to receive the dividends and interest payments which it
would otherwise be authorized to receive and retain pursuant to Section 7(A)(2)
shall cease, and all such rights shall thereupon become vested in Lender who
shall thereupon have the sole right to exercise such voting and other consensual
rights and to receive and hold as Collateral such dividends and interest
payments.
SECTION 8. COVENANTS; FURTHER ASSURANCES.
(A) Each Grantor agrees that from time to time, at the expense of such
Grantor, such Grantor will promptly execute and deliver all further instruments
and documents, and take all further action, that may be necessary or desirable,
or that Lender may reasonably request, in order to perfect and protect the
assignment and security interest granted or purported to be granted hereby or to
enable Lender to enforce its rights and remedies hereunder with respect to any
Collateral.
(B) Each Grantor will (1) if any Collateral shall be evidenced by a
promissory note or other instrument or chattel paper, deliver and pledge to
Lender hereunder all executed originals of such note, instrument or chattel
paper duly endorsed and accompanied by duly executed instruments of transfer or
assignment, all in form and substance reasonably satisfactory to Lender; and (2)
mark conspicuously each copy of an agreement, document, instrument or other
writing which constitutes chattel paper and, at the request of Lender, each of
its records pertaining to such Collateral, with a legend, in form and substance
satisfactory to Lender, indicating that such Collateral, as the case may be, has
been assigned and is subject to the security interest granted pursuant to this
Agreement.
(C) Each Grantor will execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or notices, as may
be necessary or desirable, or as Lender may reasonably request, in order to
perfect and preserve the assignment and security interest granted or purported
to be granted hereby. Each Grantor hereby authorizes Lender to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the
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Collateral without the signature of any Grantor where permitted by law. A
carbon, photographic or other reproduction of this Agreement or any financing
statement concerning the Collateral or any part thereof shall be sufficient as a
financing statement where permitted by law.
(D) Each Grantor will comply with all laws, rules and regulations
relating to, and shall pay prior to delinquency all license fees, registration
fees, taxes and assessments, and all other charges, including without limitation
non-governmental levies or assessments, which may be levied upon or assessed
against, or which may become security interests, liens or other encumbrances on,
the ownership or possession, of any material part of the Collateral, or which
create or may create a lien upon any material part of the Collateral; provided,
however, that Grantors shall not be required to comply with any such law, rule
or regulation, or to pay any such tax, fee, assessment or other charge, the
validity of which is being contested by such Grantor in good faith by
appropriate proceedings promptly instituted and diligently conducted.
(E) Each Grantor will at all times keep accurate records with respect
to the Collateral which are as complete and comprehensive as those customarily
maintained by others engaged in businesses of the type in which Grantors engage,
and agrees that Lender or its representatives shall have the right, at any time
during normal working hours or any other reasonable time and from time to time,
to call at its place or places of business or where the Collateral or any part
thereof may be held or located or its records pertaining to the Collateral may
be kept and to inspect the Collateral and/or examine or cause to be examined
such records and to make abstracts therefrom or copies thereof. In addition,
upon Lender's request, if Lender deems it necessary or desirable to perfect or
preserve Lender's security interest in the Collateral, and at the cost and
expense of each Grantor, Grantor will make or stamp on, or otherwise affix to,
each material item of Collateral and each of its individual ledger sheets, cards
and other records pertaining thereto, a legend or plaque in form and content
reasonably satisfactory to Lender indicating that such Collateral is subject to
a security interest in favor of Lender.
(F) At such time or times as Lender may request, each Grantor will, at
its cost and expense, prepare a list, statement, schedule or report in such form
as shall be reasonably satisfactory to Lender, certified by duly authorized
officers of such Grantor, describing in such detail as Lender shall require, the
Collateral, and specifying the location of such Collateral, each Grantor's
records pertaining thereto and such other information as Lender may reasonably
request. No Grantor shall change the location of any Collateral described on any
list furnished pursuant to this subsection (H) or (except insofar as the change
of location is within the same county to another office or plant of such Grantor
or to a laboratory or other commercial storage facility in the United States so
long as such laboratory or facility has executed and delivered to Lender a
Pledgeholder Agreement) the location of such Grantor's records pertaining to
such Collateral, except upon ten (10) Business Days' prior written notice to
Lender of such change and of the new location of such Collateral or the records
pertaining thereto, and, in the case of change in location of any Collateral,
such Grantor shall duly perfect Lender's security interest in any such item by
preparing, executing and, if required by Lender, filing a Uniform Commercial
Code financing statement with respect thereto in any new
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jurisdiction where such item has been removed and may remain for three months or
more and/or taking such other actions as may be required or desirable to duly
perfect Lender's security interest in any such items of Collateral.
SECTION 9. REMEDIES UPON DEFAULT. If any Event of Default shall have
occurred and be continuing:
(A) (1) Lender may exercise in respect of the Collateral, in addition
to other rights and remedies, all the rights and remedies of a secured party in
default under the UCC in effect in the State of New York at that time, and the
Lender may also without notice, except as specified below, sell the Collateral
or any part thereof in one or more parcels at public or private sale, at any
exchange, broker's board or at any of the Lender's offices or elsewhere, for
cash, on credit or for future delivery, and at such price or prices and upon
such other terms as the Lender may deem commercially reasonable irrespective of
the impact of any such sales on the market price of the Collateral. Lender may
be the purchaser of any or all of the Collateral at any such sale and shall be
entitled, for the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of the Collateral sold at any such public
sale, to use and apply any of the Secured Obligations as a credit on account of
the purchase price of any Collateral payable by Lender at such sale. Each
purchaser at any such sale shall hold the property sold absolutely free from any
claim or right on the part of any Grantor and each Grantor hereby waives (to the
extent permitted by law) all rights of redemption, stay and/or appraisal which
it now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted. Each Grantor agrees that, to the
extent notice of sale shall be required by law, at least ten days' notice of
sale to the Grantor whose Collateral is to be sold of the time and place of any
public sale or the time after which any private sale is to be made shall
constitute reasonable notification. Lender shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. Lender may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. Each Grantor hereby waives any
claims against Lender arising by reason of the fact that the price at which any
Collateral may have been sold at such a private sale was less than the price
which might have been obtained at a public sale, even if Lender accepts the
first offer received and does not offer such Collateral to more than one
offeree.
(2) Each Grantor recognizes that, by reason of certain
prohibitions contained in the Securities Act of 1933, as from time to
time amended (the "SECURITIES ACT"), and applicable state securities
laws, Lender may be compelled, with respect to any sale of all or any
part of the Collateral, to limit purchasers to those who will agree,
among other things, to acquire the Collateral for their own account,
for investment and not with a view to the distribution or resale
thereof. Each Grantor acknowledges that any such private sales may be
at prices and on terms less favorable to Lender than those obtainable
through a public sale without such restrictions (including, without
limitation, a public offering made pursuant to a registration statement
under the Securities Act), and notwithstanding such circumstances
agrees that any such private sale shall be deemed to have been made in
a commercially
17
<PAGE> 18
reasonable manner and that Lender shall not have any obligation to
engage in public sales and no obligation to delay the sale of any
Collateral for the period of time necessary to permit the issuer
thereof to register it for a form of public sale requiring registration
under the Securities Act or under applicable state securities laws,
even if the applicable Grantor would agree to do so.
(B) If Lender determines to exercise its right to sell any or all of
the Collateral, upon written request, each Grantor shall and shall cause each
issuer of any Pledged Shares or other Pledged Securities to be sold hereunder
from time to time to furnish to Lender all such information as Lender may
request in order to determine the number of shares and other instruments
included in the Collateral which may be sold by Lender as exempt transactions
under the Securities Act and the rules of the Securities and Exchange Commission
thereunder, as the same are from time to time in effect.
(C) Lender may exercise any and all rights and remedies of each Grantor
under or in connection with the agreements which otherwise constitute Collateral
hereunder, including, without limitation, any and all rights of any Grantor to
demand or otherwise require payment of any amount under, or performance of any
provision of, any such agreements.
(D) All payments received by any Lender under or in connection with any
other agreements which constitute Collateral shall be received in trust for the
benefit of Lender, shall be segregated from other funds of such Grantor and
shall be forthwith paid over to Lender in the same form as so received (with any
necessary endorsement).
SECTION 10. APPLICATION OF PROCEEDS. After and during the continuance
of any Event of Default, any cash held by Lender as Collateral and all cash
proceeds received by Lender (all such cash being "PROCEEDS") in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral pursuant to the exercise by Lender of its remedies as a secured
creditor as provided in Section 9 of this Agreement shall be applied promptly
from time to time by Lender:
First, to the payment of the costs and expenses of such sale,
collection or other realization, including reasonable compensation to Lender and
its agents and counsel, and all expenses, liabilities and advances made or
incurred by Lender in connection therewith;
Second, to the payment of the Secured Obligations (it being agreed that
with respect to any Proceeds derived from any Collateral owned by a
Borrower/Grantor, such proceeds shall first be applied to such
Borrower/Grantor's Primary Secured Obligations and after the payment of such
Borrower/Grantor's Primary Secured Obligations then to such Borrower/Grantor's
Secondary Secured Obligations); and
Third, only after payment in full of all Secured Obligations, to the
Grantors, or other successors or assigns, or to whomsoever may be lawfully
entitled to receive the same or as a court of competent jurisdiction may direct,
of any surplus then remaining from such Proceeds.
18
<PAGE> 19
SECTION 11. REGISTRATION RIGHTS WITH RESPECT TO PLEDGED SHARES. If
Lender shall determine to exercise its right to sell all or any of the
Collateral pursuant to Section 9, each Grantor agrees that, upon request of
Lender, each Grantor will, at its own expense:
(A) execute and deliver, and cause each issuer of the Pledged Shares
contemplated to be sold and the directors and officers thereof to execute and
deliver, all such instruments and documents, and do or cause to be done all such
other acts and things, as may be necessary or, in the opinion of Lender,
advisable to register such Pledged Shares under the provisions of the Securities
Act and to cause the registration statement relating thereto to become effective
and to remain effective for such period as prospectuses are required by law to
be furnished, and to make all amendments and supplements thereto and to the
related prospectus which, in the opinion of Lender, are necessary or advisable,
all in conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto;
(B) use its best efforts to qualify the Pledged Shares under the state
securities or "Blue Sky" laws and to obtain all necessary governmental approvals
for the sale of the Pledged Shares, as requested by Lender;
(C) cause each such issuer to make available to its security holders,
as soon as practicable, an earning statement which will satisfy the provisions
of Section II(a) of the Securities Act; and
(D) do or cause to be done all such other acts and things as may be
necessary to make such sale of the Pledged Shares or any part thereof valid and
binding and in compliance with applicable law.
SECTION 12. SECURITY INTEREST ABSOLUTE. All rights of Lender and the
assignment and security interest hereunder, and all obligations of each Grantor
hereunder, shall be absolute and unconditional, irrespective of:
(A) any lack of validity, enforceability, genuineness or regularity of
the Amended and Restated Credit Agreement, the Notes, the Amended and Restated
Guaranty; any agreements constituting collateral, any other Credit Document or
any other agreement or instrument relating thereto;
(B) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other amendment or
waiver of or any consent to any departure from the Amended and Restated Credit
Agreement, the Notes, the Amended and Restated Guaranty, any agreements
constituting collateral or any other Credit Document;
(C) any exchange, release or non-perfection of any other collateral, or
any release or amendment or waiver of or consent to departure from any guaranty,
for all or any of the Secured Obligations; or
19
<PAGE> 20
(D) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, any Grantor, or a third party grantor of a
security interest.
SECTION 13. LENDER APPOINTED ATTORNEY-IN-FACT. Each Grantor hereby
irrevocably appoints Lender as such Grantor's attorney-in-fact, with full
authority in the place and stead of such Grantor and in the name of such Grantor
or otherwise, from and after the occurrence of any Event of Default and so long
as an Event of Default shall be continuing, from time to time in Lender's
discretion to take any action and to execute any instrument which Lender may
deem necessary or advisable to accomplish the purposes of this Agreement,
including, without limitation, to accept and/or release Collateral as provided
in this Agreement, to ask, demand, collect, sue for, recover, compound, receive
and give acquittance and receipts for moneys due and to become due under or in
connection with the Collateral, to receive, endorse, and collect any drafts or
other instruments, documents, letters of credit and chattel paper in connection
therewith or representing any interest payment, dividend or other distribution
or payment in respect of the Collateral or any part thereof and to give full
discharge for the same, and to file any claims or take any action or institute
any proceedings which Lender may deem to be necessary or desirable for the
collection thereof or to enforce compliance with the terms and conditions of any
Collateral.
SECTION 14. LENDER MAY PERFORM. If any Grantor fails to perform any
agreement contained herein, Lender may itself perform, or cause performance of,
such agreement, and the reasonable expenses of Lender incurred in connection
therewith shall be payable by Grantors under Section 16.
SECTION 15. LENDER'S DUTIES. The powers conferred on Lender hereunder
are solely to protect its interest in the Collateral and shall not impose any
duty upon it to exercise any such powers. Except for the safe custody of any
Collateral in its possession and the accounting for moneys actually received by
it hereunder with respect to which Lender shall act with reasonable care, Lender
shall have no duty as to any Collateral or as to the taking of any necessary
steps to preserve rights against prior parties or any other rights pertaining to
any Collateral. Lender shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral in its possession if the Collateral
is accorded treatment substantially equal to that which Lender accords its own
property, it being understood that Lender shall not have any responsibility for
ascertaining or taking action with respect to calls, conversions exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
Lender has or is deemed to have knowledge of such matters.
SECTION 16. INDEMNITY AND EXPENSES.
(A) Each Grantor agrees to indemnify Lender from and against any and
all claims, losses and liabilities growing out of or resulting from this
Agreement (including without limitation enforcement of this Agreement and any
misstatements or omissions contained in any prospectus prepared by such Grantor
pursuant to Section 11; provided, however, that Grantors shall have no
obligation to provide indemnification under this Section 16 to a Person to the
extent that such claims, losses or liabilities arise from such Person's gross
negligence or willful misconduct.
20
<PAGE> 21
(B) Each Grantor will upon demand pay to Lender the amount of any and
all reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, which Lender may incur in connection with
(1) the administration of this Agreement, (2) the custody or preservation of, or
the collection from or other realization upon, any of the Collateral, (3) the
exercise or enforcement of any of the rights of Lender hereunder or (4) the
failure by any Grantor to perform or observe any of the provisions hereof.
SECTION 17. AMENDMENTS; ETC. No amendment or waiver of any provision of
this Agreement nor consent to any departure by any Grantor herefrom shall in any
event be effective unless the same shall be in writing and signed by Lender and,
in the case of such an amendment, signed by Grantors, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 18. NOTICES. Unless otherwise specifically provided herein, any
notice or other communication herein required or permitted to be given shall be
in writing and may be personally served, telecopied, telexed or sent by United
States mail and shall be deemed to have been given when delivered in person,
receipt of telecopy or telex or four Business Days after deposit in the United
States mail, registered or certified return receipt requested, with postage
prepaid and properly addressed; provided that notices to Lender shall not be
effective until received. For the purposes hereof, the addresses of the parties
hereto (until notice of a change thereof is delivered as provided in this
Section 18) shall be as set forth below each party's name on the signature pages
of this Agreement.
SECTION 19. CONTINUING ASSIGNMENT AND SECURITY INTEREST; TRANSFER OF
NOTES. This Agreement shall create a continuing assignment of and security
interest in the Collateral and shall (A) remain in full force and effect until
indefeasible payment in full of the Secured Obligations, (B) be binding upon
each Grantor and its successors and assigns and (C) inure, together with the
rights and remedies of Lender hereunder, to the benefit of Lender and their
respective successors, transferees and assigns. Without limiting the generality
of the foregoing clause (C), Lender may assign or otherwise transfer any Note
held by it to any other person or entity, and such other person or entity shall
thereupon become vested with all the benefits in respect thereof granted to
Lender herein or otherwise. Upon the indefeasible payment in full of the Secured
Obligations and the termination of all of the Commitments, the security interest
granted hereby shall terminate, all rights to the Collateral pledged or assigned
by each Grantor shall revert to such Grantor. Upon any such termination, Lender
will, at Grantors' expense, execute and deliver to the applicable Grantor such
documents as such Grantor shall reasonably request to evidence such termination.
SECTION 20. ASSIGNMENT. Lender may assign, endorse or transfer any
instrument evidencing all or any part of the Credit Obligations, and the holder
of such instrument shall be entitled to the benefits of this Agreement.
Grantors' rights, obligations or any interest therein under this Agreement may
not be assigned without the written consent of Lender.
21
<PAGE> 22
SECTION 21. SEVERABILITY. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
SECTION 22. GOVERNING LAW; TERMS. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, except to
the extent that the validity or perfection of the security interest hereunder,
or remedies hereunder, are governed by the laws of a jurisdiction other than the
State of New York. Unless otherwise defined herein or in the Amended and
Restated Credit Agreement, terms used in Article 9 of the UCC in effect in the
State of New York are used herein as therein defined.
SECTION 23. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. All
judicial proceedings brought against any Grantor, with respect to this
Agreement, the Amended and Restated Guaranty or any other Credit Document may be
brought in any state or federal court of competent jurisdiction in the State of
New York, Florida or California and by execution and delivery of this Agreement
each Grantor accepts for itself and in connection with its properties, generally
and unconditionally, the nonexclusive jurisdiction of the aforesaid courts,
without any objection to the venue chosen by Lender based on forum non
conveniens or otherwise, and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement, the Amended and Restated
Guaranty or any other Credit Document. The Grantors designate and appoint
Spelling Entertainment Group Inc., c/o Worldvision Enterprises, Inc., 660
Madison Avenue, New York, New York 10021, and such other Persons as may
hereafter be selected by the Grantors, as Grantors' agent to receive on
Grantors' behalf service of all process in any such proceeding in any such
court, such service being hereby acknowledged by Grantors to be effective and
binding service in every respect. A copy of any such process so served shall be
mailed by registered mail to each Grantor at its address provided in the
applicable signature page hereto, except that unless otherwise provided by
applicable law, any failure to mail such copy shall not affect the validity of
service of process. If any agent appointed by any Grantor refuses to accept
service, the Grantors hereby agree that service upon it by mail shall constitute
sufficient notice. Nothing herein shall affect the right to serve process in any
other manner permitted by law or shall limit the right of Lender to bring
proceedings against any Grantor in the courts of any other jurisdiction.
SECTION 24. ADDITIONAL SUBSIDIARY GRANTORS. The initial Grantors
hereunder shall be the Borrowers and such other of the Subsidiaries of SEGI as
are signatories hereto on the date hereof. From time to time subsequent to the
date hereof, additional present or future Subsidiaries of SEGI may become
parties hereto, as additional Grantors, by executing a counterpart of this
Agreement. Upon delivery of any such counterpart to Lender, notice of which is
hereby waived by Grantors, each such additional Grantor shall be as fully a
party hereto as if such Grantor were an original signatory hereof. Each Grantor
expressly agrees that its obligations arising hereunder shall not be affected or
diminished by the addition or release of any other Grantor hereunder, nor by any
election of Lender not to cause any present or future Subsidiary of SEGI to
become an additional Grantor hereunder. This Agreement shall be fully effective
as to any Grantor that is or becomes a party hereto regardless
22
<PAGE> 23
of whether any other Person becomes or fails to become or ceases to be a Grantor
hereunder. Each Guarantor shall from time to time cause any present or future
wholly owned Material Subsidiary, within 30 days after any such Person becomes a
Material Subsidiary, that is not a Grantor to join this Agreement as a Grantor
pursuant to a joinder agreement in form and substance satisfactory to the Lender
unless such Subsidiary is a Subsidiary organized under the laws of a
jurisdiction outside of the United States and under applicable foreign law such
Subsidiary is not permitted to guarantee the Credit Obligations. Each Grantor
will, promptly upon the request of Lender from time to time, execute,
acknowledge and deliver, and file and record, all such instruments, and take all
such action, as Lender deems necessary or advisable to carry out the intent and
purposes of this Section 24.
SECTION 25. COUNTERPARTS; EFFECTIVENESS. This Agreement and any
amendments, waivers, consents, or supplements may be executed in any number of
counterparts, and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto and written or telephonic notification of such
execution and authorization of delivery thereof has been received by Lender.
IN WITNESS WHEREOF, each Grantor has caused this Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
SPELLING ENTERTAINMENT GROUP INC.
By: /s/ Thomas P Carson
--------------------------------
Title: Executive Vice President
-----------------------------
Address: 5700 Wilshire Boulevard
Los Angeles, California 90036
SPELLING ENTERTAINMENT INC.
By: /S/ Thomas P. Carson
--------------------------------
Title: Executive Vice President
-----------------------------
Address: 5700 Wilshire Boulevard
Los Angeles, California 90036
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
23
<PAGE> 24
(Signatures continued from previous page)
AARON SPELLING PRODUCTIONS, INC.
SPELLING FILMS INTERNATIONAL, INC.
SPELLING TELEVISION INC.
TORAND PRODUCTIONS INC.
WORLDVISION ENTERPRISES, INC.
LAUREL ENTERTAINMENT, INC.
HAMILTON PROJECTS, INC.
LAUREL TV, INC.
LAUREL-KING, INC.,
LAUREL PICTURES INC.
REPUBLIC ENTERTAINMENT INC.
REPIX, INC.
REPUBLIC DISTRIBUTION CORPORATION
REPUBLIC PICTURES ENTERTAINMENT INC.
REPUBLIC PICTURES TELEVISION
BY: REPUBLIC PICTURES
ENTERTAINMENT INC.
ITS: GENERAL PARTNER
VIRGIN INTERACTIVE ENTERTAINMENT, INC.
By: /s/ Thomas P. Carson
--------------------------------------
As an authorized officer of each of the
foregoing corporations
Address: 5700 Wilshire Boulevard
Los Angeles, California 90036
ACCEPTED AND AGREED TO:
VIACOM INC.
as Lender
By:
------------------------------------
Title:
---------------------------------
24
<PAGE> 1
EXHIBIT 4.3 (Part 1)
AMENDED AND RESTATED
COPYRIGHT
MORTGAGE AND ASSIGNMENT;
POWER OF ATTORNEY
This AMENDED AND RESTATED COPYRIGHT MORTGAGE AND ASSIGNMENT;
POWER OF ATTORNEY is entered into as of January 31, 1995, by SPELLING
ENTERTAINMENT GROUP INC. ("SEGI"), SPELLING ENTERTAINMENT INC. ("SEI"), AARON
SPELLING PRODUCTIONS, INC. ("ASP"), SPELLING FILMS INTERNATIONAL, INC. ("SFI"),
SPELLING TELEVISION INC. ("STI"), TORAND PRODUCTIONS INC. ("TPI"), WORLDVISION
ENTERPRISES, INC. ("WORLDVISION"), LAUREL ENTERTAINMENT, INC. ("LAUREL"),
HAMILTON PROJECTS, INC. ("HAMILTON"), LAUREL TV, INC. ("LTV"), LAUREL-KING,
INC. ("LKI"), LAUREL PICTURES INC. ("LPI"), REPUBLIC ENTERTAINMENT INC.
("RPI"), REPIX, INC. ("RI"), REPUBLIC DISTRIBUTION CORPORATION ("RDC"),
REPUBLIC PICTURES ENTERTAINMENT INC. ("RPEI") REPUBLIC PICTURES TELEVISION
("RPT") and VIRGIN INTERACTIVE ENTERTAINMENT, INC. ("VIE") and the other
subsidiaries of SEGI that are parties hereto (each a "GRANTOR" and
collectively, "GRANTORS") in favor of and for the benefit of VIACOM INC.
("Lender").
RECITALS
1. SEGI, SEI, ASP, SFI, STI, TPI, Worldvision, Laurel,
Hamilton, LTV, LKI, LEI LPI, RPI, RI, RDC, RPEI, RPT and VIE (individually a
"BORROWER" and collectively the "BORROWERS") and Lender have entered into an
Amended and Restated Credit Agreement dated as of January 31, 1995, (said
Amended and Restated Credit Agreement, as it may hereafter be amended,
supplemented or otherwise modified from time to time, being the "Amended and
Restated Credit Agreement"; capitalized terms used herein without definition
shall have the meanings assigned those terms in the Amended and Restated Credit
Agreement).
2. Grantors have executed and delivered an Amended and
Restated Guaranty dated as of January 31, 1995 (said Amended and Restated
Guaranty, as it may hereafter be amended, supplemented or modified from time to
time, being the "AMENDED AND RESTATED GUARANTY") in favor of Lender, pursuant
to which, inter alia, the Grantors have guaranteed the Guaranteed Obligations
(as that term is defined in the Amended and Restated Guaranty).
3. Lender and Grantors have entered into an Amended and
Restated Pledge and Security Agreement dated as of January 31, 1995 (said
Amended and Restated Pledge and Security Agreement, as it may hereafter be
amended, supplemented or modified from time to time, being the "AMENDED AND
RESTATED PLEDGE AND SECURITY AGREEMENT") pursuant to which, inter alia, the
Grantors have mortgaged, pledged, assigned and granted to Lender a continuing
security interest in all of the Grantors' rights, titles and interests (but
none of the Grantors' obligations or liabilities with respect to) in and to the
Collateral in order to secure the payment and performance of the Secured
Obligations (as the terms "Collateral" and "Secured Obligations" are defined in
the Amended and Restated Pledge and Security Agreement).
1
<PAGE> 2
NOW, THEREFORE, KNOW ALL PEOPLE BY THESE PRESENTS that for
good and valuable consideration, receipt of which is hereby acknowledged, the
undersigned Grantors do hereby mortgage, assign, grant, convey and transfer for
security to Lender and Lender's successors and assigns, throughout the world,
in perpetuity, all of Grantors' rights, titles and interests of every kind and
nature, without limitation, (but none of Grantors' obligations or liabilities)
in and to (a) all of the copyrights, rights, titles and interests of every kind
and nature without limitation in and to copyrights and works protectable by
copyright, which are presently, or in the future may be, owned, created,
authored (as a work for hire or otherwise), acquired or used (whether pursuant
to a license or otherwise) by Grantors, in whole or in part, and all common law
and other rights and interests in copyrights throughout the world, including
all copyright licenses (the "COPYRIGHT RIGHTS") with respect thereto and all
registrations therefor, heretofore or hereafter granted or applied for, and all
renewals and extensions thereof, throughout the world, including all proceeds
thereof (such as, by way of example and not by limitation, license royalties
and proceeds of infringement suits), the right (but not the obligation) to
renew and extend such copyrights, registrations and Copyright Rights and to
register works protectable by copyright, including, without limitation: (i) all
of Grantors' rights, titles and interests, to the extent that they now have or
hereafter acquire the same, in and to the works listed on SCHEDULE 1 attached
hereto, as the same may be amended from time to time (the "WORKS"); (ii) all of
Grantors' rights, titles and interests, to the extent that they now have or
hereafter acquire the same, in and to all renewals and extensions of the
copyrights in and to the Works that may be secured under the law now or
hereafter in force and effect; and (iii) all of Grantors' rights, titles and
interests, to the extent that they have the same, to make and exploit
derivative works based on or adopted from the Works (the "DERIVATIVE WORKS");
and it being understood and agreed that the foregoing shall include, without
limitation, rights and interests pursuant to licensing or other contracts in
favor of Grantors pertaining to copyrights and works protectable by copyright
presently or in the future owned or used by third parties; (b) all proceeds of
any and all of the foregoing (including, without limitation, license royalties
and proceeds of infringement suits) and, to the extent not otherwise included,
all payments under insurance (whether or not Lender is the loss payee thereof)
or any indemnity, warranty or guaranty payable by reason of loss or damage to
or otherwise with respect to the foregoing; and (c) to the extent not otherwise
included in the foregoing, all of the "COLLATERAL" described on SCHEDULE 2
attached hereto and incorporated herein by this reference.
Grantors agree that if any person, firm or corporation shall
do or perform any acts which the Lender believes to constitute a copyright
infringement of the Works or any Derivative Works, or constitute a plagiarism,
or violate or infringe any rights of Grantors or the Lender therein or if any
person, firm or corporation shall do or perform any acts which the Lender
believes to constitute an unauthorized or unlawful distribution, exhibition, or
use thereof, then and in any such event, the Lender may and shall have the
right (but not the obligation) to take such steps and institute such suits or
proceedings as the Lender may deem advisable or necessary to prevent such acts
and conduct and to secure damages and other relief by reason thereof, and to
generally take such steps as may be advisable or necessary or proper for the
full protection of the rights of the parties. The Lender may take such steps or
institute such suits or proceedings in its own name or in the name of Grantors,
or any of them, or in the names of the parties jointly. Without limiting the
generality of the foregoing, the aforesaid conveyance and assignment for
security includes all prior choses-in-action, at law, in equity and otherwise,
the right to recover all damages and other sums, and the right to other relief
allowed or awarded
2
<PAGE> 3
at law, in equity, by statute or otherwise.
Effective upon occurrence, and during the continuance, of an
Event of Default (as defined in the Amended and Restated Credit Agreement), the
Grantors hereby irrevocably constitute and appoint the Lender their lawful
attorney-in-fact to do all acts and things permitted or contemplated by the
terms hereof and the Amended and Restated Credit Agreement, the Amended and
Restated Guaranty, the Amended and Restated Pledge and Security Agreement and
the other Credit Documents and this Copyright Mortgage and Assignment is
expressly made subject to the terms and conditions contained in said documents
which are incorporated herein by reference as if set forth in full.
This Amended and Restated Copyright Mortgage and Assignment
shall be governed by and construed in accordance with the internal laws of the
State of New York and the United States without regard to the conflicts or
choice of law provisions thereof.
Dated as of January 31, 1995.
GRANTORS:
SPELLING ENTERTAINMENT GROUP INC.
By: /s/ Thomas P. Carson
---------------------------------
Title: Executive Vice President
------------------------------
SPELLING ENTERTAINMENT INC.
By: /s/ Thomas P. Carson
---------------------------------
Title: Executive Vice President
------------------------------
[Remainder of page intentionally left blank]
[Additional signature page to follow]
3
<PAGE> 4
[Signatures continued from previous page]
AARON SPELLING PRODUCTIONS, INC.
SPELLING FILMS INTERNATIONAL, INC.
SPELLING TELEVISION INC.
TORAND PRODUCTIONS INC.
WORLDVISION ENTERPRISES, INC.
LAUREL ENTERTAINMENT, INC.
HAMILTON PROJECTS, INC.
LAUREL TV, INC.
LAUREL-KING, INC.,
LAUREL PICTURES INC.
REPUBLIC ENTERTAINMENT INC.
REPIX, INC.
REPUBLIC DISTRIBUTION CORPORATION
REPUBLIC PICTURES ENTERTAINMENT INC.
REPUBLIC PICTURES TELEVISION
BY: REPUBLIC PICTURES
ENTERTAINMENT INC.
ITS: GENERAL PARTNER
VIRGIN INTERACTIVE ENTERTAINMENT, INC.
By: /s/ Thomas P. Carson
-----------------------------------
As an authorized officer of each of the
foregoing corporations
ACCEPTED AND AGREED TO:
VIACOM INC.
as Lender
By:
-------------------------------
Title:
----------------------------
4
<PAGE> 5
EXHIBIT 4.3 (Part 2)
SCHEDULE 2
The "COLLATERAL" shall mean all of each Grantor's right, title
and interest in and to (but none of its obligations or liabilities with respect
to) all of its personal property including, without limitation, the items and
type of present and future property of such Grantor described in Sections (A)
through (O) (subject, however, to Section (P)), whether now or hereafter
existing or in which any Grantor now has or hereafter acquires an interest and
wherever the same may be located including, without limitation, the following:
(A) Rights to Payment of Money. All rights to receive
the payment of money, including accounts (as defined in the UCC), receivables,
rights to receive the payment of money under contracts, franchises, licenses,
permits, subscriptions or other agreements (whether or not earned by
performance), and rights to receive payments from any other source;
(B) Chattel Paper. All writings which evidence both a
monetary obligation and a security interest in or lease of specific goods; when
a transaction is evidenced both by a security agreement or a lease and by an
instrument (as described in Section (F) below) or series of such instruments,
the group of writings taken together constitutes chattel paper;
(C) Documents. All documents of title, including any
bill of lading, dock warrant, dock receipt, laboratory pledgeholder agreement,
laboratory access agreement, warehouse receipt or order for the delivery of
inventory, and also any other document or receipt which in the regular course
of business or financing is treated as adequately evidencing that the Person
(as defined in that certain Amended and Restated Credit Agreement dated as of
January 31, 1995 (the "AMENDED AND RESTATED CREDIT AGREEMENT"), among Grantors
and Lender) in possession of it is entitled to receive, hold and dispose of the
document and the goods it covers;
(D) Tangible Personal Property. All goods, machinery,
electrical and electronic components, equipment, computers, computer equipment,
furniture, office machinery, appliances, implements and all other tangible
personal property of every kind and description and used or anticipated to be
used in its businesses wherever located, and all goods of like kind or type
hereafter acquired in substitution or replacement thereof and all additions and
accessions thereto;
(E) General Intangibles. All other personal property
(including things in action) which is not elsewhere described herein. General
intangibles includes, without limitation, all United States and foreign
inventions, processes, formulae, computer software, designs, trade secrets,
rights in proprietary information, licenses, patents, patent rights, patent
applications, copyrights, copyright rights, copyright applications, trademarks,
trademark rights, trademark applications, and all related goodwill, service
marks, service mark rights, service mark applications, and all related
goodwill, trade names, trade name rights, business names, and other like
business property rights, including to the extent such security interest and
the related assignment are permitted by law, all permits, licenses and
entitlements necessary for operation of equipment, and all applications to
acquire any such rights or on file or for which application may at any time be
made in the future, contracts, franchises, licenses, permits, subscriptions and
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<PAGE> 6
other agreements and all rights thereunder, rights granted by others which
permit the Grantor to sell or market items of personal property, documents,
good will, judgments, causes in action and claims, whether or not inchoate, and
all other general intangibles (as defined in the UCC) and intangible property
and all rights thereunder;
(F) Instruments. All drafts, checks, certificates of
deposit, notes, bills of exchange and other writings which evidence a right to
the payment of money and are not themselves security agreements or leases and
are of a type which is in the ordinary course of business transferred by
delivery with any necessary endorsement or assignment;
(G) Inventory. All inventory in all of its forms
including, but not limited to, (1) all goods held by Grantor for sale or lease
or to be furnished under contracts of service or so leased or furnished, (2)
all raw materials, work in process, finished goods, and materials used or
consumed in the manufacture, packing, shipping, advertising, selling, leasing,
furnishing or production of such inventory or otherwise used or consumed in
Grantor's business, (3) all goods in which Grantor has an interest in mass or a
joint or other interest or right of any kind, and (4) all goods which are
returned to or repossessed by Grantor and all accessions thereto and products
thereof (all such inventory, accessions and products being the "INVENTORY");
(H) Fixtures. All plant fixtures, business fixtures and
other fixtures and storage and office facilities, and all accessions thereto
and products thereof;
(I) Pledged Securities. Except as provided for in
Section (P)(4) below, the shares of stock of any present or future Subsidiary
(as defined in the Amended and Restated Credit Agreement) of such Grantor or
any other Person and similar evidences of other securities or investments in
any present or future Subsidiary of such Grantor or any other Person which is a
corporation, and all partnership, joint venture or similar interests in any
present or future Subsidiary of such Grantor or any other Person which is a
partnership or joint venture, and all Indebtedness (as defined in the Amended
and Restated Credit Agreement) from time to time owing to such Grantor by any
present or future Subsidiary of such Grantor or any other Person (collectively,
the "PLEDGED SECURITIES") certificates representing such Pledged Securities or
other evidences of ownership of such Pledged Securities, including, without
limitation, investments and Indebtedness, and all cash, securities, dividends
and other property at any time and from time to time received, receivable or
otherwise distributed in respect of or in exchange or substitution for any or
all of said Pledged Securities.
(J) Film Collateral. All of the following to the extent
not included in any other Section of this Exhibit A: without limiting the
generality of Sections (A) through (I), the Collateral shall include all of the
right, title and interest of any kind or nature whatsoever of any Grantor in
and to (but none of Grantor's obligations or liabilities with respect to) all
items of Product (as used herein the term "PRODUCT" means any feature or
non-feature motion picture, whether produced for theatrical, non-theatrical or
television release or for release in any other medium, and any film, videotape,
cassette, cartridge, disk or on or by any other means, method, process or
device whether now known or hereafter developed, which any Grantor or any
Subsidiary of any Grantor has produced or is to produce or with respect to
which any Grantor or any Subsidiary of any Grantor has or acquires or is to
acquire all or part of the theatrical, videotape, cassette, disc, television or
other distribution rights)) and Product Rights (as used
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<PAGE> 7
herein the term "PRODUCT RIGHTS" means (a) any rights, whether arising under
written contracts or otherwise, to sell, produce, distribute, subdistribute,
exhibit, lease, sublease, license, sublicense or otherwise exploit Product,
including rights under so-called "pick up" arrangements and other contracts and
agreements relating to the acquisition of Product or any interest therein in any
market, including the theatrical, non-theatrical, stage, television (including
broadcast, cable and pay television) and home markets, whether by film,
videotape, cassette cartridge, disc or by any other means, method, process or
device now known or hereafter developed, (b) any rights to sell trailer and
advertising accessories relating to Product, (c) any sequel, series, serial,
re-issue or re-make rights relating to Product, and (d) any rights to exploit
any element or component of Product or any ancillary rights relating to Product,
including merchandising and character rights, stage rights, sound track
recording rights and music publishing rights relating to any music embodied in
or written for Product, including the right to grant; licenses to print, perform
or mechanically reproduce such music) and all goods, tangible property and
intangible property related to such items of Product and Product Rights, whether
now owned or in existence or hereafter made, acquired or created (collectively,
the "FILM COLLATERAL"), including, without limitation, the following:
(1) All rights of every kind and nature (including,
without limitation, copyrights) in and to any literary, trademark,
service mark, literary property right, personal right, musical,
dramatic or other literary material of any kind or nature upon which,
in whole or in part, any item of Product or Product Rights is or may
be based, or from which it is or may be adapted or inspired or which
may be or has been used or included in any item of Product or Product
Rights including, without limitation, all scripts, scenarios,
screenplays, bibles, stories, treatments, novels, outlines, books,
titles, concepts, manuscripts or other properties or materials of any
kind or nature in whatever state of completion and all drafts,
versions and variations thereof (collectively, the "LITERARY
PROPERTY");
(2) All tangible personal property and physical
properties of every kind or nature of or relating to any item of
Product or Product Rights and all versions thereof, including, without
limitation, all physical properties relating to the development,
production, completion, delivery, exhibition, distribution or other
exploitation of any item of Product or Product Rights, and all
versions thereof or any part thereof, including, without limitation,
the Literary Property, exposed film, developed film, positives,
negatives, prints, answer prints, special effects, preprint materials
(including interpositives, negatives, videotapes, duplicate negatives,
internegatives, color reversals, intermediates, lavenders, fine grain
master prints and matrices, video masters and all other forms of
preprint elements which may be necessary or useful to produce prints
or other copies or additional preprint elements, whether now known or
hereafter devised), sound tracks, recordings, audio and video tapes
and discs of all types and gauges, cutouts, trims, all contracts,
credit lists, music licenses, all promotional materials relating to
any item of Product or Product Rights, including, without limitation,
transparencies, posters, press books, publicity kits, still
photographs and promotional trailers and any and all other physical
properties of every kind and nature relating to any item of Product in
whatever state of completion, and all duplicates, drafts, versions,
variations and copies of each thereof (hereinafter referred to
collectively as the "PHYSICAL PROPERTIES");
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<PAGE> 8
(3) All rights of every kind or nature in and to any and
all music and musical compositions created for, used in or to be used
in connection with any item of Product or Product Rights including,
without limitation, all copyrights therein and all rights to perform,
copy, record, rerecord, produce, publish, reproduce or synchronize any
or all of said music and musical compositions as well as all other
rights to exploit such music including record, sound track recording,
and music publishing rights;
(4) All collateral, allied, ancillary, subsidiary,
publishing and merchandising rights of every kind and nature, without
limitation, derived from, appurtenant to or related to any item of
Product, Product Rights or the Literary Property, including, without
limitation, all production, exploitation, reissue, remake, sequel,
serial or series production rights by use of film, tape or any other
recording devices now known or hereafter devised, whether based upon,
derived from or inspired by any item of Product, Product Rights, the
Literary Property or any part thereof; all rights to use, exploit and
license others to use or exploit any and all novelization, publishing,
merchandising rights and commercial tie-ups arising out of or
connected with or inspired by any item of Product, Product Rights, the
Literary Property, the title or titles of any item of Product, or said
Literary Property, the characters appearing in the item of Product,
Product Rights or said Literary Property and/or the names or
characteristics of said characters, and including further, without
limitation, any and all commercial exploitation in connection with or
related to any item of Product, all remakes or sequels thereof, any
Product Rights and/or said Literary Property;
(5) All rights of every kind or nature, present and
future, in and to all agreements relating to the development,
production, completion, delivery and exploitation of any item of
Product, including, without limitation, all agreements for personal
services, including the services of writers, directors, cast,
producers, special effects personnel, personnel, animators, cameramen
and other creative, artistic and technical staff and agreements for
the use of studio space, equipment, facilities, locations, animation
services, special effects services and laboratory contracts;
(6) All insurance and insurance policies heretofore or
hereafter placed upon any item of Product, Product Rights, the
Physical Properties or the insurable properties thereof and/or any
person or persons engaged in the development, production, completion,
delivery or exploitation of any item of Product or Product Rights and
the proceeds thereof;
(7) All copyrights, rights in copyrights, interests in
copyrights, applications for copyrights, and renewals and extensions
of copyrights, domestic and foreign, heretofore or hereafter obtained
upon any item of Product, Product Rights or the Literary Property or
any part thereof, and the right (but not the obligation) to make
publication thereof for copyright purposes, to register claims under
copyright, and the right (but not the obligation) to renew and extend
such copyrights, and the right (but not the obligation) to sue in the
name of any Grantor or any of its Subsidiaries or in the name of
Lender for past, present and future infringements of copyright;
(8) All rights to produce, acquire, release, sell,
distribute, subdistribute, lease,
4
<PAGE> 9
sublease, market, license, sublicense, exhibit, broadcast, transmit,
reproduce, publicize or otherwise exploit any item of Product, Product
Rights, the Literary Property and any and all rights therein
(including, without limitation, the rights referred to in Section
(J)(4) above) in perpetuity, without limitation, in any manner and in
any media whatsoever throughout the universe, including, without
limitation, by projection, radio, all forms of television (including,
without limitation, free, pay-per-view, pay, toll, cable, sustaining
subscription, sponsored and direct satellite broadcast), in theaters,
non-theatrically, or cassettes, cartridges and discs and by any and all
other scientific, mechanical or electronic means, methods, processes or
devices now known or hereafter conceived, devised or created;
(9) All rights of any Grantor or any of its Subsidiaries,
of any kind or nature, direct or indirect, to acquire, produce,
develop, reacquire, finance, release, sell, distribute, subdistribute,
lease, sublease, market, license, sublicense, exhibit, broadcast,
transmit, reproduce, publicize, or otherwise exploit any item of
Product, Product Rights or any other rights in any item of Product,
including, without limitation, pursuant to agreements entered into by
any Grantor or any of its Subsidiaries, which relate to the ownership,
production, distribution or financing of the item of Product,
including without limitation, (a) all rights of any Grantor or any of
its Subsidiaries to receive moneys due or to become due pursuant to
any such agreement, (b) all rights of any Grantor or any of its
Subsidiaries to receive proceeds of any insurance, indemnity, warranty
or guaranty with respect to any such agreement, (c) claims of any
Grantor or any of its Subsidiaries for damages arising out of or for
breach of or default under any such agreement and (d) all rights of
any Grantor or any of its Subsidiaries to terminate any such
agreement, to perform thereunder and to compel performance and
otherwise exercise any and all rights and remedies thereunder.
(10) Any and all tangible and intangible personal property
including without limitation general intangibles (as defined in the
UCC), not elsewhere included in this definition, constituting or
relating to any item of Product or Product Rights which may arise in
connection with the creation, production, completion, delivery,
financing, ownership, possession or exploitation of any item of
Product or Product Rights;
(11) The pledgeholder, laboratory access, or film
warehousing agreements relating to any item of Product or Product
Rights and any and all documents, receipts or books and records,
including, without limitation, documents or receipts of any kind or
nature issued by any pledgeholder, warehouseman or bailee with respect
to any item of Product, Product Rights and any Physical Property
relating thereto;
(12) All contract rights and general intangibles (and all
proceeds and products thereof) relating to the grant or license by any
Grantor or any of its Subsidiaries to any Person of any right to
release, sell, distribute, subdistribute, lease, sublease, market,
license, sublicense, exhibit, broadcast, transmit, reproduce,
publicize, or otherwise exploit any item of Product or Product Rights
or any rights in any item of Product or Product Rights pursuant to any
agreements entered into by any Grantor or any of its Subsidiaries
which relate to the ownership, production, distribution or financing
of any item of Product or Product Rights including, without
limitation, (a) all rights of any
5
<PAGE> 10
Grantor or any of its Subsidiaries to receive moneys due or to become
due pursuant to any such agreement, (b) all rights of any Grantor or
any of its Subsidiaries to receive proceeds of any insurance,
indemnity, warranty or guaranty with respect to any such agreement, (c)
claims of any Grantor or any of its Subsidiaries for damages arising
out of or for breach of or default under any such agreement and (d) the
right of any Grantor or any of its Subsidiaries to terminate any such
agreement, to perform thereunder and to compel performance and
otherwise exercise any and all rights and remedies thereunder
(collectively, the "ASSIGNED AGREEMENTS");
(13) All machines, electrical and electronic components,
equipment, fixtures, trailers, implements and other tangible personal
property of every kind and description now owned or hereafter acquired
by any Grantor or any of its Subsidiaries (including, without
limitation, all wardrobe, props, mikes, scenery, sound stages,
movable, permanent or vehicular dressing rooms, sets, lighting
equipment, cameras and other photographic, sound recording and editing
equipment, projectors, film developing equipment and machinery), and
all goods of like kind or type hereafter acquired by any Grantor or
any of its Subsidiaries in substitution or replacement thereof, and
all additions and accessions thereto relating to the production or
exploitation of items of Product and/or Product Rights; and
(14) The following personal property, whether now owned or
hereafter acquired: (a) the title or titles of any item of Product or
Product Rights and all rights of any Grantor or any of its
Subsidiaries to the exclusive use thereof including rights protected
pursuant to trademark, service mark, unfair competition and/or other
laws, rules or principles of law or equity and (b) all inventions,
processes, formulae, licenses, patents, patent rights, trademarks,
trademark rights, service marks, service mark rights, trade names,
trade name rights, logos, indicia, corporate and company names,
business source or business identifiers and renewals and extensions
thereof, domestic and foreign, whether now owned or hereafter
acquired, and the accompanying goodwill and other like business
property rights relating to any item of Product or Product Rights, and
the right (but not the obligation) to register a claim under trademark
or patent and to renew and extend such trademarks or patents and the
right (but not the obligation) to sue in the name of any Grantor or
any of its Subsidiaries or in the name of Lender for past, present or
future infringement of trademark or patents.
(K) Bank Accounts; Cash and Cash Equivalents.
(1) All deposit and other accounts and any extension or
renewal of such accounts and all certificates and instruments, if any,
from time to time representing or evidencing such accounts opened in
the name of any Grantor with any bank or other financial institution
(collectively, the "BANK ACCOUNTS");
(2) All monies on deposit in any Bank Account, all
account investments relating thereto from time to time and all
certificates and instruments, if any, from time to time representing
or evidencing the account investments;
(3) All notes, commercial paper, certificates of deposit,
bankers' acceptances
6
<PAGE> 11
and other instruments from time to time delivered to or otherwise
possessed by Grantor for or on behalf of any Grantor in addition to or
in substitution for any account investment; and
(4) All interest, dividends, cash, instruments and other
property from time to time received, receivable or otherwise
distributed or distributable in respect of or in exchange for any or
all of the Collateral described in this Section (K).
(L) Books and Records. All books, records, ledger cards, files,
correspondence, computer programs, tapes, disks and related data processing
software that at any time evidence or contain information relating to any of
the Collateral or are otherwise necessary or helpful in the collection thereof
or realization thereupon;
(M) Other General Intangibles. To the extent not included in any
other paragraph of this Exhibit A, all other general intangibles (including,
without limitation, tax refunds, rights to payment or performance, choses in
action and judgments taken on any rights or claims included in the Collateral);
(N) All Other Property. All other property, assets and items of
value of every kind and nature, tangible or intangible, absolute or contingent,
legal or equitable;
(O) Proceeds and Products. All proceeds, products, rents and
profits of or from any and all of the foregoing Collateral and, to the extent
not otherwise included, all payments under insurance (whether or not Lender is
the loss payee thereof), or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing
Collateral. For purposes hereof, the term "PROCEEDS" includes whatever is
receivable or received when Collateral or proceeds are sold, exchanged,
collected or otherwise disposed of, whether such disposition is voluntary or
involuntary;
(P) Excluded Property. Notwithstanding Sections (A) through (O),
the Collateral shall not include:
(1) any rights arising under, and any property, tangible
or intangible, acquired under, any agreement executed by any Grantor
to the extent that such agreement validly prohibits the creation by
any Grantor of a security interest in such rights or property.
(2) any rights or property to the extent that any valid
and enforceable law or regulation applicable to such rights or
property prohibits the creation of a security interest therein.
(3) the items described in Section (Q) (but only to the
extent Lender has not specified that such items be included in the
Collateral pursuant thereto).
(4) capital stock of other companies in the entertainment
industry which are not Affiliates (as defined in the Amended and
Restated Credit Agreement) of any Grantor having a cost to the Grantor
not exceeding $25,000 in the aggregate.
7
<PAGE> 12
(Q) Additional Collateral. As additional Collateral, each Grantor
covenants that it will mortgage, pledge and collaterally grant and assign to
the Lender and will create a security interest in favor of the Lender in, all
of its right, title and interest in and to (but none of its liabilities or
obligations with respect to) such of the following present or future items as
the Lender may from time to time specify by notice to SEGI, whether now owned
or hereafter acquired, and the proceeds and products thereof (except to the
extent consisting of rights or property of the types referred to in Section
(P)), all of which shall thereupon be included in the term "COLLATERAL":
(1) Real Property. All real property and immovable
property and fixtures, leasehold interests and easements wherever
located, together with any and all estates and interests of the
Grantor therein, including lands, buildings, stores, manufacturing
facilities and other structures erected on such property, fixed plant,
fixed equipment and all permits, rights, licenses, benefits and other
interests of any kind or nature whatsoever in respect of such real and
immovable property.
(2) Motor Vehicles and Airplanes. All motor vehicles and
airplanes.
8
<PAGE> 1
Exhibit 10.15
As of September 26, 1994
Peter Bachmann
Spelling Entertainment Group Inc.
5700 Wilshire Boulevard, Suite 575
Los Angeles, CA 90036-3659
Dear Peter:
Spelling Entertainment Group Inc., a Delaware corporation ("Spelling"),
and Peter Bachmann, an individual (the "Employee"), (collectively, the
"Parties") agree to enter into this Employment Agreement ("Agreement") upon the
following terms and conditions:
1. TERM. The term of the Employee's employment hereunder shall commence
on the date hereof and, unless terminated by Spelling or the Employee pursuant
to paragraphs 7, 8 and 9 hereof, shall continue through and until September 30,
1997 (the "Employment Term").
2. DUTIES. During the Employment Term, the Employee agrees that his
employment hereunder is on an exclusive basis and that during the Employment
Term, he will not engage in any other business activity that is in conflict
with his duties and obligations hereunder. The Employee will be Executive Vice
President, Office of the President, of Spelling and he will serve as Chief
Business and Legal Affairs Officer. He agrees to perform such duties, and such
other duties reasonable and consistent with such office as may be assigned to
him from time to time. The Employee shall provide such services at Spelling's
headquarters in Los Angeles, California and shall report to the President and
Chief Executive Officer of Spelling ("CEO").
3. COMPENSATION.
(a) SALARY: For all the services rendered by the Employee in any
capacity hereunder, Spelling agrees to pay him the sum of Three Hundred
Seventy-Five Thousand Dollars ($375,000) per annum ("Salary"), payable
in accordance with Spelling's then effective payroll practices. The
Employee's Salary will be increased to Four Hundred Seventy-Five
Thousand Dollars ($475,000) per annum on September 30, 1995 and to Five
Hundred Fifty Thousand Dollars ($550,000) per annum on September 30,
1996 for the remainder of the Employment Term.
(b) SIGNING BONUS: The Employee shall, upon execution of this
Agreement, be entitled to receive a Twenty-Five Thousand Dollar
($25,000) signing bonus.
<PAGE> 2
Peter Bachmann
September 26, 1994
Page 2
(c) INCENTIVE COMPENSATION: In addition to the Employee's
Salary, he shall be entitled to receive incentive compensation for each
of the calendar years during the Employment Term, determined and
payable as follows ("Incentive"):
(i) The Incentive shall be based on a combination of
factors, including Spelling's performance and the
Employee's individual performance, provided that
nothing herein shall require Spelling to pay the
Employee any Incentive.
(ii) The Incentive for each of the calendar years
during the Employment Term shall be up to thirty-
five percent (35%) of the Employee's Salary,
except that the Incentive for the last year of
this Agreement may be pro-rated on the basis of
the actual number of months for which services
are performed during the calendar year. There
shall be no proration for calendar year 1994.
(iii) The Incentive for any calendar year shall be
payable by February 28 of the following year.
(d) OTHER BONUSES: The Employee may be granted other additional
bonuses based on a combination of factors, including Spelling's
performance and the Employee's individual performance, provided that
nothing herein shall require Spelling to pay the Employee any other
bonuses.
(e) STOCK OPTIONS: The Employee is granted the option to
acquire 160,000 shares of Spelling common stock with an exercise price
based on the closing price of said stock at the close of business on
September 1, 1994. Except as otherwise set forth herein, said options
shall vest in accordance with the following schedule: thirty-three and
one-third percent (33 1/3%) vests on September 1, 1995, thirty-three and
one-third percent (33 1/3%) vests on September 1, 1996, and thirty-three
and one-third percent (33 1/3%) vests on September 1, 1997.
Additionally, the Employee may be granted an annual year-end corporate
stock option grant on the same basis as other Spelling executives of
similar status. If Spelling "goes private" pursuant to Rule 13e-3
transaction, any of the Employee's options shall immediately become
exercisable in their entirety one day prior to the closing of the "going
private" transaction.
<PAGE> 3
Peter Bachmann
September 26, 1994
Page 3
4. BENEFITS. The Employee shall be entitled to participate in such
vacation, life and medical insurance, short and long-term disability insurance,
pension and other plans as Spelling may have or establish from time to time on
the same basis as other Spelling executives of similar status. In particular,
the Employee shall be entitled to four (4) weeks paid vacation per year. The
foregoing, however, shall not be construed to require Spelling to establish any
such plans or to prevent the modification or termination of such plans once
established, and no such action or failure thereof shall affect this Agreement.
It is further understood and agreed that all benefits the Employee may be
entitled to as an employee of Spelling shall be based upon his Salary, as set
forth in paragraph 3(a) hereof, and not upon any bonus or incentive compensation
due, payable or paid to him hereunder, except where the benefit plan provides
otherwise.
5. BUSINESS EXPENSES. During the Employment Term, the Employee shall
be reimbursed for reasonable travel and other expenses incurred in the
performance of his duties hereunder as are customarily reimbursed to senior
executives of Spelling. The Employee shall receive a car allowance of One
Thousand Dollars ($1,000) per month.
6. EXCLUSIVE EMPLOYMENT; CONFIDENTIAL INFORMATION.
(a) NON-COMPETITION. Spelling acknowledges that the Employee has a
consulting agreement with Imagine Films Entertainment, Inc. (see attached).
Except for such arrangement, the Employee agrees that his employment hereunder
is on an exclusive basis, and that during the Employment Term, he will not
engage in any other business activity which is in conflict with his duties and
obligations hereunder. The Employee agrees that for the Employment Term, except
as agreed in writing by Spelling's President and Chief Executive Officer, he
shall not become financially interested in, or associated with, directly or
indirectly, any other individual, partnership, corporation or other entity in
connection with the production, distribution or exhibitions of motion pictures,
television programs, sound recordings, theatrical plays, any visual and/or audio
recordings of any kind in the broadcasting and/or music publishing businesses,
or any other entertainment business entity or activity; provided, however, that
nothing herein shall prevent him from investing as less than a one percent (1%)
shareholder without limit in the securities of any company listed on a national
securities exchange or quoted on an automated quotation system. Notwithstanding
anything to the contrary in this Agreement, the Employee's obligations under
this paragraph shall remain in full force and effect for the entire period
provided herein, unless his employment or this Agreement is terminated by
Spelling for any reason other than "cause" or by the Employee for "Good
<PAGE> 4
Peter Bachmann
September 26, 1994
Page 4
Reason" prior to the end of the Employment Term.
(b) CONFIDENTIAL INFORMATION. The Employee recognizes and
agrees that access to and knowledge of Spelling's and Viacom Inc.'s (including
its subsidiaries and affiliates) ("Viacom") trade secrets and other
confidential information, which are valuable and unique assets of their
businesses, is essential to the performance of his duties hereunder.
Accordingly, the Employee agrees that he shall not, during the Employment Term
or at any time thereafter, disclose any confidential information to or for the
benefit of any third party for any purpose whatsoever (except as may be
required by law or in the performance of his duties hereunder) nor make use of
any of the same for his own purposes. Confidential information includes, but is
not limited to, information obtained as a result of the Employee's employment
by Spelling regarding the businesses of Spelling and Viacom, and their
respective customers, vendors, policies, products, services, designs, systems,
business plans, agreements, marketing strategies, pricing and costs, but does
not include information which is or becomes available or known to the general
public other than as a result of disclosure by him.
(c) NO-SOLICITATION. The Employee agrees that for the
Employment Term, and for one (1) year thereafter, he shall not, directly or
indirectly:
(i) engage, employ, or solicit the employment of any
person who is then an employee of Spelling; or
(ii) solicit or accept, on behalf of any person or
entity competing with Spelling, the business of
any person or entity which is then, or has been at
any time during the preceding one (1) year, a
customer or client of Spelling, on any basis which
would restrict or prevent the customer or client
from conducting business with Spelling.
(d) WORK-MADE-FOR-HIRE. For all purposes, including but not
limited to copyright, patent and all other intellectual property right
purposes, all of the results and proceeds of his services during his employment
with Spelling shall be works-made-for-hire. Spelling shall be deemed the sole
owner thereof, with the right to use the same in any manner Spelling determines
in its sole discretion without any further payment to him. If, for any reason,
any of such results and proceeds shall not legally constitute
works-made-for-hire, then the Employee hereby assigns all of his rights, title
and interest thereto, including but not limited
<PAGE> 5
Peter Bachmann
September 26, 1994
Page 5
To the Copyright, patent and all other intellectual property rights
therein, to Spelling, and Spelling shall have the right to use such
results and proceeds in any manner it determines in its sole discretion
without any further payment to him whatsoever.
(e) LITIGATION. The Employee hereby agrees not to communicate
with anyone other than his own counsel, family members, and accountants
with respect to the facts or subject matter of any pending or potential
litigation in any way related to Spelling without the approval of
Spelling's counsel, except as may be required by law or required pursuant
to the Employee's performance of his duties. In the event that any other
party attempts to interview him with respect to matters possibly related
to such litigation, whether during the Employment Term or at any time
thereafter, he shall promptly so notify Spelling's, General Counsel.
(f) NO RIGHT TO GIVE INTERVIEWS OR WRITE BOOKS, ARTICLES, ETC.
During the Employment Term, except as is required in the performance of
the Employee's duties provided for herein or except as authorized by
Spelling's Chief Executive Officer, the Employee shall not give any
interviews or speeches concerning Spelling in relation to any matter
occurring after the date of this Agreement, nor shall he, directly or
indirectly, prepare or assist any person or entity in the preparation of
any books, articles, television or motion picture productions or other
creations concerning Spelling, including, without limitation, any
material concerning any person, whether or not fictional, whom any member
of the public might associate with Spelling (regardless of whether or not
there shall appear any disclaimer purporting to disassociate such
fictious person from Spelling).
(g) RETURN OF PROPERTY. All documents, data, recordings, or
other property, whether tangible or intangible, including all
information stored in electronic form, utilized by the Employee in the
course of his employment with Spelling shall remain the property of
Spelling, provided that the Employee has a right to receive the
originals of all personal documents and copies of all other documents.
(h) INJUNCTIVE RELIEF. Spelling has entered into this Agreement
in order to obtain the benefit of the Employee's unique skills, talent,
and experience. Any violation of paragraphs 6(a) through (g) hereof will
result in irreparable damage to Spelling, and Spelling may seek to obtain
injunctive and other equitable relief for any breach or threatened
breach of such paragraphs, in addition to any other
<PAGE> 6
Peter Bachmann
September 26, 1994
Page 6
remedies available to Spelling.
(i) SURVIVAL: MODIFICATION OF TERMS. The Employee's obligations
under paragraphs 6(a) through (g) hereof shall remain in full force
and effect for the entire period provided therein notwithstanding the
termination of the Employment Term pursuant to paragraph 8 hereof or
otherwise, except as provided in paragraph 6(a). The restrictions and
remedies contained in paragraphs 6(a) through (h) are reasonable and
it is the Employee's intention and the intention of Spelling that such
restrictions and remedies shall be enforced to the fullest extent
permissible by law. If it shall be found by a court of competent
jurisdiction that any such restriction or remedy is unenforceable but
would be enforceable if some part thereof were deleted or the period
or area of application reduced, then such restriction or remedy shall
apply with such modification as shall be necessary to make it
enforceable.
7. DISABILITY. For purposes of this Section 7, "materially disabled"
shall mean any instance where the Employee is unable to render all material
services as contemplated hereby for any period of more than three (3)
continuous months or four (4) months in the aggregate during any twelve (12)
month period. At any time that the Employee becomes materially disabled during
the Employment Term, Spelling may terminate this Agreement by delivery of
written notice to the Employee, and both the Employee and Spelling shall be
released and discharged from all further obligations provided for in this
Agreement except for obligations delineated under Section 6 of this Agreement.
8. TERMINATION.
(a) Spelling may, at its option, terminate this Agreement
forthwith for "cause". For purposes of this Agreement, termination of
this Agreement for "cause" shall mean termination for dishonesty in the
Employee's relations with Spelling, conviction of a felony, or willful
unauthorized disclosure of confidential information (as defined in
paragraph 6(b) hereof), that causes a material injury to Spelling, or
if he at any time otherwise materially breaches this Agreement, or at
any time fails, neglects or refuses to substantially perform his
obligations hereunder as set forth in paragraph 2 hereof. Anything
herein to the contrary notwithstanding, Spelling will give the
Employee written notice prior to terminating this Agreement for
his material breach or his failure, neglect or refusal to
substantially perform his obligations hereunder setting forth the
exact nature of any alleged breach and the conduct required to cure
such breach. The Employee shall have thirty (30) days from the giving
of such notice within which
<PAGE> 7
Peter Bachmann
September 26, 1994
Page 7
to cure and within which period Spelling cannot terminate this Agreement
for the stated reasons.
(b) The Employee may terminate his employment hereunder for
"Good Reason" at any time during the Employment Term by written notice
to Spelling not more than thirty (30) days after the occurrence of the
event constituting "Good Reason". Good Reason shall mean, without the
Employee's prior written consent, other than in connection with the
termination of his employment for "cause" (as defined above) or in
connection with his permanent disability, the assignment to him by
Spelling of duties inconsistent with his positions, duties,
responsibilities, titles or offices, the withdrawal of any of his
material responsibilities set forth in paragraph 2, or the material
breach by Spelling of any of its material obligations hereunder, or a
reduction in salary or a reduction in benefits (other than in connection
with a reduction in benefits applicable to all executives of a
comparable level) or the Employee's relocation to offices more than 75
miles from his present location.
(c) In the event that the Employee terminates his employment
for "Good Reason" or Spelling terminates his employment without "cause"
(as defined above), he shall be entitled to receive, subject to
applicable withholding taxes:
(i) his Salary as provided in paragraph 3(a) until the end of the
Employment Term, payable monthly;
(ii) his Incentive calculated as set forth in paragraph 3(c)
until the end of the Employment Term, payable at such time as
such Incentive would have been paid pursuant to paragraph 3(c);
(iii) continued vesting of those granted stock options
throughout the Employment Term; provided, however, that he shall
be required to mitigate the amount of any payment provided for
in (i) and (ii) of this paragraph 8 (c) by seeking other
comparable employment, and the amount of any such payment
provided for hereunder shall be reduced by any compensation
earned by him from any such employment, except that no
mitigation and no reduction in payments shall be required for 18
months after termination of his employment under this paragraph.
The payments provided
<PAGE> 8
Peter Bachmann
September 26, 1994
Page 8
for in (i) above are in lieu of any severance. To the
extent not prohibited by applicable law, the Employee
may elect to continue his medical and dental insurance
coverage after the termination of his employment until
the end of the Employment Term, or, if later, the end of
the period required by law. Spelling will pay the
applicable COBRA premiums (or such other amounts as may
be required by applicable law) for such coverage until
the end of the Employment Term (which amount will be
included in his income for tax purposes to the extent
required by applicable law). Spelling shall also provide
the Employee with life insurance coverage until the end
of the Employment Term at the same level he was
receiving immediately prior to termination, except that
the amount of Salary covered by such insurance shall be
reduced by the amount of any salary payable to the
Employee by a third party.
9. DEATH. If the Employee dies prior to the end of the
Employment Term, his beneficiary or estate shall be entitled to receive
his Salary up to the last day of the month in which the death occurs and
an Incentive calculated by multiplying the amount he would have received
pursuant to subparagraph 3(c) hereunder had he been employed for the
entire calendar year by a fraction, the numerator of which is the number
of days elapsed in such calendar year up to the date of death and the
denominator of which is 365, payable at such time as the Incentive would
have been paid. His estate shall also be entitled to exercise all stock
options consistent with the terms and conditions of Spelling's Stock
Option Plan.
10. INDEMNIFICATION. The Employer shall indemnify, defend and
hold harmless the Employee for any claims, losses or damages (including
reasonable attorney's fees) resulting from the Employee's carrying out
of the duties provided herein, except that Spelling shall not be
required to indemnify, defend, or hold the Employee harmless for claims,
losses and damages resulting from the Employee's gross negligence or
malfeasance.
11. NOTICES. All notices required to be given hereunder shall
be given in writing, by personal delivery or by mail at the respective
addresses of the Parties hereto set forth above, or at such other
address as may be designated in writing by either party, and in the case
of Spelling, to the attention of: Steven R. Berrard, President and Chief
Executive Officer, Spelling Entertainment Group Inc., One Blockbuster
Plaza, Fort Lauderdale, Florida 33301. Any notice given by mail shall be
deemed to have been
<PAGE> 9
Peter Bachmann
September 26, 1994
Page 9
given three days following such mailing.
12. ASSIGNMENT. This is an Agreement for the performance of personal
services by the Employee and may not be assigned by the Employee or Spelling,
except that Spelling may assign this Agreement to any affiliate or subsidiary
of, or any successor in, interest to Spelling. Notwithstanding the foregoing,
no such Assignment shall affect the Employee's duties and responsibilities
provided for herein.
13. CALIFORNIA LAW. ETC. This Agreement and all matters or issues
collateral thereto shall be governed by the laws of the State of California
applicable to contracts entered into and performed entirely therein. Any action
to enforce this Agreement shall be brought exclusively in California. In any
action to enforce this Agreement, the Employee shall accept service of process
by mail at his address as set forth herein (or at any different address of
which he has notified Spelling in writing). In any action in which service is
made pursuant to this paragraph, the Employee waives any challenge to the
personal jurisdiction of the Court.
14. VOID PROVISIONS. If any provision of this Agreement, as applied to
either of the Parties or to any circumstances, shall be adjudged by a court to
be void or unenforceable, the same shall be deemed sticken from this Agreement
and shall in no way affect any other provision of this Agreement or the
validity or enforceability of this Agreement.
15. NOTICE/NON-RENEWAL. Spelling will give the Employee at least three
(3) months written notice (or if no such notice is given, Salary in lieu
thereof) if Spelling determines not to renew this Agreement upon the expiration
of the Employment Term. Upon the expiration of the Employment Term, Spelling
will provide the Employee, in addition to any other payments he may otherwise
be entitled to under paragraph 8(c) of this Agreement, with "income protection"
for a period of three (3) months. Such "income protection" will consist of
Spelling's continuing payment of his Salary as provided in paragraph 3(a) and
applicable COBRA premiums for his medical and dental insurance coverage. The
Employee shall be required to mitigate the amount of any payments pursuant to
this "income protection" provision by seeking other comparable employment.
16. This Agreement constitutes the entire agreement between the
Employee and Spelling and supersedes all prior agreements and undertakings,
both written and oral, between the Employee and Spelling with respect to the
subject matter hereof.
<PAGE> 10
Peter Bachmann
September 26, 1994
Page 10
If the foregoing correctly sets forth our understanding, please sign
one copy of this letter and return it to the undersigned whereupon this letter
shall constitute a binding agreement between the Parties.
Very truly yours,
SPELLING ENTERTAINMENT GROUP INC.
By: /s/ STEVEN R. BERRARD
-----------------------------
Steven R. Berrard
President and
Chief Executive Officer
ACCEPTED AND AGREED:
/s/ PETER BACHMANN
----------------------------
Peter Bachmann
<PAGE> 1
Exhibit 10.16
As of September 1, 1994
Tom Carson
Spelling Entertainment Group Inc.
5700 Wilshire Boulevard, Suite 575
Los Angeles, CA 90036-3659
Dear Tom:
Spelling Entertainment Group Inc., a Delaware corporation ("Spelling"),
and Tom Carson, an individual (the "Employee"), (collectively, the "Parties")
agree to enter into this Employment Agreement ("Agreement") upon the following
terms and conditions:
1. TERM. The term of the Employee's employment hereunder shall commence
on the date hereof and, unless terminated by Spelling or the Employee pursuant
to paragraphs 7, 8 and 9 hereof, shall continue through and until September 30,
1997 (the "Employment Term").
2. DUTIES. During the Employment Term, the Employee will serve as
Executive Vice President, Office of the President of Spelling; additionally, he
will serve as Chief Financial Officer and Treasurer of Spelling. The Employee's
duties shall be commensurate with such titles. The Employee's duties as Chief
Financial Officer and Treasurer shall include, without limitation, supervision
of the following areas: accounting, taxes, treasury, management information
services, internal audit, strategic planning, acquisitions, investor relations,
human resources, insurance and administration. Spelling acknowledges that the
Employee has a consulting arrangement with Metro-Goldwyn-Mayer, Inc. through
March 1995, a copy of which has been furnished to Spelling. Except for such
arrangement, the Employee shall furnish his services to Spelling
on-an-exclusive basis. The Employee shall provide such services at Spelling's
headquarters in Los Angeles, California and shall report to the President and
Chief Executive Officer of Spelling ("CEO").
3. COMPENSATION.
(a) SALARY: For all the services rendered by the Employee in
any capacity hereunder, Spelling agrees to pay him the sum of Three
Hundred Seventy-Five Thousand Dollars ($375,000) per annum ("Salary"),
payable in accordance with Spellng's then effective payroll practices.
The Employee's Salary will be increased to Four Hundred Seventy-Five
Thousand Dollars ($475,000) per annum on September 30, 1995 and to Five
Hundred Fifty Thousand Dollars ($550,000) per annum on September 30,
1996 for the remainder of the Employment Term.
<PAGE> 2
Tom Carson
September 1, 1994
Page 2
(b) SIGNING BONUS: The Employee shall, upon execution of this
Agreement, be entitled to receive a Twenty-Five Thousand Dollar
($25,000) signing bonus.
(c) INCENTIVE COMPENSATION: In addition to the Employee's
Salary, he shall be entitled to receive incentive compensation for each
of the calendar years during the Employment Term, determined and payable
as follows ("Incentive"):
(i) The Incentive shall be based on a combination
of factors, including Spelling's performance and
the Employee's individual performance, provided
that nothing herein shall require Spelling to pay
the Employee any Incentive.
(ii) The Incentive for each of the calendar years
during the Employment Term shall be up to
thirty-five percent (35%) of the Employee's
Salary, except that the Incentive for the last
year of this Agreement may be pro-rated on the
basis of the actual number of months for which
services are performed during the calendar year.
There shall be no proration for calendar year
1994.
(iii) The Incentive for any calendar year shall be
payable by February 28 of the following year.
(d) OTHER BONUSES: The Employee may be granted other additional
bonuses based on a combination of factors, including Spelling's
performance and the Employee's individual performance, provided that
nothing herein shall require Spelling to pay the Employee any other
bonuses.
(e) STOCK OPTIONS: The Employee is granted the option to acquire
100,000 shares of Spelling common stock with an exercise price based on
the closing price of said stock at the close of business on September 1,
1994. Except as otherwise set forth herein, said options shall vest in
accordance with the following schedule: thirty-three and one-third
percent (33 1/3%) vests on September 1, 1995, thirty-three and one-third
percent (33 1/3%) vests on September 1, 1996, and thirty-three and
one-third percent (33 1/3%) vests on September 1, 1997. Additionally the
Employee may be granted an annual year-end corporate stock option grant
on the same basis as other Spelling executives of similar status. If
Spelling "goes private" pursuant to Rule 13e-3 transaction, any of the
Employee's options shall immediately become exercisable in their
entirety one day prior to closing of the "going private" transaction.
<PAGE> 3
Tom Carson
September 1, 1994
Page 3
4. BENEFITS. The Employee shall be entitled to participate in such
vacation, life and medical insurance, short and long-term disability insurance,
pension and other plans as Spelling may have or establish from time to time on
the same basis as other Spelling executives of similar status. In particular,
the Employee shall be entitled to four (4) weeks paid vacation per year. The
foregoing, however, shall not be construed to require Spelling to establish any
such plans or to prevent the modification or termination of such plans once
established, and no such action or failure thereof shall affect this Agreement.
It is further understood and agreed that all benefits the Employee may be
entitled to as an employee of Spelling shall be based upon his Salary, as set
forth in paragraph 3(a) hereof, and not upon any bonus or incentive
compensation due, payable or paid to him hereunder, except where the benefit
plan provides otherwise.
5. BUSINESS EXPENSES. During the Employment Term, the Employee shall be
reimbursed for reasonable travel and other expenses incurred in the performance
of his duties hereunder as are customarily reimbursed to senior executives of
Spelling. The Employee shall receive a car allowance of One Thousand Dollars
($1,000) per month.
6. EXCLUSIVE EMPLOYMENT; CONFIDENTIAL INFORMATION
(a) NON-COMPETITION. Spelling acknowledges that the Employee
has a consulting agreement with MGM (see attached). Except for such
arrangement, the Employee agrees that his employment hereunder is on an
exclusive basis, and that during the Employment Term, he will not
engage in any other business activity which is in conflict with his
duties and obligations hereunder. The Employee agrees that for the
Employment Term, except as agreed to in writing by Spelling's
President and Chief Executive Officer, he shall not become financially
interested in, or associated with, directly or indirectly, any other
individual, partnership, corporation or other entity in connection
with the production, distribution or exhibitions of motion pictures,
television programs, sound recordings, theatrical plays, any visual
and/or audio recordings of any kind in the broadcasting and/or music
publishing businesses, or any other entertainment business entity or
activity; provided, however, that nothing herein shall prevent him
from investing as less than a one percent (1%) shareholder without
limit in the securities of any company listed on a national securities
exchange or quoted on an automated quotation system. Notwithstanding
anything to the contrary in this Agreement, the Employee's obligations
under this paragraph shall remain in full force and effect for the
entire period provided herein, unless his employment or this Agreement
is terminated by Spelling for any reason other than "cause" or by the
Employee for "Good Reason" prior to
<PAGE> 4
Tom Carson
September 1, 1994
Page 4
the end of the Employment Term.
(b) CONFIDENTIAL INFORMATION. The Employee recognizes and
agrees that access to and knowledge of Spelling's and Viacom Inc.'s
(including its subsidiaries and affiliates) ("Viacom") trade secrets and
other confidential information, which are valuable and unique assets of
their businesses, is essential to the performance of his duties
hereunder. Accordingly, the Employee agrees that he shall not, during
the Employment Term or at any time thereafter, disclose any confidential
information to or for the benefit of any third party for any purpose
whatsoever (except as may be required by law or in the performance of
his duties hereunder) nor make use of any of the same for his own
purposes. Confidential information includes, but is not limited to,
information obtained as a result of the Employee's employment by Spelling
regarding the businesses of Spelling and Viacom, and their respective
customers, vendors, policies, products, services, designs, systems,
business plans, agreements, marketing strategies, pricing and costs, but
does not include information which is or becomes available or known to
the general public other than as a result of disclosure by him.
(c) NO-SOLICITATION. The Employee agrees that for the
Employment Term, and for one (1) year thereafter, he shall not, directly
or indirectly:
(i) engage, employ, or solicit the employment of any person who
is then an employee of Spelling; or
(ii) solicit or accept, on behalf of any person or entity
competing with Spelling, the business of any person or entity
which is then, or has been at any time during the preceding
one (1) year, a customer or client of Spelling, on any basis
which would restrict or prevent the customer or client from
conducting business with Spelling.
(d) WORK-MADE-FOR-HIRE. For all purposes, including but not
limited to copyright, patent and all other intellectual property right
purposes, all of the results and proceeds of his services during his
employment with Spelling shall be works-made-for-hire. Spelling shall be
deemed the sole owner thereof, with the right to use the same in any
manner Spelling determines in its sole discretion without any further
payment to him. If, for any reason, any of such results and proceeds
shall not legally constitute works-made-for-hire, then the Employee
hereby assigns all of his rights, title and interest thereto, including
but not limited
<PAGE> 5
Tom Carson
September 1, 1994
Page 5
to the copyright, patent and all other intellectual property rights
therein, to Spelling, and Spelling shall have the right to use such
results and proceeds in any manner it determines in its sole discretion
without any further payment to him whatsoever.
(e) LITIGATION. The Employee hereby agrees not to communicate
with anyone other than his own counsel, family members, and accountants
with respect to the facts or subject matter of any pending or potential
litigation in any way related to Spelling without the approval of
Spelling's counsel, except as may be required by law or required
pursuant to the Employee's performance of his duties. In the event that
any other party attempts to interview him with respect to matters
possibly related to such litigation, whether during the Employment Term
or at any time thereafter, he shall promptly so notify Spelling's
General Counsel.
(f) NO RIGHT TO GIVE INTERVIEWS OR WRITE BOOKS, ARTICLES, ETC.
During the Employment Term, except as is required in the performance of
the Employee's duties provided for herein or except as authorized by
Spelling's Chief Executive Officer, the Employee shall not give any
interviews or speeches concerning Spelling in relation to any matter
occurring after the date of this Agreement, nor shall he, directly or
indirectly, prepare or assist any person or entity in the preparation of
any books, articles, television or motion picture productions or other
creations concerning Spelling, including, without limitation, any
material concerning any person, whether or not fictional, whom any member
of the public might associate with Spelling (regardless of whether or
not there shall appear any disclaimer purporting to disassociate such
fictitious person from Spelling).
(g) RETURN OF PROPERTY. All documents, data, recordings, or
other property, whether tangible or intangible, including all
information stored in electronic form, utilized by the Employee in the
course of his employment with Spelling shall remain the property of
Spelling, provided that the Employee has a right to receive the
originals of all other documents.
(h) INJUNCTIVE RELIEF. Spelling has entered into this Agreement
in order to obtain the benefit of the Employee's unique skills, talent,
and experience. Any violation of paragraphs 6(a) through (g) hereof will
result in irreparable damage to Spelling, and Spelling may seek to
obtain injunctive and other equitable relief for any breach of such
paragraphs, in addition to any other remedies available to Spelling.
<PAGE> 6
Tom Carson
September 1, 1994
Page 6
(i) SURVIVAL: MODIFICATION OF TERMS. The Employee's obligations under
paragraphs 6(a) through (g) hereof shall remain in full force and effect
for the entire period provided therein notwithstanding the termination
of the Employment Term pursuant to paragraph 8 hereof or otherwise,
except as provided in paragraph 6(a). The restrictions and remedies
contained in paragraphs 6(a) through (h) are reasonable and it is the
Employee's intention and the intention of Spelling that such
restrictions and remedies shall be enforced to the fullest extent
permissible by law. If it shall be found by a court of competent
jurisdiction that any such restriction or remedy is unenforceable but
would be enforceable if some part thereof were deleted or the period or
area of application reduced, then such restriction or remedy shall apply
with such modification as shall be necessary to make it enforceable.
7. DISABILITY. For purposes of this Section 7, "materially disabled"
shall mean any instance where the Employee is unable to render all material
services as contemplated hereby for any period of more than three (3)
continuous months or four (4) months in the aggregate during any twelve (12)
month period. At any time that the Employee becomes materially disabled during
the Employment Term, Spelling may terminate this Agreement by delivery of
written notice to the Employee, and both the Employee and Spelling shall be
released and discharged from all further obligations provided for in this
Agreement except for obligations delineated under Section 6 of this Agreement.
8. TERMINATION
(a) Spelling may, at its option, terminate this Agreement forthwith
for "cause". For purposes of this Agreement, termination of this
Agreement for "cause" shall mean termination for dishonesty in the
Employee's relations with Spelling, conviction of a felony, or willful
unauthorized disclosure of confidential information (as defined in
paragraph 6(b) hereof), that causes a material injury to Spelling, or if
he at any time otherwise materially breaches this Agreement, or at any
time fails, neglects or refuses to substantially perform his obligations
hereunder as set forth in paragraph 2 hereof. Anything herein to the
contrary notwithstanding, Spelling will give the Employee written notice
prior to terminating this Agreement for his material breach or his
failure, neglect or refusal to substantially perform his obligations
hereunder setting forth the exact nature of any alleged breach and the
conduct required to cure such breach. The Employee shall have thirty
(30) days from the giving of such notice within which to cure and within
which period Spelling cannot terminate this Agreement for the stated
reasons.
<PAGE> 7
Tom Carson
September 1, 1994
Page 7
(b) The Employee may terminate his employment hereunder for
"Good Reason" at any time during the Employment Term by written notice
to Spelling not more than thirty (30) days after the occurrence of the
event constituting "Good Reason". Good Reason shall mean, without the
Employee's prior written consent, other than in connection with the
termination of his employment for "cause" (as defined above) or in
connection with his permanent disability, the assignment to him by
Spelling of duties inconsistent with his positions, duties,
responsibilities, titles or offices, the withdrawal of any of his
material responsibilities set forth in paragraph 2, or the material
breach by Spelling of any of its material obligations hereunder, or a
reduction in salary or a reduction in benefits (other than in connection
with a reduction in benefits applicable to all executives of a
comparable level) or the Employee's relocation to offices more than 75
miles from his present location.
(c) In the event that the Employee terminates his employment
for "Good Reason" or Spelling terminates his employment without "cause"
(as defined above), he shall be entitled to receive, subject to
applicable withholding taxes:
(i) his Salary as provided in paragraph 3(a) until the
end of the Employment Term, payable monthly;
(ii) his Incentive calculated as set forth in
paragraph 3(c) until the end of the Employment
Term, payable at such time as such Incentive would
have been paid pursuant to paragraph 3(c);
(iii) continued vesting of those granted stock options
throughout the Employment Term; provided, however,
that he shall be required to mitigate the amount of
any payment provided for in (i) and (ii) of this
paragraph 8 (c) by seeking other comparable
employment, and the amount of any such payment
provided for hereunder shall be reduced by any
compensation earned by him from any such
employment, except that no mitigation and no
reduction in payments shall be required for 18
months after termination of his employment under
this paragraph. The payments provided for in (i)
above are in lieu of any severance. To the extent
not prohibited by applicable law, the Employee may
elect to continue his medical and dental insurance
coverage after
<PAGE> 8
Tom Carson
September 1, 1994
Page 8
the termination of his employment until the end of
the Employment Term, or, if later, the end of the
period required by law. Spelling will pay the
applicable COBRA premiums (or such other amounts
as may be required by applicable law) for such
coverage until the end of the Employment Term
(which amount will be included in his income for
tax purposes to the extent required by applicable
law). Spelling shall also provide the Employee
with life insurance coverage until the end of the
Employment Term at the same level he was receiving
immediately prior to termination, except that the
amount of Salary covered by such insurance shall
be reduced by the amount of any salary payable to
the Employee by a third party.
9. DEATH. If the Employee dies prior to the end of the Employment Term,
his beneficiary or estate shall be entitled to receive his Salary up to the
last day of the month in which the death occurs and an Incentive calculated by
multiplying the amount he would have received pursuant to subparagraph 3(c)
hereunder had he been employed for the entire calendar year by a fraction, the
numerator of which is the number of days elapsed in such calendar year up to
the date of death and the denominator of which is 365, payable at such time as
the Incentive would have been paid. His estate shall also be entitled to
exercise all stock options consistent with the terms and conditions of
Spelling's Stock Option Plan.
10. INDEMNIFICATION. The Employer shall indemnify, defend and hold
harmless the Employee for any claims, losses or damages (including reasonable
attorney's fees) resulting from the Employee's carrying out of the duties
provided herein, except that Spelling shall not be required to indemnify,
defend, or hold the Employee harmless for claims, losses and damages resulting
from the Employee's gross negligence or malfeasance.
11. NOTICES. All notices required to be given hereunder shall be given
in writing, by personal delivery or by mail at the respective addresses of the
Parties hereto set forth above, or at such other address as may be designated
in writing by either party, and in the case of Spelling, to the attention of
Steven R. Berrard, President and Chief Executive Officer, Spelling
Entertainment Group Inc., One Blockbuster Plaza, Fort Lauderdale, Florida
33301. Any notice given by mail shall be deemed to have been given three days
following such mailing.
<PAGE> 9
Tom Carson
September 1, 1994
Page 9
12. ASSIGNMENT. This is an Agreement for the performance of personal
services by the Employee and may not be assigned by the Employee or Spelling,
except that Spelling may assign this Agreement to any affiliate or subsidiary
of, or any successor in, interest to Spelling. Notwithstanding the foregoing,
no such Assignment shall affect the Employee's duties and responsibilities
provided for herein.
13. CALIFORNIA LAW. ETC. This Agreement and all matters or issues
collateral thereto shall be governed by the laws of the State of California
applicable to contracts entered into and performed entirely therein. Any action
to enforce this Agreement shall be brought exclusively in California. In any
action to enforce this Agreement, the Employee shall accept service of process
by mail at his address as set forth above (or at any different address of which
he has notified Spelling in writing). In any action in which service is made
pursuant to this paragraph, the Employee waives any challenge to the personal
jurisdiction of the Court.
14. VOID PROVISIONS. If any provision of this Agreement, as applied to
either of the Parties or to any circumstances, shall be adjudged by a court to
be void or unenforceable, the same shall be deemed stricken from this Agreement
and shall in no way affect any other provision of this Agreement or the
validity or enforceability of this Agreement.
15. NOTICE/NON-RENEWAL. Spelling will give the Employee at least three
(3) months written notice (or if no such notice is given, Salary in lieu
thereof) if Spelling determines not to renew this Agreement upon the expiration
of the Employment Term. Upon the expiration of the Employment Term, Spelling
will provide the Employee, in addition to any other payments he may otherwise
be entitled to under paragraph 8(c) of this Agreement, with "income protection"
for a period of three (3) months. Such "income protection" will consist of
Spelling's continuing payment of his Salary as provided in paragraph 3(a) and
applicable COBRA premiums for his medical and dental insurance coverage. The
Employee shall be required to mitigate the amount of any payments pursuant to
this "income protection" provision by seeking other comparable employment.
16. This Agreement constitutes the entire agreement between the
Employee and Spelling and supersedes all prior agreements and undertakings,
both written and oral, between the Employee and Spelling with respect to the
subject matter hereof.
<PAGE> 10
Tom Carson
September 1, 1994
Page 10
If the foregoing correctly sets forth our understanding, please sign one
copy of this letter and return it to the undersigned whereupon this letter shall
constitute a binding agreement between the Parties.
Very truly yours,
SPELLING ENTERTAINMENT GROUP INC.
By: /s/ STEVEN R. BERRARD
------------------------------
Steven R. Berrard
President and
Chief Executive Officer
ACCEPTED AND AGREED:
/s/ TOM CARSON
------------------------------
Tom Carson
<PAGE> 1
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF NET INCOME PER SHARE
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
NET INCOME:
Income from continuing operations $24,108 $23,659 $ 7,917
Dividends on preferred stock - 724 810
------- ------- -------
Income from continuing operations
applicable to common stock 24,108 22,935 7,107
Loss from discontinued operations - (3,971) (2,043)
Extraordinary items - (2,022) 3,948
------- ------- -------
Net income applicable to common stock $24,108 $16,942 $ 9,012
======= ======= =======
Shares:
Basic shares - weighted average of common
shares outstanding 74,377 54,253 47,789
Additional shares assuming conversion
of stock options and warrants 1,354 427 139
------- ------- -------
Primary shares 75,731 54,680 47,928
Additional shares assuming full dilution of
stock options and warrants 131 524 -
------- ------- -------
Fully-diluted shares 75,862 55,204 47,928
======= ======= =======
Basic, primary and fully-diluted net income (loss)
per common and common equivalent share:
Continuing operations $ 0.32 $ 0.42 $ 0.15
Discontinued operations - (0.07) (0.04)
Extraordinary Items - (0.04) 0.08
------- ------- -------
Net income per common and common equivalent share $ 0.32 $ 0.31 $ 0.19
======= ======= =======
</TABLE>
<PAGE> 1
SPELLING ENTERTAINMENT GROUP INC.
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT
The following is a list of the Company's significant subsidiaries at
December 31, 1994. At that date, all corporations were 100% - owned
subsidiaries, except as noted, and, if indented, subsidiaries of the Company
under which they are listed.
<TABLE>
<CAPTION>
STATE OF
NAME OF COMPANY INCORPORATION
--------------- -------------
<S> <C>
Charter Oil Company Florida
Republic Entertainment Inc. 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
Virgin Interactive Entertainment Limited* United Kingdom
Virgin Interactive Entertainment, Inc. Delaware
Virgin Interactive Entertainment (Europe) Limited United Kingdom
</TABLE>
The names of certain subsidiaries are omitted, as such subsidiaries in the
aggregate would not constitute a significant subsidiary.
* Approximately 90.5% of the Ordinary Shares are owned by the Company.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-24650, No. 33-61914, No. 33-53291, No. 33-53951,
No. 33-55305 and No. 33-55991) and on Form S-3 (No. 33-53575) of Spelling
Entertainment Group Inc. of our report dated February 17, 1995 appearing on
page 28 of this Form 10-K.
PRICE WATERHOUSE LLP
Los Angeles, California
March 27, 1995
<PAGE> 1
Exhibit 23.2
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 Statements on Forms S-8 (Registration
No. 33-24650, No. 33-61914, No. 33-53291, No. 33-53951, No. 33-55305 and
No. 33-55991) and on Form S-3 (Registration No. 33-53575).
ARTHUR ANDERSEN LLP
Los Angeles, California
March 27, 1995
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 No. 33-24650, No. 33-61914, No. 33-53291, No. 33-53951, No. 33-55305
and No. 33-55991 and Form S-3 No. 33-53575) 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 its Annual
Report on Form 10-K for the year ended December 31, 1994.
ERNST & YOUNG LLP
Cincinnati, Ohio
March 27, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated balance sheet as of December 31, 1994 and the
consolidated statement of operations for the year then ended and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 22,400
<SECURITIES> 0
<RECEIVABLES> 277,345
<ALLOWANCES> (35,218)
<INVENTORY> 325,643
<CURRENT-ASSETS> 444,333
<PP&E> 26,321
<DEPRECIATION> (10,160)
<TOTAL-ASSETS> 1,026,760
<CURRENT-LIABILITIES> 249,320
<BONDS> 0
<COMMON> 8,798
0
0
<OTHER-SE> 519,649
<TOTAL-LIABILITY-AND-EQUITY> 1,026,760
<SALES> 599,839
<TOTAL-REVENUES> 599,839
<CGS> 483,527
<TOTAL-COSTS> 483,527
<OTHER-EXPENSES> 65,569
<LOSS-PROVISION> 13,452
<INTEREST-EXPENSE> 8,537
<INCOME-PRETAX> 44,483
<INCOME-TAX> 19,695
<INCOME-CONTINUING> 24,788
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,108
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
