<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 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)
DELAWARE 59-0862100
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5700 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90036
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (213) 965-5700
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 __________.
On November 8, 1996, the registrant had outstanding 90,499,293 shares of
Common Stock, $.001 par value.
<PAGE> 2
SPELLING ENTERTAINMENT GROUP INC.
PART I. FINANCIAL INFORMATION
PAGE
ITEM 1. FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 3
Unaudited Condensed Consolidated Statements of
Operations - Three Months and Nine Months Ended
September 30, 1996 and 1995 4
Unaudited Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1996 and 1995 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
2
<PAGE> 3
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 26,676 $ 20,678
Accounts receivable, net 229,849 236,812
Entertainment product, net 481,032 428,840
Property and equipment, net 29,846 25,757
Other assets 27,874 20,102
Intangible assets, net 379,671 387,481
---------- ----------
Total Assets $1,174,948 $1,119,670
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable, accrued expenses and other liabilities $ 73,256 $ 87,500
Accrued participation expense 100,719 111,818
Deferred revenue 17,118 19,362
Debt payable to Viacom 305,000 210,000
Bank debt 112,103 95,676
Income and other taxes 8,819 21,040
Net liabilities related to discontinued operations 14,955 15,754
---------- ----------
Total Liabilities 631,970 561,150
---------- ----------
Commitments and contingent liabilities
Shareholders' Equity:
Preferred stock, $.10 par value; authorized
20,000,000 shares; none outstanding - -
Common stock, $.001 par value; authorized
300,000,000 shares; issued and outstanding
90,479,293 and 89,683,378 shares, respectively 90 90
Capital in excess of par value 577,463 571,244
Accumulated deficit (33,927) (11,914)
Cumulative translation adjustment (648) (900)
---------- ----------
Total Shareholders' Equity 542,978 558,520
---------- ----------
Total Liabilities and Shareholders' Equity $1,174,948 $1,119,670
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ------------------------
1996 1995 1996 1995
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenue $166,466 $132,573 $460,890 $453,053
Costs and expenses:
Entertainment product costs 141,880 104,690 399,332 355,547
Selling, general and administrative 30,597 25,930 88,012 73,841
-------- -------- -------- --------
Operating income (loss) (6,011) 1,953 (26,454) 23,665
Interest income 451 1,149 1,470 2,731
Interest expense, net (5,261) (3,330) (13,219) (12,176)
Other income (expense), net 33 (81) (310) 33
-------- -------- -------- --------
Income (loss) before income taxes and
minority interest (10,788) (309) (38,513) 14,253
Provision (benefit) for income taxes (8,783) (378) (13,815) 6,670
-------- -------- -------- --------
Income (loss) before minority interest (2,005) 69 (24,698) 7,583
Minority interest - 544 409 1,181
-------- -------- -------- --------
Net income (loss) $ (2,005) $ 613 $(24,289) $ 8,764
======== ======== ======== ========
Average number of common and
common equivalent shares 90,422 88,454 90,311 88,302
======== ======== ======== ========
Net income (loss) per common and
common equivalent share $ (0.02) $ 0.01 $ (0.27) $ 0.10
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1996 1995
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ (24,289) $ 8,764
Adjustments to reconcile net income to cash flows
from operating activities:
Depreciation and amortization 14,218 12,373
Amortization of entertainment product costs 314,638 258,975
Additions to entertainment product costs (372,864) (289,089)
Changes in operating assets and liabilities:
Decrease in accounts receivable 6,185 30,489
Decrease in accounts payable, accrued expenses,
other liabilities and income taxes (24,302) (51,488)
Increase (decrease) in accrued participation expenses (8,853) 28,506
Increase (decrease) in deferred revenue (2,810) 5,885
Increase in prepaid and other assets (3,195) (8,413)
Other, net 2,089 (3,050)
--------- ---------
(99,183) (7,048)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (9,942) (11,979)
Changes in net liabilities related to
discontinued operations (793) (8,416)
--------- ---------
(10,735) (20,395)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities 111,427 50,449
Repayments of credit facilities - (34,873)
Proceeds from exercise of stock options and warrants 4,489 3,260
--------- ---------
115,916 18,836
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,998 (8,607)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 20,678 22,400
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 26,676 $ 13,793
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(000's omitted in all tables)
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements of
Spelling Entertainment Group Inc. and subsidiaries (the "Company") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. These unaudited condensed consolidated financial statements should
be read in conjunction with the more detailed financial statements and notes
thereto included in the Company's most recent Annual Report on Form 10-K.
The financial statements reflect, in the opinion of management, all normal
recurring adjustments necessary to present fairly the Company's financial
position and results of operations. In order to maintain consistency and
comparability between periods presented, certain amounts have been reclassified
from the previously reported financial statements in order to conform with the
financial statement presentation in the current period.
Viacom Inc. ("Viacom") currently owns approximately 75% of the Company's Common
Stock.
On July 30, 1994, the Company acquired approximately 91% of the ordinary shares
("Ordinary Shares") of Virgin Interactive Entertainment Limited ("VIEL") and
also entered into put- and call-option agreements with respect to the Ordinary
Shares of VIEL not owned by the Company and currently owned by Viacom. These
agreements, as amended, were scheduled to expire on November 5, 1996. Prior to
their expiration, the Company and Viacom executed an extension of these
agreements, which extension is effective as of November 6, 1996 and will expire
on January 31, 1997.
The first quarter of 1995 reflects $5,026,000 of operating income that resulted
from the Company conforming its accounting policies with respect to Statement
of Financial Accounting Standards ("SFAS") No. 53 to those of Viacom. In
addition, such operating income includes a net adjustment of approximately
$5,500,000 attributable to prior years.
6
<PAGE> 7
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(000's omitted in all tables)
(Continued)
2. 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. Domestic syndication and basic cable revenue
estimates are not included in estimated future gross revenue of television
programming until such sales are probable.
Entertainment product, net, is stated at the lower of cost less amortization or
estimated net realizable value. 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.
Entertainment product, net, is comprised of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Entertainment product:
Theatrical
Released $105,714 $106,530
Completed, not released 2,402 -
In process and other 88,240 66,573
-------- --------
196,356 173,103
Television
Released 183,603 187,435
Completed, not released 110 -
In process and other 5,355 4,705
-------- --------
189,068 192,140
Interactive
Released 25,852 25,246
In process and other 69,756 38,351
-------- --------
95,608 63,597
$481,032 $428,840
======== ========
</TABLE>
7
<PAGE> 8
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(000's omitted in all tables)
(Continued)
3. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Viacom Credit Agreement, average
interest at 6.7% at September 30, 1996 $305,000 $ -
Viacom Facility, average interest at
6.9% at December 31, 1995 - 210,000
Credit Agreement, average interest at
6.1% at September 30, 1996 97,510 95,646
UK Facility, interest at 7.1%
at September 30, 1996 14,593 30
-------- --------
$417,103 $305,676
======== ========
</TABLE>
In January 1994, the Company entered into a three-year credit agreement with a
predecessor of Viacom (the "Viacom Facility"). This agreement was amended and
restated in January 1995 and again in November 1995 to provide, among other
matters, increases in the amount available under the facility. The Viacom
Facility, as amended, provided for (i) a term loan of $100,000,000 which funded
the Company's merger with Republic Entertainment, Inc. ("Republic") in April
1994 and (ii) a revolving credit facility of $140,000,000 to fund the Company's
working capital and other requirements. All outstanding borrowings under the
Viacom Facility were due to mature on March 31, 1997. On September 30, 1996,
the Company and Viacom executed a credit agreement (the "Viacom Credit
Agreement"), which replaced the Viacom Facility. The Viacom Credit Agreement
provides for (i) a term loan of $200,000,000 and (ii) a revolving credit
facility of $155,000,000 to fund the Company's working capital and other
requirements. All outstanding borrowings under the Viacom Credit Agreement
mature on December 31, 1998.
Under the Viacom Credit Agreement, 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. Effective October 1, 1996, interest on all outstanding
borrowings is payable, at the Company's option, at LIBOR plus a spread - based
on the Company's leverage ratio, as defined - (currently 2.5%) or at Citibank
N.A.'s base rate. Additional terms of the Viacom Credit Agreement require,
among other items, a minimum amount, as defined, of net worth. Borrowings under
the Viacom Credit Agreement are secured by all of the assets of the Company and
its domestic subsidiaries and the entire amount outstanding under the Viacom
Credit Agreement may be accelerated if Viacom's borrowings under its separate
credit facilities were to be accelerated.
8
<PAGE> 9
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(000's omitted in all tables)
(Continued)
A wholly owned subsidiary of VIEL has a multi-currency credit agreement with a
bank in the United States (the "Credit Agreement") which is guaranteed by
Viacom. During 1995, the borrowings allowable under the Credit Agreement were
increased to $100,000,000 and the term was extended to March 31, 1997. The
Company anticipates that such Credit Agreement will be extended to March 31,
1998; however, in the event that the Company cannot extend or refinance the
Credit Agreement, the Viacom Credit Agreement provides for an additional term
loan of up to $100,000,000. Interest is payable monthly at the bank's reference
rate or, at the Company's option, certain alternative rates. Additionally, the
Company must pay a commitment fee of 0.125% on the unused portion of the
available credit. As of September 30, 1996, the Company had approximately
$141,000 in letters of credit outstanding under the Credit Agreement to
guarantee its purchases of interactive entertainment product.
Another wholly owned subsidiary of VIEL has a 10,000,000 pounds sterling credit
facility (the "UK Facility") with a bank in the United Kingdom which is
guaranteed by the Company. Advances under the UK Facility bear interest at the
bank's prime rate plus 1.0%. The UK Facility matures on April 30, 2005. As of
September 30, 1996, the Company had approximately $314,000 in letters of credit
outstanding under the UK Facility to guarantee its purchases of interactive
entertainment product.
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. At September 30, 1996, the carrying
value of all of the Company's debt approximated fair value.
4. SHAREHOLDERS' EQUITY
The following is a summary of the changes in the components of shareholders'
equity:
<TABLE>
<CAPTION>
Capital In Cumulative
Common Excess of Accumulated Translation
Stock Par Value Deficit Adjustment Total
------ ----------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $90 $571,244 $ (11,914) $(900) $558,520
Exercise of options and warrants - 4,489 - - 4,489
Income tax benefit related to stock
options - 1,730 - - 1,730
Unrealized holding gain, net
- - 2,276 - 2,276
Net loss for the period - - (24,289) - (24,289)
Cumulative translation adjustment - - - 252 252
--- -------- --------- ----- --------
Balance at September 30, 1996 $90 $577,463 $($33,927) $(648) $542,978
=== ======== ========= ===== ========
</TABLE>
9
<PAGE> 10
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(000's omitted in all tables)
(Continued)
5. INCOME TAXES
Income taxes have been provided in each period based on the Company's
anticipated annual effective income tax rate.
6. NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Net income (loss) per common and common equivalent share amounts are based on
the weighted average number of common shares outstanding during the respective
periods. Primary and fully diluted net income (loss) per common and common
equivalent share are not presented as they result in a dilution of less than 3%
from basic net income (loss) per common and common equivalent share or are
anti-dilutive.
7. LEGAL MATTERS
The Company is involved in certain legal proceedings which arise in the
ordinary course of conducting its entertainment business operations. The
Company believes such legal proceedings should not have a material adverse
effect on the Company's consolidated results of operations or financial
condition.
The Company also is subject to pending and contingent claims relating to the
Company's discontinued operations, including certain claims involving
environmental matters. Some of the parties involved in such actions seek
significant damages. While the outcome of these claims cannot be predicted with
certainty, based upon (i) its knowledge of the facts and circumstances and its
understanding of the applicable law; (ii) allowances for estimated losses on
disposal of the discontinued operations, and (iii) an indemnity agreement, the
Company believes that the ultimate resolution of such suits and claims should
not have a material adverse effect on the Company's consolidated results of
operations or financial condition.
10
<PAGE> 11
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(000's omitted in all tables)
(Continued)
8. RELATED PARTY TRANSACTIONS
The Company was charged interest and fees by Viacom of $13,298,000 and
$9,706,000 during the nine months ended September 30, 1996 and 1995,
respectively, in connection with the Viacom Facility. Included in accounts
payable, accrued expenses and other liabilities is accrued interest payable to
Viacom of $1,765,000 and $813,000 as of September 30, 1996 and December 31,
1995, respectively. See Note 3 regarding the Viacom Facility, the Viacom
Credit Agreement and the Credit Agreement.
Viacom provided the Company with management services for which the Company was
charged $150,000 and $450,000 for the nine month periods ended September 30,
1996 and 1995, respectively, for the services of an executive. Upon the
resignation of such executive in the first quarter of 1996, the charge was
terminated. As of September 30, 1996, the Company had a net payable to Viacom
of approximately $1,571,000 with respect to these and other expenses.
During the nine months ended September 30, 1996 and 1995, the Company sold home
video and interactive entertainment product to several operating subsidiaries of
Viacom International Inc., a subsidiary of Viacom. Additionally, the Company
licensed certain entertainment product to (i) Showtime Networks Inc.
("Showtime"), a subsidiary of Viacom; (ii) MTV Networks, a division of a
subsidiary of Viacom; (iii) certain television stations owned by Viacom; and
(iv) USA Network and Sci-Fi Channel in which Viacom has equity interests. For
the nine months ended September 30, 1996 and 1995, these transactions were not
material.
Republic has entered into agreements with, and in certain cases has advanced
funds to, Viacom and its Showtime unit to distribute certain of their products
in the home video market.
VIEL has entered into an agreement with Viacom New Media ("VNM"), a subsidiary
of Viacom, to distribute certain of their product in the interactive market.
Additionally, VIEL has entered into an agreement to provide management services
to VNM commencing September 18, 1996. VIEL has also entered into agreements
with North Star Studios Inc., Revolution Software Limited, Xatrix Entertainment,
Inc. and Black Ops Entertainment Inc., software developers in which the Company
has equity interests. In certain instances, VIEL has advanced funds to these
entities for product development.
The Company has entered into agreements with Paramount Pictures Corporation, a
Viacom subsidiary, with respect to the distribution of two of the Company's
feature film releases, "Stephen King's Thinner" and the upcoming "Night
Falls on Manhattan," in the domestic theatrical, non-theatrical and pay
television markets.
In the ordinary course of business, the Company has done and expects to continue
to do business with Viacom and its affiliates.
11
<PAGE> 12
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
unaudited condensed consolidated financial statements and the related notes
thereto. References to Notes refer to the notes to such statements.
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 a
sufficient number of years to allow for off-network exhibition opportunities.
During the initial years of one-hour network television programming, 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 television programming
and first-run syndication television programming, the production costs and/or
distribution costs can significantly exceed the combination of the network or
other domestic revenue and international license fees. However, if a
sufficient number of episodes of a series are licensed to a network or
distributed in first-run syndication, the Company would then expect to be able
to reduce its loss or realize a profit with respect to the series.
The Company's business in general is affected by the public's 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. The Telecommunications Act of 1996 eliminates
the restrictions on the number of television stations that one entity may own
and increases the national audience reach limitation by one entity from 25% to
35%. Accordingly, the networks will be able to own the programming which they
broadcast, and increasingly become competitors of the Company in the production
and distribution of programming.
12
<PAGE> 13
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
REVENUE
The following table sets forth the components of revenue from the Company's
major media and markets for the three months and nine months ended September 30
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Worldwide television distribution $ 92,375 $ 65,596 $277,490 $271,716
Worldwide interactive entertainment 54,874 40,201 121,282 108,459
Worldwide home video 14,017 21,421 40,897 54,387
International film distribution 860 1,029 7,835 5,528
Worldwide licensing and merchandising 3,200 3,360 9,889 10,666
Other 1,140 966 3,497 2,297
-------- -------- -------- --------
$166,466 $132,573 $460,890 $453,053
======== ======== ======== ========
</TABLE>
Worldwide television revenue increased $26,779,000 and $5,774,000, or 41% and
2%, in the three months and nine months ended September 30, 1996, respectively,
from the comparable periods in 1995 primarily due to (i) an increase in the
number of hours of network programming delivered in both periods in 1996; (ii)
higher per episode network license fees for "Beverly Hills, 90210" and "Melrose
Place," and (iii) the recognition of domestic off-network revenue for "Melrose
Place" which became available in the third quarter of 1996. These increases
were partially offset by (i) the one time effect recorded in the first quarter
of 1995 of conforming the Company's accounting policies to those of Viacom; (ii)
the one time effect recorded in the first quarter of 1995 for a significant
contract extension; and (iii) less programming distributed in first-run
syndication.
Worldwide interactive entertainment revenue increased $14,673,000 and
$12,823,000, or 37% and 12%, for the three month and nine month periods ended
September 30, 1996, respectively, from the comparable periods in 1995. The
increase is due primarily to a greater volume of new product releases,
including "Resident Evil," in the three months ended September 30, 1996.
However, anticipated growth in revenue in 1996 was not achieved due to delays
in the release of a number of VIEL's titles, as well as fewer than anticipated
shipments to retailers reflecting in part the continuing reluctance by
consumers to purchase interactive software product until the new generation
hardware platforms achieve a higher installed base. It is expected that
revenue will continue to be adversely impacted in the near term. The Company
continues to actively work with hardware manufacturers to develop and adapt its
titles to different platforms as they become commercially viable.
13
<PAGE> 14
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Worldwide home video revenue decreased $7,404,000, or 35%, and $13,490,000, or
25%, in the three months and nine months ended September 30, 1996, respectively,
from the comparable periods in 1995. The home video market is currently very
competitive due to recently released theatrical product, leaving less shelf
space available for the Company's made-for-video product. It is expected that
this trend will continue in the near term.
International film distribution revenue decreased $169,000, or 16%, for the
three month period ended September 30, 1996 from the same period in 1995.
International film distribution revenue increased $2,307,000, or 42%, for the
nine month period ended September 30, 1996 from the comparable period in 1995.
The increase is due primarily to the release of "Unforgettable" and "Moll
Flanders" in 1996. The only release of similar significance in 1995 was "Usual
Suspects."
Licensing and merchandising revenue decreased $160,000 and $777,000, or 5% and
7%, for the three and nine month periods ended September 30, 1996,
respectively, from the comparable periods in 1995. The decrease is
attributable to the decline in licensing programs for "Beverly Hills, 90210"
and "Melrose Place."
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,
Deutsche marks, 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 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. Such costs increased $37,190,000 and $43,785,000, or 36% and 12%,
for the three month and nine month periods ended September 30, 1996,
respectively, as compared to the same periods in 1995. The increase is due to
the increase in revenue described above and the increase in the percentage
relationship between such costs and the related revenue to 87% in 1996 from 78%
in 1995. 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 $10,499,000 and $41,755,000 in the three month and nine month
periods ended September 30, 1996, respectively, compared to $2,433,000 and
$24,748,000 in the corresponding periods in 1995.
14
<PAGE> 15
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased $4,667,000 and
$14,171,000, or 18% and 19%, during the three months and nine months ended
September 30, 1996, respectively, from the comparable 1995 periods. The
increase is primarily due to the growth in the Company's distribution
infrastructure.
INTEREST EXPENSE, NET
Interest expense, net, increased $1,931,000 and $1,043,000, or 58% and 9%, for
the three months and nine months ended September 30, 1996, respectively, from
the comparable periods in 1995 due to higher average indebtedness in the 1996
period, offset by (i) a decrease in the average interest rate from 1995 to 1996
and (ii) an increase in interest capitalized in 1996 due to longer production
cycles associated with both the Company's increased theatrical production
activities and the increased programming complexity required by the growing
consumer sophistication in the market for interactive product.
PROVISION FOR INCOME TAXES
The Company computes its interim provision for income taxes based upon an
estimated annual effective tax rate computed in accordance with SFAS No. 109.
The Company's provision for income taxes for the nine months ended September
30, 1996, decreased $20,485,000, to a net benefit of $13,815,000 in the current
period, as compared to a provision of $6,670,000 for the corresponding period
in 1995, largely as a result of the loss for the period partially offset by a
change in the effective tax rate. The change in the effective tax rate for the
nine months ended September 30, 1996, as compared to the corresponding period
of 1995, is largely a result of changes in the relationships between revenue
and expenses comprising income before income taxes and minority interest.
Additionally, the change in the effective tax rate for the nine months ended
September 30, 1996, as compared to the effective rate for the six months ended
June 30, 1996, is a result of changes in expected operating results for the
year.
MINORITY INTEREST
Minority interest in the losses incurred by VIEL was $409,000 and $1,181,000 for
the nine months ended September 30, 1996 and 1995, respectively. The Company
has put- and call-option agreements with Blockbuster on behalf of Viacom with
respect to the remaining minority interest in VIEL. These agreements, as
amended, were scheduled to expire on November 5, 1996. Prior to their
expiration, the Company and Viacom executed an extension of these agreements,
which extension is effective as of November 6, 1996 and will expire on January
31, 1997.
15
<PAGE> 16
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations require significant capital resources for the
production of entertainment product and the acquisition of distribution or other
rights to entertainment product produced by third parties. The Company's
expenditures in this regard totaled $372,864,000 and $289,089,000 in the nine
months ended September 30, 1996 and 1995, respectively. Additionally, such
expenditures by the Company are expected to remain consistent with current
expenditures in conjunction with its projected production levels.
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. Borrowings, net of
repayments, under the Company's credit arrangements increased from $15,576,000
to $111,427,000 in the nine month periods ended September 30, 1995 and 1996,
respectively, largely as a result of the increased expenditures for the
production and acquisition of entertainment product and distribution rights.
The Company's principal credit agreement is with Viacom. (See Note 3.) The
Viacom Credit Agreement provides for a term loan facility of $200,000,000 and a
revolving credit facility of $155,000,000 to fund the Company's working capital
and other requirements.
A wholly owned subsidiary of VIEL has a multi-currency credit agreement for
$100,000,000 with a bank in the United States. As of September 30, 1996, the
Company had approximately $141,000 in letters of credit outstanding under the
Credit Agreement to guarantee its purchases of interactive entertainment
product. Viacom has guaranteed all of the borrowings under the Credit Agreement,
which are due March 31, 1997. (See Note 3.)
Another wholly owned subsidiary of VIEL has a 10,000,000 pounds sterling credit
facility with a bank in the United Kingdom, which the Company has guaranteed.
As of September 30, 1996, the Company had approximately $314,000 in letters of
credit outstanding under the UK Facility to guarantee its purchases of
interactive entertainment product. The UK Facility matures on April 30,
2005. (See Note 3.)
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.
16
<PAGE> 17
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The Company is in the process of determining its capital requirements and
expects to fund such requirements with internally generated funds and from
various external sources, which may include the Company's existing credit
agreements and amendments thereto, and additional financings, including
co-financing arrangements.
UNCERTAINTIES
The Company is subject to pending and contingent claims relating to the
Company's discontinued operations, including certain claims involving
environmental matters. Some of the parties involved in such actions seek
significant damages. While the outcome of these claims cannot be predicted
with certainty, based upon (i) its knowledge of the facts and circumstances and
its understanding of the applicable law; (ii) allowances for estimated losses
on disposal of the discontinued operations; and (iii) an indemnity agreement,
the Company believes that the ultimate resolution of such claims should not have
a material adverse effect on the Company's consolidated results of operations
or financial condition. (See Note 7.)
17
<PAGE> 18
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
PART II.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Credit Agreement dated as of September 30, 1996, by and among
the Registrant, certain subsidiaries of the Registrant and
Viacom Inc.
10.2 Pledge and Security Agreement dated as of September 30, 1996,
by and among the Registrant, certain subsidiaries of the
Registrant and Viacom Inc.
10.3 Copyright Mortgage and Assignment; Power of Attorney dated
as of September 30, 1996, by the Registrant and certain
subsidiaries of the Registrant in favor of Viacom Inc.
10.4 Guaranty dated as of September 30, 1996, by the Registrant and
certain subsidiaries of the Registrant in favor of Viacom Inc.
10.5 Amendment No. 5 to Exchange Agreement dated as of
November 5, 1996, by and among a subsidiary of the
Registrant, Blockbuster Entertainment Group on behalf of
Viacom Inc. and SEGI Holding Co. (successor-in-interest to
Blockbuster Interactive Entertainment, Inc.)
11 Computation of Net Income (Loss) Per Common and Common
Equivalent Share.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
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<PAGE> 19
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPELLING ENTERTAINMENT GROUP INC.
November 13, 1996 By: /s/ Peter H. Bachmann
--------------------------------
Peter H. Bachmann
Executive Vice President, Office
of the President
(Principal Executive Officer)
By: /s/ William P. Clark
--------------------------------
William P. Clark
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
19
<PAGE> 1
Exhibit 10.1
SPELLING ENTERTAINMENT GROUP INC.
AND ITS SUBSIDIARIES, AS BORROWERS
CREDIT AGREEMENT
Dated as of September 30, 1996
VIACOM INC., AS LENDER
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION> Page
----
<S> <C> <C> <C>
ARTICLE I
DEFINITIONS: CERTAIN RULES OF CONSTRUCTION
Definitions ................................................ 1
ARTICLE II
AMOUNT AND TERMS OF THE REVOLVING CREDITS
2.1. Revolving Loans ............................................ 9
2.2. Borrowing Requests ......................................... 10
2.3. Revolving Note ............................................. 10
2.4. Application of Proceeds .................................... 10
ARTICLE III
THE TERM LOAN
3.1. Term Loan .................................................. 10
3.2. Term Note .................................................. 11
3.3. Virgin Term Loan ........................................... 11
3.4. Virgin Term Note ........................................... 11
ARTICLE IV
CONVERSION, INTEREST, PAYMENTS, FEES, ETC.
4.1. Conversion/Continuation Option ............................. 11
4.2. Interest ................................................... 12
4.3. Interest on Overdue Amounts ................................ 12
4.4. Limitation by Applicable Law ............................... 12
4.5. Commitment Fee ............................................. 12
4.6. Facility Fee ............................................... 13
4.7. Annual Administrative Fee .................................. 13
4.8. Computations of Interest and Fees .......................... 13
4.9. Break-Funding Costs ........................................ 13
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
ARTICLE V
PAYMENTS
5.1. Payment at Maturity ....................................... 13
5.2. Prepayments ............................................... 14
5.3. Reborrowings .............................................. 14
5.4. Payment with Accrued Interest ............................. 14
5.5. Payments .................................................. 14
ARTICLE VI
CONDITIONS OF LENDING
6.1. Conditions to Each Extension of Credit .................... 15
ARTICLE VII
COVENANTS
7.1. Minimum Net Worth ......................................... 15
7.2. Non-Borrower Subsidiaries ................................. 15
7.3. Compliance Statements ..................................... 16
7.4. Disposition of Assets ..................................... 16
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
8.1. Borrower's Representations and Warranties ................. 16
8.2. Lender's Representations and Warranties ................... 17
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
ARTICLE IX
EVENTS OF DEFAULT
9.1. Events of Default ........................................... 18
9.2. Certain Actions Following an Event of Default ............... 21
9.3. Annulment of Defaults ....................................... 22
9.4. Waivers ..................................................... 22
ARTICLE X
MISCELLANEOUS
10.1. Expenses .................................................... 22
10.2. General Indemnity ........................................... 23
10.3. Successors and Assigns ...................................... 23
10.4. Notices ..................................................... 24
10.5. Course of Dealing: Amendments and Waivers ................... 24
10.6. Venue: Service of Process ................................... 24
10.7. General ..................................................... 25
10.8. Section Titles .............................................. 25
10.9. Execution in Counterparts ................................... 25
SCHEDULES AND EXHIBITS
Exhibit 2.3 Revolving Note
Exhibit 3.2 Term Note
</TABLE>
<PAGE> 5
SPELLING ENTERTAINMENT GROUP INC.
CREDIT AGREEMENT
This Agreement, dated as of September 30, 1996 is among Spelling
Entertainment Group Inc., a Delaware corporation, its subsidiaries that are from
time to time party hereto and Viacom Inc., a Delaware corporation ("Lender").
The parties agree as follows:
ARTICLE I
DEFINITIONS
1.1. Defined Terms. 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:
"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.
"Agreement" means this Credit Agreement, as amended, supplemented
or modified from time to time.
-1-
<PAGE> 6
"Applicable Eurodollar Rate Margin" shall mean, for any Fiscal Quarter,
the percentage set forth below opposite the Total Debt/EBITDA ratio of the
Borrower, as determined as of the end of the last preceding Fiscal Quarter for
which the Lender has received a compliance certificate:
<TABLE>
<CAPTION>
Total Debt/EBITDA
Ratio Margin
----- ------
<S> <C>
>7.0x 2.50%
6.0x-7.0x 2.00%
5.5x-6.0x 1.50%
5.0x-5.5x 1.00%
<5.0x .75%
</TABLE>
"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.
"Articles" means the articles of organization, certificate of
incorporation, trust indenture statute, constitution, joint venture agreement,
partnership agreement or other charter document of any Person other than an
individual, each as from time to time in effect.
"Authorized Officer" shall mean, with respect to the Borrower, its
chief executive officer, executive vice president, senior vice president, chief
financial officer, chief accounting officer or treasurer.
"Banking Day" means any day other than Saturday, Sunday or a day on
which banks in Los Angeles, California or New York City, New York are
authorized or required by law or other governmental action to close.
"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.
"Bankruptcy Default" means an Event of Default referred to in
Section 9.1(k)
"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:
(a) 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
(b) the Federal Funds Rate for such day plus 1/2 of 1 % per annum.
-2-
<PAGE> 7
"Base Rate Loan" means any Loan or portion thereof that bears
interest with reference to the Base Rate.
"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.
"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.
"Capitalized Leases" means, as applied to any person, any lease of
property by such Person as lessee which should be capitalized on a balance
sheet of such person prepared in accordance with GAAP.
"Closing Date" means each date on which any extension of credit is
made pursuant to Section 2.1.
"Collateral" has the meaning assigned to that term in the Pledge
and Security Agreement or any other Security Document.
"Commitment" means Lender's obligations to extend the credits
contemplated by the Credit Documents.
"Commitment Termination Date" means, the earlier of (i) Final Loan
Maturity Date, or (ii) the date of the earlier termination of the Commitment
pursuant to the terms hereof.
"Company" means Spelling Entertainment Group Inc., a Delaware
corporation.
"Copyright Mortgages and Assignments" has the meaning assigned to
that term in the Pledge and Security Agreement.
"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
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<PAGE> 8
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.
"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).
"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.
"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.
"Earnings from Operations" means, at any time, for the Borrower and
its Subsidiaries, revenue plus equity in earnings of affiliated companies, less
(i) operating expenses (ii) selling expenses, (iii) general and administrative
expenses and (iv) depreciation and amortization expenses.
"EBITDA" means, at any time, the Earnings from Operations of the
Borrower and its Subsidiaries on a consolidated basis as set forth in the
statement of operations of the Borrower and its Subsidiaries for the
immediately preceding four Fiscal Quarters (adjusted to account for material
dispositions during such four Fiscal Quarters), plus (to the extent previously
deducted) (a) the sum of the following expenses of the Borrower and its
Subsidiaries for such period: (i) depreciation expense; (ii) amortization
expense (including all amortization expenses recognized in accordance with APB
16 and 17 but excluding all other amortization of programming and production
costs); and (iii) in the event that, during such period, the Borrower or any of
its Subsidiaries acquires all or substantially all of the assets or Equity of
any other Person or any Equity in any other Person that is reported on an equity
basis, the EBITDA of such Person, as determined in accordance with the terms of
this definition, shall be included in the EBITDA of the Borrower for all Fiscal
Quarters during such period, less the proportional EBITDA of the interests held
by any other Person in entities fully consolidated with the Borrower and its
Subsidiaries, as determined in accordance with the terms of this definition.
"Equity" means all shares, options, equity interests, general or
limited partnership interests, joint venture interests or participation or
other equivalents (regardless of how
-4-
<PAGE> 9
designated) of or in a corporation, partnership or other entity, whether voting
or non-voting, and including, without limitation, common stock, preferred
stock, purchase rights, warrants or options for any of the foregoing.
"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 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.
"Eurodollar Rate Loan" means any Loan or portion thereof that bears
interest at a rate determined with reference to the Eurodollar Rate.
"Event of Default" is defined in Section 9.1.
"Final Loan Maturity Date" means December 31, 1998.
"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.
"Fiscal Quarter" means any three month period ending March 31, June
30, September 30 or December 31 of any fiscal year.
"Fiscal Year" means such twelve month period ending December 31.
-5-
<PAGE> 10
"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.
"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:
(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.
"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).
"Guaranty" means the Guaranty of even date hereof among Lender,
Borrowers and the other Guarantors, as from time to time in effect.
-6-
<PAGE> 11
"Indebtedness" of any Person means at any date, without
duplication, (i) all obligations of such Person for borrowed money (including,
without limitation, in the case of the Borrower, the obligations or the
Borrower for borrowed money under this Agreement), (ii) all obligations of such
Person to pay the deferred purchase price of Property or services, except as
provided below, (iii) all obligations or such Person as lessee under
Capitalized Leases, (iv) all Indebtedness of others secured by a Lien on any
Property of such Person, whether or not such indebtedness is assumed by such
Person, (v) all Indebtedness of others directly or indirectly guaranteed or
otherwise assumed by such Person, including any obligations of others endorsed
(otherwise than for collection or deposit in the ordinary course of business)
or discounted or sold with recourse by such Person, or in respect of which such
Person is otherwise directly or indirectly liable, including, without
limitation any Indebtedness in effect guaranteed by such Person through any
agreement (contingent or otherwise) to purchase, repurchase or otherwise
acquire such obligation or any security therefor, or to provide funds for the
payment or discharge of such obligation, or to maintain the solvency or any
balance sheet or other financial condition of the obligor of such obligation,
provided that Indebtedness of the Borrower and its Subsidiaries shall not
include (a) all obligations of such Person as issuer, customer or account party
under letters of credit or bankers' acceptances that are either drawn or that
back financial obligations that would otherwise be Indebtedness.
"Indemnified Party" is defined in Section 10.2.
"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 2.2, 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.
"Lender" means Viacom Inc. and its successors and assignees.
"Loan" or "Loans" means one or more of the Revolving Loans or the
Term Loan or any combination thereof.
"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.
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<PAGE> 12
"Material Adverse Change" means a material adverse change since
June 30, 1996 in the business, assets, financial condition, income or prospects
of the Company and its Subsidiaries (on a consolidated basis).
"Material Subsidiary" means a Subsidiary which acquires
substantially all of the stock or assets of a Borrower or a Subsidiary which
the parties agree is a Material Subsidiary.
"Net Worth" means, at anytime, as to the Borrower and its
subsidiaries on a consolidated basis (determined in accordance with GAAP), the
excess of total assets over (i) total liabilities as shown on the Borrower's
then most recent consolidated balance sheet.
"Notes" means the Revolving Note and the Term Note.
"Notice of Borrowing" is defined in Section 2.2.
"Notice of Continuation or Conversion" is defined in Section 4.1.
"Obligor" means the Company, each other Borrower, each other
Guarantor and each other Person guaranteeing or granting collateral to secure
any Credit Obligations.
"Person" means any corporation, association, partnership, joint
venture, company, business trust, trust, organization, business or government
or any governmental agency or political subdivision thereof.
"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.
"Product" has the meaning assigned to that term in the Pledge and
Security Agreement.
"Product Rights" has the meaning assigned to that term in the
Pledge and Security Agreement.
"Revolving Loan" is defined in Section 2.1.
"Revolving Note" is defined in Section 2.3.
"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.
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"Stated Amount of Revolving Credit" means, at any date, the lesser
of (a) One Hundred and Fifty-five Million Dollars ($155,000,000) 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.
"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.
"Term Loan" is defined in Section 3.1.
"Term Note" is defined in Section 3.2.
"Total Debt" of the Borrower and its Subsidiaries means, on any
date, the total outstanding Indebtedness of the Borrower and its Subsidiaries
on a consolidated basis.
"Trademark Mortgages and Assignments" has the meaning assigned to
that term in the Pledge and Security Agreement.
"UCC" means the Uniform Commercial Code as in effect in New York on
the date hereof.
"Unused Availability" means, at any date, the excess of the Stated
Amount of Revolving Credit over the Revolving Loan.
"Viacom Credit Facilities" means (i) the $6,489 Billion Credit
Agreement dated as of July 1, 1994, as amended from time to time, among Viacom
Inc. and the banks named therein; (ii) the $1.8 Billion Credit Agreement, dated
as of September 29, 1994, as amended from time to time, among Viacom Inc. and
the banks named therein; (iii) any successor credit facilities obtained by
Viacom.
ARTICLE II
AMOUNT AND TERMS OF REVOLVING CREDIT
2.1. Revolving Loans. 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 Commitment Termination Date, in an
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aggregate principal amount equal to the amount requested in accordance with
Section 2.2 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 at any time outstanding is referred
to as the "Revolving Loan".
2.2. Borrowing Requests. Revolving Loans will be made to the
Borrowers by the Lender under Section 2.1 on any Banking Day prior to the
Commitment Termination 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 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 Commitment Termination 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.
2.3. Revolving Note. The Revolving Loan shall be evidenced by a
promissory note in substantially the form of Exhibit 2.3 (the "Revolving Note")
payable by the Borrowers (on a joint and several basis) to the order of the
Lender.
2.4. Application of Proceeds.
(a) The Borrowers will apply the proceeds of the Revolving Loan for
working capital and for other general corporate purposes of the
Company and its Subsidiaries.
(b) 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.
ARTICLE III
THE TERM LOAN
3.1. Term Loan. On the terms and subject to the conditions
contained in this Agreement, the Lender agrees to make a term loan to the
Borrower on the Closing Date in an
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amount of Two Hundred Million Dollars ($200,000,000). The aggregate principal
amount of the loan made pursuant to Section 3.1 of the Credit Agreement at any
time outstanding is referred to as the "Term Loan".
3.2 Term Note. On the Closing Date, the Borrowers shall deliver to
Lender a promissory note in substantially the form of Exhibit 3.2 (the "Term
Note") payable by the Borrowers (on a joint and several basis) to the order of
the Lender.
3.3. Virgin Term Loan. At the point when that certain credit
facility between Bank of America NT&SA and Virgin Interactive Entertainment,
Inc. (the "Virgin Facility") becomes due and payable and has not otherwise been
refinanced, the Lender shall make a term loan to the Borrower in an amount equal
to One Hundred Million Dollars ($100,000,000) or, if less, the amount
outstanding under the Virgin Facility on the terms and subject to the conditions
contained in this Agreement. The proceeds from this term loan shall be used by
the Borrower to repay all amounts outstanding under the Virgin Facility.
3.4. Virgin Term Note. Upon the making of the Virgin Term Loan,
the Borrowers shall deliver to Lender a promissory note substantially similar
in form to the Term Note payable by the Borrowers (on a joint and several
basis) to the order of the Lender.
ARTICLE IV
CONVERSION, INTEREST, PAYMENTS, FEES, ETC.
4.1. 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 and be continuing. If, within the time
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period required under the terms of this Section 4.1, 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 4.1) each
successive Interest Period shall commence on the day on which the next
preceding Interest Period expires.
4.2. Interest. 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.
4.3. 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.
4.4. 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.
4.5. Commitment Fees. In consideration of the Lender's commitments
to make the extensions of credit provided for in Section 2, 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.
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4.6. Facility Fee. Borrowers (jointly and severally) agree to pay
to Lender, payable annually on January 31 of each year, a facility fee equal to
One Hundred and Fifty Thousand Dollars ($150,000) per annum. 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 4.6 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.
4.7. 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 Commitment Termination Date.
4.8. 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.
4.9. 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 9.2(c) 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 4.2(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 4.9 shall
survive payment of the Loans.
ARTICLE V
PAYMENTS
5.1. 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
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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.
5.2. Prepayments.
(a) Contingent Required. 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.
(b) Voluntary Prepayments. In addition to the prepayments
required by Section 5.2(a), 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 4.9 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.
5.3. Reborrowings. The amounts of the Revolving Loan repaid or
prepaid pursuant to Section 5.2(b) may be reborrowed from time to time prior to
the Commitment Termination Date in accordance with Section 2. Amounts of the
Term Loan repaid or prepaid pursuant to Section 5.2(b) may not be reborrowed.
5.4. 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 5.2(b) and whether or not notice is given of
prepayments pursuant to Section 5.2(a), the amount specified to be prepaid
shall become due and payable on the date specified for prepayment.
5.5. Payments.
(a) 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.
(b) 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.
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ARTICLE VI
CONDITIONS OF LENDING
6.1 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:
(a) 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.
(b) No Default. No Default shall have occurred and be continuing,
or would result from such borrowing.
(c) 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.
ARTICLE VII
COVENANTS
7.1. Minimum Net Worth. On the last day of each Fiscal Quarter,
commencing September 30, 1996, the Net Worth of the Borrower and its
Subsidiaries shall not be less than 75% of the Net Worth of the Borrower and
its Subsidiaries as of June 30, 1996.
7.2 Compliance Statement. The Borrower shall furnish to the
Lender a certificate issued by a Authorized Officer of the Borrower (i)
demonstrating compliance at the end of the accounting period described in such
statements with the financial covenants contained herein and (ii) containing
in reasonable detail the component figures contained in the respective total
figures stated in such certificate.
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7.3. 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.
7.4. Disposition of Assets. Neither the Company, the Borrowers nor
any Material Subsidiary 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.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
8.1. 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:
(a) 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.
(b) 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:
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(i) 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;
(ii) the violation of any law, statute, judgment, decree
or governmental order, rule or regulation applicable to the
Company or any of its Subsidiaries;
(iii) 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
(iv) 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.
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.
(c) 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.
(d) 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 Obligor 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.
(e) No Material Adverse Change. No event or change has occurred
that represents, either in any case or in the aggregate, a Material
Adverse Change.
8.2. 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:
(a) 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
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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.
(b) 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.
ARTICLE IX
EVENTS OF DEFAULT
9.1. Events of Default. The following events are referred to as
"Events of Default":
(a) 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.
(b) The Company or any of its Subsidiaries or any of their
respective Affiliates party to any Credit Document shall fall 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.
(c) 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.
(d) 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
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(other than the Credit Obligations) outstanding in an aggregate amount
of principal and accrued and unpaid interest exceeding $1,000,000:
(e) 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;
(f) 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);
(g) 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 similar action, or
(h) 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.
(i) 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.
(j) A final judgment:
(i) 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
(ii) 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.
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(k) The Company, any of its Material Subsidiaries or any of their
respective Affiliates obligated with respect to any Credit Obligation
shall:
(i) 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;
(ii) 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;
(iii) have entered against it an order for relief in any
involuntary case commenced under the Bankruptcy Code;
(iv) 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;
(v) 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
(vi) make an assessment 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.
(l) 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.
(m) 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.
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9.2. 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:
(a) 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.
(b) 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.
(c) 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 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 9.1(m) 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.
(d) 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.
(e) 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.
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<PAGE> 26
9.3. 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.
9.4. 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.
ARTICLE X
MISCELLANEOUS
10.1. 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
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<PAGE> 27
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.
10.2. 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 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.
10.3. 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.
-23-
<PAGE> 28
10.4. 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 addresser), and if either (i) actually delivered in
fully legible form to such address (evidenced in the case of a telex by receipt
of the correct answer back) or (ii) 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.
(a) 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.
(b) 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.
10.5. 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 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.
10.6. 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 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
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<PAGE> 29
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 10.4 is
reasonably calculated to give actual notice.
10.7. 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. Sections 10.1
and 10.2 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.
10.8. Section Titles. The Section titles contained in this
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.
10.9. Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
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<PAGE> 30
IN WITNESS WHEREOF, 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 INC.
SPELLING TELEVISION INC.
TORAND PRODUCTIONS INC.
WORLDVISION ENTERPRISES, INC.
HAMILTON PROJECTS, INC.
WILSHIRE ENTERTAINMENT INC.
SPELLING SATELLITE NETWORKS, INC.
BIG TICKET TELEVISION INC.
REPUBLIC ENTERTAINMENT INC.
REPUBLIC DISTRIBUTION CORPORATION
VIRGIN INTERACTIVE ENTERTAINMENT, INC.
VIE HOLDING COMPANY
WESTWOOD STUDIOS INC.
By: /S/ PETER BACHMANN
-----------------------------------------
PETER BACHMANN
As an authorized officer of each
of the foregoing corporations
Address: 5700 Wilshire Boulevard
Los Angeles, California 90036
LENDER
VIACOM INC.
By: /s/ VAUGHN A. CLARKE
----------------------------------------
VAUGHN A. CLARKE
Title: Senior Vice President, Treasurer
Address: 1515 Broadway
New York, New York 10036
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<PAGE> 31
Exhibit 2.3.
REVOLVING NOTE
$155,000,000 as of September 30, 1996
FOR VALUE RECEIVED, each of the undersigned, Spelling Entertainment
Group Inc., a Delaware 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
Credit Agreement referred to below), the aggregate unpaid principal amount of
the loans made by the Lender to the Borrowers pursuant to the Credit Agreement.
The Borrowers jointly and severally promise to pay daily interest, computed as
provided in such 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 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 Credit
Agreement, all such interest being payable at the times specified in such
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 Credit
Agreement dated as of September 30, 1996, as from time to time in effect (the
"Credit Agreement"), among the Borrowers and Lender and the Security Documents
(as defined in the Credit Agreement). The principal of this Revolving Note is
prepayable in the amounts and under the circumstances set forth in the Credit
Agreement, and may be prepaid in whole or from time to time in part, all as set
forth in the Credit Agreement. Terms defined in the 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 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.
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
<PAGE> 32
delivery, acceptance, performance and enforcement of this Revolving Note,
except as specifically otherwise provided in the 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 INC.
SPELLING TELEVISION INC.
TORAND PRODUCTIONS INC.
WORLDVISION ENTERPRISES, INC.
HAMILTON PROJECTS, INC.
WILSHIRE ENTERTAINMENT INC.
SPELLING SATELLITE NETWORKS, INC.
BIG TICKET TELEVISION INC.
REPUBLIC ENTERTAINMENT INC.
REPUBLIC DISTRIBUTION CORPORATION
VIRGIN INTERACTIVE ENTERTAINMENT, INC.
VIE HOLDING COMPANY
WESTWOOD STUDIOS INC.
By: /s/ PETER BACHMANN
---------------------------------
PETER BACHMANN
As an authorized officer of each
of the foregoing corporations
Address: 5700 Wilshire Boulevard
Los Angeles, California 90036
LENDER
VIACOM INC.
By: /s/ VAUGHN A. CLARKE
---------------------------------
VAUGHN A. CLARKE
Title: Senior Vice President, Treasurer
Address: 1515 Broadway
New York, New York 10036
<PAGE> 33
Exhibit 3.2.
TERM NOTE
$200,000,000 as of September 30, 1996
FOR VALUE RECEIVE, each of the undersigned, Spelling Entertainment Group
Inc., a Delaware 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 Credit
Agreement referred to below), the aggregate unpaid principal amount of the Term
Loan made by the Lender to the Borrowers pursuant to the Credit Agreement. The
Borrowers jointly and severally promise to pay daily interest, computed as
provided in such 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 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 Credit
Agreement, all such interest being payable at the times specified in such
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 Term Note evidences borrowings under, and is entitled to the
benefits and security of, and is subject to the provisions of, the Credit
Agreement dated as of September 30, 1996, as from time to time in effect (the
"Credit Agreement"), among the Borrowers and Lender and the Security Documents
(as defined in the Credit Agreement). The principal of this Term Note is
prepayable in the amounts and under the circumstances set forth in the Credit
Agreement, and may be prepaid in whole or from time to time in part, all as set
forth in the Credit Agreement. Terms defined in the 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 Term Note may become or be declared due and payable in the
manner and with the effect provided in the Credit Agreement.
THIS 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.
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
<PAGE> 34
the delivery acceptance performance and enforcement of this Term Note, except
as specifically otherwise provided in the 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 INC.
SPELLING TELEVISION INC.
TORAND PRODUCTIONS INC.
WORLDVISION ENTERPRISES, INC.
HAMILTON PROJECTS, INC.
WILSHIRE ENTERTAINMENT INC.
SPELLING SATELLITE NETWORKS, INC.
BIG TICKET TELEVISION INC.
REPUBLIC ENTERTAINMENT INC.
REPUBLIC DISTRIBUTION CORPORATION
VIRGIN INTERACTIVE ENTERTAINMENT, INC.
VIE HOLDING COMPANY
WESTWOOD STUDIOS INC.
By: /s/ PETER BACHMANN
----------------------------------
PETER BACHMANN
As an authorized officer of each
of the foregoing corporations
Address: 5700 Wilshire Boulevard
Los Angeles, California 90036
LENDER
VIACOM INC.
By: /s/ VAUGHN A. CLARKE
----------------------------------
VAUGHN A. CLARKE
Title: Senior Vice President, Treasurer
Address: 1515 Broadway
New York, New York 10036
<PAGE> 1
EXHIBIT 10.2
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (the "PLEDGE AND SECURITY
AGREEMENT"), dated as of September 30, 1996., made among SPELLING ENTERTAINMENT
GROUP INC. ("SEGI"), SPELLING ENTERTAINMENT INC. ("SEI"), AARON SPELLING
PRODUCTIONS, INC. ("ASP"), SPELLING FILMS INC. ("SFI"), SPELLING TELEVISION
INC. ("STI"), TORAND PRODUCTIONS INC. ("TPI"), WORLDVISION ENTERPRISES, INC.
("WORLDVISION"), LAUREL ENTERTAINMENT, INC. ("LAUREL"), HAMILTON PROJECTS,
INC. ("HAMILTON"), REPUBLIC ENTERTAINMENT INC. ("RPI"), REPUBLIC DISTRIBUTION
CORPORATION ("RDC"), WILSHIRE ENTERTAINMENT INC. ("WILSHIRE"), SPELLING
SATELLITE NETWORKS INC. ("SSNI"), BIG TICKET TELEVISION INC. ("BIG TICKET"),
VIE HOLDING COMPANY ("VIE HOLDING"), WESTWOOD STUDIOS, INC. ("WESTWOOD"),
VIRGIN INTERACTIVE ENTERTAINMENT, INC. ("VIE") and 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,
RPI, RDC, Wilshire, SSNI, Big Ticket, VIE Holding, Westwood, VIE and the
Other Subsidiaries 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 a Credit Agreement dated as
of September 30, 1996 with SEGI and the above named Subsidiaries as Borrowers
(said Credit 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 "CREDIT AGREEMENT," the terms defined therein and not
otherwise defined herein being used herein as therein defined) pursuant to
which Lender has made certain commitments, subject to the terms and conditions
set forth in the Credit Agreement, to extend certain credit facilities to the
Grantors.
(2) Grantors have executed and delivered a Guaranty dated
as of even date herewith (said 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 "GUARANTY") in favor of Lender, pursuant to which, inter
alia, the Grantors have guaranteed the Guaranteed Obligations (as that term is
defined in the Guaranty).
(3) In order to induce Lender to make Loans under the
Credit Agreement, Grantors have agreed to secure the payment and performance of
the Credit Obligations under the
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<PAGE> 2
Credit Agreement and the Guaranteed Obligations under the Guaranty by entering
into this Pledge and Security Agreement.
NOW, THEREFORE, in consideration of the premises 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 I(A) through 1(0) (subject, however, to Section I(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 I(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,
-2-
<PAGE> 3
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 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 I(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 I(A) through 1, the
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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 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,
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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");
(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 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;
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(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, 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 I(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;
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(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 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
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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 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 l(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
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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;
(P) Excluded Property. Notwithstanding Sections I(A) through
I(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 I (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
I(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.
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(2) Motor Vehicles and Airplanes. All motor vehicles and
airplanes.
SECTION 2. SECURITY FOR OBLIGATIONS.
(A) With respect to each Grantor the following shall apply:
(1) Primary Secured Obligations. This Agreement secures,
and the Collateral granted by such 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, II U.S.C. Section
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 now or hereafter existing under or
in respect of the 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 Grantor would accrue on such fees, expenses or otherwise) and all
obligations of such Grantor now or hereafter existing under this
Agreement.
(2) Secondary Secured Obligations. This Agreement
secures, and the Collateral granted by such 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, II
U.S.C. Section 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 Grantor now or hereafter
existing under or in respect of the 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.
(3) The Primary Secured Obligations and the Secondary Secured
Obligations are collectively referred to as the Secured Obligations.
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.
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(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 I(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.
(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 Secured 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.
(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 I(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
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denominations. All additional certificates or instruments, if any,
representing or evidencing Collateral described in Sections I (F) and (1)
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.
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
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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. Concurrently herewith, a Copyright
Mortgage and Assignment will be filed with the United States Copyright Office
transferring to Lender as security all of Grantors and their Subsidiaries'
rights in and to the registered copyrights and copyright licenses attached as
Schedule 1 thereto. With respect to any item of Product the copyright of which
is subsequently 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 subsequently 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.
Within 30 days of the end of each fiscal quarter following the date
hereof, the Grantors will prepare an amendment to the Copyright Mortgage and
Assignment in form and substance satisfactory to Lender listing in an
appropriate Schedule all copyright registrations and instruments of transfer
registered by Grantors and their Subsidiaries during such fiscal quarter.
Lender will then file and record the amendment with the Copyright Office.
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 Pledge and Security Agreement or the 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.
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(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 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 nongovernmental 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,
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<PAGE> 15
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 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 under the Credit Agreement or the Guaranty:
(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
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<PAGE> 16
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 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
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<PAGE> 17
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.
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
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<PAGE> 18
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 Credit Agreement, the Notes, the 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 Credit
Agreement, the Notes, the 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
(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,
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<PAGE> 19
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. INDEMNIFY 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.
(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
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<PAGE> 20
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.
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
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<PAGE> 21
the laws of a jurisdiction other than the State of New York. Unless otherwise
defined herein or in the 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 Guaranty or any other Credit Document may be brought in any
state or federal court of competent jurisdiction in the State of New York, 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 Guaranty or any other Credit Document.
The Grantors designate and appoint Spelling Entertainment Group Inc., 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 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
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<PAGE> 22
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/ PETER BACHMANN
-----------------------------
Title: Executive Vice President
-----------------------------
Address: 5700 Wilshire Boulevard
Los Angeles, California 90036
SPELLING ENTERTAINMENT INC.
By: /s/ PETER BACHMANN
-----------------------------
Title: President
-----------------------------
Address: 5700 Wilshire Boulevard
Los Angeles, California 90036
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
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<PAGE> 23
AARON SPELLING PRODUCTIONS, INC.
SPELLING FILMS INC.
SPELLING TELEVISION INC.
TORAND PRODUCTIONS INC.
WORLDVISION ENTERPRISES, INC.
LAUREL ENTERTAINMENT, INC.
HAMILTON PROJECTS, INC.
REPUBLIC ENTERTAINMENT INC.
REPUBLIC DISTRIBUTION CORPORATION
WILSHIRE ENTERTAINMENT INC.
SPELLING SATELLITE NETWORKS, INC.
BIG TICKET TELEVISION INC.
VIE HOLDING COMPANY
WESTWOOD STUDIOS, INC.
VIRGIN INTERACTIVE ENTERTAINMENT, INC.
By: /s/ PETER BACHMANN
-----------------------------------
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: /s/ VAUGHN A. CLARKE
-------------------------------------
Title: Senior Vice President, Treasurer
-------------------------------------
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<PAGE> 1
EXHIBIT 10.3
COPYRIGHT
MORTGAGE AND ASSIGNMENT;
POWER OF ATTORNEY
This COPYRIGHT MORTGAGE AND ASSIGNMENT; POWER OF ATTORNEY
is entered into as of September 30, 1996, by SPELLING ENTERTAINMENT GROUP
INC. ("SEGI"), SPELLING ENTERTAINMENT INC. ("SEI"), AARON SPELLING
PRODUCTIONS, INC. ("ASP"), SPELLING FILMS INC. ("SFI"), SPELLING TELEVISION
INC.("STI"), TORAND PRODUCTIONS INC.("TPI"), WORLDVISION ENTERPRISES,
INC.("WORLDVISION"), LAUREL ENTERTAINMENT, INC.("LAUREL"), HAMILTON
PROJECTS, INC. ("HAMILTON"), REPUBLIC ENTERTAINMENT INC. ("RPI"), REPUBLIC
DISTRIBUTION CORPORATION ("RDC"), WILSHIRE ENTERTAINMENT INC. ("WILSHIRE"),
SPELLING SATELLITE NETWORKS INC.("SSNI"), BIG TICKET TELEVISION INC. ("BIG
TICKET"), VIE HOLDING COMPANY("VIE HOLDING"), WESTWOOD STUDIOS, INC.
("WESTWOOD"), VIRGIN INTERACTIVE ENTERTAINMENT, INC.("VIE") and 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, RPI, RDC, Wilshire, SSNI, Big Ticket, VIE
Holding, Westwood, 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, RPI, RDC, Wilshire, SSNI, Big Ticket, VIE Holding,
Westwood, and VIE (individually a "BORROWER" and collectively the
"BORROWERS") and Lender have entered into a Credit Agreement dated as of
September 30, 1996, (said Credit Agreement, as it may hereafter be
amended, supplemented or otherwise modified from time to time, being the
"Credit Agreement"; capitalized terms used herein without definition shall
have the meanings assigned those terms in the Credit Agreement).
2. Grantors have executed and delivered a Guaranty
dated as of September 30, 1996 (said Guaranty, as it may hereafter be
amended, supplemented or modified from time to time, being the "GUARANTY")
in favor of Lender, pursuant to which, inter alia, the Grantors have
guaranteed the Guaranteed Obligations (as that term is defined in the
Guaranty).
3. Lender and Grantors have entered into a Pledge
and Security Agreement dated as of September 30, 1996 (said Pledge and
Security Agreement, as it may hereafter be amended, supplemented or
modified from time to time, being the "PLEDGE AND SECURITY AGREEMENT")
pursuant to which, inter alia, the Grantors have mortgaged, pledged,
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<PAGE> 2
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 Pledge and Security Agreement).
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.
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
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<PAGE> 3
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 at law, in equity,
by statute or otherwise.
Effective upon occurrence, and during the continuance, of
an Event of Default (as defined in the 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 Credit Agreement, the Guaranty, the 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 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 September 30, 1996.
GRANTORS:
SPELLING ENTERTAINMENT GROUP INC.
By: /s/ Peter Bachmann
________________________
Title: Executive Vice President
_______________________
SPELLING ENTERTAINMENT INC.
By: /s/ Peter Bachmann
________________________
Title: President
_______________________
[Remainder of page intentionally left blank]
[Additional signature page to follow]
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<PAGE> 4
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
AARON SPELLING PRODUCTIONS, INC.
SPELLING FILMS INC.
SPELLING TELEVISION INC.
TORAND PRODUCTIONS INC.
WORLDVISION ENTERPRISES, INC.
LAUREL ENTERTAINMENT, INC.
HAMILTON PROJECTS, INC.
REPUBLIC ENTERTAINMENT INC.
REPUBLIC DISTRIBUTION CORPORATION
WILSHIRE ENTERTAINMENT INC.
SPELLING SATELLITE NETWORKS, INC.
BIG TICKET TELEVISION INC.
VIE HOLDING COMPANY
WESTWOOD STUDIOS, INC.
VIRGIN INTERACTIVE ENTERTAINMENT, INC.
By: /s/ Peter Bachmann
________________________
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: /s/ Vaughn A. Clarke
___________________________________
Title: Senior Vice President, Treasurer
_________________________________
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<PAGE> 1
EXHIBIT 10.4
GUARANTY
This GUARANTY is entered into as of September 30, 1996,
by SPELLING ENTERTAINMENT GROUP INC.("SEGI"), SPELLING ENTERTAINMENT INC.
("SEI"), AARON SPELLING PRODUCTIONS, INC. ("ASP"), SPELLING FILMS
INC.("SFI"), SPELLING TELEVISION INC. ("STI"), TORAND PRODUCTIONS INC.
("TPI"), WORLDVISION ENTERPRISES, INC. ("WORLDVISION"),
LAUREL ENTERTAINMENT, INC. ("LAUREL"), HAMILTON PROJECTS, INC.
("HAMILTON"), REPUBLIC ENTERTAINMENT INC. ("RPI"), REPUBLIC DISTRIBUTION
CORPORATION ("RDC"), WILSHIRE ENTERTAINMENT INC. ("WILSHIRE"), SPELLING
SATELLITE NETWORKS INC.("SSNI"), BIG TICKET TELEVISION INC. ("BIG
TICKET"), VIE HOLDING COMPANY ("VIE HOLDING"), WESTWOOD STUDIOS, INC.
("WESTWOOD"), VIRGIN INTERACTIVE ENTERTAINMENT, INC. ("VIE") and 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, RPI, RDC, Wilshire, SSNI, Big Ticket, VIE
Holding, Westwood, VIE and any other present and future subsidiary of
SEGI which becomes a borrower under the Credit Agreement (as hereinafter
defined) are sometimes individually referred to herein as a "GUARANTOR"
and collectively as "GUARANTORS") and VIACOM INC., a Delaware corporation
("LENDER").
RECITALS
A. SEGI, SEI, ASP, SFI, STI, TPI, Worldvision,
Laurel, Hamilton, RPI, RDC, Wilshire, SSNI, Big Ticket, VIE Holding,
Westwood, and VIE (individually a "BORROWER" and collectively the
"BORROWERS"; as used herein the terms "Borrower" and "Borrowers" shall also
include any present or future subsidiary(ies) of SEGI that hereinafter
becomes a Borrower under the Credit Agreement (as hereinafter defined)
pursuant to the terms thereof) and Lender have entered into a
Credit Agreement dated as of September 30, 1996 (said Credit 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 "Credit
Agreement"; capitalized terms used herein without definition shall have
the meanings assigned those terms in the Credit Agreement);
B. Lender is willing to extend credit facilities to
Borrowers on a joint and several basis as provided in the Credit
Agreement, upon the condition that Borrowers' Credit Obligations thereunder
and under the other Credit Documents be guaranteed by Guarantors, as set
forth below.
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<PAGE> 2
C. A portion of the proceeds of the Loans may be advanced to
Guarantors and thus the Guarantied Obligations (as hereinafter defined) are
being incurred for and will inure to the benefit of Guarantors (which benefits
are hereby acknowledged).
D. In order to induce Lender to make Loans under the Credit
Agreement, the Guarantors have agreed to guaranty each Borrower's Credit
Obligations thereunder and under the other Credit Documents.
E. Guarantors are willing irrevocably and unconditionally to
guaranty such obligations of Borrowers.
NOW, THEREFORE, based upon the foregoing and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Guarantors hereby agree as follows:
SECTION 1. DEFINITION.
1.1 CERTAIN DEFINED TERMS. As used in this Guaranty, the following terms
shall have the following meanings unless the context otherwise requires:
"GUARANTIED OBLIGATIONS" has the meaning assigned to that term in
subsection 2.1.
"GUARANTY" means this Guaranty dated as of September 30, 1996, as it
may be amended, supplemented or otherwise modified from time to time.
"PAYMENT IN FULL", "PAID IN FULL" or any similar term means payment
in full of the Guarantied Obligations including, without limitation, all
principal, interest, costs, fees and expenses (including, without
limitation, legal fees and expenses) of Lender as required under the Credit
Documents.
1.2 INTERPRETATION.
(a) References to "Sections" and "subsections" shall be to
Sections and subsections, respectively, of this Guaranty unless otherwise
specifically provided.
(b) In the event of any conflict or inconsistency between the terms,
conditions and provisions of this Guaranty and the terms, conditions and
provisions of the Credit Agreement, the terms, conditions and provisions
of this Guaranty shall prevail.
SECTION 2. THE GUARANTY
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<PAGE> 3
2.1 GUARANTY OF THE GUARANTIED OBLIGATIONS. Subject to the
provisions of subsection 2.2(a), Guarantors jointly and severally
hereby irrevocably and unconditionally guaranty, as primary obligors
and not merely as sureties, the due and punctual payment in full of all
Guarantied Obligations when the same shall become due, whether at
stated maturity, by required prepayment, declaration, acceleration,
demand or otherwise (including amounts that would become due but for
the operation of the automatic stay under Section 362(a) of the
Bankruptcy Code, 11 U.S.C. Section 362(a)). The term "GUARANTIED
OBLIGATIONS" is used herein in its most comprehensive sense and
includes:
(a) any and all Credit Obligations now or hereafter made,
incurred or created, whether absolute or contingent, liquidated
or unliquidated, whether due or not due, and however arising under
or in connection with the Credit Agreement and the other Credit
Documents, including those arising under successive borrowing
transactions under the Credit Agreement which shall either
continue the Credit Obligations or from time to time renew them
after they have been satisfied; and
(b) those expenses set forth in subsection 2.9 hereof.
2.2 LIMITATION ON AMOUNT GUARANTIED; CONTRIBUTION BY GUARANTORS.
(a) Anything contained in this Guaranty to the contrary
notwithstanding, the obligations of each Guarantor hereunder
(other than the obligations of SEGI hereunder) shall be limited to
a maximum aggregate amount equal to the largest amount that would
not render its obligations hereunder subject to avoidance as a
fraudulent transfer or conveyance under Section 548 of Title 11 of
the United States Code or any applicable provisions of comparable
state law (collectively, the "FRAUDULENT TRANSFER LAW") in each
case after giving effect to all other liabilities of such
Guarantor, contingent or otherwise, that are relevant under the
Fraudulent Transfer Laws (specifically excluding, however, any
liabilities of such Guarantor (x) in respect of intercompany
indebtedness to Borrowers or other affiliates of Borrowers to the
extent that such indebtedness would be discharged in an amount
equal to the amount paid by such Guarantor hereunder and (y) under
any guaranty of Indebtedness which by its terms is subordinated to
the Credit Obligations and which guaranty contains a limitation as
to maximum amount similar to that set forth in this subsection
2.2(a), pursuant to which the liability of such Guarantor
hereunder is included in the liabilities taken into account in
determining such maximum amount) and after giving effect as assets
to the value (as determined under the applicable provisions of the
Fraudulent Transfer Laws) of any rights to subrogation,
reimbursement or contribution of such Guarantor pursuant to (i)
applicable law or (ii) any agreement providing for an equitable
allocation among such Guarantor and other affiliates of Borrowers
of obligations arising under guaranties by such parties.
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<PAGE> 4
(b) Guarantors under this Guaranty together desire to allocate
among themselves (collectively, the "CONTRIBUTING GUARANTORS"), in a fair
and equitable manner, their obligations arising under this Guaranty.
Accordingly, in the event any payment or distribution is made on any date by
any Guarantor under this Guaranty (a "FUNDING GUARANTOR") that exceeds its
Fair Share (as defined below) as of such date, that Funding Guarantor shall
be entitled to a contribution from each of the other Contributing Guarantors
in the amount of such other Contributing Guarantor's Fair Share Shortfall
(as defined below) as of such date, with the result that all such
contributions will cause each Contributing Guarantor's Aggregate Payments
(as defined below) to equal its Fair Share as of such date. "FAIR SHARE"
means, with respect to a Contributing Guarantor as of any date of
determination, an amount equal to (i) the ratio of (x) the Adjusted Maximum
Amount (as defined below) with respect to such Contributing Guarantor to (y)
the aggregate of the Adjusted Maximum Amounts with respect to all
Contributing Guarantors, multiplied by (ii) the aggregate amount paid or
distributed on or before such date by all Funding Guarantors under this
Guaranty in respect of the obligations guarantied. "FAIR SHARE SHORTFALL"
means, with respect to a Contributing Guarantor as of any date of
determination, the excess, if any, of the Fair Share of such Contributing
Guarantor over the Aggregate Payments of such Contributing Guarantor.
"ADJUSTED MAXIMUM AMOUNT" means, with respect to a Contributing Guarantor as
of any date of determination, the maximum aggregate amount of the
obligations of such Contributing Guarantor under this Guaranty, determined
as of such date in accordance with subsection 2.2(a); provided that, solely
for purposes of calculating the "ADJUSTED MAXIMUM AMOUNT" with respect to
any Contributing Guarantor for purposes of this subsection 2.2(b), any
assets or liabilities of such Contributing Guarantor arising by virtue of
any rights to subrogation or reimbursement or any rights to or obligations
of contribution hereunder shall not be considered as assets or liabilities
of such Contributing Guarantor. "AGGREGATE PAYMENTS" means, with respect to
a Contributing Guarantor as of any date of determination, an amount equal to
(i) the aggregate amount of all payments and distributions made on or before
such date by such Contributing Guarantor in respect of this Guaranty
(including, without limitation, in respect of this subsection 2.2(b) minus
(ii) the aggregate amount of all payments received on or before such date by
such Contributing Guarantor from the other Contributing Guarantors as
contributions under this subsection 2.2(b). The amounts payable as
contributions hereunder shall be determined as of the date on which the
related payment or distribution is made by the applicable Funding Guarantor.
The allocation among Contributing Guarantors of their obligations as set
forth in this subsection 2.2(b) shall not be construed in any way to limit
the liability of any Contributing Guarantor hereunder.
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<PAGE> 5
2.3 LIABILITY OF GUARANTORS ABSOLUTE. Each Guarantor agrees
that its obligations hereunder are irrevocable, absolute, independent and
unconditional and shall not be affected by any circumstance which
constitutes a legal or equitable discharge of a guarantor or surety other
than indefeasible payment in full of the Guarantied Obligations. In
furtherance of the foregoing and without limiting the generality thereof,
each Guarantor agrees as follows:
(a) This Guaranty is a guaranty of payment when due
and not of collectibility.
(b) Lender may enforce this Guaranty upon the
occurrence of an Event of Default under the Credit Agreement
notwithstanding the existence of any dispute between Lender and
Borrowers with respect to the existence of such Event of Default.
(c) The obligations of each Guarantor hereunder are
independent of the obligations of Borrowers under the Credit
Documents and the obligations of any other guarantor (including
any other Guarantor) of the obligations of Borrowers under the
Credit Documents, and a separate action or actions may be brought
and prosecuted against such Guarantor whether or not any action is
brought against Borrowers, or any of them, or any of such other
guarantors and whether or not Borrowers are joined in any such
action or actions.
(d) Payment by any Guarantor of a portion, but not
all, of the Guarantied Obligations shall in no way limit, affect,
modify or abridge any Guarantor's liability for any portion of the
Guarantied Obligations which has not been paid. Without limiting
the generality of the foregoing, if Lender is awarded a judgment
in any suit brought to enforce any Guarantor's covenant to pay a
portion of the Guarantied Obligations, such judgment shall not be
deemed to release such Guarantor from its covenant to pay the
portion of the Guarantied Obligations that is not the subject of
such suit, and such judgment shall not, except to the extent
satisfied by such Guarantor, limit, affect, modify or abridge any
other Guarantor's liability hereunder in respect of the Guarantied
Obligations.
(e) Lender, upon such terms as it deems appropriate,
without notice or demand and without affecting the validity or
enforceability of this Guaranty or giving rise to any reduction,
limitation, impairment, discharge or termination of any
Guarantor's liability hereunder, from time to time may (i) renew,
extend, accelerate, increase the rate of interest on, or otherwise
change the time, place, manner or terms of payment of the
Guarantied Obligations, (ii) settle, compromise, release or
discharge, or accept or refuse any offer of performance with
respect to, or substitutions for, the Guarantied Obligations or
any agreement relating thereto and/or subordinate the payment of
the same to the payment of any other obligations; (iii) request
and accept other guaranties of the Guarantied Obligations and take
and hold
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<PAGE> 6
security for the payment of this Guaranty or the Guarantied Obligations;
(iv) release, surrender, exchange, substitute, compromise, settle, rescind,
waive, alter, subordinate or modify, with or without consideration, any
security for payment of the Guarantied Obligations, any other guaranties of
the Guarantied Obligations, or any other obligation of any Person (including
any other Guarantor) with respect to the Guarantied Obligations; (v) enforce
and apply any security now or hereafter held by or for the benefit of Lender
in respect of this Guaranty or the Guarantied Obligations and direct the
order or manner of sale thereof, or exercise any other right or remedy that
Lender may have against any such security, as Lender in its discretion may
determine consistent with the Credit Agreement and any applicable security
agreement, including foreclosure on any such security pursuant to one or
more judicial or nonjudicial sales, whether or not every aspect of any such
sale is commercially reasonable, and even though such action operates to
impair or extinguish any right of reimbursement or subrogation or other
right or remedy of any Guarantor against Borrowers, or any of them, or any
security for the Guarantied Obligations; and (vi) exercise any other rights
available to it under the Credit Documents.
(f) This Guaranty and the obligations of Guarantors
hereunder shall be valid and enforceable and shall not be subject to any
reduction, limitation, impairment, discharge or termination for any reason
(other than indefeasible payment in full of the Guarantied Obligations),
including without limitation the occurrence of any of the following, whether
or not any Guarantor shall have had notice or knowledge of any of them: (i)
any failure or omission to assert or enforce or agreement or election not to
assert or enforce, or the stay or enjoining, by order of court, by operation
of law or otherwise, of the exercise or enforcement of, any claim or demand
or any right, power or remedy (whether arising under the Credit Documents,
at law, in equity or otherwise) with respect to the Guarantied Obligations
or any agreement relating thereto, or with respect to any other guaranty of
or security for the payment of the Guarantied Obligations; (ii) any
rescission, waiver, amendment or modification of, or any consent to
departure from, any of the terms or provisions (including without limitation
provisions relating to events of default) of the Credit Agreement, any of
the other Credit Documents or any agreement or instrument executed pursuant
thereto, or of any other guaranty or security for the Guarantied
Obligations, in each case whether or not in accordance with the terms of the
Credit Agreement or such Credit Document or any agreement relating to such
other guaranty or security; (iii) the Guarantied Obligations, or any
agreement relating thereto, at any time being found to be illegal, invalid
or unenforceable in any respect; (iv) the application of payments received
from any source (other than payments received pursuant to the other Credit
Documents or from the proceeds of any security for the Guarantied
Obligations, except to the extent such security also serves as collateral
for indebtedness other than the Guarantied Obligations) to the payment of
indebtedness other than the Guarantied Obligations, even though Lender might
have
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<PAGE> 7
elected to apply such payment to any part or all of the Guarantied
Obligations; (v) Lender's consent to the change, reorganization or
termination of the corporate structure or existence of SEGI or any
of its Subsidiaries and to any corresponding restructuring of the
Guarantied Obligations; (vi) any failure to perfect or continue
perfection of a security interest in any collateral which secures
any of the Guarantied Obligations; (vii) any defenses, set-offs or
counterclaims which Borrowers, or any of them, may allege or
assert against Lender in respect of the Guarantied Obligations,
including but not limited to failure of consideration, breach of
warranty, payment, statute of frauds, statute of limitations,
accord and satisfaction and usury; and (viii) any other act or
thing or omission, or delay to do any other act or thing, which
may or might in any manner or to any extent vary the risk of any
Guarantor as an obligor in respect of the Guarantied Obligations.
2.4 WAIVERS-BY GUARANTORS. Each Guarantor hereby waives, for
the benefit of Lender:
(a) any right to require Lender, as a condition of
payment or performance by such Guarantor, to (i) proceed against
Borrowers, or any of them, any other guarantor (including any
other Guarantor) of the Guarantied Obligations or any other
Person, (ii) proceed against or exhaust any security held from
Borrowers, or any of them, any other guarantor (including any
other Guarantor) of the Guarantied Obligations or any other
Person, (iii) proceed against or have resort to any balance of any
deposit account or credit on the books of Lender in favor of
Borrowers, or any of them, or any other Person, or (iv) pursue any
other remedy in the power of Lender whatsoever;
(b) any defense arising by reason of the incapacity,
lack of authority or any disability or other defense of Borrowers,
or any of them, including, without limitation, any defense based
on or arising out of the lack of validity or the unenforceability
of the Guarantied Obligations or any agreement or instrument
relating thereto or by reason of the cessation of the liability of
Borrowers, or any of them, from any cause other than indefeasible
payment in full of the Guarantied Obligations:
(c) any defense based upon any statute or rule of law
which provides that the obligation of a surety must be neither
larger in amount nor in other respects more burdensome than that
of the principal;
(d) any defense based upon Lender's errors or
omissions in the administration of the Guarantied Obligations,
except behavior which amounts to bad faith;
(e) (i) any principles or provisions of law,
statutory or otherwise, which are or might be in conflict with the
terms of this Guaranty and any legal or equitable
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discharge of such Guarantor's obligations hereunder, (ii) the benefit of any
statute of limitations affecting such Guarantor's liability hereunder or the
enforcement hereof, (iii) any rights to set-offs, recoupments and
counterclaims, and (iv) promptness, diligence and any requirement that
Lender protect, secure, perfect or insure any security interest or lien or
any property subject thereto;
(f) notices, demands, presentments, protests, notices of
protest, notices of dishonor and notices of any action or inaction,
including acceptance of this Guaranty, notices of default under the Credit
Agreement or any agreement or instrument related thereto, notices of any
renewal, extension or modification of the Guarantied Obligations or any
agreement related thereto, notices of any extension of credit to the
Borrowers, or any of them, and notices of any of the matters referred to in
subsection 2.3 and any right to consent to any thereof; and
(g) any defenses or benefits that may be derived from or
afforded by law which limit the liability of or exonerate guarantors or
sureties, or which may conflict with the terms of this Guaranty, including
without limitation if and to the extent applicable, the provisions of
California Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2846, 2849,
2850, 2899 and 3433.
2.5 PAYMENT BY GUARANTORS; APPLICATION OF PAYMENTS. Subject to the
provisions of subsection 2.2(a), Guarantors hereby jointly and severally agree,
in furtherance of the foregoing and not in limitation of any other right which
Lender or any other Person may have at law or in equity against any Guarantor
by virtue hereof, that upon the failure of Borrowers, or any of them, to pay
any of the Guarantied Obligations when and as the same shall become due,
whether at stated maturity, by required prepayment, declaration, acceleration,
demand or otherwise (including amounts that would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11
U.S.C. Section 362(a) or the operation of any other provision of law or any
jurisdiction which would otherwise cause a stay of the payment of such
amounts), Guarantors will upon demand pay, or cause to be paid, in cash, to
Lender, an amount equal to the sum of the unpaid principal amount of all
Guarantied Obligations then due as aforesaid, accrued and unpaid interest on
such Guarantied Obligations (including, without limitation, interest which, but
for the filing of a petition in bankruptcy with respect to Borrowers, or any of
them, would have accrued on such Guarantied Obligations, whether or not a claim
is allowed against Borrowers, or any of them, for such interest in any such
bankruptcy proceeding) and all other Guarantied Obligations then owed to Lender
as aforesaid. All such payments shall be applied promptly from time to time by
Lender:
First, to the payment of the costs and expenses of any collection
or other realization under this Guaranty, including reasonable compensation
to Lender and its agents and counsel, and all expenses, liabilities and
advances made or incurred by Lender in connection therewith;
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<PAGE> 9
Second, to the payment of all other Guarantied Obligations;
and
Third, after payment in full of all Guarantied Obligations,
to the payment to Guarantors, or their respective 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 payments.
2.6 GUARANTORS' RIGHTS OF SUBROGATION, CONTRIBUTION, ETC. Each
Guarantor hereby waives any claim, right or remedy, direct or indirect,
that such Guarantor now has or may hereafter have against Borrowers, or any
of them, or any of their assets in connection with this Guaranty or the
performance by such Guarantor of its obligations hereunder, in each case
whether such claim, right or remedy arises in equity, under contract, by
statute, under common law or otherwise and including without limitation (a)
any right of subrogation, reimbursement or indemnification that such
Guarantor now has or may hereafter have against any Borrower, (b) any right
to enforce, or to participate in, any claim, right or remedy that Lender
now has or may hereafter have against Borrowers, or any of them, and (c)
any benefit of, and any right to participate in, any collateral or security
now or hereafter held by Lender. In addition, until the Guarantied
Obligations shall have been indefeasibly paid in full and the Commitment
shall have terminated, each Guarantor shall withhold exercise of any right
of contribution such Guarantor may have against any other guarantor
(including any other Guarantor) of the Guarantied Obligations (including
without limitation any such right of contribution under subsection 2.2(b).
Each Guarantor further agrees that, to the extent the waiver or withholding
of its rights of subrogation, reimbursement, indemnification and
contribution as set forth herein is found by a court of competent
jurisdiction to be void or voidable for any reason, any rights of
subrogation, reimbursement or indemnification such Guarantor may have
against Borrowers, or any of them, or against any collateral or security,
and any rights of contribution such Guarantor may have against any such
other guarantor, shall be junior and subordinate to any rights Lender may
have against Borrowers, or any of them, to all right, title and interest
Lender may have in any such collateral or security, and to any right Lender
may have against such other guarantor. Lender may use, sell or dispose of
any item of collateral or security as it sees fit without regard to any
subrogation rights any Guarantor may have, and upon any such disposition or
sale any rights of subrogation such Guarantor may have shall terminate. If
any amount shall be paid to any Guarantor on account of any such
subrogation, reimbursement or indemnification rights at any time when all
Guarantied Obligations shall not have been paid in full, such amount shall
be held in trust for Lender and shall forthwith be paid over to Lender to
be credited and applied against the Guarantied Obligations, whether matured
or unmatured, in accordance with the terms hereof.
2.7 SUBORDINATION OF OTHER OBLIGATIONS. Any indebtedness of
Borrowers, or any of them, now or hereafter held by any Guarantor is hereby
subordinated in right of payment to the Guarantied Obligations, and any
such indebtedness of Borrowers, or any of
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<PAGE> 10
them, to such Guarantor collected or received by such Guarantor after an Event
of Default has occurred and is continuing shall be held in trust for Lender and
shall forthwith be paid over to Lender to be credited and applied against the
Guarantied Obligations but without affecting, impairing or limiting in any
manner the liability of such Guarantor under any other provision of this
Guaranty.
2.8 REAL PROPERTY-SECURITY. Each Guarantor agrees that, if all or a
portion of the Guarantied Obligations are at any time secured by a deed of
trust or mortgage covering interests in real property, Lender or its designee,
in its sole discretion, without notice or demand and without affecting the
liability of any Guarantor under this Guaranty, may foreclose, pursuant to the
terms of the Credit Documents or otherwise, on such deed of trust or mortgage
and the interests in real property secured thereby by nonjudicial or other
sale. Each Guarantor understands (i) that the exercise by Lender, or any of
them, of certain rights and remedies contained in the Credit Agreement and
Borrowers, or any of them, such deed of trust or mortgage, including the right
to conduct such a nonjudicial foreclosure sale, may affect or eliminate such
Guarantor's right of subrogation against Borrowers, or any of them, (ii) that
such Guarantor may therefore incur a partially or totally nonreimbursable
liability hereunder, and (iii) that such actions by Lender that affect or
eliminate such right of subrogation may give rise to a defense by such
Guarantor to any liability under this Guaranty, absent a waiver of such defense
by such Guarantor. Nevertheless, each Guarantor hereby waives any such defense
and hereby authorizes and empowers Lender to exercise, in its sole discretion,
any rights and remedies, or any combination thereof, which may then be
available, since it is the intent and purpose of each Guarantor that the
obligations hereunder shall be absolute, independent and unconditional under
any and all circumstances. To the extent permitted by law, without limiting
the generality of the foregoing, if and to the extent found applicable, each
Guarantor hereby expressly waives any and all benefits under California Code of
Civil Procedure Sections 580a, 580d and 726. Notwithstanding any foreclosure
of the lien of such deed of trust or mortgage with respect to any or all real
or personal property secured thereby, whether by the exercise of the power of
sale contained therein, by an action for judicial foreclosure or by an
acceptance of a deed in lieu of foreclosure, each Guarantor shall remain bound
under this Guaranty, including its obligation to pay any deficiency after a
nonjudicial foreclosure, even though such Guarantor may have no right of
subrogation against Borrowers, or any of them, as a result thereof.
2.9 EXPENSES. Guarantors jointly and severally agree to pay, or cause
to be paid, on demand, and to save Lender harmless against liability for, any
and all costs and expenses (including fees and disbursements of counsel and
allocated costs of internal counsel) incurred or expended by Lender in
connection with the enforcement of or preservation of any rights under this
Guaranty.
2.10 CONTINUING GUARANTY. This Guaranty is a continuing guaranty and
shall remain in effect until all of the Guarantied Obligations shall have been
indefeasibly paid in full
-10-
<PAGE> 11
and the Commitment shall have terminated. Each Guarantor hereby
irrevocably waives any right (including without limitation if and to the
extent applicable, any such right arising under California Civil Code
Section 2815) to revoke this Guaranty as to future transactions giving rise
to any Guarantied Obligations.
2.11 AUTHORITY OF GUARANTORS OR BORROWERS. It is not necessary
for Lender to inquire into the capacity or powers of any Guarantor or any
Borrower or the officers, directors or any agents acting or purporting to
act on behalf of any of them.
2.12 FINANCIAL CONDITION OF BORROWERS. Any Loans may be
granted to Borrowers or continued from time to time without notice to or
authorization from any Guarantor regardless of the financial or other
condition of Borrowers, or any of them, at the time of any such grant or
continuation. Lender shall have no obligation to disclose or discuss with
any Guarantor their assessment, or any Guarantor's assessment, of
the financial condition of Borrowers, or any of them. Each Guarantor has
adequate means to obtain information from Borrowers on a continuing basis
concerning the financial condition of Borrowers and their ability to
perform their obligations under the Credit Documents, and each Guarantor
assumes the responsibility for being and keeping informed of the financial
condition of Borrowers and of all circumstances bearing upon the risk of
nonpayment of the Guarantied Obligations. Each Guarantor hereby waives
and relinquishes any duty on the part of Lender to disclose any matter,
fact or thing relating to the business, operations or conditions of
Borrowers, or any of them, now known or hereafter known by Agent or any
Lender.
2.13 RIGHTS CUMULATIVE. The rights, powers and remedies given
to Lender by this Guaranty are cumulative and shall be in addition to and
independent of all rights, powers and remedies given to Lender by virtue
of any statute or rule of law or in any of the other Credit Documents or
any agreement between any Guarantor and Lender between Borrowers, or any
of them, and Lender. Any forbearance or failure to exercise, and any
delay by Lender in exercising, any right, power or remedy hereunder shall
not impair any such right, power or remedy or be construed to be a waiver
thereof, nor shall it preclude the further exercise of any such right,
power or remedy.
2.14 BANKRUPTCY: POST-PETITION INTEREST; REINSTATEMENT OF
GUARANTY.
(a) So long as any Guarantied Obligations remain
outstanding, no Guarantor shall, without the prior written
consent of Lender in accordance with the terms of the Credit
Agreement, commence or join with any other Person in commencing
any bankruptcy, reorganization or insolvency proceedings of or
against Borrowers, or any of them. The obligations of Guarantors
under this Guaranty shall not be reduced, limited, impaired,
discharged, deferred, suspended or terminated by any proceeding,
voluntary or involuntary, involving the bankruptcy, insolvency,
-11-
<PAGE> 12
receivership, reorganization, liquidation or arrangement of Borrowers, or
any of them, or by any defense which Borrowers, or any of them, may have by
reason of the order, decree or decision of any court or administrative body
resulting from any such proceeding.
(b) Each Guarantor acknowledges and agrees that any interest on
any portion of the Guarantied Obligations which accrues after the
commencement of any proceeding referred to in clause (a) above (or, if
interest on any portion of the Guarantied Obligations ceases to accrue by
operation of law by reason of the commencement of said proceeding, such
interest as would have accrued on such portion of the Guarantied Obligations
if said proceedings had not been commenced) shall be included in the
Guarantied Obligations because it is the intention of Guarantors and Lender
that the Guarantied Obligations which are guarantied by Guarantors pursuant
to this Guaranty should be determined without regard to any rule of law or
order which may relieve Borrowers, or any of them, of any portion of such
Guarantied Obligations. Guarantors will permit any trustee in bankruptcy,
receiver, debtor in possession, assignee for the benefit of creditors or
similar person to pay Lender, or allow the claim of Lender in respect of,
any such interest accruing after the date on which such proceeding is
commenced.
(c) In the event that all or any portion of the Guarantied
Obligations are paid by any Borrower, the obligations of Guarantors
hereunder shall continue and remain in full force and effect or be
reinstated, as the case may be, in the event that all or any part of such
payment(s) are rescinded or recovered directly or indirectly from Lender as
a preference, fraudulent transfer or otherwise, and any such payments which
are so rescinded or recovered shall constitute Guarantied Obligations for
all purposes under this Guaranty.
2.15 SET OFF. In addition to any other rights Lender may have under law
or in equity, if any amount shall at any time be due and owing by any Guarantor
to Lender under this Guaranty, such Lender is authorized at any time or from
time to time, without notice (any such notice being hereby expressly waived),
to set off and to appropriate and to apply any and all indebtedness of Lender
owing to such Guarantor and any other property of such Guarantor held by Lender
to or for the credit or the account of such Guarantor against and on account of
the Guarantied Obligations and liabilities of such Guarantor to Lender under
this Guaranty.
SECTION 3. REPRESENTATIONS AND WARRANTIES
In order to induce Lender to accept this Guaranty and to enter into
the Credit Agreement and to make the Loans thereunder, each Guarantor hereby
represents and warrants to Lender that the following statements are true and
correct:
-12-
<PAGE> 13
3.1 CORPORATE POWER: AUTHORIZATION: ENFORCEABLE OBLIGATIONS.
Such Guarantor has the corporate power, authority and legal right to
execute, deliver and perform this Guaranty and all obligations
required hereunder and has taken all necessary corporate action to
authorize its Guaranty hereunder on the terms and conditions hereof and its
execution, delivery and performance of this Guaranty and all obligations
required hereunder. No consent of any other Person including, without
limitation, stockholders and creditors of such Guarantor, and no license,
permit, approval or authorization of, exemption by, notice or report to, or
registration, filing or declaration with, any governmental authority is
required by such Guarantor in connection with this Guaranty or the
execution, delivery, performance, validity or enforceability of this
Guaranty and all obligations required hereunder. This Guaranty has been,
and each instrument or document required hereunder will be, executed and
delivered by a duly authorized officer of such Guarantor, and this Guaranty
constitutes, and each instrument or document required hereunder when
executed and delivered by such Guarantor hereunder will constitute, the
legally valid and binding obligation of such Guarantor, enforceable
against such Guarantor in accordance with its terms, except as enforcement
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws or equitable principles relating to or
limiting creditors' rights generally.
3.2 NO LEGAL BAR TO THIS GUARANTY. The execution, delivery
and performance of this Guaranty and the documents or instruments required
hereunder, and the use of the proceeds of the borrowings under the Credit
Agreement, will not violate any provision of any existing law or regulation
binding on such Guarantor, or any order, judgment, award or decree of any
court, arbitrator or governmental authority binding on such Guarantor, or
the certificate of incorporation or bylaws of such Guarantor or any
securities issued by such Guarantor, or any mortgage, indenture, lease,
contract or other agreement, instrument or undertaking to which such
Guarantor is a party or by which such Guarantor or any of its assets may be
bound, the violation of which would have a material adverse effect on the
business, operations, assets or financial condition of such Guarantor and
its Subsidiaries, taken as a whole, and will not result in, or require, the
creation or imposition of any Lien on any of its property, assets or
revenues pursuant to the provisions of any such mortgage, indenture, lease,
contract or other agreement, instrument or undertaking.
3.3 CERTAIN GUARANTOR REPRESENTATIONS. Each Guarantor
represents that (a) it is in its best interest and in pursuit of its
corporate purposes as an integral part of the business conducted and
proposed to be conducted by SEGI and its Subsidiaries (including such
Guarantor), and reasonably necessary and convenient in connection with the
conduct of the business conducted and proposed to be conducted by it, to
induce the Lender to enter into the Credit Agreement and to extend credit
to each Borrower by making the Guaranties contemplated by this Guaranty,
(b) the credit available under the Credit Agreement will directly or
indirectly inure to its benefit, and (c) by virtue of the foregoing it is
receiving at least reasonably equivalent consideration from the Lender for
its Guaranty. Each Guarantor
-13-
<PAGE> 14
acknowledges that it has been advised by Lender that the Lender is unwilling to
enter into the Credit Agreement unless the Guaranties contemplated by this
Guaranty are given by it. Each Guarantor represents that (i) it will not be
rendered insolvent as a result of entering into this Guaranty, (ii) after
giving effect to the transactions contemplated by this Guaranty, it will have
assets having a fair saleable value in excess of the amount required to pay its
probable liability on its existing debts as they have become absolute and
matured, (iii) it has, and will have, access to adequate capital for the
conduct of its business and (iv) it has the ability to pay its debts from time
to time incurred in connection therewith as such debts mature.
SECTION 4. MISCELLANEOUS
4.1 SURVIVAL OF WARRANTIES. All agreements, representations and
warranties made herein shall survive the execution and delivery of this
Guaranty, any increase in the Commitment under the Credit Agreement and the
execution and delivery of the Note.
4.2 NOTICES. Any communications between Lender and any Guarantor and
any notices or requests provided herein to be given may be given by mailing the
same, postage prepaid, or by telex, facsimile transmission or cable to each
such party at its address set forth in the Credit Agreement, on the signature
pages hereof or to such other addresses as each such party may in writing
hereafter indicate. Any notice, request or demand to or upon Lender or any
Guarantor shall not be effective until received.
4.3 SEVERABILITY. In case any provision in or obligation under this
Guaranty 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.
4.4 AMENDMENTS AND WAIVERS. No amendment, modification, termination or
waiver of any provision of this Guaranty, or consent to any departure by any
Guarantor therefrom, shall in any event be effective without the written
concurrence of Lender under the Credit Agreement. Any waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which it was given.
4.5 HEADINGS. Section and subsection headings in this Guaranty are
included herein for convenience of reference only and shall not constitute a
part of this Guaranty for any other purpose or be given any substantive effect.
4.6 APPLICABLE LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
-14-
<PAGE> 15
4.7 SUCCESSORS AND ASSIGNS. This Guaranty is a continuing
guaranty and shall be binding upon each Guarantor and its respective
successors and assigns. This Guaranty shall inure to the benefit of
Lender and its respective successors and assigns. No Guarantor shall
assign this Guaranty or any of the rights or obligations of such Guarantor
hereunder without the prior written consent of Lender. Lender may,
without notice or consent, assign its interest in this Guaranty in whole or
in part. The terms and provisions of this Guaranty shall inure to the
benefit of any transferee or assignee of any Note, and in the event of
such transfer or assignment the rights and privileges herein conferred
upon Lender shall automatically extend to and be vested in such transferee
or assignee, all subject to the terms and conditions hereof.
4.8 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL
JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY GUARANTOR ARISING OUT OF OR
RELATING TO THIS GUARANTY MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE STATES OF NEW YORK, FLORIDA AND CALIFORNIA,
AND BY EXECUTION AND DELIVERY OF THIS GUARANTY EACH GUARANTOR ACCEPTS FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE
BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS GUARANTY.
Each Guarantor designates and appoints Spelling Entertainment Group Inc.,
and such other Persons as may hereafter be selected by such Guarantor
irrevocably agreeing in writing to so serve, as its agent to receive on its
behalf service of all process in any such proceedings in any such court,
such service being hereby acknowledged by such Guarantor to be effective
and binding service in every respect. A copy of any such process so served
shall be mailed by registered mail to such Guarantor at its address
provided in subsection 4.2; provided that, unless otherwise provided by
applicable law, any failure to mail such copy shall not affect the validity
of service of such process. If any agent appointed by any Guarantor
refuses to accept service, such Guarantor hereby agrees that service of
process sufficient for personal jurisdiction in any action against such
Guarantor in the States of New York, California and Florida may be made
by registered or certified mail, return receipt requested, to such
Guarantor at its address provided in subsection 4.2, and each Guarantor
hereby acknowledges that such service shall be effective and binding in
every respect. 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 Guarantor in the courts of any other
jurisdiction.
4.9 NO OTHER WRITING. This writing is intended by Guarantors
and Lender as the final expression of this Guaranty and is also intended
as a complete and exclusive statement of the terms of their agreement with
respect to the matters covered hereby. No course of dealing, course of
performance or trade usage, and no parol evidence of any nature, shall be
-15-
<PAGE> 16
used to supplement or modify any terms of this Guaranty. There are no
conditions to the full effectiveness of this Guaranty.
4.10 FURTHER ASSURANCES. At any time or from time to time, upon the
request of Agent or Requisite Lenders, Guarantors shall execute and deliver
such further documents and do such other acts and things as Lender may
reasonably request in order to effect fully the purposes of this Guaranty.
4.11 ADDITIONAL SUBSIDIARY GUARANTORS. The initial Guarantors hereunder
shall be SEGI and such of the Subsidiaries of SEGI as are signatories hereto on
the date hereof. From time to time subsequent to the date hereof, additional
Subsidiaries of SEGI may become parties hereto, as additional Guarantors, by
executing a counterpart of this Guaranty. Upon delivery of any such
counterpart to Lender, notice of which is hereby waived by Guarantors, each
such additional Guarantor shall be as fully a party hereto as if such Guarantor
were an original signatory hereof. Each Guarantor expressly agrees that its
obligations arising hereunder shall not be affected or diminished by the
addition or release of any other Guarantor hereunder, nor by any election of
Lender not to cause any Subsidiary of SEGI to become an additional Guarantor
hereunder. This Guaranty shall be fully effective as to any Guarantor that is
or becomes a party hereto regardless of whether any other Person becomes or
fails to become or ceases to be a Guarantor hereunder. Each Guarantor shall
from time to time cause any present wholly owned subsidiary of Guarantor or
future wholly owned subsidiary of Guarantor, within 30 days after any such
Person becomes a Subsidiary, that is not a Guarantor to join this Guaranty as a
Guarantor 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
Guarantor 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 4.11.
4.12 COUNTERPARTS; EFFECTIVENESS. This Guaranty may be executed in any
number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original for all purposes; but all such counterparts together shall
constitute but one and the same instrument.
This Guaranty shall become effective as to each Guarantor upon the execution of
a counterpart hereof by such Guarantor (whether or not a counterpart hereof
shall have been executed by any other Guarantor) and receipt by Lender of
written or telephonic notification of such execution and authorization of
delivery thereof.
-16-
<PAGE> 17
IN WITNESS WHEREOF, each of the undersigned Guarantors has
executed this Guaranty by its duly authorized officer as of the date first
above written.
SPELLING ENTERTAINMENT GROUP INC.
By: /s/ Peter Bachmann
___________________________
Title: Executive Vice President
________________________
Address: 5700 Wilshire Boulevard
Los Angeles, California 90036
SPELLING ENTERTAINMENT INC.
By: /s/ Peter Bachmann
_______________________
Title: President
____________________
Address: 5700 Wilshire Boulevard
Los Angeles, California 90036
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
-17-
<PAGE> 18
AARON SPELLING PRODUCTIONS, INC.
SPELLING FILMS INC.
SPELLING TELEVISION INC.
TORAND PRODUCTIONS INC.
WORLDVISION ENTERPRISES, INC.
LAUREL ENTERTAINMENT, INC.
HAMILTON PROJECTS, INC.
REPUBLIC ENTERTAINMENT INC.
REPUBLIC DISTRIBUTION CORPORATION
WILSHIRE ENTERTAINMENT INC.
SPELLING SATELLITE NETWORKS, INC.
BIG TICKET TELEVISION INC.
VIE HOLDING COMPANY
WESTWOOD STUDIOS, INC.
VIRGIN INTERACTIVE ENTERTAINMENT, INC.
By: /s/ Peter Bachmann
________________________
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: /s/ Vaughn A. Clarke
___________________________________
Title: Senior Vice President, Treasurer
________________________________
-18-
<PAGE> 1
EXHIBIT 10.5
AMENDMENT NO. 5 TO EXCHANGE AGREEMENT
AMENDMENT, dated as of November 5, 1996, by and among VIE Holding
Company (the "Company"), a Delaware corporation (successor-in-interest to
Spelling Entertainment Group Inc. ("SEGI")), Blockbuster Entertainment Group
("BEG"), a division of Viacom International Inc., a Delaware corporation
(successor-in-interest to Blockbuster Entertainment Corporation), and SEGI
Holding Co. ("SEGI Holding"), a Delaware corporation, (successor-in-interest to
Blockbuster Interactive Entertainment, Inc.), to that certain Exchange
Agreement by and among the Company, BEG and SEGI Holding, dated as of June 30,
1994, amended as of July 8, 1995, November 7, 1995, February 22, 1996 and May
6, 1996 and assigned by SEGI to the Company as of December 8, 1995 (as so
amended and assigned, the "Agreement").
WHEREAS, the Company, BEG and SEGI Holding have agreed to amend certain
provisions of the Agreement pertaining to BEG's Put Right and the Company's
Call Right;
NOW, THEREFORE, in consideration of the premises and pursuant to Section
12.3 of the Agreement, the Company, BEG and SEGI Holding hereby agree as
follows:
1. Section 10.5(c) of the Agreement is hereby amended to
read in its entirety as follows:
"(c) The options provided for in this Section 10.5 are
collectively referred to herein as the "Put Right." The Put
Right may be exercised by BEG at any time within the 90 day
period commencing on November 6, 1996 and concluding on January
31, 1997."
2. Section 10.6(b) of the Agreement is hereby amended to
read in its entirety as follows:
"(b) The options provided for in this Section 10.6 are
referred to herein as the "Call Right." The Call Right may be
exercised by the Company at any time within the 90 day period
commencing on November 6, 1996 and concluding on January 31,
1997."
3. This Amendment shall be deemed effective as of November
6, 1996.
<PAGE> 2
2
4. Except as expressly provided in this Amendment, the
Agreement shall not be deemed amended, modified or altered in any manner
whatsoever.
5. Capitalized terms not otherwise defined herein shall
have the meaning given to them in the Agreement.
6. This Amendment may be executed in one or more
counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the
same agreement.
IN WITNESS WHEREOF, the undersigned have caused this Amendment No. 5 to
Exchange Agreement to be duly executed on this 5th day of November, 1996.
BLOCKBUSTER ENTERTAINMENT GROUP,
a division of Viacom International Inc.
By: /s/ GEORGE S. SMITH, JR.
-----------------------------------
Name: George S. Smith, Jr.
Title: Senior Vice President,
Chief Financial Officer
SEGI HOLDING CO.
By: /s/ GEORGE S. SMITH, JR.
-----------------------------------
Name: George S. Smith, Jr.
Title: Senior Vice President,
Treasurer
VIE HOLDING COMPANY
By: /s/ PETER BACHMANN
-----------------------------------
Name: Peter H. Bachmann
Title: President
<PAGE> 1
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
1996 1995 1996 1995
------- ------- -------- -------
<S> <C> <C> <C> <C>
Net income (loss) $(2,005) $ 613 $(24,289) $ 8,764
======= ======= ======== =======
Shares:
Basic shares - weighted average of
common shares outstanding 90,422 88,454 90,311 88,302
Additional shares, when dilutive, assuming
conversion of stock options and warrants - 2,092 - 1,646
------- ------- -------- -------
Primary Shares 90,422 90,546 90,311 89,948
Additional shares, when dilutive, assuming
full dilution of stock options and warrants - 513 - 786
------- ------- -------- -------
Fully diluted shares 90,422 91,059 90,311 90,734
======= ======= ======== =======
Primary and fully diluted net income (loss)
per common and common equivalent share $ (0.02) $ 0.01 $( $0.27) $ 0.10
======= ======= ======== =======
</TABLE>
Note 1: This calculation is submitted in accordance with the Securities
Exchange Act of 1934 although not required by footnote 2 to paragraph
14 of APB Opinion No. 15 because the calculation of primary and
fully diluted net income (loss) per common and common equivalent share
results in a dilution of less than 3% or is anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996
AND THE UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE
MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 26,676
<SECURITIES> 0
<RECEIVABLES> 256,411
<ALLOWANCES> (26,562)
<INVENTORY> 481,032
<CURRENT-ASSETS> 508,988
<PP&E> 49,195
<DEPRECIATION> (19,349)
<TOTAL-ASSETS> 1,174,948
<CURRENT-LIABILITIES> 287,203
<BONDS> 0
0
0
<COMMON> 90
<OTHER-SE> 542,888
<TOTAL-LIABILITY-AND-EQUITY> 1,174,948
<SALES> 460,890
<TOTAL-REVENUES> 460,890
<CGS> 399,332
<TOTAL-COSTS> 399,332
<OTHER-EXPENSES> 88,012
<LOSS-PROVISION> 23,734
<INTEREST-EXPENSE> 13,219
<INCOME-PRETAX> (38,513)
<INCOME-TAX> (13,815)
<INCOME-CONTINUING> (24,698)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,289)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
