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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year ended February 28, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 1-5979
ORION PICTURES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-1680528
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1888 Century Park East, Los Angeles, California 90067
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 282-0550
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Common Stock -
$.25 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes X No
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The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed on the basis of the closing transaction price of
such stock as reported by NASDAQ/NMS on April 7, 1995 was approximately
$49,845,000. All officers, directors, and holders of more than 5% of the
registrant's voting stock are deemed "affiliates" of the registrant for the
purpose of calculating such aggregate market value. However, no
representation is made that such persons, or any of them, would be deemed
"affiliates" of the registrant for any other purpose under the Securities
Exchange Act of 1934 or the Securities Act of 1933.
Number of shares of Common Stock outstanding at April 7, 1995:
20,000,000.
Documents Incorporated by Reference
Portions of the Definitive Proxy Statement to be used in connection with
the registrant's 1995 Annual Meeting of Stockholders are incorporated by
reference into Part III of this Annual Report on Form 10-K.
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PART I
Item 1. Business
General
Orion Pictures Corporation (the "Company"), which was incorporated in
Delaware in 1968 and is the successor to a New York corporation incorporated
in 1952, changed its name from Filmways, Inc. to Orion Pictures Corporation
in 1982. The Company's mailing address and the address of its principal
executive offices is 1888 Century Park East, Los Angeles, California 90067.
The telephone number at such offices is (310) 282-0550. Except where the
context otherwise indicates, references herein to the "Company" include Orion
Pictures Corporation and its subsidiaries at February 28, 1995.
On December 11 and 12, 1991 (the "Filing Date"), the Company filed for
protection under chapter 11 of Title 11 of the United States Code ("chapter
11") with the United States Bankruptcy Court for the Southern District of New
York (the "Court"). The Court confirmed the Company's Modified Third Amended
Joint Consolidated Plan of Reorganization (the "Plan") on October 20, 1992
and the Plan became effective on November 5, 1992 (the "Effective Date").
For a brief summary of the Plan, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
Historical Business
Before the Filing Date, the Company was engaged primarily in the financing,
production and distribution of motion pictures for the worldwide theatrical
market, including distribution of motion pictures financed and produced by
others. In addition, the Company distributed motion pictures to the
worldwide home video, free television, cable and pay television markets.
Before the Filing Date, the Company's operating plan had been to release
approximately 12 to 15 theatrical motion pictures each year.
Business of the Company following Plan Consummation
Since the Effective Date, the Company has exploited its existing film
library and other assets. The Company intends to continue doing so, in
existing and new markets and through emerging technologies, as they develop.
The Company's expansive film library includes in excess of 750 previously
released theatrical and television motion pictures, television series and
other television programs. Some of the noteworthy titles in the Company's
film library include "PLATOON", "DANCES WITH WOLVES" and "THE SILENCE OF THE
LAMBS", each of which won the Academy Award for best picture.
During the third quarter of fiscal 1995, the Company released the last two
of the ten theatrical motion pictures (the "Unreleased Films") that were
completed and unreleased at the Effective Date. The Company has not fully or
substantially financed the production of any new film product for release in
the theatrical marketplace since the Effective Date. While the Company
intends to continue exploring ways in which it can exploit its existing
projects in development, scripts and other properties, and to seek out and
pursue business opportunities with parties who may be interested in
exploiting its assets, its ability to engage in the development and
production of new product is strictly limited by the Plan.
The Plan permits the Company to engage in development, production and
theatrical distribution activities as long as such activities are financed on
a 100% nonrecourse basis to the Company, and to purchase additional
entertainment assets with the purchase price secured solely by the assets
purchased. The Company intends to pursue financing as permitted by the Plan
to enable it to acquire completed motion pictures and other entertainment
assets. The Company has been able to acquire, with
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nonrecourse financing, rights to distribute films from other film producers
in specified media and territories for varying periods of time. Under such
arrangements, the Company receives a distribution fee. Such arrangements, to
date, have not contributed substantially to the Company's results of
operations. Further, there can be no assurance that the Company will be
able to continue to obtain additional nonrecourse debt financing or acquire
substantial entertainment assets. See Notes 1, 3 and 12 of Notes to
Consolidated Financial Statements and "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
The Company's distribution organization distributes its library and any
acquired entertainment assets as described above, in the worldwide market.
More specifically, Orion Home Entertainment Corporation ("OHEC"), a wholly
owned subsidiary of the Company, distributes the Company's home video product
in the United States and Canada. Orion Pictures Distribution Corporation
("OPDC"), another wholly owned subsidiary of the Company, directly licenses
the Company's motion pictures to theaters throughout the United States, among
other things. The Company's motion pictures are licensed to theaters
throughout Canada by a subdistributor.
In recent years, the Company distributed motion pictures to theaters in
foreign countries (other than Canada) pursuant to an agreement the Company
entered into in February 1990 (the "Sony Theatrical Agreement") with Sony
Pictures Entertainment, Inc. ("Sony"). The Company also distributed motion
pictures to the home video marketplace in foreign countries (other than
Canada) pursuant to an exclusive film licensing agreement (the "Sony Video
Agreement") with Sony, also entered into in February 1990. As all 23 titles
licensed under these agreements have been released in the domestic theatrical
marketplace, all future motion picture product whether produced or acquired
will not be subject to these agreements.
To the extent the Company has distribution rights to motion pictures not
subject to the above described agreements the Company distributes to theaters
and to the video marketplace in foreign countries (other than Canada)
generally through local offices of major motion picture companies and through
local independent subdistributors, pursuant to agreements granting them
exclusive distribution rights in designated territories for a limited period
of time with respect to specified motion pictures. In almost all cases, the
Company retains certain rights of approval with respect to certain of the
terms of such distribution.
In recent years, the Company had licensed motion pictures for United States
pay television exhibition pursuant to an exclusive film licensing agreement
dated as of August 1, 1986, which was subsequently amended by various letter
agreements (the "Showtime Agreement"), with Showtime / The Movie Channel
Inc., now known as Showtime Networks Inc. ("Showtime"), at that time an
affiliate of the Company. The Showtime Agreement provided that Showtime's
obligations were conditioned upon the continued employment of certain key
executives of the Company (or their approved successors) in their then
current or substantially similar management positions with the Company and
their continued responsibility for certain operations of the Company through
July 31, 1991. Showtime alleged that changes occurred in the roles of the
Company's top management positions as of April 1, 1991 that affected its
agreement with the Company (the "Key Man Dispute"). In addition, Showtime
filed a separate complaint against the Company alleging that Showtime
overpaid the Company at least approximately $29,400,000 under the Showtime
Agreement (the "Qualification Dispute").
On March 29, 1994, the Company reached an agreement with Showtime settling
all litigations and disputes arising out of the Showtime Agreement (the
"Showtime Settlement"). See Note 5 of Notes to Consolidated Financial
Statements and "Management's Discussion and Analysis". The Showtime
Settlement provides for the exclusive United States pay television exhibition
by Showtime of the 16 pictures subject to the Key Man Dispute, concluding
with "Blue Sky", at reduced license fees. The Showtime Settlement also
reduces the license fees related to the seven pictures included in the
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Qualification Dispute that were not in dispute under the key man clause
described above. In addition, under the Showtime Settlement, the Company has
entered into a new exclusive output agreement dated as of March 10, 1994 with
Showtime, commencing with qualifying pictures initially theatrically released
between January 1, 1994 and December 31, 1996 or 30 qualifying pictures
(including seven of the titles released in fiscal 1994 and 1995), whichever
comes first. For each motion picture, other than the seven titles released
in fiscal 1994 and 1995, meeting certain requirements, the Company will
receive a license fee based on a formula related to the aggregate United
States theatrical film rentals of that picture. The new output agreement
also provides for the licensing by Showtime of certain product in the
Company's film library on a non-exclusive basis for a fixed sum payable over
seven years.
The Company also licenses its motion pictures and television product to pay
television systems as well as to the free television market in other
countries where such system or stations exist, through its international
division, Orion Pictures International. Such licenses are either made
directly or through the use of a sales agent in the specific territory.
Through Orion Television Entertainment, another division of the Company, the
Company licenses its product to the various domestic free television, basic
cable systems or secondary pay television markets.
Recent Events
On April 12, 1995, the Company entered into a Merger Agreement (the "Merger
Agreement") with The Actava Group Inc. ("Actava"), MCEG Sterling Incorporated
("Sterling") and Metromedia International Telecommunications ("MITI"), an
affiliate of Metromedia, which with an affiliate, beneficially owns a
majority of the Company's common stock. The Merger Agreement provides that at
the effective time of the mergers, each of the Company, Sterling and MITI
will merge with and into Actava, with Actava, renamed "Metromedia
International Group, Inc.," being the surviving corporation of the mergers.
The Merger Agreement provides that each share of the Company's outstanding
common stock will be converted as follows: (i) if the average of the last
sale price for Actava's common stock on the NYSE for the 20 consecutive
trading days ending on the business day immediately preceding the effective
time of the mergers (the "Average Closing Price") is greater than or equal to
$10.50, each share of the Company's outstanding common stock will be
converted into a number of shares of Actava common stock equal to a fraction,
the numerator of which is 11,428,572 and the denominator of which is the
number of shares of the Company's common stock outstanding on the business
day immediately preceding the effective time of the mergers or (ii) if the
Average Closing Price is less than $10.50, each share of the Company's
outstanding common stock will be converted into a number of shares of
Actava's common stock which can be determined by solving for "Y" in the
following formula and dividing "Y" by the number of shares of the Company's
common stock outstanding on the business day immediately preceding the
effective time of the mergers:
"Y" = 120,000,000
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Average Closing Price
Assuming that the effective time of the mergers was April 12, 1995, the
Company's stockholders would have exchanged each share of the Company's
common stock for .6103 shares of Actava common stock and collectively the
Company's stockholders would have been entitled to receive approximately
30.3% of the surviving corporation's common stock. The Actava common stock to
be issued to the Company's, Sterling's and MITI's stockholders in connection
with the mergers will be identical to the shares of Actava common stock
currently outstanding. Immediately following the mergers, Metromedia and
certain of its affiliates will exchange their shares of Actava common stock
received in the mergers and may convert certain non-recourse amounts owed by
the Company and its subsidiaries and by MITI and its subsidiary to
affiliates of Metromedia for shares of Class A common stock of the surviving
corporation.
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The shares of Class A common stock will be entitled to three votes per share
on all matters voted upon by the surviving corporation's stockholders (other
than the election of directors) and will vote as a separate class to elect 6
of the 10 members of the surviving corporation's board of directors. It is
currently anticipated that Metromedia and its affiliates would control in
excess of 50% of the voting power of the surviving entity as a result of the
stock exchanges described above.
Metromedia International Group, Inc. will be managed by a three person
Office of the Chairman consisting of John W. Kluge, the Company's current
Chairman of the Board as Chairman, Stuart Subotnick, the Company's current
Vice Chairman and John D. Phillips, President and Chief Executive Officer of
Actava, as President and Chief Executive Officer of the surviving
corporation.
On March 2, 1995, the Company's Board of Directors formed a special
committee (the "Special Committee") to consider the terms of the Merger
Agreement and make a recommendation to the full Board of Directors of the
Company regarding the Merger Agreement. The Special Committee was formed
because the Company's Board of Directors is composed of a majority of persons
who are affiliated with Metromedia and because of the Board of Director's
view that in light of the share exchanges described above and the
simultaneous merger of MITI into Actava, the members of the Board of
Directors affiliated with Metromedia could be viewed as having an interest in
the transactions contemplated by the Merger Agreement in addition to the
interests of the Company's stockholders. The members of the Special Committee
are Michael I. Sovern, Joel R. Packer and Raymond L. Steele, each of whom the
Company considers an independent director. The Special Committee was also
authorized and did engage the services of an independent law firm and an
independent investment banking firm to offer advice and in the case of the
investment banking firm, to render a fairness opinion to the special
committee. The Special Committee expects to make its recommendation as to the
Merger Agreement to the full Board of Directors shortly and the full Board of
Directors intends to meet to consider the Merger Agreement promptly after
receiving the special Committee's recommendation. The approval of the Merger
Agreement by the Company's full Board of Directors on or prior to June 30,
1995 is a condition to the consummation of the mergers contemplated by the
Merger Agreement.
The closing of each merger contemplated by the Merger Agreement is also
contingent upon the closing of the other mergers contemplated by the Merger
Agreement. In addition, the consummation of the mergers contemplated by the
Merger Agreement is subject, among other things, to approval by the Boards of
Directors and the stockholders of the Company and the stockholders of Actava,
Sterling, and MITI, the receipt of all required consents, the successful
refinancing of the currently outstanding amounts owed to the Company's senior
secured creditors (the Banks and Sony), and holders of Plan Debt (as defined
below), to the Average Closing Price not being less than $8.25, that no
material adverse change in the business, assets, prospects, condition or
results of operations of the Company, Actava, MITI or Sterling shall have
occurred since the date of the Merger Agreement, that the shares of Actava's
common stock currently outstanding and to be issued to the Stockholders of
the Company, MITI and Sterling pursuant to the Merger Agreement shall have
been accepted for listing on the New York Stock Exchange, the American Stock
Exchange or accepted for quotation on NASDAQ/NMS, the successfull completion
by Actava of its due diligence review of MITI, the receipt of certain
fairness opinions with respect to the mergers and the receipt of all required
regulatory approvals, including approval with respect to the Hart-Scott-
Rodino Antitrust Improvement Act of 1976, as amended.
Metromedia and its affiliates will control Metromedia International Group,
Inc. after the mergers. Accordingly, the merger of the Company with and into
Actava and the merger of Sterling with and into Actava will be accounted for
as a reverse acquisition of Actava and a purchase of Sterling under the
purchase method of accounting. The common control merger of the Company and
MITI will be accounted for on a basis similar to a pooling of interests. For
accounting purposes, the Company will be deemed the surviving corporation of
each of the mergers.
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Competition and Seasonality
All aspects of the Company's operations are conducted in a highly
competitive environment. To the extent that the Company seeks to distribute
the films contained in its library or acquire product, the Company will need
to compete with many other motion picture distributors, including the
"majors", most of which are larger and have substantially greater resources,
film libraries and histories of obtaining film properties, as well as
production capabilities and significantly broader access to distribution
opportunities. Many of the Company's competitors have substantially greater
assets and resources, and, unlike the Company, will not be restricted to
nonrecourse debt financing to acquire product. By reason of their resources,
these competitors may have access to programming that would not generally be
available to the Company and may also have the ability to market programming
more extensively than the Company.
Distributors of theatrical motion pictures compete with one another for
access to desirable motion picture screens, especially during the summer,
holiday and other peak movie-going seasons, and several of the Company's
competitors in the theatrical motion picture distribution business have
become affiliated with owners of chains of motion picture theaters. In
addition, program suppliers of home video product compete for the open to buy
dollars of video specialty stores and mass merchant retailers. A larger
portion of these dollars are designated for megahit theatrically based sell-
thru titles, video games and other entertainment media. The success of all
the Company's product is heavily dependent upon public taste, which is both
unpredictable and susceptible to change without warning.
Employees
As of February 28, 1995, the Company had approximately 165 regular
employees, of whom less than 1% were represented by labor unions. This
represents a substantial reduction in the number of employees from the level
prior to the advent of the Company's financial difficulties primarily as a
result of the Company's efforts to reduce overhead and conserve resources.
Certain of the Company's subsidiaries are signatories to various agreements
with unions that operate in the entertainment industry. In addition, a
substantial number of the artists and talent and crafts people involved in
the motion picture and television industry are represented by trade unions
with industry-wide collective bargaining agreements.
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Executive Officers of the Company
Set forth below is information regarding the executive officers of the
Company as of February 28, 1995, some of whom have since left the employ of
the Company, as indicated. The terms of office of the executive officers who
remain employed by the Company expire at the next annual meeting of the
Company's Board of Directors.
Corporate Officers
Offices Held and Principal
Name Age Occupations for Past Five Years
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Susan Blodgett 46 Senior Vice President, Marketing, Orion Pictures
Distribution Corporation, January 1993 to
present. Senior Vice President, Marketing, Orion
Home Entertainment Corporation ("OHEC"), January
1993 to present. Senior Vice President,
Corporate Marketing, Orion Home Video, a division
of OHEC, May 1992 to January 1993. Vice
President, Marketing, Orion Home Video, April
1987 to May 1992.
Cynthia A. Friedman 36 Senior Vice President and Chief Financial Officer
of the Company, November 1992 to present. Vice
President of Finance and Chief Accounting Officer
of the Company from August 1991 to November 1992.
Vice President of the Company from May 1990 to
July 1991. Controller of the Company, November
1987 to November 1992.
Herbert Dorfman 52 President, OHEC, August 1994, to the present.
President, Orion Home Video, a division of OHEC,
August 1994, to present. Senior Vice President,
Orion Home Video, a division of OHEC, December
1992 to August 1994. Vice President, National
Sales, P.P.I. Entertainment, July 1992 to
December 1992. Vice President of Sales, Eastern
Zone, Orion Home Video, July 1991 to July 1992.
Vice President, Sales, Orion Home Video, February
1990 to July 1991. Director, Sales - Eastern
Division, Orion Home Video, February 1989 to
February 1990. Regional Sales Manager, Orion
Home Video, August 1987 to February 1989.
John W. Hester 47 Executive Vice President, General Counsel and
Secretary of the Company since November 1992.
Senior Vice President, General Counsel and
Secretary of the Company in November 1992.
Senior Vice President, Legal Affairs and
Corporate Operations of the Company from March
1992 to November 1992. Acting General Counsel of
the Company from November 1991 to November 1992.
Vice President and Assistant Secretary of the
Company from March 1989 to March 1992. Vice
President and Assistant Secretary of OPDC since
December 1988. Company Counsel and Assistant
Secretary for more than 2 years prior thereto.
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Offices Held and Principal
Name Age Occupations for Past Five Years
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Joseph D. Indelli 55 Executive Vice President, Domestic Television
Distribution, Orion Television Entertainment, a
division of the Company, September 1989 to
present. President, MTM Distribution Group, MTM
Entertainment, June 1986 to September 1989.
Diane Keating 42 Left the employ of the Company April 1, 1995.
President, Orion Pictures International, a
division of the Company, July 1992 to April 1,
1995. Senior Vice President, International Home
Video and Administration, Orion Pictures
International, June 1990 to July 1992. Senior
Vice President, International Home Video, Orion
Pictures International, March 1989 to June 1990.
Vice President, International Home Video, Orion
Pictures International, February 1987 to March
1989.
John (Jay) Peckos 45 Senior Vice President, Distribution, Orion
Pictures Distribution Corporation, July 1991 to
present. Senior Vice President, Distribution,
Orion Classics, a division of the Company, April
1994 to present. Senior Vice President, Motion
Pictures Theatrical Distribution, MGM/UA
Distribution Corporation, August 1984 to June
1991.
Silvia Kessel 44 Executive Vice President of the Company since
January 1993. Senior Vice President of the
Company from June 1991 to November 1992.
President of Kluge & Company from January 1994 to
the present. Managing Director of Kluge &
Company from April 1990 to January 1994. Senior
Vice President of Metromedia Company from
February 1994 to present. Vice President of
Metromedia Company from 1988 to April 1990.
Assistant Vice President of Metromedia Company
from 1985 to 1988.
Leonard White 55 President and Chief Executive Officer of the
Company since November 1992. Interim President
and Chief Executive Officer of the Company from
March 1992 to November 1992. Chairman of the
Board and Chief Executive Officer of OHEC since
March 1991. President and Chief Operating
Officer of Orion Home Video, a division of OHEC,
from March 1987 to March 1991.
There are no family relationships between or among any of the
executive officers of the Company. Several of the Company's
executive officers also serve as officers and/or directors of
one or more subsidiaries of the Company.
Item 2. Properties
The Company's headquarters are in Los Angeles, where it
currently leases approximately 42,614 square feet of office
space at 1888 Century Park East under a lease expiring November
30, 1996. The annual base rental for such office space is
approximately $748,000 during the term. This facility
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houses the executive offices of the Company, OPDC and OHEC, as
well as the Company's Orion Television Entertainment and Orion
Classics divisions and OPDC's Los Angeles sales office.
The Company's principal international operations and OPDC's
New York sales office is currently located at 304 Park Avenue
South, New York, New York, where it leases approximately 7,315
square feet of office space under a lease expiring December 31,
1997, at a current annual base rental of approximately $160,000.
Shortly after the completion of the proposed mergers described
above, the Company's international operations will be relocated
to the Los Angeles headquarters and the Company will attempt to
sublet any excess space. In addition to the sales office
facilities in New York City and Los Angeles, OPDC currently
leases sales offices in Dallas, Texas.
Item 3. Legal Proceedings
1. The Chapter 11 Cases
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As noted above, on December 11 and 12, 1991, the Company and
37 of its subsidiaries filed petitions for relief under chapter
11 in the Court. The cases were referred to the Honorable
Burton R. Lifland, Chief United States Bankruptcy Judge of the
Court. Pursuant to the Bankruptcy Code, the Company was
authorized to operate its business and manage its properties as
a debtor-in-possession.
The Company filed its schedules of assets and liabilities and
statement of financial affairs with the Court. The bar date for
filing proofs of claim in the Company's chapter 11 case was May
29, 1992. The bar date for the filing of administrative claims
was September 3, 1992.
The Company filed its "Debtors' Joint Consolidated Plan of
Reorganization" with the Court on July 13, 1992 (as amended on
July 24, 1992, August 7, 1992, September 3, 1992 and October 20,
1992) (the "Plan") and the related "Disclosure Statement for
Debtors' Joint Consolidated Plan of Reorganization" with the
Court on July 21, 1992 (as amended on July 24, 1992, August 7,
1992 and September 3, 1992). On October 20, 1992 (the
"Confirmation Date"), the Court confirmed the Plan which became
effective on November 5, 1992 (the "Effective Date").
The Company is, and will continue to be, a party to numerous
contested matters and adversary proceedings pending against it
in the Court seeking a variety of forms of relief, including,
without limitation, motions (a) to approve settlements and
compromises, and (b) to allow or disallow claims. Other matters
and claims may be referenced in the Disclosure Statement filed
by Debtors with the Court on July 24, 1992, as amended, and
approved by such Court by order dated September 8, 1992. The
Company also has the right to file such motions or actions as
may be necessary to implement and enforce the terms of the Plan.
Pursuant to section 362 of the Bankruptcy Code an automatic
stay went into effect when the Debtors commenced their chapter
11 cases. The automatic stay halted, among other things, all
pending litigation and prevented the commencement of all
judicial, administrative or other proceedings against the debtor
that were or could have been commenced before the commencement
of the bankruptcy case. Pursuant to paragraph 35 of the
Confirmation Order, any action which had been stayed by
operation of section 362(a) of the Bankruptcy Code continues to
be stayed pursuant to sections 1141(d) and 105(2) of the
Bankruptcy Code, absent special relief which the Court could
grant.
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2. The Litigation-Based Claims
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Hemdale Film Corporation v. Orion Pictures Corporation, (Los
Angeles County Superior Court, Case No. RCO12594). On October
12, 1990, plaintiff Hemdale Film Corporation ("Hemdale") filed
this action against the Company in Superior Court for Los
Angeles County, alleging various breaches of the agreements
between plaintiff and the Company for distribution of the motion
pictures "PLATOON", "HOOSIERS", and "THE TERMINATOR". Plaintiff
produced these pictures which the Company released. The
complaint seeks an accounting and damages purportedly in excess
of $30,000,000 and is based on the allegation that the Company
paid Hemdale less than it was due under the agreements, used
improper accounting practices, refused to permit Hemdale's
representatives to conduct appropriate examinations of the
Company's books and records and provided Hemdale with allegedly
inaccurate and inadequate settlement statements. On December
10, 1990, the Company filed its answer, denying the material
allegations of the complaint, asserting that its accounting
practices were accurate in all respects. The Company also
asserted various affirmative relief. The action was in the
discovery stage on the Petition Date. Hemdale has filed a proof
of claim substantially based on the allegations in its
complaint. The Company has objected to Hemdale's claim and the
estimation hearing has been adjourned in the Court until May 22,
1995. Following the filing of Hemdale's proof of claim, Hemdale
(renamed as NSB Corporation) became involved in its own chapter
11 reorganization. On or about November 24, 1993, Orion filed a
proof of claim for an undetermined amount in the Hemdale
bankruptcy case. Hemdale has not yet obtained confirmation of
any plan of reorganization.
Pacific Western Productions, Inc., et al. v. Hemdale Film
Corporation and Orion Pictures Corporation, et al., (Los Angeles
County Superior Court, Case No. RCO12873). Plaintiffs in this
action against the Company are the service companies for the
producer, the writer and director, a principal cast member, and
the special effects coordinator of the motion picture "THE
TERMINATOR." In a complaint filed in Superior Court for Los
Angeles County on October 16, 1990, plaintiffs alleged claims
for breach of contract, breach of fiduciary duty, and fraud
against co-defendant Hemdale (but not the Company) arising out
of certain agreements for the production of "THE TERMINATOR."
In a count against the Company, plaintiffs alleged that they
were third-party beneficiaries of certain agreements between
Hemdale and the Company. Plaintiffs seek an accounting from the
Company under the previously mentioned agreements as well as
compensatory, exemplary and punitive damages in unspecified
amounts against both defendants. A claim has been filed in the
amount of $249,835.00, to which the Company has objected.
Plaintiffs have served the Company with a response to its
objection to their proof of claim, and an estimation hearing is
currently scheduled for May 22, 1995.
Sharon Badal v. Orion Pictures Corporation, (United States
District Court, Southern District Court, Southern District of
New York, Case No. 91 Civ. 4288). On June 24, 1991, plaintiff
brought an action against the Company under Title VII of the
Civil Rights Act, alleging that she was constructively
discharged from her employment with the Company due to sexual
discrimination on the part of certain other Company employees,
and requested damages in the amount of $300,000.00. On July 9,
1991, the Company answered, denying all charges. Plaintiff has
filed a proof of claim based on her Title VII action in the
amount of $300,000.00. The Company has objected to these proofs
of claim, and the estimation hearing has been scheduled for May
22, 1995. Settlement negotiations are ongoing.
James L. Sharmat v. Orion Pictures Corporation, et al., (Los
Angeles County Superior Court, Case No. SC 009599) ("Sharmat
Action"). On or about September 14, 1994, the Bankruptcy Court
approved a settlement between and among the Company, James L.
Sharmat, Stephen W. Sharmat and Westchester Productions, Inc.
(the "Sharmat Claimants") which included, inter alia, the
----- ----
following: (i) the Company allowed a single general unsecured
claim within Class 7 of the Plan in the amount of $12,000;
(ii)the Sharmat Claimants' proofs of claim were withdrawn with
prejudice and the Company
9
<PAGE>
and the Sharmat Claimants exchanged mutual releases; and (iii)
the Sharmat Action was dismissed with prejudice.
Bruno Damon v. Orion Pictures Corporation, Island Helicopter
Leasing Corporation and A.G.S. Realty Holding Corp., (N.Y. Sup.
Ct. Index No. 34167/91) (the "Damon Action"). On or about
January 23, 1995, the Bankruptcy Court approved a settlement
between the Company and Bruno Damon ("Damon"). The settlement
included, inter alia, the following: (i) entry of a stipulation
----- ----
and order modifying the stay and the injunction against
prosecution of the Damon Action only insofar as to permit
settlement of the Damon Action and the claims arising therefrom
in consideration of the sum of $240,000 to be paid solely from
the Company's and defendant Cad Co. Productions, Inc.'s
applicable insurance company in full satisfaction, inter alia,
----- ----
of all proofs of claims filed by Damon; (ii) filing of a
stipulation discontinuing the Damon Action with prejudice; (iii)
exchange of releases.
Antitrust and Similar Proceedings. OPDC is involved,
together with other theatrical distribution and/or exhibition
companies, in four proceedings in which it is alleged that OPDC
has violated state and/or federal antitrust laws (one of which
was commenced post-petition). These proceedings arise primarily
as a result of conflicting interests between distributors and
exhibitors of theatrical motion pictures and have occurred
frequently in the motion picture industry for many years. These
proceedings seek compensatory and treble damages in large
amounts, as well as injunctive relief in certain instances. The
aggregate actual damages claimed against OPDC and other named
defendants in these proceedings exceed $5,000,000. In addition,
one exhibitor has claimed punitive damages. The Company
believes that OPDC's actual liability, if any, would be
considerably less than the amounts claimed and would generally
be shared by other defendants.
At least three proofs of claims were filed on behalf of
parties alleging that OPDC has violated state and/or federal
antitrust laws. The proofs of claim arise from allegations
asserted in the following two lawsuits: (i) The Movie v. Orion
Pictures Distribution Corporation, Orion Classics, et al.,
(United States District Court for the Northern District of
California, Case No. C86-203 90RPA); and (ii) Joseph Soffer
d/b/a Cine 1-2-3-4 v. Orion Pictures Distribution Corporation,
et al., (United States District Court for the District of
Connecticut). The Company has objected to the proofs of claim
filed on behalf of The Movie and Joseph Soffer. An estimation
hearing to estimate the claims asserted by The Movie is
scheduled on May 22, 1995. Counsel for the Company have been
informed that the underlying litigation has been settled, and
settlement negotiations regarding The Movie's proofs of claims
are ongoing. The estimation hearing to estimate the claim
asserted by Soffer has been adjourned without date.
4. The Derivative Action.
----------------------
Harvey Cooper, Derivatively on behalf of Orion Pictures
Corporation, Plaintiff, vs. John W. Kluge, Stuart Subotnick,
Metromedia Company, a Partnership, and Does 1 through 100
Inclusive, Defendants, and Orion Pictures Corporation, Nominal
Defendant, Bankr. Adversary Proceeding No. 93-9592A (Bankr.
S.D.N.Y.) (the "Cooper Action"). On or about April 29, 1994,
the United States District Court for the Southern District of
New York granted the Company's motion seeking dismissal of
Cooper's appeal of the Bankruptcy Court's judgment dismissing
the Cooper Action. Cooper then appealed. On or about September
7, 1994, the United States Court of Appeals for the Second
Circuit granted the Company's motion to dismiss Cooper's appeal.
The time for Cooper to file a petition for writ of certiorari
seeking review of the Second Circuit's decision since has
expired without the filing of any such petition.
10
<PAGE>
5. Other Claims Issues
-------------------
The Company filed numerous claims objections with the
Bankruptcy Court, both prior to and after the Effective Date of
the Plan. Most of those objections have been granted by the
Bankruptcy Court or consensually resolved, but certain disputes
remain outstanding and ultimately will be disposed of through
negotiations or contested hearings before the Bankruptcy Court.
The Company believes that the disposition of the disputed claims
will not have a material adverse effect on its consolidated
financial position or results of operations.
6. Shareholder Actions Arising Out of Proposed Transaction
-------------------------------------------------------
Jerry Krim v. John W. Kluge, Silvia Kessel, Joel R. Packer,
Michael I. Sovern, Raymond L. Steel, Stuart Subotnick, Arnold C.
Wadler, Stephen Wertheimer, Leonard White and Orion Pictures
Corporation, (Delaware Chancery Court, C.A. No.13721). The
Company and each of its directors has been named as a defendant
in a purported class action lawsuit which alleges that the
mergers with Actava, MITI and Sterling are adverse to the
Company's shareholders. The Company's directors have been sued
for alleged violations of their fiduciary duties to the Company
and its shareholders and seeks to enjoin the mergers
contemplated by the Merger Agreement. The lawsuit further
alleges that as a result of the actions of the Company's
directors, the Company's shareholders will not receive the fair
value of the Company's assets and business in exchange for their
Orion stock, in the mergers contemplated by the Merger
Agreement. The Company and its directors have obtained an
extension of time to answer the complaint. The current
extension will expire on April 17, 1995.
James F. Sweeney, Trustee of Frank Sweeney Defined Benefit
Plan Trust v. John D. Phillips, Frederick B. Beilstein, III,
John E. Aderhold, Michael B. Cahr, J. M. Darden, III, John P.
Imlay, Jr., Clark A. Johnson, Anthony F. Kopp, Richard Nevins,
Carl E. Sanders, Orion Picture Corporation, International
Telcell, Inc., Metromedia International, Inc. and MCEG Sterling
Inc. (Delaware Chancery Court, C.A. No. 13765). The Company is a
defendant in this class action lawsuit which was filed by
shareholders of Actava against Actava and its directors as well
as the Company. The complaint alleges that the terms of the
merger of the Company, Actava, MITI and Sterling constitutes an
overpayment by Actava for the assets of the Company and it seeks
to enjoin the mergers contemplated by the Merger Agreement. The
complaint further alleges that the Company knowingly aided,
abetted and materially assisted Actava's directors in breach of
their fiduciary duties to Actava's shareholders. The Company
has obtained an indefinite extension of the time to answer the
complaint.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted during the fourth quarter of the
fiscal year ended February 28, 1995 to a vote of the holders of
the Company's Common Stock, through the solicitation of proxies
or otherwise. The Company intends to file with the SEC not
later than 120 days after the end of the fiscal year ended
February 28, 1995, the Proxy Statement for the 1995 Annual
Meeting of Stockholders.
11
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
Stock Prices and Dividends
Since the Effective Date, the Company's Common Stock, $.25
par value (the "Common Stock"), has been traded in the over-the-
counter market and its quotations are reported in the National
Market System ("NMS") of the National Association of Securities
Dealers, Inc. Automated Quotation system ("NASDAQ") under the
symbol ORPC. Prior to the Effective Date, the Company's old
Common Stock, $.25 par value (the "Old Common Stock"), which has
been exchanged for shares of Common Stock pursuant to the Plan
was traded on the New York, Pacific and Philadelphia Stock
Exchanges under the symbol OPC. As of April 7, 1995, there were
510 record holders of the Common Stock. The table below
reflects the quarterly high and low transaction prices per share
of the Common Stock in the over-the-counter market from March 1,
1993 through April 7, 1995 as reported by NASDAQ/NMS. Prices
for the Common Stock reflect interdealer transactions without
markup, markdown or commission.
High Low
------- ---
Fiscal Year Ended February 28, 1994
First Quarter $ 3.25 $ 2.38
Second Quarter 7.88 2.06
Third Quarter 9.50 5.50
Fourth Quarter 7.13 5.25
Fiscal Year Ending February 28, 1995
First Quarter $ 7.00 $ 4.88
Second Quarter 6.25 2.63
Third Quarter 6.75 4.50
Fourth Quarter 6.38 4.75
Fiscal Year Ending February 29, 1996
First Quarter (through April 7, 1995) $ 6.08 $ 5.50
The Company historically has not paid any dividends on its Old
Common Stock or the Common Stock. See Note 6 of Notes to
Consolidated Financial Statements for a description of
restrictions on the payment of dividends on the Common Stock.
12
<PAGE>
Item 6. Selected Financial Data
The following table presents selected financial information for the
Company for each of the five fiscal years ended, and as of, February 28
(29), 1995, 1994, 1993, 1992, and 1991. The selected financial data for
each of the five fiscal years ended, and as of, February 28 (29), 1995,
1994, 1993, 1992, and 1991, are derived from and qualified in their
entirety by reference to the audited consolidated financial statements, the
most recent three years of which are included elsewhere herein, and should
be read in conjunction with such financial statements and the independent
auditor's report, which contains an explanatory paragraph that states that
the Company is a defendant in certain litigation which alleges various
breaches of agreements by the Company and seeks certain damages. The
independent auditor's report also includes an explanatory paragraph that
states that based upon the Company's inability to meet required debt
payments that are due within the next year under the terms of its
Indebtedness (as defined in note 6 of the Notes to Consolidated Financial
Statements) there exists substantial doubt about the entity's ability to
continue as a going concern. The consolidated financial statements and the
selected data do not include any adjustement that might result from the
outcome of these uncertainties. Per share amounts for the fiscal years
ended in February, 1992, and 1991, reflect the impact of the
recapitalization in fiscal 1993.
<TABLE>
<CAPTION>
Selected Financial Data
(in thousands, except per-share amounts)
Fiscal Years Ended in February, 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues from continuing operations $ 191,244 $ 175,662 $ 222,318 $ 491,117 $507,304
=======================================================================================================================
Loss from continuing operations $ (50,270) $ (125,196) $ (72,973) $ (280,832) $(60,648)
=======================================================================================================================
Loss from discontinued
television operations $ ---- $ ---- $ ---- $ (31,239) $(2,337)
=======================================================================================================================
Loss before extraordinary gains $ (50,270) $ (125,196) $ (72,973) $ (312,071) $(62,985)
=======================================================================================================================
Net income (loss) $ (50,270) $ (125,196) $ 250,240 $ (312,071) $(62,985)
=======================================================================================================================
Loss from continuing operations per share:
Primary $ (2.51) $ (6.26) $ (11.29) $ (1,744.47) $(409.97)
==================================================================
Fully diluted $ (2.51) $ (6.26) $ (11.26) $ (1,755.38) $(427.30)
Loss before extraordinary gains per share:
Primary $ (2.51) $ (6.26) $ (11.29) $ (1,938.50) $(425.76)
==================================================================
Fully diluted $ (2.51) $ (6.26) $ (11.26) $ (1,950.62) $(443.75)
Net income (loss) per common share:
Primary $ (2.51) $ (6.26) $ 38.70 $ (1,938.50) $(425.76)
==================================================================
Fully diluted $ (2.51) $ (6.26) $ 38.62 $ (1,950.62) $(443.75)
=======================================================================================================================
Common and common equivalent shares entering
into computation of per-share amounts:
Primary 20,000 20,000 6,465 161 148
==================================================================
Fully diluted 20,000 20,000 6,479 160 142
=======================================================================================================================
Cash dividends per common share --- --- --- --- ---
BALANCE SHEET DATA
Total assets $ 351,588 $ 508,014 $ 704,356 $ 856,950 $1,058,673
Notes and subordinated debt $ 212,079 $ 274,501 $ 325,158 $ 521,968 $ 510,894
</TABLE>
See accompanying consolidated financial statements and notes thereto.
13
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
On December 11 and 12, 1991 (the "Filing Date"), the Company and certain of
its subsidiaries filed petitions for relief under chapter 11 of Title 11 of
the United States Code (the "Bankruptcy Code") in the United States
Bankruptcy Court for the Southern District of New York (the "Court"). During
the period from the Filing Date to November 5, 1992 (the "Bankruptcy
Period"), the Company operated under a series of Court orders and actively
sought to obtain new equity capital and other forms of investment in order to
recapitalize. In this regard, the Company filed its "Debtors' Joint
Consolidated Plan of Reorganization," (the "Plan") with the Court on July 13,
1992 (as amended July 24, August 7, September 3 and October 20, 1992) and the
related "Disclosure Statement for Debtors' Joint Consolidated Plan of
Reorganization" (the "Disclosure Statement") with the Court on July 21, 1992
(as amended on July 24, August 7, and September 3, 1992). On October 20,
1992 (the "Confirmation Date"), the Court confirmed the Plan which became
effective on November 5, 1992 (the "Effective Date"). The Plan and the
Company's reorganization activities are more fully described in "Liquidity
and Capital Resources" below.
For the year ended February 28, 1995 ("fiscal 1995"), the Company recorded
a net loss of $50,270,000 on revenues of $191,244,000. For the year ended
February 28, 1994 ("fiscal 1994"), the Company recorded a net loss of
$125,196,000 on revenues of $175,662,000. For the year ended February 28,
1993 ("Fiscal 1993") the Company recorded a loss before extraordinary items
of $72,973,000 and extraordinary gains of $323,213,000 resulting in net
income of $250,240,000 for fiscal 1993, on revenues of $491,117,000.
The Company's results of operations from year to year have been
substantially dependent on both the number of films released and on the
acceptance of the Company's current product by general audiences. The
Company released three films in fiscal 1993, four films in fiscal 1994, and
five films in fiscal 1995. These pictures performed poorly in the domestic
theatrical marketplace and did not generate sufficient gross profit to
maintain a profitable level of operations during those years. The success of
"DANCES WITH WOLVES" and "THE SILENCE OF THE LAMBS" during fiscal 1993 only
partially mitigated these results. The following paragraphs describe the
most significant factors affecting the company's results during this three
year period.
During fiscal 1995, the Company recorded approximately $7,500,000 of
writedowns to the estimated net realizable value related to the five
theatrical titles released domestically during that year and $9,600,000 of
writedowns to previously released product. These writedowns had a negative
effect on the Company's reported gross profit (loss) in fiscal 1995.
During fiscal 1994, the Company wrote off additional amounts on a large
number of its previously released theatrical and television library titles
due to certain events that occurred during that year. Such writedowns, which
aggregated approximately $37,400,000 included certain amounts due to: 1) the
Showtime Settlement (which is more fully described in Note 5 of Notes to
Consolidated Financial Statements in this Annual Report on Form 10-K ("Note
5")) and 2) current market conditions that affected management's estimates in
the fourth quarter of fiscal 1994 of the future revenue-generating potential
of certain of the Company's theatrical and television library product in the
domestic free television market places. In addition, including the effect of
the Showtime Settlement described above the Company recorded approximately
$30,400,000 of writedowns to the estimated net realizable value related to
the four theatrical titles released domestically during that year, and
approximately $26,800,000 of additional provisions for losses on the five
titles that remained unreleased at February 28, 1994. These fiscal 1994
losses, approximately $94,600,000 in total, had a significant effect upon the
Company's reported gross profit (loss) in fiscal 1994.
During fiscal 1993, the Company successfully emerged from its chapter 11
bankruptcy proceedings. Several significant adjustments were recorded during
that fiscal year to reflect this event in the
14
<PAGE>
Company's consolidated financial statements, which resulted in the
recognition of an aggregate of $323,313,000 of extraordinary gains, before
the effect of income taxes. The Company recorded these adjustments and did
not adopt fresh-start reporting in accordance with the provisions of
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," issued by the American Institute
of Certified Public Accountants ("SOP 90-7"), as is more fully described in
Note 2 of Notes to Consolidated Financial Statements in this Annual Report on
Form 10-K ("Note 2").
In addition, the Company realized a benefit of approximately $28,477,000
upon the contribution by the Company's majority shareholder and its affiliate
of a guarantee of bank borrowings, the contribution of the majority
shareholder and its affiliate of an interest in "MERMAIDS" and the
contribution by the majority shareholder and an affiliate of $15,000,000 in
cash for an aggregate of 50.1% of the equity interest in the Company. As
described in Note 2, the majority shareholder and its affiliate owned in
excess of 50% of the Company's common stock both before and after the
Effective Date of the Plan and, accordingly, this benefit was credited
directly to Paid-in surplus as a contribution to capital. Furthermore, the
Company incurred approximately $20,792,000 of costs directly related to the
chapter 11 proceedings during the year that adversely affected results from
continuing operations.
Also during fiscal 1993, the Company wrote off additional amounts on a
large number of its previously released theatrical and television library
titles due to certain events that occurred during that year. Such
writedowns, which aggregated approximately $18,000,000, included certain
amounts recorded due to: 1) the disappointing domestic video results in
fiscal 1993 for "SHADOWS AND FOG"; 2) the further recognition of the impact
of the lack of future production on the marketability of the Company's
library; and 3) current market conditions, that significantly affected
management's estimates in the fourth quarter of 1993 of the future revenue-
generating potential of certain of the Company's theatrical and television
library in the foreign pay and free television marketplaces. In addition,
the Company recorded approximately $8,100,000 of writedowns to estimated net
realizable value during fiscal 1993 related to the two theatrical titles
initially released during that year, "ARTICLE 99" and "LOVE FIELD", and
approximately $9,700,000 of additional provisions for losses on the nine
titles that remained unreleased at February 28, 1993. These fiscal 1993
losses, $35,800,000 in total, significantly impacted the amount of reported
gross profit in fiscal 1993.
15
<PAGE>
RESULTS OF OPERATIONS
Revenues
The following table sets forth the sources of the Company's revenues from
continuing operations by market for each of the last three fiscal years and
serves as a basis for the analysis of fluctuations in revenues that follows
(in thousands):
<TABLE>
<CAPTION>
Fiscal Years Ended in February, 1995 1994 1993
<S> <C> <C> <C>
Theatrical Distribution $ 8,969 $33,319 $43,255
Television and Video Distribution:
Home video direct distribution 51,905 37,418 52,468
Home video subdistribution 6,749 12,245 12,192
Pay television 60,900 12,330 41,007
Free television and other 62,721 90,350 73,396
------- ------- -------
Total television
and video distribution 182,275 142,343 179,063
-------- ------- -------
$191,244 $175,662 $222,318
======== ======== ========
</TABLE>
Theatrical Revenues
The Company released five, four, and three theatrical feature films in the
domestic market place in fiscal 1995, 1994 and 1993, respectively. Only one
of the Company's pictures exceeded $3,000,000 in theatrical revenues during
fiscal 1995.
Only two of the Company's pictures, exceeded $6,000,000 in theatrical
revenues during fiscal 1994. Only one of the Company's pictures, "THE ADDAMS
FAMILY", exceeded $9,000,000 in theatrical revenues during fiscal 1993.
Revenues from "THE ADDAMS FAMILY" were earned solely outside the United
States and Canada.
The Company has released, in the domestic theatrical marketplace, all of
the pictures that were fully or substantially financed by the Company.
Furthermore, as described above, the Company's ability to produce or acquire
additional product for theatrical distribution is limited by the Plan .
Accordingly, it is anticipated that revenues from theatrical distribution in
the future will depend entirely on the Company's ability to produce or
acquire additional product in the accordance with the provisions of the Plan.
Home Video Direct Distribution Revenues
All of the Company's home video direct distribution revenues are
contributed by Orion Home Video ("OHV"). OHV distributed six of the
Company's theatrical releases in the domestic home video rental market in
fiscal 1995, compared to three releases in both fiscal 1994 and 1993. The
distribution of certain of the Company's theatrical titles in the domestic
home video "sell-thru" (i.e., lower priced) market through OHV accounted for
a significant portion of the Company's home video direct distribution
revenues during fiscal 1993, including approximately $13,500,000 attributable
to "DANCES WITH WOLVES."
16
<PAGE>
Over 60% of the Company's fiscal 1995 OHV revenues were generated by seven
titles in that year, including "ROBOCOP 3" and "CLIFFORD" which produced
revenues in excess of $8,600,000 and $6,600,000 respectively. Over 65% of the
Company's fiscal 1994 OHV revenues were generated by five titles in that
year, including "THE DARK HALF" and "DANCES WITH WOLVES", which produced
revenues in excess of $8,000,000 and $6,200,000, respectively. Over 80% of
the Company's fiscal 1993 OHV revenues were generated by four titles in that
year, including $16,200,000, $10,300,000 and $9,500,000 which were generated
by "DANCES WITH WOLVES," "LITTLE MAN TATE" and "THE SILENCE OF THE LAMBS,"
respectively.
The revenues earned by "DANCES WITH WOLVES" and "THE SILENCE OF THE LAMBS"
since they were first released in the domestic home video rental market are
among the largest generated in this market in the history of the industry.
The Company has only one picture, which was fully or substantially produced
by the Company left to be released in the domestic home video rental market.
The Company does not expect this title to approach the success of these two
titles. Furthermore, the Company's reduced theatrical release schedule in
fiscal 1993, 1994 and 1995 and limitations of the Plan with regard to the
investment in the production of new theatrical product, as described
elsewhere in this Annual Report on Form 10-K, are likely to continue to have
an adverse effect on future home video annual revenues.
Home Video Subdistribution Revenues
The Company's home video subdistribution revenue is primarily generated in
the foreign marketplace. Beginning in fiscal 1992, the Company's foreign
home video releases began to be distributed under the subdistribution
agreement with Sony Pictures Entertainment, Inc. ("Sony"). Under the terms
of such agreement, which was entered into in February 1990, and amended on
November 5, 1992, the Company received a substantial advance against the
performance of the 23 pictures (amended from 50 pictures) covered by the
agreement. Revenues recorded in fiscal 1995, 1994 and 1993 (approximately
$6,900,000, $8,000,000, and $9,100,000, respectively) and to be recorded
under this agreement in future periods will be less than amounts that would
have been recorded under previous performance-based subdistribution
agreements due to the receipt of the substantial advance. In addition, the
Company's reduced theatrical release schedule in fiscal 1993, 1994 and 1995
and the limitations of the Plan as described above are likely to continue to
have an adverse effect on future home video subdistribution revenue.
Pay Television Revenues
During fiscal 1995, eleven titles became available for exclusive exhibition
in the pay cable market pursuant to a settlement (the "Showtime Settlement")
reached with Showtime Networks Inc. ("Showtime") during the year as described
below. Pay television revenues for fiscal 1995 included approximately
$46,000,000 from the recognition of license fees on these titles. During
fiscal 1994 and 1993, three and five titles, respectively, first became
available for exclusive exhibition in the pay cable market under the
Company's old film licensing agreement, (the "Showtime Agreement") with
Showtime Networks Inc. ("Showtime"). Recognition of revenues on all three
fiscal 1994 titles and four of the five fiscal 1993 titles were deferred for
the reason described below. The Company recorded approximately $5,900,000 of
license fees related to the Showtime Agreement in fiscal 1993. Revenues for
the last five released titles under such Showtime Settlement to be recognized
in future periods approximates $13,500,000.
Note 5 describes the terms of the Showtime Settlement reached on March 29,
1994 regarding, inter alia, a dispute (defined therein as the "Key Man
Dispute") that existed between the Company and Showtime regarding the
licensing by Showtime of the 16 pictures theatrically released in the
domestic marketplace by the Company in fiscal 1992, 1993, 1994, and 1995. No
revenues related to the licensing
17
<PAGE>
to Showtime of these disputed pictures had been recorded pending resolution
of this dispute. Such deferral began to have an adverse effect on pay
television revenues in the first quarter of fiscal 1993. In accordance with
the terms and conditions of the Showtime Agreement, pay television revenues
were recorded beginning with the first quarter of fiscal 1995. Note 5 also
describes a complaint (defined therein as the "Qualification Dispute") filed
by Showtime alleging that Showtime should be permitted to offset
approximately $29,300,000 in fees already paid against future license fees
due the Company. This matter was also settled under the Showtime Settlement,
as described in Note 5.
Pay television revenues in fiscal 1994 and 1993 would have included
approximately $17,600,000 and $17,400,000, respectively, of license fees due
under the Showtime Agreement, the recognition of which was deferred until the
dispute was resolved. The Showtime Settlement resulted in an approximate
$18,000,000 reduction to the license fees for the 16 pictures subject to the
Key Man Dispute. Also, the Showtime Settlement provided for a reduction of
$15,000,000 in license fees recorded as revenues in previous periods related
to the pictures subject to the Qualification Dispute, which amount was
reversed in the fourth quarter of fiscal 1994.
During December 1988, the Company entered into an agreement with Sky
Television plc ("Sky Movies"), an affiliate of 20th Century Fox Film
Corporation which has merged with British Satellite Broadcasting ("BSB") to
form BSkyB, to license the pay television rights in the United Kingdom to
many of the Company's recent and current theatrical titles as well as to over
150 of its library titles. During fiscal 1995, 1994, and 1993, approximately
$3,000,000, $3,600,000, and $9,500,000 respectively, of revenues were
recorded upon the initial availability to Sky Movies and BSB of certain
titles under these contracts. In addition, in November 1992, the Company
entered into an agreement with Mitsubishi Corporation ("Mitsubishi") to
license the pay and free television rights in Japan to many of the Company's
recent and current theatrical titles as well as to 40 of its library titles.
Approximately $5,000,000 of pay television revenues were recorded under this
contract during fiscal 1993.
Free Television Revenues
A major source of the Company's revenues from syndication in the free
television market has been derived from the licensing in certain foreign
territories of free television rights to the Company's newer theatrical
titles. Revenues from this source, which generally begin to be recognized
two to four years after the initial domestic theatrical release of each
picture, were approximately $30,500,000, $37,000,000, and $34,200,000, in
fiscal 1995, 1994 and 1993, respectively. Major contracts in fiscal 1995
that contributed to revenues were with TV De Catalunya for rights in Spain,
Mitsubishi for rights in Japan and Principal Network for rights in Italy. In
fiscal 1994, the most significant licensees were TV de Catalunya for rights
in Spain, Principal Network for rights in Italy and RTL Plus for rights in
Germany. In fiscal 1993, the most significant licensees were Mitsubishi for
rights in Japan, BBC for rights in the United Kingdom, and Cecchi Gori for
rights in Italy, Germany and Spain.
Another major source of revenues in the free television market has been
derived from the licensing for a period of years in certain foreign
territories of free television rights to certain of the Company's pre-1982
library titles. Revenues from this source were approximately $3,000,000 in
fiscal 1995, approximately $2,200,000 in fiscal 1994, and approximately
$6,000,000 in fiscal 1993.
Revenues from syndication in the free television market in the United
States and Canada were approximately $18,000,000 in fiscal 1993, compared to
approximately $21,000,000 in fiscal 1994, and to approximately $20,000,000 in
fiscal 1995, including approximately $12,000,000, $15,000,000, and
$12,500,000 in fiscal 1993, 1994, and 1995, respectively, of basic cable
revenues.
18
<PAGE>
The Company periodically licenses its more successful theatrical titles to
the major networks in the United States. Revenues from this source were
approximately $23,200,000, and $1,500,000, in fiscal 1994 and 1993,
respectively. Significant revenues were recognized during fiscal 1994 upon
the availabilities of "DANCES WITH WOLVES" and "THE SILENCE OF THE LAMBS"
and, to a lesser extent, two other pictures. No network license fees were
recognized in fiscal 1995 and it is anticipated that little or no additional
network license fees will be generated unless the Company is able to produce
or acquire additional product in accordance with the provisions of the Plan.
Gross Profit (Loss)
The Company had gross profit (revenues less cost of rentals) of $3,767,000
in fiscal 1995 compared to a loss of ($67,368,000) in fiscal 1994 and gross
profit of $7,506,000 in fiscal 1993. The most significant contributions to
the Company's fiscal 1995 gross profit were derived from the recognition of
significant domestic pay television license fees pursuant to the Showtime
Settlement as described in Note 5, as well as the continued distribution to
the worldwide home video and foreign television marketplaces. The
contributions to gross profit described above were offset by the effects of
certain adverse factors described below.
The most significant contributions to the Company's fiscal 1994 gross
profit were derived from the continued distribution to the worldwide home
video, and foreign television marketplaces as well as the network
availability of "THE SILENCE OF THE LAMBS" and to a lesser extent, by the
domestic home video sell-thru distribution and the network availability of
"DANCES WITH WOLVES". Together these two pictures contributed approximately
$15,600,000 to fiscal 1994 gross profit. The contributions to gross profit
described above were more than offset by the effects of certain adverse
factors described below.
The most significant contributions to the Company's fiscal 1993 gross
profit were derived from the continued distribution to the foreign
theatrical, worldwide home video and the domestic pay cable marketplaces of
"THE SILENCE OF THE LAMBS" and, to a lesser extent, by the domestic home
video sell-thru distribution of "DANCES WITH WOLVES." Together, these two
pictures contributed approximately $23,100,000 to fiscal 1993 gross profit.
The foreign theatrical and home video distribution of "THE ADDAMS FAMILY",
the domestic home video rental distribution of "LITTLE MAN TATE", the
domestic home video sell-thru distribution of "DIRTY ROTTEN SCOUNDRELS" and
the licensing in a number of foreign territories, as described above, of the
television rights to certain of the Company's older theatrical titles also
contributed to gross profit in fiscal 1993. The contributions to gross
profit described above were offset, almost entirely, by the effects of
certain adverse factors described below.
The fiscal 1995 results included writedowns to estimated net realizable
value of the carrying amounts of "CLIFFORD", "CHINA MOON", "THE FAVOR", "BLUE
SKY" and "THERE GOES MY BABY", all of which were released in the domestic
marketplace during that year as well as additional writedowns to previously
released product.
The fiscal 1994 results included writedowns to estimated net realizable
value of the carrying amounts of "MARRIED TO IT", "THE DARK HALF", "ROBOCOP
3", and "CAR 54, WHERE ARE YOU?", all of which were released in the domestic
marketplace during that year as well as increases to previous provisions for
losses on the Company's then remaining unreleased titles. In addition, the
fiscal 1994 results were adversely affected by the writedowns due to the
Showtime Settlement more fully described above and in Note 5. Furthermore,
as a result of the Company's quarterly inventory reviews, described below,
current market conditions in the domestic free television market affected
management's estimate of the future revenue-generating potential of the
Company's product in this market.
19
<PAGE>
The fiscal 1993 results included writedowns to estimated net realizable
value of the carrying amounts of "ARTICLE 99" and "LOVE FIELD", both of which
were released during that year, as well as increases to previous provisions
for losses on certain of the Company's then unreleased titles. The fiscal
1993 results were also adversely affected by further writedowns to estimated
net realizable value of "SHADOWS AND FOG". In addition, as a result of the
Company's quarterly inventory reviews, described below, changed market
conditions, as well as the restrictions within the Plan concerning the
production of new product, significantly affected management's estimate of
the future revenue generating potential of the Company's product in the
foreign pay and free television marketplaces. During fiscal 1993, the
Company concluded negotiations with several customers which demonstrated the
reduced demand, and consequently, reduced pricing for the Company's product
in these markets.
The Company performs quarterly comprehensive reviews of its inventory of
film product. In the process of performing these reviews, the Company, where
appropriate, has written down the carrying amount of certain released titles
to estimated net realizable value and recorded provisions for losses on
certain then unreleased titles. Such writedowns, in fiscal 1995 totalled
approximately $17,100,000 compared to approximately $94,600,000 in fiscal
1994, and compared to approximately $35,800,000 in fiscal 1993. Such
writedowns for fiscal 1994 included an aggregate of $76,000,000 attributed to
the effect of the Showtime Settlement described above, the disappointing
release of four pictures during that fiscal year, and additional provisions
on the five then unreleased pictures. In addition, for reasons described
above and in previous publicly-filed documents, approximately three-quarters
of the Company's film inventories are stated at estimated net realizable
value and do not generate gross profit upon the recognition of revenues.
Selling, General and Administrative Expense
The Company's selling, general and administrative expense decreased 29%
(approximately $8,815,000) from fiscal 1993 to fiscal 1994. Approximately
$5,800,000 of the decrease in fiscal 1994 was attributed to reduced personnel
costs, as well as from rejections and renegotiations of various operating
leases. Selling general and administrative expense remained relatively
constant from fiscal 1994 to fiscal 1995.
Interest Expense
Interest expense decreased from approximately $32,300,000 in fiscal 1994 to
approximately $29,100,000 in fiscal 1995. Interest expense increased from
approximately $23,500,000 in fiscal 1993 to approximately $32,300,000 in
fiscal 1994. The fiscal 1994 increase is largely due to the impact of
applying SOP 90-7 to accounting for interest related to the Company's
subordinated notes and debentures. In accordance with the requirements of
SOP 90-7, the Company did not accrue interest on these securities during the
Bankruptcy Period. Interest expense for fiscal year 1994 includes 12 months
or approximately $24,300,000 of expenses recognized related to the Company's
10% Subordinated Debentures, Talent Notes, Creditor Notes, the payment
obligation to Sony and the guarantee of bank borrowings (collectively, "the
New Debt Structure"). Whereas fiscal 1993 included only four months or
approximately $8,600,000 of New Debt Structure interest. The fiscal 1995
decrease, which primarily reflects reduced interest charges on lower
outstanding debt balances as principal payments continue to reduce the
Company's debt, was partially offset by increased interest rates.
Approximately $17,100,000, $17,300,000 and $6,100,000 of the above amounts in
fiscal 1995, 1994 and 1993, respectively, resulted from the amortization of
discounts and the carrying amount of the guarantee of bank borrowings
described in Note 2. Annual interest expense is expected to continue to
decrease as the Company makes payments with respect to amounts outstanding
under its various securities.
Provision for Income Taxes
20
<PAGE>
The provisions for income taxes for fiscal 1995, 1994, and 1993 are
comprised primary of provisions for foreign withholding and remittance taxes
incurred. Additional information regarding the Company's income tax accounts
can be found in Note 8 of Notes to Consolidated Financial Statements.
Effective March 1, 1993, the Company adopted the Statement of Accounting
Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). Under this
method, deferred tax assets and liabilities are recognized with respect to
the tax consequences attributable to the differences between the financial
statement carrying values and tax bases of existing assets and liabilities.
There was no cumulative effect of this change in method of accounting for
income taxes for periods prior to March 1, 1993.
LIQUIDITY AND CAPITAL RESOURCES
On the Filing Date, as described above, the Company and certain of its
subsidiaries filed petitions for relief under the Bankruptcy Code in the
Court. Under the Plan, the Company will continue to concentrate its efforts
on the licensing and distribution of its library. Currently, the principal
sources of the funds required for the Company's motion picture distribution
activities are proceeds from the licensing of exhibition and ancillary rights
to the Company's library. In accordance with the terms of the Plan, the
Company will be permitted to invest in the production of new theatrical
product, only if, among other things, financing for such product can be
obtained, which is secured only by the film being produced or acquired and is
thus nonrecourse to the other assets of the Company.
Before the filing of the Company's petitions under chapter 11, the Company
had as an operating plan to release each year approximately 12 to 15
theatrical motion pictures which the Company fully or substantially financed.
Prior to the filing, all new production was halted leaving the Company with
only 12 largely completed but unreleased motion pictures at the Filing Date.
In addition, under the Plan, the Company's ability to produce or invest in
new theatrical product is severely limited as described above. Accordingly
the Company released five, four, and three theatrical motion pictures in the
domestic marketplace in fiscal 1995, 1994, and 1993, respectively. This
reduced release schedule described above is likely to have an adverse impact
on results of operations for the foreseeable future. Furthermore, as
described in Note 5, approximately three-quarters of the Company's film
inventories at February 28, 1995 are stated at amounts approximating their
estimated net realizable value and will not result in the recording of gross
profit upon the recognition of related revenues in future periods.
Accordingly, selling, general and administrative costs and interest expense
in future periods are likely to exceed gross profit recognized in each
period, which will result in the reporting of net losses for financial
reporting purposes for the foreseeable future.
Under the Bankruptcy Code, the Company remained in possession of its
property and, as such, was operating its business as a debtor-in-possession
subject to the supervision of the Court. The Company also developed a plan
of reorganization which is described below. The plan of reorganization
satisfied the provisions of the Bankruptcy Code (including acceptance by
certain required votes of creditors) and was confirmed by the Court.
During the Bankruptcy Period, the Company's financial and other resources
continued to decline. Production operations were suspended because of the
Company's inability to finance production of new films. New product for
distribution was limited to the Unreleased Films. To conserve resources, the
Company confined its use of cash collateral to those operating, post-
production, and distribution and marketing costs that were necessary to
preserve and maintain going-concern value.
The Company filed a proposed plan of reorganization and the related
disclosure statement as described above. The Court approved the Disclosure
Statement on September 8, 1992 and confirmed the Plan on October 20, 1992.
On November 5, 1992, the Effective Date, the Company emerged from the chapter
11 proceedings.
21
<PAGE>
The Plan is extremely complex and the summary presented below contains only
a brief synopsis of the compromises and benefits granted pursuant to the Plan
and is qualified in its entirety by reference to the Plan. The reader should
refer to the Plan to obtain a more thorough understanding of the provisions
of the Plan and for precise definitions of capitalized terms in the summary
presented below. The Plan represents a compromise and settlement reached
among the Company's principal creditor constituencies, most of which
relinquished, upon confirmation of the Plan, potential legal and equitable
arguments in exchange for the treatment and certainty provided by the Plan.
Under the Plan, the Company's senior secured creditors (the Banks and Sony)
are sharing 85% of the reorganized Company's Net Cash Flow. The Plan permits
certain unsecured creditors (including holders of certain 10% Subordinated
Debentures that were issued pursuant to the Plan as described below) to
receive, on a pari passu basis with the senior secured creditors, the
---- -----
remaining 15% of Net Cash Flow. After payment in full of the Allowed Claims
of the Banks (and Metromedia and its Affiliate, if they shall become
subrogees under the Bank Guarantee) and Sony, 100% of Net Cash Flow will be
paid to the holders of such unsecured Allowed Claims. After payment of the
Talent Notes, holders of the Creditor Notes and the 10% Subordinated
Debentures issued pursuant to the Plan, as described below, will share 100%
of Net Cash Flow.
Under the Plan, the holders of Guild Claims and Participation Claims
reduced by 17% their Allowed Prepetition Residual Claims and Allowed
Preconfirmation Participation Claims, respectively, in exchange for Talent
Notes, which are payable currently out of a portion of Net Cash Flow not
required to be paid to the Banks and Sony; holders of Allowed Postpetition
Residual Claims will be or have been paid in full with respect to such
Claims. The holders of most of the other Unsecured Claims, have or will
receive Creditor Notes, which are also payable currently out of a portion of
Net Cash Flow not required to be paid to the Banks and Sony. Additional
Creditor Notes will be issued in accordance with the Plan as and when
Disputed Unsecured Claims become allowed.
Under the Plan, the holders of the Company's subordinated notes and
debentures outstanding at the Filing Date received an aggregate of
$50,000,000 initial principal amount of 10% Subordinated Debentures due
October 31, 2001 of the reorganized Company, payable out of the portion of
Net Cash Flow not otherwise payable to the Banks and Sony as described above,
as well as 49% of the equity of the reorganized Company. The holders of the
Company's previously outstanding Series B Preferred Stock and common stock
received, in the aggregate, 0.1% and 0.8%, respectively, of the common stock
of the reorganized Company. Metromedia and its affiliate have received an
aggregate of 50.1% of the common stock of the reorganized Company in exchange
for $15,000,000, a guarantee of the bank borrowings of the reorganized
Company and a contribution of all rights in respect of a letter agreement
dated November 28, 1990 between the Company and an affiliate of Metromedia
(the "MetMermaids Rights").
For a period of five years from the Effective Date, the Company's By-laws
provide that the Company must cause certain Directors not affiliated with
Metromedia to be included in the Company's slate of directors nominated for
election by the Company's stockholders. One of such nominees is to be a
member of the Executive Committee of the Board of Directors of the
reorganized Company.
Pursuant to the terms of the Plan, the Company is licensing and
distributing its library. Expenditures for selling, general and
administrative costs are substantially less than the levels of such
expenditures that were incurred prior to the Filing Date. Further, the Plan
limits the Company's ability to produce or acquire new motion pictures or
other product. Such product may be produced or acquired only if, among other
things, any financing of such purchase or acquisition is secured, if
necessary, only by the assets being produced or acquired. With respect to
acquired assets only, the Company is nevertheless allowed, without any
restriction, to pay related debt service out of operating cash flow. While
the Company has been able to acquire certain distribution rights to certain
new product with nonrecourse financing, no
22
<PAGE>
assurance can be given that the Company will be successful in obtaining
additional nonrecourse debt financing or acquiring additional substantial
entertainment assets. Furthermore, to date, such arrangements have not
contributed substantially to the Company's results of operations.
To the extent that the Company generates Net Cash Flow, the Company is
required to make principal payments with respect to the Banks and Sony and to
its holders of its Talent Notes, Creditor Notes and 10% Subordinated
Debentures (the "Plan Debt") at least quarterly out of Net Cash Flow. Net
Cash Flow as defined in the Plan generally provides for the payment of
operating costs as incurred. Because distributions are dependent upon the
Company's ability to generate Net Cash Flow and are determined for specified
periods in accordance with the Plan, no assurance can be made as to the
amount, if any, of each future distribution. See Note 6 of Notes to
Consolidated Financial Statements ("Note 6"), for a schedule of the Company's
Net Cash Flow payments since the Effective Date.
The poor performance of the Company's pictures released after the Effective
Date and the reduction pursuant to the Showtime Settlement from the
contractual amounts which otherwise would be payable by Showtime under the
Showtime Agreement, have had an adverse effect on the liquidity of the
Company. As described in Note 6, such events had an adverse effect on the
Company's ability to meet its obligations under the Third Restated Credit
Agreement and to Sony discussed below in the fiscal year ended February 28,
1995 ("fiscal 1995") and could have an adverse effect on the Company's
ability to meet the other Plan obligations discussed below in the fiscal year
ended February 29, 1996 ("fiscal 1996").
As described in Note 6, the Company was obligated to make certain principal
payments to its bank lenders under the terms of the Third Restated Credit
Agreement and to Sony pursuant to the Sony Obligation in October and November
1994, respectively, and is obligated to make additional principal payments in
October and November 1995, respectively. The Company did not generate
sufficient Net Cash Flow to make the scheduled payments to the Banks and Sony
in October and November 1994, respectively, and accordingly, the Guarantors
under the Bank Guarantee made certain payments to such parties. In addition,
the Company does not currently believe it will generate sufficient Net Cash
Flow to make the scheduled final maturity payments to the Banks and Sony, in
October and November 1995, respectively. The payments made by the Guarantor
in October and November 1994 and any such additional payments made by the
Guarantors under the Bank Guarantee on behalf of the Company to the Bank
and/or to Sony result in such Guarantors become subrogated to the Banks' and
Sony's portion of the Company's Net Cash Flow following payment in full of
the Company's obligations to the Banks and Sony. The Company is obligated to
reimburse the amounts paid by the Guarantors under the Bank Guarantee on the
Company's behalf, plus interest, out of the portion of the Company's Net Cash
Flow previously allocable to the Banks and Sony until such Guarantors are
reimbursed in full.
In addition, as described in Note 6, the Indentures pursuant to which the
Talent Notes and Creditor Notes were issued (the "Indentures") provide that
an event of default ("Event of Default") will occur under such Indentures if
the aggregate amount of Net Cash Flow paid by the Company to the holders of
Talent Notes, Creditor Notes and 10% Subordinated Debentures (the "Plan
Debt") does not exceed the mandatory minimum amounts (the "Mandatory
Minimums") specified in the Indentures. The Indentures also provide,
however, that the Mandatory Minimums will be reduced by certain net amounts
due under the Showtime Agreement which are not received by the Company
because of the Showtime Settlement.
Although the Indentures provide that the Company must make payments to the
holders of the Plan Debt in the amounts specified in the Indentures (less the
reduction for the Showtime Settlement discussed above) for each fiscal
quarter through the fiscal year ended February 28, 1999, the Indentures only
set forth a single Mandatory Minimum threshold for each such fiscal year,
rather than separate quarterly thresholds for each fiscal quarter.
Accordingly, a literal reading of the Indentures would mean that by the end
of each of the Company's four fiscal quarters in each fiscal year beginning
with the fiscal
23
<PAGE>
quarter ended May 31, 1995, the Company would have had to pay to the holders
of the Plan Debt the same Mandatory Minimum amount. The Company believes
that the language set forth in the Indentures does not reflect the agreement
between the Company and its principal creditors who negotiated and agreed
upon the provisions based upon the Company's review of the agreement in
principle agreed to by such parties. The Company believes that the Mandatory
Minimums specified in the Indentures were intended to be the required
Mandatory Minimum thresholds for only the last fiscal quarter of each fiscal
year beginning with the fiscal year ended February 29, 1996 and that lower
quarterly Mandatory Minimum amounts should have been calculated and set forth
in the Indentures for each fiscal quarter of each fiscal year beginning with
the quarter ended May 31, 1995. Notwithstanding the literal language of the
Indentures, it is the Company's intention to follow what it believes to be
the intention of the agreeing parties.
Utilizing the Mandatory Minimums contained in the Indentures rather than
the interpretation the Company believes reflects the agreement of the
parties, the Company, currently anticipates that it would not generate
sufficient Net Cash Flow to satisfy the Mandatory Minimum threshold under the
Indentures beginning with the quarter ended May 31, 1995 and that
accordingly, an Event of Default would occur under each such Indenture on
such date. Upon the occurrence and continuation of an Event of Default, the
Trustee under each of the Indentures or 40% in aggregate principal amount of
either the Talent Notes or the Creditor Notes could cause an immediate
acceleration of the entire principal amount of such Notes. Should such
acceleration under the Indentures occur, the Company, absent other financing
arrangements, may be forced to seek protection under chapter 11 of the United
States Bankruptcy Code. Notwithstanding the literal language of the
Indentures, the Company believes, however, that no such Event of Default
should occur because the language set forth in the Indentures does not
reflect the intention of the Company and the representatives of the Plan Debt
who negotiated such provisions and accordingly that no acceleration of the
Notes should occur on such quarterly date. Utilizing the Company's view that
the agreement of the parties is not reflected in the language of the
Indentures and that the Indentures should be reformed to set forth quarterly
Mandatory Minimum thresholds for each fiscal quarter, the Company
nevertheless currently believes that it will not generate sufficient Net Cash
Flow to satisfy such reformed quarterly Mandatory Minimums at the quarter
ended August 31, 1995. In order to meet the Company's anticipated shortfall,
the Company must obtain a waiver, refinance its existing Plan Debt, or obtain
additional sources of financing including those described below. If the
Company cannot satisfy the Mandatory Minimum thresholds at the quarter ended
August 31, 1995, on such date an Event of Default would occur under the
Indentures, which in turn could cause an acceleration of such Notes as
described above. Should such acceleration under the Indentures occur, the
Company, absent other financing arrangements, may be forced to seek
protection under chapter 11 of the United States Bankruptcy Code. As more
fully described above and in Note 11, the Company has entered into the Merger
Agreement to combine the Company with Actava, Sterling, and MITI. A
condition to consummation of the mergers is the refinancing of all the
Company's Plan Debt and its remaining obligations to the Banks and to Sony,
so as to ease the cash flow burden on the surviving company of the mergers
and avoid an Event of Default and possible acceleration of the Notes pursuant
to the Indentures. There can be no assurance that this proposed refinancing
or the mergers contemplated by the Merger Agreement will be consummated.
As previously discussed herein, the Company anticipates net losses for
financial reporting purposes for fiscal 1996, as well as insufficient
liquidity to meet its obligations in fiscal 1996 as described above.
The Company continues to exploit its existing library of product in order
to generate Net Cash Flow. The Company is also actively pursuing a number of
steps aimed at improving its operating results to date and increasing its Net
Cash Flow by acquiring or producing new product on a nonrecourse basis as
permitted under the Plan. Since the Effective Date, the Company has been
able to acquire some new product with nonrecourse financing. In order to
further exploit its existing distribution apparatus, the Company will
continue to actively seek to attract the requisite nonrecourse financing to
fund the
24
<PAGE>
acquisition and distribution costs of new theatrical and home video product,
which would be distributed by the Company through its distribution system.
In addition, the Company will pursue additional nonrecourse financing for the
production of new product, which the Company is also permitted to engage in
under the Plan on a nonrecourse basis or through certain unrestricted
subsidiaries. If the Company is successful in obtaining nonrecourse
financing as described above, the contribution to the Company's liquidity
will generally be in the form of a distribution fee. In addition to the
mergers described above and in Note 11, the Company continues to consider its
alternatives in connection with the anticipated payment shortfall to the
holders of the Plan Debt including other restructuring or refinancing of such
Plan Debt. Despite these intentions, there can be no assurance that any
transaction, restructuring or refinancing will be consummated or that the
Company will be able to generate sufficient Net Cash Flow to avoid an Event
of Default under its Indentures in fiscal 1996.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this Item are
included in Item 14 of this Report.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
25
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
See statement below.
Item 11. Executive Compensation
See statement below.
Item 12. Security Ownership of Certain Beneficial Owners and Management
See statement below.
Item 13. Certain Relationships and Related Transactions
See statement below.
Statement
---------
The information called for by this PART III (Items 10, 11, 12 and 13) is
not set forth herein because the Company intends to file with the SEC not
later than 120 days after the end of the fiscal year ended February 28, 1995,
the Proxy Statement for the 1995 Annual Meeting of Stockholders, except that
the information regarding the Company's executive officers called for by Item
10 has been included in Part I of this Annual Report on Form 10-K under the
caption "Executive Officers of the Company". Such information to be included
in the Proxy Statement is hereby incorporated into these Items 10, 11, 12 and
13 by this reference.
26
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K
(a)(1) and (a)(2) Financial Statements and Schedules
The financial statements and schedules listed in the accompanying Index to
Financial Statements are filed as a part of this Annual Report on Form 10-K.
(a)(3) Exhibits
The exhibits listed in the accompanying Exhibit Index are filed as a part
of this Annual Report on Form 10-K.
(b) Reports on Form 8-K
The Registrant filed no current reports on Form 8-K during the most recent
fiscal quarter covered by this Annual Report on Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ORION PICTURES CORPORATION
(Registrant)
By: /s/Leonard White
--------------------------------------
Name: Leonard White
Title: President and
Chief Executive Officer
Dated: April 14, 1995
27
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Leonard White President and Chief April 14, 1995
------------------------------------
Leonard White Executive Officer
(Principal Executive
Officer) and Director
/s/Cynthia A. Friedman Senior Vice President April 14, 1995
------------------------------------
Cynthia A. Friedman and Chief Financial
Officer (Principal
Financial and
Accounting Officer)
/s/John W. Kluge Director April 14, 1995
------------------------------------
John W. Kluge
/s/Silvia Kessel Director April 14, 1995
------------------------------------
Silvia Kessel
/s/Joel R. Packer Director April 14, 1995
------------------------------------
Joel R. Packer
/s/Michael I. Sovern Director April 14, 1995
------------------------------------
Michael I. Sovern
/s/Raymond L. Steele Director April 14, 1995
------------------------------------
Raymond L. Steele
/s/Stuart Subotnick Director April 14, 1995
------------------------------------
Stuart Subotnick
/s/Arnold L. Wadler Director April 14, 1995
------------------------------------
Arnold L. Wadler
/s/Stephen Wertheimer Director April 14, 1995
------------------------------------
Stephen Wertheimer
</TABLE>
28
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
2.1+ - Debtors' Third Amended Joint Plan of Reorganization filed with the United States Bankruptcy Court
for the Southern District of New York on September 3, 1992 (filed by incorporation by reference to
Exhibit ___ to the Company's Current Report on Form 8-K dated November 5, 1993
2.2* - Agreement and Plan of Merger dated as of April 12, 1995 by and among Orion Pictures Corporation,
Actava Group Inc., MCEG Sterling Incorporated and Metromedia International Telecommunications Inc.
3.1(a)+ - Restated Certificate of Incorporation of Orion Pictures Corporation filed with the State of
Delaware on November 5, 1992 (filed by incorporation by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 1993 (the "November 30,
1992 Form 10-Q")
3.2+ - Amended and Restated By-Laws of the Company (filed by incorporation by reference to Exhibit 3.2 to
the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 1993 (the "May 31,
1993 Form 10-Q")).
4.1(a)+ - Indenture with respect to the Company's Talent Notes due 1999 (filed by incorporation by reference
to Exhibit 4.1(a) to the November 30, 1992 Form 10-Q)
4.1(b)+ - Indenture with respect to the Company's Creditor Notes due 1999 (filed by reference to Exhibit
4.1(b) to the November 30, 1992 Form 10-Q)
4.1(c)+ - Indenture with respect to the Company's 10% Subordinated Debentures due 2001 (filed by
incorporation by reference to Exhibit 4.1(c) to the November 30, 1992 Form 10-Q)
10.1(a)+ - Collateral Trust Agreement, dated as of October 20, 1992, among the Company, Bankers Trust Company,
the Collateral Trustees, Chemical Bank, United States Trust Company of New York, Sony Pictures
Entertainment, Inc. and Metromedia Company (the "Collateral Trust Agreement") (filed by
incorporation by reference to Exhibit 10.1 to the November 30, 1992 Form 10-Q)
10.1(b)+ - Amendment No. 1 to the Collateral Trust Agreement dated as of December 4, 1992
10.2+ - Lease dated December 1, 1992 between JMB/1888 Partners and the Company with respect to space at
1888 Century Park East, Los Angeles, CA 90067
10.3+ - Reimbursement Agreement, dated as of October 20, 1992, among the Company, Metromedia Company and
John Kluge (filed by incorporation by reference to Exhibit 10.3 to the November 30, 1992 Form 10-Q)
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.4(a)+ - Stock Purchase Agreement, dated as of September 18, 1992, among the Company, Metromedia Company and
John W. Kluge (filed by incorporation by reference to Exhibit 10.4(a) to the November 30, 1992 Form
10-Q)
10.4(b)+ - Amendment No. 1 to the Stock Purchase Agreement dated as of September 18, 1992, dated as of October
15, 1992, by the Company, Metromedia Company and John W. Kluge (filed by incorporation by reference
to Exhibit 10.4(b) of the November 30, 1992 Form 10-Q)
10.4(c)+ - Employment Agreement dated as of July 1, 87 between the Company and Rochel S. Blachman (filed by
incorporation by reference to Exhibit 10.4(l) to the 1988 10-K)
10.4(d)(1)+- Employment Agreement dated as of March 1, 1988 between the Company and Wendy Smith Stover (filed by
incorporation by reference to Exhibit 10.4(j) to the 1988 10-K)
10.4(d)(2)+- Amendment dated as of March 1, 1990 to Employment Agreement between the Company and Wendy Stover
(filed by incorporation by reference to Exhibit 19.6 to the Company's Quarterly Report on form 10-Q
for the quarter ended May 31, 1990, Commission File No. 1-8979 (the "May 1990 10-Q"))
10.4(e)+ - Heads of Agreement relating to the employment by the Company of Gary Nardino (filed by
incorporation by reference to Exhibit 10.4(l) to the 1989 10-K)
10.4(f)+ - Amendment dated as of March 1, 1990 to Employment Agreement between the Company and Arthur B. Krim
(filed by incorporation by reference to Exhibit 19.1 to the May 1990 10-Q)
10.4(g)+ - Amendment dated as of March 1, 1990 to Employment Agreement between the Company and Eric Pleskow
(filed by incorporation by reference to Exhibit 19.2 to the May 1990 10-Q)
10.4(h)+ - Amendment dated as of March 1, 1990 to Employment Agreement between the Company and William
Bernstein (filed by incorporation by reference to Exhibit 19.3 to the May 1990 10-Q)
10.4(i)+ - Amendment dated as of March 1, 1990 to Employment Agreement between the Company and Marc E. Platt
dated as of November 4, 1988 (filed by incorporation by reference to Exhibit 19.4 to the May 1990
10-Q)
10.4(j)+ - Amendment dated as of March 1, 1990 to Employment Agreement between the Company and John Laing
dated as of February 6, 1989 (filed by incorporation by reference to Exhibit 19.5 to the May 1990
10-Q)
10.4(k)+ - Amendment dated as of June 1, 1990 to Employment Agreement between the Company and Lawrence
Bernstein dated as of February 1, 1988 (incorporated by reference to Exhibit 19.7 to the May 1990
10-Q)
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.4(l)+ - Employment Agreement between the Company and David M. Forbes dated as of February 26, 1990 (filed
by incorporation by reference to Exhibit 19.8 to the May 1990 10-Q)
10.4(m)+ - Employment Agreement between the Company and Neil R. McCarthy dated as of April 20, 1990 (filed by
incorporation by reference to Exhibit 19.9 to the May 1990 10-Q)
10.4(n)+ - Agreement dated as of February 21, 1992, by and between the Company and William Bernstein
10.4(o)+ - Restated Employment Agreement dated as of March 1, 1992, between the Company and Leonard White
10.4(p)+ - Agreement dated as of April 27, 1992, by and between the Company and Arthur B. Krim
10.4(q)+ - Agreement dated as of April 27, 1992, by and between the Company and Eric Pleskow
10.4(r)+ - Agreement dated as of December 1992, by and between the Company and Leonard White
10.4(s)+ - Agreement dated as of December 1992, by and between the Company and John W. Hester
10.4(t)+ - Termination Agreement dated as of December 1992, by and between the Company and Rochel S. Blachman
10.5(a)+ - Credit Agreement dated as of December 17, 1987 (the "Credit Agreement") among Orion Pictures
Corporation and Manufacturers Hanover Trust Company, as agent and as a Bank, the Bank of Nova
Scotia, Chemical Bank, Security Pacific National Bank, Continental Illinois National Bank and Trust
Company of Chicago, First National Bank of Minneapolis, and National Bank of Canada (filed by
incorporation by reference to Exhibit 19.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended November 30, 1987)
10.5(b)+ - Amendment No. 1 dated as of June 1, 1988 to the Credit Agreement (filed by incorporation by
reference to Exhibit 19.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended
May 31, 1988)
10.5(c)+ - Amendment No. 2 dated as of August 17, 1988 to the Credit Agreement (filed by incorporation by
reference to Exhibit 19.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended
August 31, 1988)
10.5(d)+ - Amendment No. 3 dated as of October 17, 1988 to the Credit Agreement (filed by incorporation by
reference to Exhibit 19.1 to the November 1988 10-Q)
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.5(e)+ - Amendment No. 4 dated as of March 10, 1989 to the Credit Agreement (filed by incorporation by
reference to Exhibit 10.5(e) to the Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1989, Commission File No. 1-5979)
10.5(f)+ - Amendment No. 5 dated as of May 31, 1989 to the Credit Agreement (filed by incorporation by
reference to Exhibit 19.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended May 31, 1989, Commission File No. 1-5979)
10.5(g)+ - Waiver dated as of August 18, 1989 to the Credit Agreement (filed by incorporation by reference to
Exhibit 19.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended August 31,
1989, Commission File No. 1-5979)
10.5(h)+ - Amended and Restated Credit Agreement dated as of September 27, 1989 among the Company,
Manufacturers Hanover Trust Company, as Agent and as a Bank and the Bank of Nova Scotia; Chemical
Bank, Security Pacific National Bank; Continental Bank, N.A.; First Bank, National Association; and
National Bank of Canada (the "Amended and Restated Credit Agreement") (filed by incorporation by
reference to Exhibit 19.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 1989, Commission File No. 1-5979)
10.5(i)+ - First Amendment and Waiver dated as of November 15, 1989 to the Amended and Restated Credit
Agreement (filed by incorporation by reference to Exhibit 19.1 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended November 30, 1989, Commission File No. 1-5979)
10.5(j)+ - Second Amendment and Restated Credit Agreement dated as of July 27, 1990, among the Company,
Manufacturers Hanover Trust Company, as Agent and as a Bank, and Chemical Bank; the Bank of Nova
Scotia; Security Pacific National Bank; Continental Bank, N.A.; National Bank of Canada; Bank of
America National Trust and Savings Association; the Bank of California; and Union Bank (the "Second
Amended and Restated Credit Agreement") (filed by incorporation by reference to Exhibit 19.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 1990, Commission
File No. 1-5979 (the "August 1990 10-Q"))
10.5(k)+ - First Amendment dated as of September 20, 1990 to the Second Amended and Restated Credit Agreement
(filed by incorporation by reference to Exhibit 19.2 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended November 30, 1990, Commission File No. 1-5979 (the "November 1990
10-Q"))
10.5(l)+ - Waiver dated as of December 11, 1990 to the Second Amended and Restated Credit Agreement
(incorporated by reference to Exhibit 19.2 to the November 1990 10-Q)
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.5(m)+ - Third Amended and Restated Credit Agreement dated as of October 20, 1992 (incorporated by reference
to November 30, 1992 10-Q)
10.5(n)+ - Third Amended and Restated Credit Agreement, dated as of October 20, 1992, among the Company,
Chemical Bank, as Agent and the financial institutions from time to time parties to the Agreement
(filed by incorporation by reference to Exhibit 10.2 to the November 30, 1992 Form 10-Q)
10.5(o)+ - Bank Waiver and Consent dated June 30, 1993 between the Company, Chemical Bank and the Banks party
to the Third Amended and Restated Credit Agreement (filed by incorporation to Exhibit 10.5(o) to
the May 31, 1993 Form 10-Q).
10.6(a)#+ - Agreement dated as of February 8, 1985 between the Company and Home Box Office, Inc. (the "1985 HBO
Agreement") (filed by incorporation by reference to Exhibit 10.8 to the 1985 10-K)
10.6(b)#+ - Amendment Number One dated as of June 6, 1985 to the 1985 HBO Agreement (filed by incorporation by
reference to Exhibit 10.9(b) to the 1986 10-K)
10.7#+ - Letter Agreement, Home Video License Agreement, Pay Cable License Agreement and Additional Letter,
each dated as of November 7, 1985, between the Company and Home Box Office, Inc. (filed by
incorporation by reference to Exhibit 19.4 to the August 1986 10-Q)
10.8#+ - Exclusive Output Agreement dated as of August 1, 1986 between Showtime/The Movie Channel Inc. and
the Company (the "Showtime Agreement") (filed by incorporation by reference to Exhibit 19.4 to the
August 1986 10-Q)
10.9+ - Engagement Letter between Salomon Brothers Inc and the Company dated November 16, 1990
10.10+ - Agreement dated as of November 28, 1990 (and executed on December 12, 1990) between MetMermaids, a
Joint Venture between John W. Kluge, as Trustee, and Stuart Subotnick, and the Company (filed by
incorporation by reference to Exhibit 28.1 to the November 1990 10-Q)
10.11+ - Engagement Letter between Donaldson, Lufkin & Jenrette and the Company dated April 22, 1991
10.12+ - Engagement Letter between Donaldson, Lufkin & Jenrette and the Company dated January 17, 1992
(incorporated by reference to Exhibit Number 10.12 of the 1992 10-K)
10.13+ - Annual Bonus Plan (filed by incorporation by reference to Exhibit 10.13 to the May 31, 1993 Form
10-Q)
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.14+ - Loan Agreement dated as of July 29, 1993 between the Company and MetProduction, Inc
("Metproductions") (filed by incorporation by reference to Exhibit 10.14 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended August 31, 1993 (the "August 31, 1993 Form 10-
Q")).
10.15+ - Loan Agreement dated as of August 2, 1993 between the Company and MetProductions (filed by
incorporation by reference to Exhibit 10.15 to the August 31, 1993 Form 10-Q)
10.16+ - Employment Agreement dated as of December, 1992 between Orion Home Entertainment Corporation and
Herbert Dorfman (filed by incorporation by reference to Exhibit 10.16 to the August 31, 1993 Form
10-Q)
10.17+ - Employment agreement dated as of July 1, 1993 between the Company and Cynthia Friedman (filed by
incorporation by reference to Exhibit 10.17 to the August 31, 1993 Form 10-Q)
10.18+ - Employment agreement dated as of July 1, 1993 between the Company and Diane Keating (filed by
incorporation by reference to Exhibit 10.18 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended November 30, 1993 (the "November 30, 1993 Form 10-Q"))
10.19+ - Loan Agreement dated as of November 12, 1993 between the Orion Home Entertainment Corporation and
MetProduction, Inc. ("Metproductions") (filed by incorporation by reference to Exhibit 10.19 to the
November 30, 1993 Form 10-Q)
10.20+ - Stipulation and Order Settling Litigations and Disputes between Reorganized Debtors and Showtime
Networks Inc. (the "Showtime Settlement"). (filed by incorporation by reference to Exhibit 99.1 to
the Company's form 8-K dated March 29, 1994)
10.21+ - Loan Agreement dated as of January 10, 1994 between the Company and Metproductions (filed by
incorporation by reference to Exhibit 10.21 to the February 28, 1994 Form 10-K)
10.22+ - Loan Agreement dated as of January 27, 1994 between Orion Home Entertainment and Metproductions
(filed by incorporation by reference to Exhibit 10.22 to the February 28, 1994 Form 10-K)
10.23+ - Loan agreement dated as of June 20, 1994 between the Company and Metproductions, Inc. (filed by
incorporation by reference to Exhibit 10.23 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended May 31, 1994 (the "May 31, 1994 Form 10-Q"))
10.24+ - Employment agreement dated as of December 1992, between the Company and Susan Blodgett (filed by
incorporation by reference to Exhibit 10.24 to the May 31, 1994 Form 10-Q)
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.25+ - Loan agreement dated as of July 18, 1994 between the Company and Metproductions, Inc. (filed by
incorporation by reference to Exhibit 10.25 to the Company's Quarterly Report on Form 10Q for the
fiscal quarter ended August 31, 1994)
10.26+ - Loan agreement dated as of October 1994 between the Company and Metproductions, Inc. (filed by
incorporation by reference to Exhibit 10.26 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended November 30, 1994)
10.27* - Loan agreement dated as of October 1994 between the Company and Metproductions, Inc.
11* - Statement re: computation of per share earnings
16+ - Letter from Ernst & Young dated March 10, 1993 to the Securities and Exchange Commission (filed by
incorporation by reference to Exhibit C to the Company's Current Report Form 8-K dated March 10,
1993)
21* - List of subsidiaries of the Company as of February 28, 1995
</TABLE>
-------------------
* Filed herewith.
# Certain portions of these Exhibits have been deleted pursuant to requests
for confidential treatment pursuant to the Securities Act of 1933 and the
Securities Exchange Act of 1934.
+ Previously filed with Securities and Exchange Commission.
35
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Statements of Operations for the fiscal years ended in February 1995, 1994 and 1993 . . . . . . . . . . F-2
Consolidated Balance Sheets at February 28, 1995 and February 28, 1994 . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Cash Flows for the fiscal years ended in February 1995, 1994 and 1993 . . . . . . . . . . F-4
Consolidated Statements of Common Stock,
Paid-in Surplus and Accumulated Deficit for the fiscal years ended in February 1995, 1994 and 1993 . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Consolidated Financial Statement Schedules for the fiscal years ended in February 1995, 1994 and 1993:
II. Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-28
</TABLE>
All other schedules have been omitted either as inapplicable or not required
under the instructions contained in Regulation S-X or because the information
is included in the Consolidated Financial Statements or the Notes thereto
listed above.
36
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Orion Pictures Corporation:
We have audited the consolidated financial statements of Orion Pictures
Corporation and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and the financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Orion
Pictures Corporation and subsidiaries as of February 28, 1995 and 1994, and
the results of their operations and their cash flows for each of the years in
the three-year period ended February 28, 1995, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in note 10 of notes to consolidated financial statements, the
Company is a defendant in litigation with a producer who alleges various
breaches of agreements by the Company in its distribution of certain motion
pictures which the plaintiff produced. The complaint seeks an accounting and
damages for alleged improper accounting practices resulting in an
underpayment of substantial amounts to the producer. It is not possible to
assess the ultimate damages, if any, at this time.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As more fully
discussed in notes 6 and 12 of notes to consolidated financial statements,
the Company has certain Mandatory Minimum amounts (as defined in note 6 of
notes to consolidated financial statements ("Note 6")), that are due within
the next year under the terms of its Indentures (as defined in Note 6).
Based upon current estimates of available cash flow, the Company does not
believe it will have sufficient cash to make these payments as they become
due. In order to meet such obligations, the Company must obtain a waiver,
refinance its existing Indentures, or obtain additional sources of financing.
This condition raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters
are also described in note 12 of notes to consolidated financial statements.
The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
As discussed in note 8 of notes to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standard No.109. "Accounting for Income
Taxes" in fiscal 1994.
Los Angeles, CA
F-1
<PAGE>
April 12, 1995 KPMG PEAT MARWICK LLP
Orion Pictures Corporation
(Debtor-in-Possession from December 11, 1991 to November 5, 1992 - Note 1)
<TABLE>
<CAPTION>
Consolidated Statements of Operations
(in thousands, except per-share amounts)
Fiscal Years Ended in February, 1995 1994 1993
<S> <C> <C> <C>
Revenues $191,244 $175,662 $222,318
Cost of rentals 187,477 243,030 214,812
Gross profit (loss) 3,767 (67,368) 7,506
Other costs and expenses:
Selling, general and administrative 22,045 21,639 30,454
Interest expense, net (contractual interest of $52,952 for the
fiscal year ended in February 1993) 29,082 32,296 23,533
Loss before chapter 11 reorganization items
and provision for income taxes (47,360) (121,303) (46,481)
Chapter 11 reorganization items 1,610 1,793 20,792
Loss before provision for income taxes (48,970) (123,096) (67,273)
Provision for income taxes 1,300 2,100 5,700
Loss before extraordinary gains recognized
upon emergence from chapter 11 (50,270) (125,196) (72,973)
Extraordinary gains recognized upon emergence
from chapter 11, net of income taxes ---- ---- 323,213
Net income (loss) $(50,270) $(125,196) $250,240
Income (loss) per common share:
Loss before extraordinary gains $ (2.51) $ (6.26) $ (11.29)
=========== ======== =========
Net income (loss) $ (2.51) $ (6.26) $ 38.70
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
Orion Pictures Corporation
(Debtor-in-Possession from December 11, 1991 to November 5, 1992 - Note 1)
<TABLE>
<CAPTION>
Consolidated Balance Sheets
(in thousands)
February 28, February 28,
1995 1994
<S> <C> <C>
ASSETS:
Cash and cash equivalents (Notes 2 and 6) $ 26,190 $ 37,114
Accounts receivable, net 59,710 81,981
Film inventories 249,674 367,152
Other assets 16,014 21,767
$ 351,588 $ 508,014
LIABILITIES AND SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY):
Accounts payable $ 1,107 $ 1,681
Accrued expenses 32,455 40,906
Participations and residuals 45,927 50,595
Notes and subordinated debt (including
$19,544 due majority shareholder
at February 28, 1995) 212,079 274,501
Deferred revenues 68,487 98,528
Commitments and contingencies (Note 11)
Liquidity (Note 12)
Shareholders' equity (capital deficiency):
Common Stock, $.25 par value, authorized
100,000,000 shares, issued and outstanding
20,000,000 shares 5,000 5,000
Paid-in surplus 265,811 265,811
Accumulated deficit (279,278) (229,008)
Total shareholders' equity (capital deficiency) (8,467) 41,803
$ 351,588 $ 508,014
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
Orion Pictures Corporation
(Debtor-in-Possession from December 11, 1991 to November 5, 1992 - Note 1)
<TABLE>
<CAPTION>
Consolidated Statements of
Cash Flows
(in thousands)
Fiscal Years Ended in February, 1995 1994 1993
<S> <C> <C> <C>
Operations:
Loss before chapter 11 reorganization items and
provision for income taxes $ (47,360) $ (121,303) $ (46,481)
Provision for income taxes 1,300 2,100 5,700
Loss exclusive of chapter 11 reorganization items (48,660) (123,403) (52,181)
Adjustments to reconcile loss exclusive of
chapter 11 reorganization items to cash provided by
operations exclusive of chapter 11 reorganization items:
Amortization of film costs 140,318 199,219 161,173
Amortization of bank guarantee 4,951 5,625 2,243
Amortization of debt discounts and costs 12,153 12,314 7,345
Depreciation and amortization 767 708 1,511
Decrease in accounts receivable 22,271 15,718 49,796
Decrease in accounts payable (574) (2,418) (2,168)
Decrease in accrued expenses (5,476) (5,291) (23,115)
Accrual of participations and residuals 25,628 17,392 28,871
Payments of participations and residuals (32,353) (27,306) (14,340)
Decrease in deferred revenues (30,041) (2,476) (6,551)
Cash provided by operations
exclusive of chapter 11 reorganization items 88,984 90,082 152,584
Payments of chapter 11 reorganization items (1,610) (1,793) (23,438)
Cash provided by operations 87,374 88,289 129,146
Investment activities:
Investment in film inventories (22,840) (67,481) (7,348)
Additions to property and equipment (1,198) (785) (177)
Decrease in other assets 1,233 4,263 3,046
Cash used in investment activities (22,805) (64,003) (4,479)
Financing activities:
Additions to notes and subordinated debt 19,544 ---- ----
Payments on notes and subordinated debt (95,037) (64,711) (83,688)
Sale of common stock to majority shareholder ----- ----- 15,000
Cash used in financing activities (75,493) (64,711) (68,688)
Net increase (decrease) in cash (10,924) (40,425) 55,979
Cash and cash equivalents at beginning of year 37,114 77,539 21,560
Cash and cash equivalents at end of year $ 26,190 $ 37,114 $ 77,539
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
Orion Pictures Corporation
(Debtor-in-Possession from December 11, 1991 to November 5, 1992 - Note 1)
<TABLE>
<CAPTION>
Consolidated Statements of
Common Stock, Paid-in Surplus
and Accumulated Deficit
(in thousands)
Three Years Ended February 28, 1995
----------------------------------------------------------------
Common Stock
------------------
Number of Paid-in Accumulated
Shares Amount Surplus Deficit
<S> <C> <C> <C> <C>
Balances, February 29, 1992 22,508,600 $ 5,627 $ 185,101 $ (354,052)
Net income ---- ---- ---- 250,240
Emergence from chapter 11:
Redemption of previously outstanding
Common Stock (22,508,600) (5,627) ---- ----
Issuances of Common Stock:
To holders of previously outstanding preferred
and Common Stock 180,000 45 5,656 ----
To holders of previously outstanding
subordinated debt 9,800,000 2,450 23,030 ----
To majority shareholder 10,020,000 2,505 23,547 ----
Benefit of exchange with majority shareholder ---- ---- 28,477 ----
Balances, February 28, 1993 20,000,000 5,000 265,811 (103,812)
Net loss ---- ---- ---- (125,196)
Balances, February 28, 1994 20,000,000 5,000 265,811 (229,008)
Net loss ---- ---- ---- (50,270)
Balances, February 28, 1995 20,000,000 $ 5,000 $ 265,811 $ (279,278)
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Orion Pictures Corporation
Notes to Consolidated
Financial Statements
1. Basis of Presentation, Description of the Business and Summary of
Significant
Accounting Policies
Basis of Presentation
On December 11 and 12, 1991 (the "Filing Date"), Orion Pictures
Corporation and substantially all of its subsidiaries filed petitions for
relief under chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Southern
District of New York (the "Court"). During the period from the Filing Date
to November 5, 1992 (the "Bankruptcy Period"), the Company operated under a
series of court orders and actively sought to obtain new equity capital and
other forms of investment in order to recapitalize. In this regard, the
Company filed its "Debtors' Joint Consolidated Plan of Reorganization" (the
"Plan") with the Court on July 13, 1992 (as amended on July 24, 1992,
August 7, 1992, September 3, 1992 and October 20, 1992) and the related
"Disclosure Statement for Debtors' Joint Consolidated Plan of
Reorganization" with the Court on July 21, 1992 (as amended on July 24,
1992, August 7, 1992 and September 3, 1992). On October 20, 1992 (the
"Confirmation Date"), the Court confirmed the Plan which became effective
on November 5, 1992 (the "Effective Date"). The Plan and the Company's
reorganization activities are more fully described in "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company's consolidated financial statements were prepared on a going
concern basis during the Bankruptcy Period, which contemplates the
realization of assets and the satisfaction of liabilities in the normal
course of business. See Note 2 for a description of significant
adjustments that were recorded during the year ended February 28, 1993 to
reflect the Company's emergence from chapter 11 in accordance with the
terms of the Plan.
Description of the Business
The business activities of the Company constitute a single business
segment, filmed entertainment, which, included the financing, production
and distribution of theatrical motion pictures. The terms of the Plan
severely limit the Company's ability to finance and produce additional
theatrical motion pictures (Note 3). Therefore, the Company's primary
activity is the ongoing distribution of its present library of theatrical
motion pictures and television programming. As described in Note 3, the
Company believes the lack of a continuing flow of newly produced theatrical
product has adversely affected the marketability of its library.
Theatrical motion pictures were produced initially for exhibition in
theaters. Initial theatrical release generally occurs in the United States
and Canada. Foreign theatrical exhibition generally begins within the
first year after initial release. Home video distribution in all
territories usually begins six to twelve months after theatrical release in
that territory, with pay television exploitation beginning generally six
months after initial home video release. Exhibition of the Company's
product on network and on other free television outlets begins generally
three to five years from the initial theatrical release date in each
territory.
F-6
<PAGE>
Orion Pictures Corporation
Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its domestic and foreign subsidiaries, most of which are wholly owned.
All significant intercompany transactions and accounts have been
eliminated. The consolidated financial statements for the years ended
February 28, 1994 and February 28, 1993 ("fiscal 1994" and "fiscal 1993",
respectively), contain certain reclassifications to conform to the
presentation for the year ended February 28, 1995 ("fiscal 1995").
Cash and Cash Equivalents
Cash equivalents consists of highly liquid instruments with original
maturities of one month or less.
Revenue Recognition
Revenue from the theatrical distribution of films is recognized as the
films are exhibited. Distribution of the Company's films to the home video
market in the United States and Canada is effected through Orion Home Video
("OHV"), a division of Orion Home Entertainment Corporation, a wholly-owned
subsidiary. OHV's home video revenue, less a provision for returns, is
recognized when the video cassettes are shipped. Distribution of the
Company's films to the home video markets in foreign countries is generally
effected through subdistributors who control various aspects of
distribution. When the terms of sale to such subdistributors include the
receipt of nonrefundable guaranteed amounts by the Company, revenue is
recognized when the film is available to the subdistributors for exhibition
or exploitation and other conditions of sale are met. When the arrangements
with such subdistributors call for distribution of the Company's product
without a minimum amount guaranteed to the Company, such sales are
recognized when the Company's share of the income from exhibition or
exploitation is earned.
Revenue from the licensing of the Company's product to networks, basic
and pay cable companies and independent television stations or groups of
stations in the United States and Canada as well as in foreign territories
is recognized when the license period begins and when certain other
conditions are met. Such conditions include the availability of such
product for broadcast by the licensee.
Film Inventories and Cost of Rentals
Theatrical and television program inventories consist of direct
production costs, production overhead and capitalized interest, print and
exploitation costs, less accumulated amortization. Film inventories are
stated at the lower of unamortized cost or estimated net realizable value.
Selling costs and other distribution costs are charged to expense as
incurred.
Film inventories and estimated total costs of participations and
residuals are charged to Cost of rentals under the individual film forecast
method in the ratio that current period revenue recognized bears to
management's estimate of total gross revenue to be realized. Such
estimates are re-evaluated quarterly in connection with a comprehensive
review of the Company's inventory of film product, and estimated losses, if
any, are provided for in full. Such losses include provisions for
estimated future distribution costs and fees as well as participation and
residual costs expected to be incurred.
Depreciation and Amortization
Depreciation and amortization of property and equipment (primarily
equipment) is provided using the straight line method over the estimated
useful lives of the assets. The guarantee of the Company's bank borrowings
(Note 2) is
F-7
<PAGE>
Orion Pictures Corporation
stated at its estimated fair value at the Effective Date, less accumulated
amortization. Amortization is being calculated on the effective interest
method over certain related cash flows estimated in the Plan.
Income (Loss) per Common Share
Pursuant to the Plan (Note 2), all 22,508,600 shares of the Company's
previously outstanding common stock and 7,237 shares of the Company's
previously outstanding preferred stock were canceled at the Effective Date
and the holders of such stock received 160,000 and 20,000 shares (0.8% and
0.1%), respectively, of the reorganized Company's 20,000,000 newly issued
common shares. All outstanding options to purchase common stock pursuant
to the Company's stock option plans (Note 7) were also canceled.
Per-share amounts presented on the Company's consolidated statements of
operations are computed by dividing Loss before extraordinary gains and Net
income (loss) each as reduced by preferred and preference dividends and,
when applicable, increased by pro-forma reductions in interest expense (net
of tax) resulting from the assumed exercise of stock options and warrants
when such securities were outstanding (Note 7) and the resulting assumed
reduction of outstanding indebtedness, by the weighted average number of
common and dilutive common equivalent shares outstanding during each
period. Reported per-share amounts are based on 20,000,000, 20,000,000 and
6,465,000 common and common equivalent shares in fiscal 1995, 1994, and
1993, respectively.
Fully diluted per-share amounts are not presented because the dilutive
effect of the Company's other potentially dilutive securities (the Series B
Preferred Stock) was immaterial for all reported periods.
If the Plan had become effective on March 1, 1992, Loss per share for the
year ended February 28, 1993 would have been $4.54 per share. Such pro-
forma per-share amount is based on the assumption that the 20,000,000
shares of the reorganized Company's common shares that have been issued
pursuant to the Plan, the 10% Subordinated Debentures, the Talent Notes,
the Creditor Notes, the payment obligation to Sony and the guarantee of
bank borrowings (Notes 2 and 6) had all been outstanding during the entire
period.
Financial Instruments
The estimated fair values of cash, accounts receivable, accounts payable
and accrued expenses approximate their carrying values because of the short
maturity of these instruments. The carrying value of receivables with
maturities greater than one year have been discounted and if such
receivables were discounted based on current market rates, the fair value
of these receivables would not be materially different than their carrying
value. Because the Company's bank debt is a floating interest rate
instrument, it is assumed that the carrying value would approximate fair
value. The remaining debt (i.e., 10% Subordinated Debentures, Talent
Notes, Creditor Notes and other obligations) does not have a ready market.
These debt instruments are shown on a discounted basis (see Note 2 and 6)
using market rates applicable at the Effective Date. If such debt were
discounted based on current market rates, the fair value of this debt would
not be materially different than its carrying value.
F-8
<PAGE>
Orion Pictures Corporation
2. Financial Reporting upon Emergence from Chapter 11
The Plan contains certain provisions that resulted in the recording of
significant adjustments to the Company's consolidated financial statements
upon the Company's emergence from chapter 11. In accordance with the
provisions of Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code", issued by the American
Institute of Certified Public Accountants ("SOP 90-7"), the Company did not
adopt fresh-start reporting upon consummation of the Plan. The Company did
not qualify for fresh-start reporting because even though the majority
shareholder's former ownership of approximately 68% of the Company's common
stock was reduced to under 1%, the majority shareholder and its affiliate
purchased a majority of the Company's common stock that was issued pursuant
to the Plan (as described below) and, thus, in excess of 50% of the
Company's common stock is owned by the majority shareholder and its
affiliate both before and after the consummation of the Plan.
The most significant adjustments that were recorded during the year ended
February 28, 1993 to reflect the Company's emergence from chapter 11 in
accordance with the terms of the Plan were: 1) to account for the exchange
by the Company's subordinated debtholders of all previously outstanding
subordinated debt of the Company for a 49% equity interest in the Company
as well as new $50,000,000 initial principal amount of 10% nine-year
subordinated debentures ("10% Subordinated Debentures"); 2) to account for
the delivery by the Company's majority shareholder and its affiliate of a
guarantee of bank borrowings, a contribution of the majority shareholder's
interest in "MERMAIDS" described below to the Company and the contribution
by such affiliate of $15,000,000 in cash in exchange for 50.1% of the
equity interest in the Company; and 3) to restate liabilities compromised
by the Plan at the estimated present value of amounts to be paid. These
adjustments, which are described below, were recorded based upon estimates
of the fair values of: 1) the equity interests in the Company distributed
to the Company's majority shareholder and its affiliate and holders of the
Company's previously outstanding subordinated notes and debentures and the
holders of the previously outstanding common and preferred stock; 2) the
10% Subordinated Debentures being issued to holders of the Company's
previously outstanding subordinated notes and debentures; 3) the guarantee
of bank borrowings received from the Company's majority shareholder and its
affiliate; 4) a non-interest bearing payment obligation of the Company to
a subsidiary of Sony Pictures Entertainment, Inc. ("Sony") pursuant to
revisions made in the Company's foreign home video licensing agreement with
Sony described below; and 5) the Talent Notes and the Creditor Notes (both
as defined in the Plan) being issued to certain creditors of the Company.
The recorded fair values of the equity interests were based upon the
average "when distributed" trading price on NASDAQ of the new common stock
over a three-week period after the Effective Date. The recorded fair value
of the 10% Subordinated Debentures was derived using an effective yield of
18% based on a survey of similar subordinated securities of other
companies. The recorded fair value of the guarantee of bank borrowings was
based upon a calculation of the estimated net present value of the interest
expected to be saved over the term of the bank borrowings due to such
guarantee and has been confirmed by an independent valuation. The recorded
fair value of the Sony payment obligation was based upon a calculation of
the estimated net present value of the payment obligation, discounted at
the rate of interest being paid on the Company's bank debt. The recorded
fair values of the Talent Notes and the Creditor Notes were based upon a
comparison of the characteristics of these securities with those of the 10%
Subordinated Debentures which resulted in the assumption that their
effective yields should be 14% and 16%, respectively.
All descriptions of new securities in this Annual Report on Form 10-K
refer to securities issued and, in certain cases, estimated amounts of such
securities that are yet to be issued, unless the context indicates
otherwise. Securities yet to be issued relate to disputed claims.
F-9
<PAGE>
Orion Pictures Corporation
Subordinated Debt Exchange
On the Effective Date, the carrying amount for financial reporting
purposes of the Company's subordinated notes and debentures was
$280,714,000. The Company did not make any payments of principal or
interest on these subordinated notes and debentures during the Bankruptcy
Period. Accrued expenses on the Consolidated Balance Sheet at the
Effective Date included approximately $30,812,000 of accrued interest on
the Company's subordinated notes and debentures that was accrued to the
Filing Date.
The Company ceased accruing interest on its subordinated notes and
debentures on the Filing Date and adjusted all debt discounts related to
such securities at the Filing Date so that the carrying amount of each
security was equivalent to the related estimated allowable claim pursuant
to the Bankruptcy Code. Contractual interest shown on the Consolidated
Statements of Operations for the year ended February 28, 1993 ($52,952,000)
includes approximately $27,400,000 of interest that would have been payable
on the Company's subordinated notes and debentures from March 1, 1992 until
the Effective Date.
In accordance with the terms of the Plan, all of the Company's
subordinated notes and debentures were canceled . In satisfaction of the
claims for such subordinated notes and debentures and the related accrued
and unaccrued unpaid interest, the Company distributed, pursuant to
allocations in the Plan, a 49% equity interest in the Company and new
$50,000,000 initial principal amount of 10% nine-year subordinated
debentures ("10% Subordinated Debentures") (Note 6) to holders of such
securities. To record this transaction, the Company removed the carrying
amount of the subordinated notes and debentures ($280,714,000) and related
accrued interest ($30,812,000) from the accounts, recorded the estimated
fair value of the 49% equity interest in the Company received by the
subordinated debtholders in the form of common stock ($25,480,000) and the
estimated fair value of the 10% Subordinated Debentures issued to those
debtholders ($37,051,000, which is the $50,000,000 initial principal amount
less a $12,949,000 discount recorded to increase the effective interest
rate on the securities to 18%) and recognized an extraordinary gain of
$248,995,000.
Metromedia Exchange
On December 12, 1990, the Company executed an agreement with MetMermaids,
a joint venture between John W. Kluge (as Trustee) and Stuart Subotnick
(the "Joint Venture") pursuant to which an interest was granted in certain
of the proceeds of "MERMAIDS", a feature length motion picture released by
the Company on December 14, 1990, in return for an investment by the Joint
Venture in the picture of approximately $23,000,000. Messrs. Kluge and
Subotnick, together and through Metromedia Company, own a majority of the
Common Stock of the Company. Participations and residuals on the
Consolidated Balance Sheet at the Effective Date included approximately
$20,800,000 of amounts due to MetMermaids that had been accrued since
"MERMAIDS" was released, including approximately $700,000 that was accrued
during fiscal 1993.
Upon effectiveness of the Plan, the "MERMAIDS" obligation was contributed
to the Company by Metromedia along with $15,000,000 in cash by John W.
Kluge and a guarantee by Metromedia and Mr. Kluge of the Company's bank
borrowings (Note 6) in exchange for a 50.1% equity interest in the Company.
To record this transaction, the Company removed the carrying amount of the
MetMermaids liability ($20,824,000) and related accrued interest ($705,000)
from the accounts and recorded the receipt of $15,000,000 in cash, the
estimated fair value of the guarantee of bank borrowings received
($18,000,000) and the estimated fair value of the 50.1% equity interest in
the Company received by Metromedia and Mr. Kluge in the form of common
stock ($26,052,000). The Company realized a benefit of $28,477,000 on the
exchange which was credited directly to Paid-in surplus as a contribution
to capital. The estimated fair value of the guarantee of bank borrowings,
which is classified in Other assets on the Consolidated Balance Sheets at
February 28, 1995, 1994 and 1993, is being amortized as interest expense
during the period that such bank borrowings are being repaid (Note 6).
F-10
<PAGE>
Orion Pictures Corporation
Adjustments of Compromised Liabilities - Sony Settlement
In February 1990, the Company entered into an agreement with Sony which
granted certain foreign home video distribution rights to 50 current and
future motion pictures to Sony. Under the terms of the Sony agreement, the
Company was required to meet certain minimum delivery requirements. A
letter of credit was issued to Sony for $70,000,000 which generally secured
a portion of Sony's interests in the Company's performance under the
agreement and which was supported by a portion of the amounts otherwise
available to the Company under the Company's Second Amended and Restated
Credit Agreement dated as of July 27, 1990 (the "Second Restated Credit
Agreement"), which, at the Effective Date of the Plan, was superseded by
the Third Amended and Restated Credit Agreement dated as of October 20,
1992 (the "Third Restated Credit Agreement") (Note 6).
The Company's chapter 11 filings (Note 1) constituted an event of default
under the Sony agreement. In connection therewith, the Company applied
certain provisions in the Sony agreement at February 29, 1992, resulting in
the reclassification at that date of approximately $110,000,000 of advance
royalties from Deferred revenues to Accrued expenses (liabilities subject
to compromise) which significantly reduced the remaining advance royalties
available to be earned by the pictures that have been or will be delivered
under the agreement.
In accordance with the terms of the Plan, the Sony agreement was amended
as of the Effective Date. The most significant changes were:1) to reduce
the number of motion pictures licensed under the agreement from 50 to 23;
2) to convert the $70,000,000 letter of credit described above to a
$70,000,000 non-interest bearing payment obligation to Sony (the "Sony
Obligation"), which is supported by a new $70,000,000 letter of credit; 3)
to limit to $9,000,000 the additional amounts that may be due to Sony based
upon the performance of the 23 pictures covered by the amended agreement;
and 4) an amount equal to $5,000,000 will be secured by the above
described letter of credit for additional amounts that may be due Sony
under the Sony Theatrical Agreement.
To record this transaction, the Company removed the $110,288,000 Due to
Sony amount described above from the accounts, recorded the $70,000,000
non-interest bearing payment obligation at its estimated net present value
of $63,682,000, increased Deferred revenues related to the 23 pictures that
have been or will be delivered under the agreement by approximately
$31,743,000 and recognized an extraordinary gain on the transaction of
approximately $14,863,000. A portion of the extraordinary gain
($6,318,000) resulted from recording the non-interest bearing payment
obligation at its estimated net present value. The remainder of the
extraordinary gain ($8,545,000) represented the Company's estimate of the
benefit received by the Company in the settlement process by virtue of the
negotiation of such settlement in a chapter 11 environment.
F-11
<PAGE>
Orion Pictures Corporation
Adjustments of Compromised Liabilities - Other Creditors
Under the Plan, holders of claims for certain participations and
residuals aggregating approximately $55,000,000 reduced their claims by
17%, in exchange for approximately $46,400,000 aggregate principal amount
of Talent Notes. The Talent Notes, which are due March 1, 1999, bear
interest at the same rate as the Company pays under the Third Restated
Credit Agreement described in Note 6. The holders of other unsecured
claims against the Company currently aggregating approximately $65,000,000
received or will receive 100% of their claims in the form of non-interest
bearing Creditor Notes, which are due March 1, 1999, except for a portion
of such claimants who held claims under $5,000 and who elected to receive a
partial payment in cash in lieu of such Creditor Notes. The Plan required
the Company to issue Talent Notes and Creditor Notes to the extent the
amounts were not disputed. The Company recorded estimates of amounts of
Talent Notes and Creditor Notes to be issued upon final resolution of the
disputed claims. Accordingly, adjustments to the amounts described above
have been made and will continue to be required until all disputed claims
have been resolved. The Talent Notes and Creditor Notes are both secured
obligations of the Company.
To the extent that the Company generates positive Net Cash Flow (as
defined in the Third Restated Credit Agreement) (the "Net Cash Flow"), for
the immediate preceding period, the Company is required to make payments
with respect to amounts outstanding under the Talent Notes and Creditor
Notes, at least quarterly after the Effective Date, in amounts generally
approximating 8 1/2% and 3 1/4%, respectively, of the Company's Net Cash
Flow until all amounts due to Sony as described above and due under the
Third Restated Credit Agreement described in Note 6 have been paid.
Thereafter, amounts generally approximating 66 2/3% and 16 2/3% of the
Company's Net Cash Flow will be used to make payments with respect to the
Company's obligations under the Talent Notes and Creditor Notes,
respectively, until interest and principal under the Talent Notes are paid
in full. Subsequent to the satisfaction of the Company's obligations under
the Talent Notes, 50% of the Company's Net Cash Flow will be used to retire
the remaining obligations under the Creditor Notes.
The Company made certain accounting adjustments to reflect the above
settlements in its consolidated financial statements for the year ended
February 28, 1993. Participations and residuals, accounts payable and
accrued expenses were reduced by an aggregate of $127,153,000, the Company
recorded the Talent Notes and Creditor Notes at their estimated net present
values of $31,396,000 and $30,472,000 respectively, and an extraordinary
gain of $59,455,000 was recognized. The discounts recorded on the Talent
Notes and Creditor Notes result in effective interest rates on these
securities of 14% and 16%, respectively.
3. Chapter 11 Reorganization Costs
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code", issued by the American Institute
of Certified Public Accountants ("SOP 90-7") requires direct costs of
administering the chapter 11 filing, particularly professional fees, to be
expensed as incurred. Accordingly, Chapter 11 reorganization items
presented on the Consolidated Statements of Operations for fiscal 1995,
1994 and 1993 are comprised primarily of legal fees incurred during those
periods. Direct costs of administering the chapter 11 filing are expected
to continue until all claims and related litigation are resolved.
F-12
<PAGE>
Orion Pictures Corporation
4. Accounts Receivable and Deferred Revenues
Accounts receivable consists primarily of trade receivables due from film
distribution, including theatrical, home video, basic cable and pay
television, network, television syndication, and other licensing sources
which have payment terms generally covered under contractual arrangements.
Accounts receivable is stated net of an allowance for doubtful accounts of
$14,000,000 and $14,800,000 at February 28, 1995 and 1994, respectively.
The Company has entered into contracts for licensing of theatrical and
television product to the pay cable, home video and free television
markets, for which the revenue and the related accounts receivable will be
recorded in future periods when the films are available for broadcast or
exploitation. These contracts, net of advance payments received and
recorded in Deferred revenues as described below aggregated approximately
$178,000,000 at February 28, 1995. Included in this amount is $64,000,000
of license fees for which the revenue and the related accounts receivable
will be recorded only if the Company is able to successfully produce or
acquire product under the restrictions of the Plan.
Deferred revenues consists principally of advance payments received on
pay cable, home video and other television contracts for which the films
are not yet available for broadcast or exploitation.
5. Film Inventories
The following is an analysis of film inventories (in thousands):
February 28, February 28,
1995 1994
Theatrical films:
Released $ 240,330 $ 305,560
Completed and unreleased --- 50,204
Television programs:
Released 9,344 11,388
$ 249,674 $ 252,674
In late December 1991, the Company received a notice from Showtime
Networks Inc. ("Showtime") that Showtime believed that the Company had not
complied with the so-called "key man clause" in the Company's exclusive
film licensing agreement with Showtime and, accordingly, that Showtime
would not license the 16 pictures theatrically released in the domestic
marketplace during fiscal 1992, 1993, 1994 and 1995 (the "Key Man
Dispute"). License fees under the Showtime agreement for these 16 films
were expected to aggregate approximately $77,000,000. After a review of
the underlying facts and circumstances and consultation with counsel, the
Company advised Showtime that the Company had complied with the key man
clause in the Showtime agreement, that failure to accept delivery of the
product rejected by Showtime constituted Showtime's default under the
agreement and that the Company intended to pursue all available remedies to
realize the domestic pay television license fees due under the Showtime
agreement.
F-13
<PAGE>
Orion Pictures Corporation
On March 20, 1992, the Company filed a proceeding in the Court against
Showtime seeking, among other things, an order permitting the Company to
exercise its power under the Bankruptcy Code to assume, and therefore not
reject, the Showtime agreement. As part of its request to assume the
agreement, the Company sought a factual determination by the Court that it
had complied with the key man clause.
After a hearing and trial on these matters held on May 14 and 15, 1992,
the Court issued an order dated June 3, 1992 (the "Showtime Order"),
authorizing the Company to assume the Showtime agreement and finding that
the Company had complied with the key man clause. Showtime subsequently
appealed the Showtime Order to the United States District Court for the
Southern District of New York (the "District Court"). On December 8, 1992,
the District Court affirmed the decision of the Court. On January 13,
1993, Showtime appealed the decision of the District Court to the United
States Court of Appeals for the Second Circuit (the "Appeals Court"). Oral
argument was held on June 7, 1993. On September 17, 1993, the Appeals
Court vacated the grant of motion to assume and remanded the motion to
assume to the Court for further proceedings. On January 31, 1994, the
Company commenced an appeal of the Appeals Court's decision to the Supreme
Court of the United States by petitioning for a writ of certiorari. If the
Appeals Court's decision was not reversed by the Supreme Court, the Appeals
Court's decision ultimately could have lead to a retrial of the issue of
the Company's compliance with the key man clause to a jury. In the event
of any such retrial, the Company intended to pursue the matter vigorously
although it could not predict how a jury would determine the facts.
On May 6, 1993, the Company was served with a complaint from Showtime
alleging that Showtime should be permitted to offset $29,300,000 in fees
plus interest against future license fees due the Company under the
Showtime agreement (the "Qualification Dispute"). Showtime claimed that
the Company did not meet the qualification criteria on eight films, one of
which is already included in the disputed pictures under the Key Man
Dispute described above.
In order to avoid the uncertainty inherent in jury trials and the
continued delay and cost related to pursuing its rights, claims and
defenses in connection with these disputes, the Company determined that it
was prudent to commence settlement negotiations with Showtime. On March
29, 1994, the Company and Showtime reached an agreement (the "Showtime
Settlement") settling the litigations and disputes described above which
was approved by the Court on such date and became effective on March 29,
1994. The Showtime Settlement continues to provide for the exclusive
United States pay television exhibition of the 16 pictures that were the
subject of the Key Man Dispute. For each motion picture meeting certain
requirements, the Showtime Settlement provides for a reduced minimum
license fee. The Showtime Settlement also reduces the license fees related
to the seven pictures included in the Qualification Dispute described above
that were not the subject of the Key Man Dispute. License fees for the 23
pictures subject to the Showtime Settlement are expected to be
approximately $33,300,000 less than the approximate $105,000,000 of such
fees pursuant to the Showtime Agreement; accordingly, film inventories at
February 28, 1994 shown above have been adjusted to reflect this
settlement.
The Company has made substantial writeoffs to its released and unreleased
product. As a result, approximately three-quarters of the film inventories
shown above at February 28, 1995 and 1994, are stated at estimated net
realizable value and will not result in the recording of gross profit upon
the recognition of related revenues in future periods.
Since the date of the Company's quasi-reorganization (February 28, 1982),
when the Company's inventories were restated to reflect their then current
market value, the Company has amortized 92% of the gross cost of its film
inventories, including those produced subsequent to the quasi-
reorganization. Approximately 97% of such gross film inventory costs will
have been amortized by February 28, 1998. As of February 28, 1995,
approximately 61% of the unamortized balance of film inventories will be
amortized within the next three-year period based upon the Company's
revenue estimates at that date.
F-14
<PAGE>
Orion Pictures Corporation
6. Notes and Subordinated Debt
<TABLE>
<CAPTION>
Notes and subordinated debt is comprised of the following (in thousands):
February 28, February 28,
1995 1994
---------- ------------
<S> <C> <C>
Notes payable to banks under the Third
Restated Credit Agreement $ 58,619 $ 122,862
Obligation to Metromedia under Reimbursement Agreement 19,544 ---
Talent Notes due 1999, net of unamortized discount of $8,488 and $9,995 26,057 29,349
Creditor Notes due 1999, net of unamortized discount of $21,745 and $27,722 40,630 34,820
Non-interest bearing payment obligation to Sony,
net of unamortized discount of $1,191 and $2,783 16,756 38,735
Other guarantees and contracts payable, net of
unamortized discounts of $2,943 and $3,634 8,124 9,297
Total notes payable 169,730 235,063
10% Subordinated Debentures due 2001,
net of unamortized discount of $8,097 and $10,483 42,349 39,438
Total notes and subordinated debt $212,079 $274,501
</TABLE>
The Company's Third Restated Credit Agreement became effective upon the
Effective Date of the Plan (Note 1). Approximately $190,826,000 was
outstanding under The Company's Third Restated Credit Agreement on the
Effective Date. Such amount has been reduced through repayments to
approximately $46,465,000 at March 31, 1995 which amount matures on October
20, 1995.
Notwithstanding the above maturity date, and to the extent that the
Company generates positive Net Cash Flow (as defined in the Third Restated
Credit Agreement) ("Net Cash Flow") for the immediately preceding period,
the Company is required to make principal payments of amounts outstanding
under the Third Restated Credit Agreement at least quarterly during the
period from the Effective Date to October 20, 1995, in amounts
approximating 62% of the Company's Net Cash Flow. In addition, in
connection with consummation of the Plan, Metromedia Company
("Metromedia"), the Company's principal shareholder, and an affiliate of
Metromedia guaranteed the payment of substantially all of the Company's
payment obligations under the Third Restated Credit Agreement pursuant to a
bank guarantee (the "Bank Guarantee"). On October 20, 1994 the Guarantors
made a payment of $14,041,000 to the Banks under the Bank Guarantee as the
Company had not generated sufficient Net Cash Flow for the 12-month period
prior to such date to make the required principal payments to the Banks.
Pursuant to a reimbursement agreement between the Company and Metromedia
(the "Reimbursement Agreement") entered into in connection with the
consummation of the Plan, the Company has agreed to reimburse Metromedia
for all such payments made under the Bank Guarantee or as cure payment to
Sony (as described below) plus interest on all such guaranteed payments
made by Metromedia at the rate of LIBOR plus 1.75% out of the portion of
Net Cash Flow allocated to the Banks (62%) and Sony (23%) following payment
in full of the Banks and Sony.
Interest is charged under the terms of the Third Restated Credit
Agreement at the agent bank's fluctuating reference rate plus 3/4% or at 1
3/4% above the Eurodollar Rate, at the Company's option. The agent bank's
fluctuating reference rate at February 28, 1995 was 9%.
F-15
<PAGE>
Orion Pictures Corporation
The Third Restated Credit Agreement contains various restrictive
covenants, including, among others, limitations on the incurrence of
additional indebtedness, limitations on the investment in or acquisition of
new product and a prohibition on the payment of dividends. Borrowings
under the Third Restated Credit Agreement are secured by all of the
Company's assets, including the common stock of the Company's subsidiaries.
No compensating balances are required to be maintained.
As described in Note 2, the Company issued $50,000,000 initial principal
amount of 10% subordinated debentures due 2001 (the "10% Subordinated
Debentures") to former holders of its subordinated notes and debentures
pursuant to the terms of the Plan. The 10% Subordinated Debentures are
subordinated to all Senior Indebtedness, as defined in the indenture
related to such 10% Subordinated Debentures (the "Bond Indenture"),
including all bank borrowings and amounts outstanding to Sony, the Talent
Notes and Creditor Notes described in Note 2, as well as amounts that
become payable to Metromedia and its affiliate as Metromedia and its
affiliate make payments pursuant to the guarantee of bank borrowings.
Interest on the 10% Subordinated Debentures is payable semi-annually and
the debentures are due October 31, 2001. Payment of interest and repayment
of principal amounts outstanding under the 10% Subordinated Debentures are
payable out of Net Cash Flow. As provided in the Bond Indenture, interest
on the 10% Subordinated Debentures may be paid by issuance of additional
10% Subordinated Debentures in certain circumstances. The Bond Indenture
contains various restrictive covenants which are generally consistent with
the covenants described above with respect to the Third Restated Credit
Agreement.
In accordance with the terms of the Plan, as more fully described in
Note 2, the Company had a $70,000,000 non-interest bearing payment
obligation to Sony at the Effective Date. The obligation to Sony is
payable pari passu with amounts payable under the Third Restated Credit
---- -----
Agreement described above and is backed by a letter of credit issued
pursuant to the Third Restated Credit Agreement. Such amount has been
reduced through repayments to approximately $13,489,000 at March 31, 1995
which amount matures on November 5, 1995.
Notwithstanding the above maturity schedule and to the extent that the
Company generates positive Net Cash Flow for the immediately preceding
period, the Company is required to make principal payments of amounts
outstanding for the obligation to Sony at least quarterly during the period
from the Effective Date to November 5, 1995 in an amount approximating 23%
of the Company's Net Cash Flow. To the extent the Company fails to repay
such amounts on a timely basis, Sony may draw under the letter of credit
issued in its favor after giving notice and an opportunity to cure to the
Guarantors under the Bank Guarantee. In the event Sony does draw under the
letter of credit issued in its favor, such amount would become an
obligation of the Company under the Third Restated Credit Agreement and
guaranteed pursuant to the Bank Guarantee. In order to cure a shortfall by
the Company in its payments to Sony which would have entitled Sony to draw
under the letter of credit issued in its favor, on November 5, 1994, the
Guarantors under the Bank Guarantee made a payment of $5,159,000 to Sony.
Such amount plus interest on such amount at the rate of LIBOR plus 1.75% is
reimbursable to Metromedia in accordance with the terms of the
Reimbursement Agreement described above.
In accordance with the provisions of the Plan and the agreements entered
into in connection with the Plan the Company must make certain cumulative
minimum aggregate Net Cash Flow payments ("Mandatory Minimum") to the
holders of the Talent Notes (Note 2), the Creditors Notes (Note 2) and the
10% Subordinated Debentures (the "Holders") in payment of their respective
principal and interest. As more fully described in Note 12 the Indentures
pursuant to which the Talent Notes and the Creditor Notes were issued (the
"Indentures") provide for only a single Mandatory Minimum threshold that
must be received by the holders in payment of their respective principal
and interest for each fiscal quarter through the fiscal year ended February
28, 1999, rather than separate quarterly thresholds for each fiscal
quarter. The Company believes the language set forth in the Indentures
does not reflect the agreement between the Company and its principal
creditors who negotiated and agreed upon the provisions based upon the
Company's review of the agreement in principle agreed to by such parties.
Notwithstanding, the literal language of the Indentures, it is the
Company's intention to follow what it believes is the intention of the
agreeing parties. Therefore, the following
F-16
<PAGE>
Orion Pictures Corporation
summarizes both the anticipated Mandatory Minimum amounts contained in the
Indentures and the interpretation of the Company ("Interpretation"). Under
the terms of the Indentures, these Mandatory Minimum amounts are to be
reduced by 15% of the portion of amounts due under the Showtime agreement
to the extent that the amounts are not received by the Company ("Showtime
Shortfall") until such time as the Banks and/or Sony and the guarantor
under the Bank Guarantee are paid in full. Thereafter, the Mandatory
Minimums will be reduced by 100% of the Showtime Shortfall.
<TABLE>
<CAPTION>
Per Indentures
--------------
Estimated Adjusted Cumulative Minimum Amounts
---------------------------------------------
(in thousands)
Fiscal Year Ended
February 28(29) May August November February
--------------- --- ------ -------- --------
<S> <C> <C> <C> <C> <C>
1996 $ 61,948 $ 61,948 $ 61,948 $ 61,948
1997 $ 97,802 $ 97,802 $ 97,802 $ 97,802
1998 $161,140 $161,140 $161,140 $161,140
1999 $204,741 $204,741 $204,741 $204,741
<CAPTION>
Per Interpretation
------------------
Estimated Adjusted Cumulative Minimum Amounts
---------------------------------------------
(in thousands)
Fiscal Year Ended
February 28(29) May August November February
--------------- --- ------ -------- --------
<S> <C> <C> <C> <C> <C>
1996 $ 36,184 $ 44,772 $ 53,360 $ 61,948
1997 $ 70,911 $ 79,874 $ 88,838 $ 97,802
1998 $113,636 $129,470 $145,304 $161,140
1999 $172,040 $182,940 $193,840 $204,741
</TABLE>
The Company has made ten Net Cash Flow distributions in accordance with
the Plan. The distributions were made in November 1992, March 1993, June
1993, December 1993, March 1994, June 1994, September 1994, October 1994,
and December 1994, and March 1995, respectively. In accordance with the
provisions of the Plan and the agreements entered into in connection with
the Plan, a Net Cash Flow distribution was not made for the quarter ended
August 31, 1993 because the Company did not generate Net Cash Flow.
Because distributions of Net Cash Flow are dependent upon the Company's
ability to generate Net Cash Flow and are determined for specified periods
in accordance with the Plan and the agreements entered into in connection
with the Plan, no assurance can be made as to the amount, if any, of each
future distribution. The following table summarizes and describes the
allocation of these distributions in accordance with the Plan (in
thousands):
<TABLE>
<CAPTION>
Mar. Dec. Oct. Sept. Jun. Mar. Fiscal 11/5/92
1995 1994 1994 1994 1994 1994 1994 to 2/28/93 Total
-------- -------- ------- ------- -------- ------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Third Restated Credit
Agreement $ 12,154 $ 5,597 $ 2,688 $ 11,500 $ 14,188 $ 16,229 $ 39,345 $ 28,619 $130,320
Metromedia Obligation --- --- --- --- --- --- --- --- ---
Sony Obligation 4,458 2,053 986 4,218 5,204 5,952 17,984 10,497 51,352
Talent Notes (principal
and interest) 1,661 765 367 1,572 1,939 2,218 5,733 3,910 18,165
Creditor Notes --- --- --- 164 --- --- 1,046 1,498 2,708
10% Subordinated Debentures
due 2001 --- --- --- --- --- --- --- 977 977
Interest on 10% Subordinated
Debentures due 2001 1,270 585 281 1,037 1,483 1,697 3,339 519 10,211
-------- ------- -------- ------- ------- ------- -------- -------- --------
$ 19,543 $ 9,000 $ 4,322 $18,491 $22,814 $26,096 $ 67,447 $ 46,020 $213,733
======== ======= ======== ======= ======= ======= ======== ======== ========
</TABLE>
F-17
<PAGE>
Orion Pictures Corporation
Pursuant to the Waiver and Consent dated as of June 30, 1993 under the
Third Restated Credit Agreement, $2,600,000 of the portion of the June 1993
distribution payable pursuant to the Plan to the Company's banks was
instead paid to Sony. In accordance with the terms of the Plan, all or
part of the portion of Net Cash Flow which would otherwise be payable to
holders of Creditor Notes for nine of the ten distributions were used to
satisfy, in whole or in part, the interest obligation on the 10%
Subordinated Debentures. In addition, in accordance with the indenture for
the 10% Subordinated Debentures, approximately $362,000, $525,000 and
$898,000, respectively, of the interest due April 1, 1995, April 1, 1994
and October 1, 1993 related to the 10% Subordinated Debentures was paid by
the issuance of additional debentures. Also, in accordance with the Talent
Note indenture, all of the interest due for the three-month periods ended
November 30, 1994, November 30, 1993 and August 31, 1993 on the Talent
Notes was paid by the issuance of additional notes (approximately $393,000,
$426,000 and $405,000, respectively). The payments on the Sony Obligation
have reduced the outstanding amount on the letter of credit supporting such
obligation to $18,489,000 at March 31, 1995.
All descriptions of securities above refer to securities issued and in
certain cases, estimated amounts of such securities that are yet to be
issued. Accordingly, during the three-month period ended November 30,
1993, approximately $6,000,000 of Participations and residuals payable was
reclassified to Talent Notes payable. Such amount is an estimate of the
amount of such securities that will be issued in connection with the
resolution of certain claims.
During fiscal 1995, 1994, and 1993, $31,280,000, $33,067,000, and
$26,037,000, respectively, of interest costs were incurred, exclusive of
contractual amounts unaccrued pursuant to SOP 90-7. Cash utilized for the
payment of interest during fiscal 1995, 1994, and 1993 was $12,461,000,
$14,585,000, and $12,813,000, respectively.
7. Shareholders' Equity (Capital Deficiency)
Preferred Stock
On the Effective Date, in accordance with the Plan, the Company
authorized 10,000,000 shares of $1.00 par value preferred stock. No shares
of preferred stock have been issued.
Stock Option Plan
Pursuant to the Plan, all outstanding options to purchase Common Stock
under the Company's stock option plans were canceled.
F-18
<PAGE>
Orion Pictures Corporation
8. Income Taxes
The Provision for income taxes for fiscal 1995, 1994, and 1993, all of
which is current, consists of the following (in thousands):
Fiscal Years Ended in February, 1995 1994 1993
Federal $ ----- $ ----- $ -----
State and local 100 100 300
Foreign 1,200 2,000 5,500
Current $ 1,300 $ 2,100 $ 5,800
Deferred ----- ----- -----
Total $ 1,300 $ 2,100 $ 5,800
Such provision has been allocated to operations before extraordinary
items and extraordinary items as follows (in thousands):
Fiscal Years Ended in February, 1995 1994 1993
Operations before extraordinary items $ 1,300 $ 2,100 $ 5,700
Extraordinary items ----- ----- 100
$ 1,300 $ 2,100 $ 5,800
The federal income tax portion of the Provision for income taxes includes
the benefit of state income taxes provided. The Company recognizes
investment tax credits on the flow-through method.
State and local income tax expense in fiscal 1995, 1994, and 1993
includes an estimate for franchise and other state tax levies required in
jurisdictions which do not permit the utilization of the Company's fiscal
1995, 1994 and 1993 operating losses to mitigate such taxes. Foreign tax
expense in fiscal 1995, 1994, and 1993 reflects estimates of withholding
and remittance taxes. Cash utilized for the payment of income taxes during
fiscal 1995, 1994, and 1993 was $1,804,000, $2,934,000, and $5,997,000,
respectively.
Effective March 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
SFAS 109 requires a change to the "assets and liability method" of
accounting for income taxes from the "deferred method" of accounting for
income taxes which was required under Accounting Principles Board Opinion
No. 11 ("APB 11"). Under SFAS 109, deferred tax assets and liabilities are
recognized with respect to the tax consequences attributable to differences
between the financial statement carrying values and the tax bases of
existing assets and liabilities. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to the taxable income in
the years in which these temporary differences are expected to be recovered
or settled. Further, the effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes
the enactment date. Under the deferred method, deferred taxes were not
adjusted for subsequent changes in tax rates.
Pursuant to the deferred method of accounting for income taxes required
by APB 11, applicable in the years prior to the fiscal year ended February
28, 1994, deferred taxes were provided for timing differences between
financial statement and tax return recognition of income and expenses.
Although timing differences arose during periods prior to fiscal 1994,
F-19
<PAGE>
Orion Pictures Corporation
any future taxes payable would have been offset by tax benefits resulting
from the use of losses from such years, and accordingly, no deferred taxes
were provided. The principal timing difference that arose during those
periods relates to the recognition of revenues from licensing agreements.
The Company's results of operations was not impacted by the change in
method of accounting for income taxes resulting from the adoption of SFAS
109 in the current year. Deferred income taxes at February 28, 1995 and
1994 reflect the impact of "temporary differences" between assets and
liabilities for financial reporting purposes and their carrying values as
measured by tax laws. These temporary differences are determined in
accordance with SFAS 109 and are more inclusive in nature than "timing
differences" as determined under previously applicable accounting
principles.
The temporary differences and carryforwards which give rise to deferred
tax assets and (liabilities) for fiscal 1995 and 1994 are as follows (in
thousand):
Fiscal Years Ended in February, 1995 1994
Net Operating loss carryforward $175,731 $158,150
Deferred income 24,245 30,853
Investment credit carryforward 28,000 30,000
Allowance for doubtful accounts 5,600 5,897
Reserves 6,958 5,232
Other deferred tax assets 11,935 25,866
Film costs (15,077) (21,608)
Shares payable 14,986 (4,017)
Other deferred tax liabilities (14,863) (18,604)
Notes and debentures (254) (22,038)
Subtotal before valuation allowance 237,261 189,731
Valuation allowance (237,261) (189,731)
Deferred taxes $ 0 $ 0
The valuation allowance for deferred assets as of March 1, 1993 was
$186,296,000. The net change in the total valuation allowance for the year
ended February 28, 1994 was an increase in the allowance of $3,435,000.
F-20
<PAGE>
Orion Pictures Corporation
The Company's Provision for income taxes for fiscal 1995, 1994, and 1993,
differs from the provision that would have resulted from applying the
federal statutory rates during those periods to Income (loss) before
provision for income taxes. The reasons for these differences are
explained in the following table (in thousands):
<TABLE>
<CAPTION>
Fiscal Years Ended in February, 1995 1994 1993
<S> <C> <C> <C>
Provision (benefit) based upon
federal statutory rate of 35%, 35% and 34%
respectively $(17,140) $(43,084) $87,054
State taxes, net of federal benefit 65 65 198
Foreign taxes in excess of federal credit 1,200 2,000 5,500
Non-deductible direct expenses of chapter 11 filing 214 596 5,709
Current year operating loss not benefitted 16,923 42,473 8,844
Extraordinary gain recognized upon emergence from
chapter 11 ----- ----- (108,877)
Reduction of operating loss from discharge of indebtedness ----- ----- 7,314
Other, net 38 50 58
Provision for income taxes $1,300 $2,100 $5,800
</TABLE>
At February 28, 1995, the Company had available net operating loss
carryforwards and unused investment tax credits of approximately
$439,000,000, and $28,000,000, respectively, which can reduce future
federal income taxes. If not utilized, these carryforwards and credits
will begin to expire in 1997 and 1996, respectively.
9. Revenue Data
The sources of the Company's revenues from continuing operations by
market for each of the last three fiscal years are set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". The Company derives significant revenues from the foreign
distribution of its theatrical motion pictures and television programming.
The following table sets forth foreign revenues from continuing operations
(excluding Canada) by major geographic area for each of the last three
fiscal years (in thousands):
Fiscal Years Ended in February, 1995 1994 1993
Europe $ 36,532 $ 62,107 $ 80,152
Mexico and South America 4,586 5,782 8,108
Asia and Australia 13,820 23,876 37,522
$ 54,938 $ 91,765 $125,782
Showtime has been a significant customer of the Company. During fiscal
1995,the Company recorded $45,514,000 of revenues under its pay cable
agreement with Showtime. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 5 for descriptions
of certain disputes with Showtime that have affected the amount and timing
of revenues recognized under the Showtime agreement.
F-21
<PAGE>
Orion Pictures Corporation
10. Commitments and Contingent Liabilities
The Company is obligated under various operating leases, including leases
for two office premises. Total rent expense amounted to $1,432,000,
$1,489,000, and $4,773,000, in fiscal 1995, 1994, and 1993, respectively.
Minimum rental commitments under noncancellable operating leases is set
forth in the following table (in thousands):
Fiscal Year Amount
1996 $ 1,071
1997 820
1998 142
Total minimum rental commitments $ 2,033
The Company and certain of its subsidiaries have employment contracts
with various officers with remaining terms of less than one year at amounts
approximating their current levels of compensation. The Company's
remaining aggregate commitment at February 28, 1995 under such contracts is
approximately $1,485,000.
The Company and its subsidiaries are contingently liable with respect to
various matters, including litigation in the ordinary course of business
and otherwise. Some of the pleadings in the various litigation matters
contain prayers for material awards, including claims arising after the
Filing Date from the determination by the Court (or agreement by parties in
interest) to allow claims for certain contingencies and other disputed
amounts. Based upon management's review of the underlying facts and
circumstances and consultation with counsel, management believes such
matters will not result in the allowance by the Court of significant
additional liabilities which would have a material adverse effect upon the
consolidated financial position or results of operations of the Company,
with the possible exception of the matter described below.
As previously disclosed in the Registrant's Annual Reports on Form 10-K
on October 12, 1990, the plaintiff, Hemdale Film Corporation ("Hemdale")
filed an action against the Company in the Superior Court for Los Angeles
alleging various breaches of the agreements between Hemdale and the Company
for distribution of the motion pictures "PLATOON", "HOOSIERS" and "THE
TERMINATOR". Plaintiff produced these pictures which the Company released.
The complaint seeks an accounting and damages purportedly in excess of
$30,000,000 and is based on the allegation that the Company paid Hemdale
less than it was due under the agreements, used improper accounting
practices, refused to permit Hemdale's representatives to conduct
appropriate examinations of the Company's books and records and provided
Hemdale with allegedly inaccurate and inadequate settlement statements. On
December 10, 1990, the Company filed its answer, denying the material
allegations of the complaint, asserting that its accounting practices were
accurate in all respects. Hemdale has filed a proof of claim substantially
based on the allegations in its complaint. The Company has objected to
Hemdale's claim and the estimation hearing has been adjourned in the
Bankruptcy Court until May 22, 1995. Therefore, no assurance can be given
at this time concerning the ultimate outcome of the Hemdale litigation or
the effect thereof, if adverse to the Company. As a result of the
Company's chapter 11 filings, it is expected that this case will be tried
before the Court.
F-22
<PAGE>
Orion Pictures Corporation
11. Merger Agreement
On April 12, 1995, the Company entered into a Merger Agreement (the
"Merger Agreement") with The Actava Group Inc. ("Actava"), MCEG Sterling
Incorporated ("Sterling") and Metromedia International Telecommunications
("MITI"), an affiliate of Metromedia, which with an affiliate, beneficially
owns a majority of the Company's common stock. The Merge Agreement
provides that at the effective time of the mergers, each of the Company,
Sterling and MITI will merge with and into Actava, with Actava, renamed
"Metromedia International Group, Inc.," being the surviving corporation of
the mergers. The Merge Agreement provides that each share of the Company's
outstanding common stock will be converted as follows: (i) if the average
of the last sale price for Actava's common stock on the NYSE for the 20
consecutive trading days ending on the business day immediately preceding
the Effective Time of the mergers (the "Average Closing Price") is greater
than or equal to $10.50, each share of the Company's outstanding common
stock will be converted into a number of shares of Actava common stock
equal to a fraction, the numerator of which is 11,428,572 and the
denominator of which is the number of shares of the Company's common stock
outstanding on the business day immediately preceding the Effective Time of
the mergers or (ii) if the Average Closing Price is less than $10.50, each
share of the Company's outstanding common stock will be converted into a
number of shares of Actava's common stock which can be determined by
solving for "Y" in the following formula and dividing "Y" by the number of
shares of the Company's common stock outstanding on the business day
immediately preceding the Effective Time of the mergers:
"Y" = 120,000,000
---------------------
Average Closing Price
Assuming that the effective time of the merger was April 12, 1995, the
Company's stockholders would have exhanged each share of the Company's
common stock for .6103 shares of Actava common stock and collectively the
Company's stockholders would have been entitled to receive approximately
30.3% of the surviving corporation's common stock. The Actava common stock
to be issued to the Company's, Sterling's and MITI's stockholders in
connection with the mergers will be identical to the shares of Actava
common stock currently outstanding. Immediately following the mergers,
Metromedia and certain of its affiliates will exchange their shares of
Actava common stock received in the mergers and may convert certain
non-recourse amounts owed by the Company and its subsidiaries and by MITI
and its subsidiary to affiliates of Metromedia for shares of Class A
common stock of the surviving corporation. The shares of Class A common
stock will be entitled to three votes per share on all matters voted upon
by the surviving corporation's stockholders (other than the election of
directors) and will vote as a separate class to elect 6 of the 10 members
of the surviving corporation's board of directors. It is currently
anticipated that Metromedia and its affiliates would control in excess of
50% of the voting power of the surviving entity as a result of the stock
exchanges described above.
Metromedia International Group, Inc. will be managed by a three person
Office of the Chairman consisting of John W. Kluge, the Company's current
Chairman of the Board as Chairman, Stuart Subotnick, the Company's current
Vice Chairman and John D. Phillips, President and Chief Executive Officer
of Actava, as President and Chief Executive Officer of the surviving
corporation.
On March 2, 1995, the Company's Board of Directors formed a special
committee (the "Special Committee") to consider the terms of the Merger
Agreement and make a recommendation to the full Board of Directors of the
Company regarding the Merger Agreement. The Special Committee was formed
because the Company's Board of Directors is composed of a majority of
persons who are affiliated with Metromedia and because of the Board of
Director's view that in light of the share exchanges described above and
the simultaneous merger of MITI into Actava, the members of the Board of
Directors affiliated with Metromedia could be viewed as having an interest
in the transactions contemplated by the Merger Agreement in addition to the
interests of the Company stockholders. The members of the Special
Committee
F-23
<PAGE>
Orion Pictures Corporation
are Michael I. Sovern, Joel R. Packer and Raymond L. Steele, each of whom
the Company considers an independent director. The Special Committee was
also authorized and did engage the services of an independent law firm and
an independent investment banking firm to offer advice and in the case of
the investment banking firm, to render a fairness opinion to the Special
Committee. The Special Committee expects to make its recommendation as to
the Merger Agreement to the full Board of Directors shortly and the Full
Board of Directors intends to meet to consider the Merger Agreement
promptly after receiving the Special Committee's recommendation. The
approval of the Merger Agreement by the Company's full Board of Directors
on or prior to June 30, 1995 is a condition to the consummation of the
mergers contemplated by the Merger Agreement.
The closing of each merger contemplated by the Merger Agreement is also
contingent upon the closing of the other mergers contemplated by the Merger
Agreement. In addition, the consummation of the mergers contemplated by
the Merger Agreement is subject, among other things, to approval by the
Boards of Directors and shareholders of the Company and the stockholders of
Actava, Sterling and MITI, the receipt of all required consents, the
successful refinancing of the currently outstanding amounts owed to the
Company's senior secured creditors (the Banks and Sony), and holders of
Plan Debt, to the Average Closing Price not being less than $8.25, that no
material adverse change in the business, assets, prospects, condition or
results of operations of the Company, Actava, MITI or Sterling shall have
occurred since the date of the Merger Agreement, that the shares of
Actava's common stock currently outstanding and to be issued to the
stockholders of the Company, MITI and Sterling pursuant to the Mergers
shall have been accepted for listing on the New York Stock Exchange, the
American Stock Exchange or accepted for quotation on NASDAQ/NMS, the
successful completion by Actava and its due diligence review of MITI, the
receipt of certain fairness opinions with respect to the mergers, and the
receipt of all required regulatory approvals, including approval with
respect to the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as
amended. There can be no assurance that this proposed refinancing or the
mergers contemplated by the Merger Agreement will be consummated.
Metromedia and its affiliates will control Metromedia International
Group, Inc. after the mergers. Accordingly, the merger of the Company with
and into Actava and the merger of Sterling with and into Actava will be
accounted for as a reverse acquisition of Actava and a purchase of Sterling
under the purchase method of accounting. The common control merger of the
Company and MITI will be accounted for on a basis similar to a pooling of
interests. For accounting purposes, the Company will be deemed the
surviving corporation of each of the mergers.
The Company has been named a defendant in two separate shareholder
lawsuits which are attempting to enjoin the mergers contemplated by the
Merger Agreement.
12. Liquidity
As described in Note 6 the Company has significant obligations under the
Plan. To the extent that the Company generates Net Cash Flow, the Company
is required to make principal payments with respect to the Banks and Sony
and to its holders of its Talent Notes, Creditor Notes and 10% Subordinated
Debentures (the "Plan Debt") at least quarterly out of Net Cash Flow. Net
Cash Flow as defined in the Plan generally provides for the payment of
operating costs as incurred. Because distributions are dependent upon the
Company's ability to generate Net Cash Flow and are determined for
specified periods in accordance with the Plan, no assurance can be made as
to the amount, if any, of each future distribution. See Note 6 for a
schedule of the Company's Net Cash Flow payments since the Effective Date.
The poor performance of the Company's pictures released after the
Effective Date and the reduction pursuant to the Showtime Settlement from
the contractual amounts which otherwise would be payable by Showtime under
the Showtime Agreement, have had an adverse effect on the liquidity of the
Company. As described in Note 6, such events had an adverse effect on the
Company's ability to meet its obligations under the Third Restated Credit
Agreement and to Sony discussed below in the fiscal year ended February 28,
1995 ("fiscal 1995") and could have an adverse effect on the
F-24
<PAGE>
Orion Pictures Corporation
Company's ability to meet the other Plan obligations discussed below in the
fiscal year ended February 29, 1996 ("fiscal 1996").
As described in Note 6, the Company was obligated to make certain
principal payments to its bank lenders under the terms of the Third
Restated Credit Agreement and to Sony pursuant to the Sony Obligation in
October and November 1994, respectively, and is obligated to make
additional principal payments in October and November 1995, respectively.
The Company did not generate sufficient Net Cash Flow to make the scheduled
payments to the Banks and Sony in October and November 1994, respectively,
and accordingly, the Guarantors under the Bank Guarantee made certain
payments to such parties. In addition, the Company does not currently
believe it will generate sufficient Net Cash Flow to make the scheduled
final maturity payments to the Banks and Sony, in October and November
1995, respectively. The payments made by the Guarantor in October and
November 1994 and any such additional payments made by the Guarantors under
the Bank Guarantee on behalf of the Company to the Bank and/or to Sony
result in such Guarantors becoming subrogated to the Banks' and Sony's
portion of the Company's Net Cash Flow following payment in full of the
Company's obligations to the Banks and Sony. The Company is obligated to
reimburse the amounts paid by the Guarantors under the Bank Guarantee on
the Company's behalf, plus interest, out of the portion of the Company's
Net Cash Flow previously allocable to the Banks and Sony until such
Guarantors are reimbursed in full.
In addition, as described in Note 6, the Indentures pursuant to which the
Talent Notes and Creditor Notes were issued (the "Indentures") provide that
an event of default ("Event of Default") will occur under such Indentures
if the aggregate amount of Net Cash Flow paid by the Company to the holders
of Talent Notes, Creditor Notes and 10% Subordinated Debentures (the "Plan
Debt") does not exceed the mandatory minimum amounts (the "Mandatory
Minimums") specified in the Indentures. The Indentures also provide,
however, that the Mandatory Minimums will be reduced by certain net amounts
due under the Showtime Agreement which are not received by the Company
because of the Showtime Settlement.
Although the Indentures provide that the Company must make payments to
the holders of the Plan Debt in the amounts specified in the Indentures
(less the reduction for the Showtime Settlement discussed above) for each
fiscal quarter through the fiscal year ended February 28, 1999, the
Indentures only set forth a single Mandatory Minimum threshold for each
such fiscal year, rather than separate quarterly thresholds for each fiscal
quarter. Accordingly, a literal reading of the Indentures would mean that
by the end of each of the Company's four fiscal quarters in each fiscal
year beginning with the fiscal quarter ended May 31, 1995, the Company
would have had to pay to the holders of the Plan Debt the same Mandatory
Minimum amount. The Company believes that the language set forth in the
Indentures does not reflect the agreement between the Company and its
principal creditors who negotiated and agreed upon the provisions based
upon the Company's review of the agreement in principle agreed to by such
parties. The Company believes that the Mandatory Minimums specified in the
Indentures were intended to be the required Mandatory Minimum thresholds
for only the last fiscal quarter of each fiscal year beginning with the
fiscal year ended February 29, 1996 and that lower quarterly Mandatory
Minimum amounts should have been calculated and set forth in the Indentures
for each fiscal quarter of each fiscal year beginning with the quarter
ended May 31, 1995. Notwithstanding the literal language of the
Indentures, it is the Company's intention to follow what it believes to be
the intention of the agreeing parties.
Utilizing the Mandatory Minimums contained in the Indentures rather than
the interpretation the Company believes reflects the agreement of the
parties, the Company currently anticipates that it would not generate
sufficient Net Cash Flow to satisfy the Mandatory Minimum threshold under
the Indentures beginning with the quarter ended May 31, 1995 and that
accordingly, an Event of Default would occur under each such Indenture on
such date. Upon the occurrence and continuation of an Event of Default,
the Trustee under each of the Indentures or 40% in aggregate principal
amount of either the Talent Notes or the Creditor Notes could cause an
immediate acceleration of the entire principal amount of such Notes.
Should such acceleration under the Indentures occur, the Company, absent
other financing arrangements, may be forced to seek protection under
chapter 11 of the United States Bankruptcy Code. Notwithstanding the
literal language of the Indentures, the Company believes, however, that no
such Event of Default should occur because the language set forth in the
Indentures does not reflect the intention of the Company and the
representatives of the Plan Debt who negotiated such provisions and
accordingly that no acceleration of the Notes should
F-25
<PAGE>
Orion Pictures Corporation
occur on such quarterly date. Utilizing the Company's view that the
agreement of the parties is not reflected in the language of the Indentures
and that the Indentures should be reformed to set forth quarterly Mandatory
Minimum thresholds for each fiscal quarter, the Company nevertheless
currently believes that it will not generate sufficient Net Cash Flow to
satisfy such reformed quarterly Mandatory Minimums at the quarter ended
August 31, 1995. In order to meet the Company's anticipated shortfall, the
Company must obtain a waiver, refinance its existing Plan Debt, or obtain
additional sources of financing including those described below. If the
Company cannot satisfy the Mandatory Minimum thresholds at the quarter
ended August 31, 1995, on such date an Event of Default would occur under
the Indentures, which in turn could cause an acceleration of such Notes as
described above. Should such acceleration under the Indentures occur, the
Company, absent other financing arrangements, may be forced to seek
protection under chapter 11 of the United States Bankruptcy Code. As more
fully described in Note 11, the Company has entered into the Merger
Agreement to combine the Company with Actava, Sterling and MITI. A
condition to consummation of the mergers is the refinancing of all the
Company's Plan Debt and its remaining obligations to the Banks and to
Sony, so as to ease the cash flow burden on the surviving company of the
mergers and avoid an Event of Default and possible acceleration of the
Notes pursuant to the Indentures. There can be no assurance that this
proposed refinancing or the mergers contemplated by the Merger Agreement
will be consummated.
As previously discussed herein, the Company anticipates net losses for
financial reporting purposes for fiscal 1996, as well as insufficient
liquidity to meet its obligations in fiscal 1996 as described above.
The Company continues to exploit its existing library of product in order
to generate Net Cash Flow. The Company is also actively pursuing a number
of steps aimed at improving its operating results to date and increasing
its Net Cash Flow by acquiring or producing new product on a nonrecourse
basis as permitted under the Plan. Since the Effective Date, the Company
has been able to acquire some new product with nonrecourse financing. In
order to further exploit its existing distribution apparatus, the Company
will continue to actively seek to attract the requisite nonrecourse
financing to fund the acquisition and distribution costs of new theatrical
and home video product, which would be distributed by the Company through
its distribution system. In addition, the Company will pursue additional
nonrecourse financing for the production of new product, which the Company
is also permitted to engage in under the Plan on a nonrecourse basis or
through certain unrestricted subsidiaries. If the Company is successful in
obtaining nonrecourse financing as described above, the contribution to
the Company's liquidity will generally be in the form of a distribution
fee. In addition to the mergers described above, the Company continues to
consider its alternatives in connection with the anticipated payment
shortfall to the holders of the Plan Debt including other restructuring or
refinancing of such Plan Debt. Despite these intentions, there can be no
assurance that any transaction, restructuring or refinancing will be
consummated or that the Company will be able to generate sufficient Net
Cash Flow to avoid an Event of Default under its Indentures in fiscal 1996.
F-26
<PAGE>
Orion Pictures Corporation
13. Selected Quarterly Financial Data (unaudited)
Selected financial information for the quarterly periods in fiscal 1995 and
1994 is presented below (in thousands, except per-share amounts):
<TABLE>
<CAPTION>
First Quarter Second Quarter
of Fiscal year of Fiscal Year
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues $ 83,757 (b) $ 39,591 $ 29,487 $ 30,632
Gross profit (loss) $ 1,666 $ (1,803) $ (3,357) (c) $(15,916) (a)
Selling, general and administrative expenses $ 6,049 $ 5,188 $ 5,134 $ 5,367
Interest expense, net $ 7,155 $ 8,336 $ 7,266 $ 8,231
Chapter 11 reorganization items $ 266 $ 822 $ 123 $ 391
Loss before provision for income taxes $(11,804) $(16,149) $(15,880) $(29,905)
Net income (loss) $(12,104) $(16,849) $(16,280) $(30,205)
Loss per common share:
Primary:
Before extraordinary gains $ ( .61) $ ( .84) $ ( .81) $ ( 1.51)
Net income (loss) $ ( .61) $ ( .84) $ ( .81) $ ( 1.51)
</TABLE>
F-27
<PAGE>
Orion Pictures Corporation
<TABLE>
<CAPTION>
Third Quarter Fourth Quarter
of Fiscal year of Fiscal Year
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues $ 44,265 $70,729 $ 33,735 $ 34,710
Gross profit (loss) $ 7,574 $ 8,409 $ (2,116)(e) $(58,058)(d)
Selling, general and administrative expenses $ 5,480 $ 5,250 $ 5,382 $ 5,834
Interest expense, net $ 6,604 $ 8,107 $ 8,057 $ 7,622
Chapter 11 reorganization items (Note 3) $ 135 $ 193 $ 1,086 $ 387
Loss before provision for income taxes $ (4,645) $(5,141) $(16,641) $(71,901)
Net income (loss) $ (4,845) $(5,441) $(17,041) $(72,701)
Income (loss) per common share:
Primary:
Before extraordinary gains $ ( .24) $( .27) $( .85) $( 3.64)
Net income (loss) $ ( .24) $( .27) $( .85) $( 3.64)
</TABLE>
<TABLE>
<S> <C>
(a) Gross profit (loss) for the second quarter of fiscal 1994 includes an aggregate of $6,900,000 of
writedowns to estimated net realizable value of theatrical product unreleased at that time and $5,100,000
of writedowns due to disappointing domestic home video sales results.
(b) As more fully described in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" significant revenues ($40,000,000) were recognized in conjunction with the Showtime Settlement
in the first quarter of fiscal 1995.
(c) Gross profit (loss) for the second quarter of fiscal 1995 includes writedowns to estimated net realizable
value of an aggregate of $2,600,000 of writedowns of theatrical product unreleased at that time and
$5,300,000 of writedowns to previously released product.
(d) As is more fully described in "Management's Discussion and Analysis of Financial Condition and Results of
Operations", gross profit for the fourth quarter of fiscal 1994 was impacted by writedowns to estimated
net realizable value on certain product and by reductions in gross profit rates on certain other product
due in part to adjustments made to the Company's estimates of the future revenue-generating potential of
that product during that quarter including the impact of the Showtime Settlement. Gross profit for the
fourth quarter of fiscal 1994 was also impacted by a $27,000,000 additional writedown to estimated net
realizable value of theatrical product released in that quarter and all unreleased titles at that time.
(e) Gross profit for the fourth quarter of fiscal 1995 includes $8,100,000 of writedowns to previously
released product.
</TABLE>
F-28
<PAGE>
Orion Pictures Corporation
ORION PICTURES CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Accounts Balance
Beginning Costs and Written at End of
of Period Expenses Off Period
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Year ended February 28, 1995
Allowance for doubtful accounts $ 14,800,000 $ 2,000,000 $ 2,800,000 $ 14,000,000
Year ended February 28, 1994
Allowance for doubtful accounts $ 26,000,000 $ 900,000 $ 12,100,000 $ 14,800,000
Year ended February 28, 1993
Allowance for doubtful accounts $ 26,000,000 $ 1,783,000 $ 1,783,000 $ 26,000,000
</TABLE>
F-29
Exhibit 2.2
____________________________________________________________
============================================================
AGREEMENT AND PLAN OF MERGER
by and among
THE ACTAVA GROUP INC.,
ORION PICTURES CORPORATION,
MCEG STERLING INCORPORATED,
and
METROMEDIA INTERNATIONAL TELECOMMUNICATIONS, INC.
______________________
April 12, 1995
______________________
____________________________________________________________
============================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 THE MERGERS . . . . . . . . . . . . . . . . 2
1.1 The Mergers . . . . . . . . . . . . . . . . . 2
1.1.1 The Orion Merger . . . . . . . . . . 2
1.1.2 The Sterling Merger . . . . . . . . . 2
1.1.3 The MITI Merger . . . . . . . . . . . 2
1.2 Effective Time . . . . . . . . . . . . . . . 2
1.3 Certificate of Incorporation . . . . . . . . 3
1.4 By-laws . . . . . . . . . . . . . . . . . . . 3
1.5 Directors . . . . . . . . . . . . . . . . . . 3
1.6 Meeting of Stockholders . . . . . . . . . . . 3
1.7 Proxy Statement; Form S-4 . . . . . . . . . . 4
1.8 Additional Actions . . . . . . . . . . . . . 4
ARTICLE 2 CONVERSION OF SECURITIES . . . . . . . . . . 5
2.1 Actava Securities . . . . . . . . . . . . . . 5
2.2 Conversion of Orion, Sterling and MITI
Securities . . . . . . . . . . . . . . . . . 6
2.2.1 Orion Securities . . . . . . . . . . 6
2.2.2 Sterling Securities . . . . . . . . . 6
2.2.3 MITI Securities . . . . . . . . . . . 7
2.3 Surrender and Exchange of Orion Common
Stock, Sterling Common Stock and MITI
Common Stock . . . . . . . . . . . . . . . . 8
2.4 Fractional Shares . . . . . . . . . . . . . . 9
ARTICLE 3 REPRESENTATIONS AND WARRANTIES
OF ACTAVA . . . . . . . . . . . . . . . . . 10
3.1 Organization and Good Standing . . . . . . 10
3.2 Capitalization . . . . . . . . . . . . . . 10
3.3 Subsidiaries . . . . . . . . . . . . . . . 11
3.4 Authorization; Binding Agreement . . . . . 11
3.5 Governmental Approvals . . . . . . . . . . 12
3.6 No Violations . . . . . . . . . . . . . . . 12
3.7 Proxy Statement; Form S-4 . . . . . . . . . 13
3.8 SEC Filings . . . . . . . . . . . . . . . . 13
3.9 Financial Statements . . . . . . . . . . . 14
3.10 Absence of Certain Changes or Events . . . 14
3.11 Compliance with Laws . . . . . . . . . . . 15
3.12 Permits . . . . . . . . . . . . . . . . . . 16
3.13 Finders and Investment Bankers . . . . . . 16
i
<PAGE>
Page
----
3.14 Contracts . . . . . . . . . . . . . . . . . 16
3.15 Employee Benefit Plans . . . . . . . . . . 17
3.16 Taxes . . . . . . . . . . . . . . . . . . . 20
3.17 Liabilities . . . . . . . . . . . . . . . . 21
3.18 Environmental Matters . . . . . . . . . . . 21
3.19 Intellectual Property . . . . . . . . . . . 25
3.20 Real Estate . . . . . . . . . . . . . . . . 26
3.21 Records . . . . . . . . . . . . . . . . . . 27
3.22 Title to and Condition of Personal
Property . . . . . . . . . . . . . . . . . 27
3.23 No Adverse Actions . . . . . . . . . . . . 27
3.24 Labor Matters . . . . . . . . . . . . . . . 28
3.25 Investment Company Act . . . . . . . . . . 29
3.26 Insurance . . . . . . . . . . . . . . . . . 29
3.27 Products . . . . . . . . . . . . . . . . . 29
ARTICLE 4 REPRESENTATIONS AND WARRANTIES
OF ORION . . . . . . . . . . . . . . . . . 30
4.1 Organization and Good Standing . . . . . . 30
4.2 Capitalization . . . . . . . . . . . . . . 30
4.3 Subsidiaries . . . . . . . . . . . . . . . 31
4.4 Authorization; Binding Agreement . . . . . 31
4.5 Governmental Approvals . . . . . . . . . . 32
4.6 No Violations . . . . . . . . . . . . . . . 32
4.7 Proxy Statement; Form S-4 . . . . . . . . . 33
4.8 SEC Filings . . . . . . . . . . . . . . . . 33
4.9 Financial Statements . . . . . . . . . . . 34
4.10 Absence of Certain Changes or Events . . . 34
4.11 Compliance with Laws . . . . . . . . . . . 35
4.12 Permits . . . . . . . . . . . . . . . . . . 35
4.13 Finders and Investment Bankers . . . . . . 35
4.14 Contracts . . . . . . . . . . . . . . . . . 36
4.15 Employee Benefit Plans . . . . . . . . . . 36
4.16 Taxes . . . . . . . . . . . . . . . . . . . 39
4.17 Liabilities . . . . . . . . . . . . . . . . 40
4.18 Environmental Protection . . . . . . . . . 41
4.19 Intellectual Property . . . . . . . . . . . 42
4.20 Real Estate . . . . . . . . . . . . . . . . 43
4.21 Records . . . . . . . . . . . . . . . . . . 44
4.22 Title to and Condition of Personal
Property . . . . . . . . . . . . . . . . . 44
4.23 No Adverse Actions . . . . . . . . . . . . 44
4.24 Labor Matters . . . . . . . . . . . . . . . 45
4.25 Investment Company Act . . . . . . . . . . 46
4.26 Insurance . . . . . . . . . . . . . . . . . 46
4.27 Products . . . . . . . . . . . . . . . . . 46
4.28 MetProductions Indebtedness . . . . . . . . 47
4.29 No Conflict . . . . . . . . . . . . . . . . 47
ii
<PAGE>
Page
----
ARTICLE 5 REPRESENTATIONS AND WARRANTIES
OF STERLING . . . . . . . . . . . . . . . . 47
5.1 Organization and Good Standing . . . . . . 47
5.2 Capitalization . . . . . . . . . . . . . . 48
5.3 Subsidiaries . . . . . . . . . . . . . . . 48
5.4 Authorization; Binding Agreement . . . . . 49
5.5 Governmental Approvals . . . . . . . . . . 49
5.6 No Violations . . . . . . . . . . . . . . . 50
5.7 Proxy Statement; Form S-4 . . . . . . . . . 50
5.8 SEC Filings . . . . . . . . . . . . . . . . 51
5.9 Financial Statements . . . . . . . . . . . 51
5.10 Absence of Certain Changes or Events . . . 52
5.11 Compliance with Laws . . . . . . . . . . . 53
5.12 Permits . . . . . . . . . . . . . . . . . . 53
5.13 Finders and Investment Bankers . . . . . . 53
5.14 Contracts . . . . . . . . . . . . . . . . . 53
5.15 Employee Benefit Plans . . . . . . . . . . 54
5.16 Taxes . . . . . . . . . . . . . . . . . . . 57
5.17 Liabilities . . . . . . . . . . . . . . . . 58
5.18 Environmental Protection . . . . . . . . . 58
5.19 Intellectual Property . . . . . . . . . . . 60
5.20 Real Estate . . . . . . . . . . . . . . . . 61
5.21 Records . . . . . . . . . . . . . . . . . . 61
5.22 Title to and Condition of Personal
Property . . . . . . . . . . . . . . . . . 62
5.23 No Adverse Actions . . . . . . . . . . . . 62
5.24 Labor Matters . . . . . . . . . . . . . . . 62
5.25 Investment Company Act . . . . . . . . . . 63
5.26 Insurance . . . . . . . . . . . . . . . . . 64
5.27 Products . . . . . . . . . . . . . . . . . 64
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF MITI . . 64
6.1 Organization and Good Standing . . . . . . 64
6.2 Capitalization . . . . . . . . . . . . . . 65
6.3 Subsidiaries . . . . . . . . . . . . . . . 66
6.4 Authorization; Binding Agreement . . . . . 66
6.5 No Violations . . . . . . . . . . . . . . . 67
6.6 Proxy Statement; Form S-4 . . . . . . . . . 68
6.7 Governmental Approvals . . . . . . . . . . 68
6.8 Financial Statements . . . . . . . . . . . 68
6.9 Absence of Certain Changes or Events . . . 69
6.10 Compliance with Laws . . . . . . . . . . . 70
6.11 Permits . . . . . . . . . . . . . . . . . . 70
6.12 Finders and Investment Bankers . . . . . . 70
6.13 Employee Benefit Plans . . . . . . . . . . 70
6.14 Taxes . . . . . . . . . . . . . . . . . . . 73
6.15 Liabilities . . . . . . . . . . . . . . . . 75
6.16 Environmental Protection . . . . . . . . . 75
iii
<PAGE>
Page
----
6.17 Intellectual Property . . . . . . . . . . . 77
6.18 Real Estate . . . . . . . . . . . . . . . . 78
6.19 Contracts . . . . . . . . . . . . . . . . . 78
6.20 Litigation . . . . . . . . . . . . . . . . 79
6.21 Records . . . . . . . . . . . . . . . . . . 79
6.22 Title to and Condition of Personal
Property . . . . . . . . . . . . . . . . . 79
6.23 No Adverse Actions . . . . . . . . . . . . 79
6.24 Labor Matters . . . . . . . . . . . . . . . 80
6.25 Investment Company Act . . . . . . . . . . 81
6.26 Insurance . . . . . . . . . . . . . . . . . 81
6.27 Products . . . . . . . . . . . . . . . . . 81
ARTICLE 7 COVENANTS OF ACTAVA . . . . . . . . . . . . 82
7.1 Conduct of Business of Actava . . . . . . . 82
7.2 Notification of Certain Matters . . . . . . 85
7.3 Access and Information . . . . . . . . . . 85
7.4 Stockholder Approval . . . . . . . . . . . 87
7.5 Benefit Plans . . . . . . . . . . . . . . . 87
7.6 No Inconsistent Activities . . . . . . . . 87
7.7 SEC and Stockholder Filings . . . . . . . . 88
7.8 Consents, Waivers, Authorizations, etc . . 88
7.9 Roadmaster Approval of the Mergers . . . . 88
7.10 Related Agreements . . . . . . . . . . . . 89
7.11 Indemnification . . . . . . . . . . . . . . 89
ARTICLE 8 COVENANTS OF ORION . . . . . . . . . . . . 89
8.1 Conduct of Business of Orion . . . . . . . 89
8.2 Notification of Certain Matters . . . . . . 91
8.3 Access and Information . . . . . . . . . . 92
8.4 Stockholder Approval . . . . . . . . . . . 93
8.5 Benefit Plans . . . . . . . . . . . . . . . 94
8.6 No Inconsistent Activities . . . . . . . . 94
8.7 SEC and Stockholder Filings . . . . . . . . 95
8.8 Consents, Waivers, Authorizations, etc . . 95
ARTICLE 9 COVENANTS OF STERLING . . . . . . . . . . . 95
9.1 Conduct of Business of Sterling . . . . . . 95
9.2 Notification of Certain Matters . . . . . . 97
9.3 Access and Information . . . . . . . . . . 98
9.4 Stockholder Approval . . . . . . . . . . . 100
9.5 Benefit Plans . . . . . . . . . . . . . . . 100
9.6 No Inconsistent Activities . . . . . . . . 100
9.7 SEC and Stockholder Filings . . . . . . . . 101
9.8 Consents, Waivers, Authorizations, etc . . 101
iv
<PAGE>
Page
----
ARTICLE 10 COVENANTS OF MITI . . . . . . . . . . . . . 101
10.1 Conduct of Business of MITI . . . . . . . . 101
10.2 Notification of Certain Matters . . . . . . 104
10.3 Access and Information . . . . . . . . . . 105
10.4 Stockholder Approval . . . . . . . . . . . 107
10.5 Benefit Plans . . . . . . . . . . . . . . . 107
10.6 No Inconsistent Activities . . . . . . . . 107
10.7 Stockholder Communications . . . . . . . . 108
10.8 Consents, Waivers, Authorizations, etc . . 108
ARTICLE 11 COVENANTS OF EACH OF ACTAVA, ORION,
STERLING AND MITI . . . . . . . . . . . . . 108
11.1 Further Assurances. . . . . . . . . . . . . 108
11.2 Public Announcements. . . . . . . . . . . . 109
11.3 Exchange Act and Securities Act Compliance 109
11.4 Surviving Corporation Board of Directors . 109
11.5 Listing of Common Stock . . . . . . . . . . 109
11.6 Labor Matters . . . . . . . . . . . . . . . 110
11.7 Refinancing of Indebtedness . . . . . . . . 110
ARTICLE 12 CONDITIONS . . . . . . . . . . . . . . . . 110
12.1 Conditions to Each Merging Party's
Obligations . . . . . . . . . . . . . . . . 110
12.1.1 Stockholder Approval . . . . . . . 110
12.1.2 Consummation of the Mergers . . . . 111
12.1.3 No Injunction . . . . . . . . . . . 111
12.1.4 HSR Act . . . . . . . . . . . . . . 111
12.1.5 Required Consents . . . . . . . . . 111
12.1.6 Effective Form S-4 and Refinancing
Registration Statement . . . . . . 112
12.1.7 Appraisal Rights . . . . . . . . . 112
12.1.8 Board Approval . . . . . . . . . . 112
12.2 Conditions to Obligations of Actava . . . . 112
12.2.1 Obligations Performed . . . . . . . 112
12.2.2 Representations and Warranties . . 112
12.2.3 Certificates Delivered . . . . . . 113
12.2.4 No Material Adverse Change . . . . 113
12.2.5 Actava Stock Price . . . . . . . . 113
12.2.6 Opinions of Counsel . . . . . . . . 113
12.2.7 Fairness Opinion . . . . . . . . . 114
12.2.8 Listing . . . . . . . . . . . . . . 114
12.2.9 Refinancing of Orion Senior
Indebtedness . . . . . . . . . . . 114
v
<PAGE>
Page
----
12.2.10 Refinancing of Orion Subordinated
Indebtedness . . . . . . . . . . . 114
12.2.11 FIRPTA Certificate . . . . . . . . 115
12.2.12 Investigation . . . . . . . . . . . 115
12.3 Conditions to Obligations of Orion . . . . 115
12.3.1 Obligations Performed . . . . . . . 115
12.3.2 Representations and Warranties . . 116
12.3.3 Certificate . . . . . . . . . . . . 116
12.3.4 No Material Adverse Change . . . . 116
12.3.5 Opinions of Counsel . . . . . . . . 116
12.3.6 Fairness Opinion . . . . . . . . . 117
12.3.7 Refinancing of Orion Senior
Indebtedness . . . . . . . . . . . 117
12.3.8 Refinancing of Orion Subordinated
Indebtedness . . . . . . . . . . . 117
12.3.9 Refinancing of Other Indebtedness . 117
12.3.10 Refinancing or Contribution of
MetProductions Indebtedness and MII
Indebtedness . . . . . . . . . . . 117
12.4.1 Obligations Performed . . . . . . . 117
12.4.2 Representations and Warranties . . 117
12.4.3 Certificates Delivered . . . . . . 118
12.4.4 No Material Adverse Change . . . . 118
12.4.5 Opinions of Counsel . . . . . . . . 118
12.4.6 Fairness Opinion . . . . . . . . . 118
12.5 Conditions to Obligations of MITI . . . . . 118
12.5.1 Obligations Performed . . . . . . . 119
12.5.2 Representations and Warranties . . 119
12.5.3 Certificates Delivered . . . . . . 119
12.5.4 No Material Adverse Change . . . . 119
12.5.5 Opinions of Counsel . . . . . . . . 119
12.5.6 Fairness Opinion . . . . . . . . . 120
12.5.7 Listing . . . . . . . . . . . . . . 120
ARTICLE 13 CLOSING . . . . . . . . . . . . . . . . . . 120
13.1 Time and Place; Filing of Certificate of
Merger . . . . . . . . . . . . . . . . . . 120
13.2 Filing of Certificate of Merger, Etc . . . 120
ARTICLE 14 TERMINATION AND ABANDONMENT . . . . . . . . 120
14.1 Termination . . . . . . . . . . . . . . . . 120
14.2 Procedure and Effect of Termination . . . . 122
vi
<PAGE>
Page
----
ARTICLE 15 MISCELLANEOUS . . . . . . . . . . . . . . . 122
15.1 Amendment and Modification . . . . . . . . 122
15.2 Waiver of Compliance; Consents . . . . . . 122
15.3 Survival of Representations and Warranties 123
15.4 Notices . . . . . . . . . . . . . . . . . . 123
15.5 Assignment . . . . . . . . . . . . . . . . 124
15.6 Expenses . . . . . . . . . . . . . . . . . 125
15.7 Governing Law . . . . . . . . . . . . . . . 125
15.8 Counterparts . . . . . . . . . . . . . . . 125
15.9 Interpretation; Definitions . . . . . . . . 125
15.10 Entire Agreement . . . . . . . . . . . . . 128
vii
<PAGE>
EXHIBITS
Exhibit A -- Certificate of Merger
Exhibit B -- By-laws of the Surviving Corporation
Exhibit C-1 -- Share Exchange Agreement
Exhibit C-2 -- Registration Rights Agreement
Exhibit D -- Opinion of Paul, Weiss, Rifkind,
Wharton & Garrison
Exhibit E -- Opinion of Robinson, Brog, Leinwand,
Reich, Genovese & Gluck, P.C.
Exhibit F -- Opinion of Rubin Baum Levin Constant &
Friedman
Exhibit G -- Opinion of Long, Aldridge & Norman
SCHEDULES
Schedule 3.2(a) Options, Warrants, etc.
Schedule 3.2(b) Stock Issuances and Repurchases
Schedule 3.3 Holdings
Schedule 3.6 Consents, etc.
Schedule 3.12 Permits
Schedule 3.14 Contracts
Schedule 3.15(i) Employee Benefit Plans
Schedule 3.15(iii) Employee Benefit Plans
Schedule 3.15(iv) Employee Benefit Plans
Schedule 3.15(v) Employee Benefit Plans
Schedule 3.15(vi) Employee Benefit Plans
Schedule 3.15(vii) Severance and Acceleration
viii
<PAGE>
Schedule 3.16 Tax Matters
Schedule 3.17 Liabilities
Schedule 3.18 Environmental Protection
Schedule 3.18(ix) Hazardous Substances
Schedule 3.19 Intellectual Property
Schedule 3.20(a) Owned Real Estate
Schedule 3.20(b) Leased Real Estate
Schedule 3.22 Personal Property
Schedule 3.24(a) Labor Matters
Schedule 3.24(b) WARN ACT
Schedule 3.24(c) Employment Practices
Schedule 3.26 Insurance
Schedule 3.27(a) Products Liability
Schedule 3.27(b) Products Liability
Schedule 4.2(a) Options, Warrants, etc.
Schedule 4.3 Holdings
Schedule 4.6 Consents, etc.
Schedule 4.10(i) Certain Changes
Schedule 4.10(v) Certain Changes
Schedule 4.10(vi) Certain Changes
Schedule 4.12 Permits
Schedule 4.14 Contracts
Schedule 4.15(i) Employee Benefit Plans
Schedule 4.15(iii) Employee Benefit Plans
Schedule 4.15(iv) Employee Benefit Plans
Schedule 4.15(v) Employee Benefit Plans
ix
<PAGE>
Schedule 4.15(vi) Employee Benefit Plans
Schedule 4.15(vii) Employee Benefit Plans
Schedule 4.15(viii) Severance and Acceleration
Schedule 4.16 Tax Matters
Schedule 4.17 Liabilities
Schedule 4.18 Environmental Protection
Schedule 4.18(ix) Hazardous Substances
Schedule 4.19 Intellectual Property
Schedule 4.20(a) Owned Real Estate
Schedule 4.20(b) Leased Real Estate
Schedule 4.22 Personal Property
Schedule 4.24(a) Labor Matters
Schedule 4.24(b) WARN ACT
Schedule 4.24(c) Employment Practices
Schedule 4.26 Insurance
Schedule 4.27(a) Products Liability
Schedule 4.27(b) Products Liability
Schedule 5.2(a) Options, Warrants, etc.
Schedule 5.2(b) Stock Issuances and Repurchases
Schedule 5.3 Holdings
Schedule 5.6 Consents, etc.
Schedule 5.10(v) Certain Changes
Schedule 5.12 Permits
Schedule 5.14 Contracts
Schedule 5.15(i) Employee Benefit Plans
Schedule 5.15(iii) Employee Benefit Plans
x
<PAGE>
Schedule 5.15(iv) Employee Benefit Plans
Schedule 5.15(v) Employee Benefit Plans
Schedule 5.15(vi) Employee Benefit Plans
Schedule 5.15(vii) Employee Benefit Plans
Schedule 5.15(viii) Severance and Acceleration
Schedule 5.16 Tax Matters
Schedule 5.17 Liabilities
Schedule 5.18 Environmental Protection
Schedule 5.18(ix) Hazardous Substances
Schedule 5.19 Intellectual Property
Schedule 5.20(b) Leased Real Estate
Schedule 5.24(a) Labor Matters
Schedule 5.24(b) WARN ACT
Schedule 5.24(c) Employment Practices
Schedule 5.26 Insurance
Schedule 5.27(a) Products Liability
Schedule 5.27(b) Products Liability
Schedule 6.1(a) Joint Ventures
Schedule 6.1(b) Joint Venture Organizational Documents
Schedule 6.2(a) Options, Warrants, etc.
Schedule 6.2(b) Stock Issuances and Repurchases
Schedule 6.3 Subsidiaries, Holdings
Schedule 6.5 Consents, etc.
Schedule 6.7 Governmental Approvals
Schedule 6.9 Absence of Certain Changes or Events
Schedule 6.10 Compliance with Laws
xi
<PAGE>
Schedule 6.11 Permits
Schedule 6.13(i) Employee Benefit Plans
Schedule 6.13(iii) Employee Benefit Plans
Schedule 6.13(iv) Employee Benefit Plans
Schedule 6.13(v) Employee Benefit Plans
Schedule 6.13(vi) Employee Benefit Plans
Schedule 6.13(vii) Employee Benefit Plans
Schedule 6.13(viii) Severance and Acceleration
Schedule 6.14 Tax Matters
Schedule 6.15 Liabilities
Schedule 6.16 Environmental Protection
Schedule 6.16(ix) Hazardous Substances
Schedule 6.17 Intellectual Property
Schedule 6.18(a) Owned Real Estate
Schedule 6.18(b) Leased Real Estate
Schedule 6.19 Contracts
Schedule 6.20 Litigation
Schedule 6.24(a) Labor Matters
Schedule 6.24(c) Employment Practices
Schedule 6.26 Insurance
Schedule 6.27(a) Products Liability
Schedule 6.27(b) Products Liability
Schedule 7.1 Actava Credit Facilities
Schedule 8.1 Orion Credit Facilities
Schedule 9.1 Sterling Credit Facilities
xii
<PAGE>
Schedule 10.1 MITI Credit Facilities
Schedule 10.1(ii) MITI Issuances
Schedule 12.2.9 Refinancing of Orion Senior Indebtedness
Schedule 12.2.10 Refinancing of Orion Subordinated
Indebtedness
Schedule 15.9(viii) Orion Exchange Ratio
Schedule 15.9(ix) MITI Exchange Ratio
Schedule 15.9(x)(a) Sterling Exchange Ratio
Schedule 15.9(x)(b) Sterling Exchange Ratio
xiii
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER, dated as of
April 12, 1995 (the "Agreement"), by and among THE ACTAVA
GROUP INC., a Delaware corporation ("Actava"), ORION
PICTURES CORPORATION, a Delaware corporation ("Orion"), MCEG
STERLING INCORPORATED, a Delaware corporation ("Sterling")
and METROMEDIA INTERNATIONAL TELECOMMUNICATIONS, INC., a
Delaware corporation ("MITI," and together with Actava,
Orion and Sterling, sometimes referred to herein as the
"Merging Parties").
WHEREAS, the Board of Directors of Actava has
approved the merger of each of Orion with and into Actava
(the "Orion Merger"), Sterling with and into Actava (the
"Sterling Merger") and MITI with and into Actava (the "MITI
Merger"; together with the Orion Merger and the Sterling
Merger, the "Mergers"), each upon the terms and subject to
the conditions of this Agreement;
WHEREAS, the Board of Directors of Sterling has
approved the Sterling Merger upon the terms and subject to
the conditions of this Agreement;
WHEREAS, the Board of Directors of MITI has
approved the MITI Merger upon the terms and subject to the
conditions of this Agreement;
WHEREAS, it is a condition precedent to the
consummation of this Agreement and the transactions
contemplated hereby that the Board of Directors of Orion
shall have approved the Orion Merger;
WHEREAS, immediately following the Effective Time
(as defined below), pursuant to the terms of a Share
Exchange Agreement, dated as of the date hereof (the "Share
Exchange Agreement"), between Actava and the Exchanging
Holders listed on the signature pages thereto (the
"Exchanging Holders"), the Exchanging Holders will
(i) exchange their shares of common stock, par value $1.00
per share, of Actava (the "Common Stock") or (ii) contribute
(a) the MetProductions Indebtedness (as defined below)
and/or (b) the MII Indebtedness (as defined below) in return
for a number of shares of Class A Common Stock, par value
$1.00 per share, of the Surviving Corporation (as hereafter
defined) (the "Class A Common Stock") as specified therein;
and
WHEREAS, it is the express intention of Actava,
Orion, Sterling and MITI that each of the Mergers constitute
<PAGE>
2
a tax-free reorganization for federal income tax purposes
under the Internal Revenue Code of 1986, as amended and the
regulations thereunder (the "Code").
Accordingly, the parties hereto agree as follows:
ARTICLE 1
THE MERGERS
1.1 The Mergers.
-----------
1.1.1 The Orion Merger. At the Effective
----------------
Time (as defined in Section 1.2), upon the terms and subject
to the conditions of this Agreement, Orion shall be merged
with and into Actava in accordance with the Delaware General
Corporation Law ("DGCL") and the separate existence of Orion
shall thereupon cease, and Actava, as the surviving
corporation in the Orion Merger, shall continue its cor-
porate existence under the laws of the State of Delaware.
The Orion Merger shall have the effects set forth in
Section 259 of the DGCL.
1.1.2 The Sterling Merger. At the Effective
-------------------
Time, upon the terms and subject to the conditions of this
Agreement, Sterling shall be merged with and into Actava in
accordance with the DGCL and the separate existence of
Sterling shall thereupon cease, and Actava, as the surviving
corporation in the Sterling Merger, shall continue its
corporate existence under the laws of the State of Delaware.
The Sterling Merger shall have the effects set forth in
Section 259 of the DGCL.
1.1.3 The MITI Merger. At the Effective
---------------
Time, upon the terms and subject to the conditions of this
Agreement, MITI shall be merged with and into Actava in
accordance with the DGCL and the separate existence of MITI
shall thereupon cease, and Actava, as the surviving corpo-
ration in the MITI Merger, shall continue its corporate
existence under the laws of the State of Delaware. The MITI
Merger shall have the effects set forth in Section 259 of
the DGCL.
1.2 Effective Time. Each of the Orion Merger,
--------------
the Sterling Merger and the MITI Merger shall become
effective at the date and time of the filing of the
Certificate of Merger substantially in the form of Exhibit A
to this Agreement (the "Certificate of Merger") with the
Secretary of State of Delaware in accordance with the
provisions of the DGCL. The date and time when each of the
<PAGE>
3
Mergers shall become effective is herein referred to as the
"Effective Time." Actava, as the surviving corporation of
each of the Mergers shall be referred to as the "Surviving
Corporation." In accordance with the DGCL, all of the
rights, privileges, powers, immunities, purposes and
franchises of Actava, Orion, Sterling and MITI shall vest in
the Surviving Corporation and all debts, liabilities,
obligations and duties of Actava, Orion, Sterling and MITI
shall become the debts, liabilities, obligations and duties
of the Surviving Corporation.
1.3 Certificate of Incorporation. The Restated
----------------------------
Certificate of Incorporation of Actava shall be further
amended and restated by the Certificate of Merger, and as so
amended and restated, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter
amended as provided by law. The amendments effectuated by
the Certificate of Merger shall include (i) a change of the
name of the Surviving Corporation to "Metromedia
International Group, Inc.," (ii) the authorization of the
Class A Common Stock having the terms and conditions set
forth therein and (iii) an increase in the number of
authorized shares of Common Stock specified therein.
1.4 By-laws. The By-laws of Actava shall be
-------
amended and restated as of the Effective Time substantially
in the form of Exhibit B hereto and as so amended and
restated shall be the By-laws of the Surviving Corporation
until thereafter amended.
1.5 Directors. The directors of the Surviving
---------
Corporation at the Effective Time shall consist of six
individuals designated prior to the Effective Time by the
then Board of Directors of Orion and four individuals
designated prior to the Effective Time by the then Board of
Directors of Actava, each of whom shall hold office from the
Effective Time until their respective successors are duly
elected or appointed and qualified in the manner provided in
the Certificate of Incorporation and By-laws of the
Surviving Corporation.
1.6 Meeting of Stockholders. Each of Actava,
-----------------------
Orion, Sterling and MITI hereby covenants and agrees that it
shall, as promptly as practicable, take all necessary action
in accordance with applicable law to convene a meeting of
its stockholders and shall use its best efforts to hold such
meeting as promptly as practicable after the date hereof.
The purpose of such meeting shall be, among other things, to
consider and vote upon this Agreement and the transactions
contemplated hereby (including, without limitation, the
Mergers, the amendment of Actava's Restated Certificate of
<PAGE>
4
Incorporation effectuated by the filing of the Certificate
of Merger and the consummation of the transactions
contemplated by the Share Exchange Agreement). Notwith-
standing the foregoing, MITI shall be deemed to have
fulfilled the foregoing requirements if its stockholders act
by written consent in lieu of such meeting pursuant to the
provisions of Section 228 of the DGCL. Subject to
applicable law and fiduciary duties, including the duties of
loyalty and care, the Board of Directors of each of Actava,
Orion, Sterling and MITI shall recommend that their
stockholders vote in favor of the Mergers, as applicable,
and the adoption of this Agreement and the Share Exchange
Agreement, as applicable, and the approval of the
transactions contemplated by such agreements.
1.7 Proxy Statement; Form S-4. As soon as
-------------------------
practicable, Actava, Orion and Sterling shall file with the
Securities and Exchange Commission (the "SEC") under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and each shall use its respective best efforts to
have cleared by the SEC, a joint proxy statement (the "Proxy
Statement"), with respect to the meeting of Actava's,
Orion's and Sterling's stockholders referred to in
Section 1.6. In connection therewith, as soon as
practicable after the date hereof, Actava shall file with
the SEC a Registration Statement on Form S-4 (the "Form S-
4") to register under the Securities Act of 1933, as amended
(the "Securities Act"), the shares of the Common Stock to be
issued in the Mergers which Form S-4 shall incorporate the
Proxy Statement. Each of the parties hereto shall use its
best efforts promptly to provide in writing all information
related to it which is required for inclusion in the Proxy
Statement and Form S-4 in order to have the Form S-4
declared effective by the SEC as promptly as practicable.
Actava shall use its best efforts to comply, prior to the
Effective Time, with all applicable requirements of "Blue
Sky" and federal and state securities laws in connection
with the Mergers and the issuance of the Common Stock and
the Class A Common Stock issued in connection therewith.
1.8 Additional Actions. If, at any time after
------------------
the Effective Time, the Surviving Corporation shall consider
or be advised that any deeds, bills of sale, assignments,
assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise
in the Surviving Corporation its right, title or interest
in, to or under any of the rights, properties or assets of
Orion, Sterling or MITI or otherwise to carry out this
Agreement, the officers and directors of the Surviving
Corporation shall be authorized to execute and deliver, in
the name and on behalf of Orion, Sterling or MITI or
<PAGE>
5
otherwise, all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of
Orion, Sterling or MITI or otherwise, all such other actions
and things as may be necessary or desirable to vest, perfect
or confirm any and all right, title and interest in, to and
under such rights, properties or assets in the Surviving
Corporation or otherwise to carry out this Agreement.
ARTICLE 2
CONVERSION OF SECURITIES
2.1 Actava Securities.
-----------------
(i) All issued and outstanding securities of
Actava outstanding immediately prior to the Effective Time
(including, without limitation, all shares of Common Stock
and all options and warrants exercisable for and securities
convertible into shares of Common Stock) shall remain
outstanding following the Mergers with the same terms and
subject to the same conditions as in effect prior to the
Effective Time.
(ii) It will not be necessary for holders of
Common Stock to exchange their existing stock certificates
for stock certificates bearing the new name of the Surviving
Corporation prior to or at the Effective Time, but after the
Effective Time, as presently outstanding certificates of
Common Stock are presented for transfer, new certificates
bearing the new name of the Surviving Corporation and
representing the same number of shares of Common Stock as is
currently set forth on such presently outstanding
certificates will be issued, or such new certificates shall
be issued upon request upon delivery of the certificates
evidencing such Common Stock to the Surviving Corporation's
transfer agent. From and after the Effective Time, and
until such time as all of the certificates representing the
Common Stock bearing the previous name of the Surviving
Corporation are presented for transfer or exchange, such
certificates which have not been presented for transfer or
exchange shall represent the same number of shares of Common
Stock as is currently set forth on such certificates and
holders thereof shall have the same per share right to
receive dividends and vote such shares as if such holders
had transferred or exchanged such certificates for new
certificates bearing the new name of the Surviving
Corporation.
<PAGE>
6
2.2 Conversion of Orion, Sterling and MITI
Securities.
---------------------------------------
2.2.1 Orion Securities.
----------------
(i) At the Effective Time, each share
of common stock, par value $.25 per share, of Orion (the
"Orion Common Stock"), issued and outstanding immediately
prior to the Effective Time, shall, by virtue of the Orion
Merger and without any action on the part of the holder
thereof, be converted into the right to receive a number of
shares of Common Stock equal to the Orion Exchange Ratio (as
hereafter defined) (subject to appropriate adjustment in the
event of a stock split, stock dividend or recapitalization
or other similar event applicable to shares of Common Stock
prior to the Effective Time) upon surrender of the
certificate representing such share of Orion Common Stock.
(ii) Each share of Orion Common Stock
held in treasury by Orion immediately prior to the Effective
Time shall, by virtue of the Orion Merger, be canceled and
retired and cease to exist, without any conversion thereof.
2.2.2 Sterling Securities.
-------------------
(i) At the Effective Time, each share
of common stock, par value $.001 per share, of Sterling (the
"Sterling Common Stock"), issued and outstanding immediately
prior to the Effective Time, shall, by virtue of the
Sterling Merger and without any action on the part of the
holder thereof, be converted into the right to receive a
number of shares of Common Stock equal to the Sterling
Exchange Ratio (as hereafter defined) (subject to appro-
priate adjustment in the event of a stock split, stock
dividend or recapitalization or other similar event applic-
able to shares of Common Stock prior to the Effective Time)
upon surrender of the certificate representing such share of
Sterling Common Stock.
(ii) Each share of Sterling Common
Stock held in treasury by Sterling immediately prior to the
Effective Time shall, by virtue of the Sterling Merger, be
canceled and retired and cease to exist, without any
conversion thereof.
(iii) Notwithstanding anything in this
Agreement to the contrary, shares of Sterling Common Stock
outstanding immediately prior to the Effective Time held by
a holder (if any) who is entitled to demand, and who
properly demands, appraisal for such shares in accordance
with Section 262 of the DGCL ("Sterling Dissenting Shares")
<PAGE>
7
shall not be converted into a right to receive the
consideration specified in Section 2.2.2(i) hereof unless
such holder fails to perfect or otherwise loses such
holder's right to appraisal, if any. If, after the
Effective Time, such holder fails to perfect or otherwise
loses any such right to appraisal, such shares shall be
treated as if they had been converted as of the Effective
Time into a right to receive the consideration specified in
Section 2.2.2(i) hereof. Sterling shall give prompt notice
to Actava of any demands received by Sterling for appraisal
of shares of Sterling Common Stock and Actava shall have the
right to participate in and direct all negotiations and
proceedings with respect to such demands. Sterling shall
not, except with the prior written consent of Actava, which
consent shall not be unreasonably withheld, make any payment
with respect to, or settle or offer to settle, any such
demands.
2.2.3 MITI Securities.
---------------
(i) At the Effective Time, each share
of common stock, par value $.001 per share, of MITI (the
"MITI Common Stock"), issued and outstanding immediately
prior to the Effective Time, shall, by virtue of the MITI
Merger and without any action on the part of the holder
thereof, be converted into the right to receive a number of
shares of Common Stock equal to the MITI Exchange Ratio (as
hereafter defined) (subject to appropriate adjustment in the
event of a stock split, stock dividend or recapitalization
or other similar event applicable to shares of Common Stock
prior to the Effective Time) upon surrender of the
certificate representing such share of MITI Common Stock.
(ii) At the Effective Time, each
holder of an option or warrant or other right exercisable
for or convertible into shares of MITI Common Stock ("MITI
Options and Warrants") will receive, by virtue of the MITI
Merger and without any action on the part of the holder
thereof, options or warrants or other rights exercisable for
or convertible into shares of Common Stock with the same
terms and conditions as the MITI Options and Warrants except
that the exercise price and the number of shares issuable
upon exercise shall be divided and multiplied, respectively,
by the MITI Exchange Ratio (subject to appropriate
adjustment in the event of a stock split, stock dividend or
recapitalization or other similar event applicable to shares
of Common Stock prior to the Effective Time).
(iii) Each share of MITI Common Stock
held in treasury by MITI immediately prior to the Effective
<PAGE>
8
Time shall, by virtue of the MITI Merger, be canceled and
retired and cease to exist, without any conversion thereof.
(iv) Notwithstanding anything in this
Agreement to the contrary, shares of MITI Common Stock
outstanding immediately prior to the Effective Time held by
a holder (if any) who is entitled to demand, and who
properly demands, appraisal for such shares in accordance
with Section 262 of the DGCL ("MITI Dissenting Shares")
shall not be converted into a right to receive the
consideration specified in Section 2.2.3(i) hereof unless
such holder fails to perfect or otherwise loses such
holder's right to appraisal, if any. If, after the
Effective Time, such holder fails to perfect or otherwise
loses any such right to appraisal, such shares shall be
treated as if they had been converted as of the Effective
Time into a right to receive the consideration specified in
Section 2.2.3(i) hereof. MITI shall give prompt notice to
Actava of any demands received by MITI for appraisal of
shares of MITI Common Stock and Actava shall have the right
to participate in and direct all negotiations and
proceedings with respect to such demands. MITI shall not,
except with the prior written consent of Actava, which
consent shall not be unreasonably withheld, make any payment
with respect to, or settle or offer to settle, any such
demands.
2.3 Surrender and Exchange of Orion Common Stock,
---------------------------------------------
Sterling Common Stock and MITI Common Stock. Except for the
-------------------------------------------
Exchanging Holders who, immediately following the Effective
Time, will exchange their certificates with the Surviving
Corporation, after the Effective Time, each holder of an
outstanding certificate or certificates (the "Old
Certificates") theretofore representing shares of Orion
Common Stock, Sterling Common Stock or MITI Common Stock
shall surrender such Old Certificates to such bank or trust
company as may be designated by the Surviving Corporation as
the exchange agent (the "Exchange Agent") and shall receive
in exchange therefor, upon satisfaction of customary
delivery requirements, certificates representing the number
of whole shares of Common Stock into which shares of Orion
Common Stock, Sterling Common Stock or MITI Common Stock, as
the case may be, have been converted (it being understood
that subject to the provisions of Section 2.4 hereof, in
connection with the Sterling Merger, the Surviving
Corporation will instruct the Exchange Agent to deliver the
number of whole shares of Common Stock plus cash in lieu of
fractional shares which the Sterling Voting Trust (as
defined herein) is entitled to receive pursuant to the
Sterling Merger in accordance with Section 2.2.2(i) hereof
to the beneficiaries of such trust in exchange for the Old
<PAGE>
9
Certificates representing the shares of Sterling Common
Stock owned by the voting trust (the "Sterling Voting
Trust") created by the Voting Trust Agreement). Until so
surrendered and exchanged, each outstanding Old Certificate
after the Effective Time shall be deemed for all purposes to
evidence the number of whole shares of Common Stock into
which the shares of Orion Common Stock, Sterling Common
Stock or MITI Common Stock, as the case may be, represented
by such certificate are to be converted pursuant to Section
2.2 of this Agreement; provided, however, that no dividends
-------- -------
or other distributions, if any, in respect of such shares of
Common Stock, declared after the Effective Time and payable
to holders of record after the Effective Time, shall be paid
to the holders of any unsurrendered Old Certificates until
such Old Certificates are surrendered. Subject to
applicable law, after the surrender and exchange of Old
Certificates, the record holders thereof will be entitled to
receive any such dividends or other distributions without
interest thereon, which theretofore have become payable with
respect to the number of shares of Common Stock for which
such Old Certificate was exchangeable. Holders of any
unsurrendered Old Certificates shall not be entitled to vote
until such unsurrendered Old Certificates are exchanged
pursuant to this Section 2.3.
2.4 Fractional Shares. No fractional shares of
-----------------
Common Stock shall be issued in connection with the
conversion of shares of Orion Common Stock, Sterling Common
Stock or MITI Common Stock, as the case may be, in
connection with the Mergers nor will any outstanding
fractional share interest entitle the owner thereof to vote,
to receive dividends or to exercise any other right of a
stockholder of the Surviving Corporation. In lieu of any
such fractional shares, any holder of Orion Common Stock,
Sterling Common Stock or MITI Common Stock, as the case may
be, who would otherwise have been entitled to receive a
fractional share of Common Stock shall, upon surrender of
certificates representing such holders' shares of Orion
Common Stock, Sterling Common Stock or MITI Common Stock, as
the case may be, be paid in cash the value of each such
fraction, which for this purpose shall be calculated by
multiplying such fraction by the "Average Closing Price."
For purposes of this Agreement, "Average Closing Price"
means the average of the last sale prices for Common Stock
as reported on the New York Stock Exchange ("NYSE") for the
last 20 consecutive trading days ending on the business day
immediately prior to the Effective Time, subject to
appropriate adjustment in the event of a stock split, stock
dividend or recapitalization or other similar event
applicable to shares of Common Stock held of record on or
<PAGE>
10
before the Effective Time to the extent not reflected in
such sale prices.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF ACTAVA
Actava represents and warrants to each of Orion,
Sterling and MITI as follows:
3.1 Organization and Good Standing. Actava and
------------------------------
each of its material subsidiaries is a corporation duly
organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now
being conducted. Actava and each of its material
subsidiaries is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the
character of the property owned, leased or operated by it or
the nature of the business conducted by it makes such
qualification or licensing necessary, except where the
failure to be so duly qualified or licensed and in good
standing would not have an Actava Material Adverse Effect
(as defined in Section 15.9). Actava has heretofore
delivered or made available to each of Orion, Sterling and
MITI accurate and complete copies of the Certificates of
Incorporation and By-laws, or equivalent governing
instruments, as currently in effect, of Actava and each of
its subsidiaries.
3.2 Capitalization. The authorized capital stock
--------------
of Actava consists of 100,000,000 shares of Common Stock,
1,000,000 shares of Preference Stock, without par value
("Actava Preference Stock"), and 5,000,000 shares of
Preferred Stock, par value $1.00 per share (the "Actava
Preferred Stock"). As of March 31, 1995, 17,327,158 shares
of Common Stock, no shares of Actava Preference Stock and no
shares of Actava Preferred Stock were issued and
outstanding. No other capital stock of Actava is authorized
or issued. All issued and outstanding shares of capital
stock of Actava are validly issued, fully paid and non-
assessable and were issued free of preemptive rights and in
compliance with applicable federal and state securities laws
and regulations. Except as set forth on Schedule 3.2(a), at
the date hereof there are not any outstanding rights,
subscriptions, warrants, calls, unsatisfied preemptive
rights, options or other agreements of any kind to purchase
or otherwise receive from Actava any of the outstanding,
<PAGE>
11
authorized but unissued, unauthorized or treasury shares of
the capital stock or any other security of Actava, and there
is no authorized or outstanding security of any kind
convertible into or exchangeable for any such capital stock.
Except as set forth on Schedule 3.2(b), since March 31,
1995, Actava has not (i) issued any shares of capital stock,
except pursuant to the exercise of then outstanding options
or warrants in accordance with their terms or
(ii) repurchased any shares of Common Stock.
3.3 Subsidiaries. Exhibit 21 to Actava's filing
------------
on Form 10-K for the year ended December 31, 1994, as
amended, sets forth the name, jurisdiction of incorporation
or organization and percentages of outstanding capital stock
or other equivalent equity ownership owned, directly or
indirectly, by Actava, with respect to each subsidiary of
Actava. Except as set forth on Schedule 3.3, Actava and its
subsidiaries own no material direct or indirect equity
interest in any corporation (other than direct or indirect
subsidiaries of Actava), partnership, joint venture or other
entity, domestic or foreign. All of the outstanding shares
of capital stock in each of Actava's subsidiaries have been
duly authorized and validly issued and are fully paid and
non-assessable. Except as set forth on Schedule 3.3, to
Actava's knowledge, there are no irrevocable proxies or
similar obligations with respect to such capital stock and
no equity securities or other interests of any of the
subsidiaries are or may become required to be issued by
reason of any options, warrants, rights to subscribe to,
calls or commitments of any character whatsoever relating
to, or securities or rights convertible into or exchangeable
for, shares of any capital stock of any subsidiary, and
there are no contracts, commitments, understandings or
arrangements by which any subsidiary is bound to issue
additional shares of its capital stock, or options, warrants
or rights to purchase or acquire any additional shares of
its capital stock or securities convertible into or
exchangeable for such shares. All of such shares so owned
by Actava are owned by it free and clear of any claim, lien,
encumbrance, security interest or agreement with respect
thereto.
3.4 Authorization; Binding Agreement. Actava has
--------------------------------
requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions
contemplated hereby, subject to the approval and adoption of
this Agreement by the stockholders of Actava. The execution
and delivery of this Agreement and the consummation of the
transactions contemplated hereby, including but not limited
to the Mergers, have been duly and validly authorized by
Actava's Board of Directors and no other corporate
<PAGE>
12
proceedings on the part of Actava or any subsidiary of
Actava are necessary to authorize the execution and delivery
of this Agreement or to consummate the transactions so
contemplated (other than the approval and adoption of this
Agreement by the stockholders of Actava in accordance with
the DGCL and the Certificate of Incorporation and By-laws of
Actava). This Agreement has been duly and validly executed
and delivered by Actava, and, subject to the approval and
adoption of this Agreement by the stockholders of Actava,
constitutes the legal, valid and binding agreement of
Actava, enforceable against Actava in accordance with its
terms, except to the extent that enforceability thereof may
be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by principles
of equity regarding the availability of remedies.
3.5 Governmental Approvals. No consent, approval
----------------------
or authorization of or declaration or filing with any
governmental agency or regulatory authority on the part of
Actava or any of its subsidiaries is required in connection
with the execution or delivery by Actava of this Agreement
or the consummation by Actava of the transactions
contemplated hereby other than (i) the filing of this
Agreement (or the Certificate of Merger in lieu thereof)
with the Secretary of State of Delaware in accordance with
the DGCL, (ii) filings with the SEC and any applicable
national securities exchange, (iii) filings under state
securities or "Blue Sky" laws, (iv) federal, state and local
regulatory approvals and consents and (v) filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated there-
under (the "HSR Act").
3.6 No Violations. The execution and delivery by
-------------
Actava of this Agreement, the consummation of the
transactions contemplated hereby and compliance by Actava
with any of the provisions hereof will not (i) conflict with
or result in any breach of any provision of the Articles or
Certificates of Incorporation or By-laws or other governing
instruments of Actava or any of its subsidiaries,
(ii) except as set forth on Schedule 3.6 and except for any
of the following which does not and will not have an Actava
Material Adverse Effect, require any consent, approval or
notice under or result in a violation or breach of, or
constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination,
cancellation or acceleration or augment the performance
required) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license,
agreement or other instrument or obligation to which Actava
<PAGE>
13
or any of its subsidiaries is a party or by which any of
them or any of their properties or assets may be bound,
(iii) result in the creation or imposition of any lien,
charge or other encumbrance of any kind upon any of the
assets of Actava or any of its subsidiaries other than any
such lien, charge or other encumbrance which does not and
will not have an Actava Material Adverse Effect or
(iv) subject to obtaining the governmental and other
consents referred to in Section 3.5, contravene any material
law, rule or regulation of any state or of the United States
or any political subdivision thereof or therein, or any
material order, writ, injunction, determination or award
currently in effect to which Actava or any of its
subsidiaries or any of their respective assets or properties
are subject.
3.7 Proxy Statement; Form S-4. None of the
-------------------------
information relating to Actava and its subsidiaries included
in the Proxy Statement or Form S-4 will be false or
misleading with respect to any material fact, or omit to
state any material fact required to be stated therein or
necessary in order to make the statements therein, in light
of the circumstances under which they were made, not
misleading. Except for information supplied or to be
supplied by Orion, Sterling or MITI in writing for inclusion
therein, as to which no representation is made, the Proxy
Statement, and any supplements or amendments thereto, will
comply in all material respects with the Exchange Act and
the rules and regulations thereunder.
3.8 SEC Filings. Actava has made available to
-----------
each of Orion, Sterling and MITI true and complete copies of
(i) its Annual Reports on Form 10-K, as amended, for the
years ended December 31, 1992, 1993 and 1994, as filed with
the SEC, (ii) its proxy statements relating to all of
Actava's meetings of stockholders (whether annual or
special) since January 1, 1993, as filed with the SEC, and
(iii) all other reports, statements and registration
statements (including Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, as amended) filed by Actava
with the SEC since January 1, 1993 (the reports and
statements set forth in clauses (i), (ii) and (iii) are
referred to collectively as the "Actava SEC Filings"). With
respect to Roadmaster Industries, Inc., a Delaware corpo-
ration ("Roadmaster"), Actava has made available to each of
Orion, Sterling and MITI true and complete copies of
(i) Roadmaster's Annual Reports on Form 10-K for the years
ended December 31, 1992, 1993 and 1994, as filed with the
SEC, (ii) Roadmaster's proxy statements relating to all of
Roadmaster's meetings of stockholders (whether annual or
special) since January 1, 1993, as filed with the SEC, and
<PAGE>
14
(iii) all other reports, statements and registration state-
ments (including Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, as amended) filed by Roadmaster with
the SEC since January 1, 1992 (the reports and statements
set forth in clauses (i), (ii) and (iii) are referred to
collectively as the "Roadmaster SEC Filings"). As of their
respective dates, none of the Actava SEC Filings or, to
Actava's actual knowledge, without investigation, Roadmaster
SEC Filings (including all exhibits and schedules thereto
and documents incorporated by reference therein), contained
any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary
to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Each of the Actava SEC Filings and, to Actava's actual
knowledge, without investigation, Roadmaster SEC Filings at
the time of filing complied in all material respects with
the Exchange Act or the Securities Act, as the case may be,
and the rules and regulations thereunder. As of the date
hereof there are no claims, actions, or proceedings (and to
Actava's knowledge no investigations) pending by or against
or to Actava's knowledge threatened against Actava or any of
its subsidiaries, or to Actava's actual knowledge, without
investigation, Roadmaster or any of its subsidiaries, or any
properties or rights of Actava or any of its subsidiaries,
or any properties or rights of, to Actava's actual
knowledge, without investigation, Roadmaster or any of its
subsidiaries, before any court or any administrative,
governmental or regulatory authority or body which is
required to be described in any Actava SEC Filing or, to
Actava's actual knowledge, without investigation, Roadmaster
SEC Filing that is not so described which have or will have
an Actava Material Adverse Effect.
3.9 Financial Statements. The consolidated
--------------------
balance sheets of Actava as of December 31, 1992, 1993 and
1994 and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then
ended, including the footnotes thereto, certified by Ernst &
Young LLP, Actava's independent certified public
accountants, as set forth in Actava's Annual Reports on Form
10-K, as amended, for the years ended December 31, 1992,
1993 and 1994, have been prepared in accordance with
generally accepted accounting principles applied on a
consistent basis during the periods involved and fairly
present the financial position of Actava and its
consolidated subsidiaries as of the dates thereof and the
results of their operations for the periods then ended.
3.10 Absence of Certain Changes or Events. Except
------------------------------------
as set forth in the Actava SEC Filings, since December 31,
<PAGE>
15
1994 there has not been: (i) any material adverse change in
the business, assets, prospects, condition (financial or
other) or the results of operations of Actava and its
subsidiaries taken as a whole other than any such change
caused by general economic conditions, political or
governmental instability or uncertainty, civil disturbances
or unrest, war or other similar acts of force majeure;
(ii) any notification from Eastman Kodak Company ("Kodak")
that it intends to set off any amounts or otherwise dispute
any amounts payable under that certain $100 million
promissory note dated August 12, 1994 made by Kodak in favor
of Actava; (iii) any declaration, payment or setting aside
for payment of any dividend or any redemption, purchase or
other acquisition of any shares of capital stock or
securities of Actava; (iv) any return of any capital or
other distribution of assets to stockholders of Actava;
(v) any material investment of a capital nature by Actava or
any of its subsidiaries either by the purchase of any
property or assets or by any acquisition (by merger,
consolidation or acquisition of stock or assets) of any
corporation, partnership or other business organization or
division thereof; (vi) any sale, disposition or other
transfer of assets or properties of Actava and its subsid-
iaries in excess of $100,000 individually or $1,000,000 in
the aggregate; (vii) any employment or consulting agreement
entered into by Actava and its subsidiaries with any officer
or consultant of Actava and its subsidiaries providing for
annual salary or other annual payments in excess of $100,000
or any amendment or modification to, or termination of, any
current employment or consulting agreement to which Actava
or any of its subsidiaries is a party which provides for
annual salary or other annual payments in excess of
$100,000; (viii) any agreement to take, whether in writing
or otherwise, any action which, if taken prior to the date
hereof, would have made any representation or warranty in
this Article 3 untrue, incomplete or incorrect in any
material respect; (ix) any change in accounting methods or
practices or any change in depreciation or amortization
policies or rates; or (x) any failure by Actava or its
subsidiaries to conduct their respective businesses only in
the ordinary course consistent with past practice. Except
as set forth in the Roadmaster SEC Filings, since
December 31, 1994, to Actava's actual knowledge, without
investigation, there has not occurred any material adverse
change in the business, assets, prospects, conditions
(financial or otherwise) or the results of operations of
Roadmaster and its subsidiaries taken as a whole.
3.11 Compliance with Laws. The business of Actava
--------------------
and its subsidiaries has been operated in compliance with
all laws, ordinances, regulations and orders of all govern
<PAGE>
16
mental entities, domestic or foreign, except for any
instances of non-compliance which do not and will not have
an Actava Material Adverse Effect.
3.12 Permits. Except as set forth on Sched-
-------
ule 3.12, (i) Actava and its subsidiaries have all permits,
certificates, licenses, approvals and other authorizations
(collectively, "Actava Permits") required in connection with
the operation of their businesses, (ii) neither Actava nor
any of its subsidiaries are in violation of any Actava
Permit applicable to any of them or to the operation of
their businesses, and (iii) no proceedings are pending or,
to Actava's knowledge, threatened, to revoke or terminate
any Actava Permit, except, in the case of clause (i) or (ii)
above, those the absence or violation of which do not and
will not have an Actava Material Adverse Effect.
3.13 Finders and Investment Bankers. Neither
------------------------------
Actava nor any of its officers or directors has employed any
broker or finder or incurred any liability for any brokerage
fees, commissions or finders' fees in connection with the
transactions contemplated hereby except a fee payable to
CS First Boston Corporation ("First Boston") pursuant to
that certain engagement letter dated February 15, 1995
between First Boston and Actava.
3.14 Contracts. There is no material contract or
---------
other material agreement ("Contract") required to be
described in or filed as an exhibit to any Actava SEC Filing
that is not described in or filed as required by the
Securities Act or the Exchange Act, as the case may be. All
such Contracts are valid and binding and are in full force
and effect and enforceable in accordance with their respec-
tive terms other than such Contracts which by their terms
are no longer in force or effect. Except as set forth in
Schedule 3.6 or 3.14, (i) no approval or consent of, or
notice to, any person is needed in order to ensure that such
Contracts shall continue in full force and effect in
accordance with their respective terms without penalty,
acceleration or rights of early termination following the
consummation of the transactions contemplated by this
Agreement, and (ii) Actava or its subsidiaries is not in
violation or breach of or default under any such Contract;
nor to Actava's knowledge is any other party to any such
Contract in violation or breach of or default under any such
Contract, except in the case of clauses (i) and (ii) above,
any of the foregoing which do not and will not have an
Actava Material Adverse Effect.
<PAGE>
17
3.15 Employee Benefit Plans.
----------------------
(i) Except as set forth on Schedule 3.15(i),
there are no employee benefit plans or arrangements of any
type, including (i) plans described in section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended,
and the regulations thereunder ("ERISA") and any other
material plans, programs, practices or policies, including,
but not limited to, any pension, profit sharing, retirement,
thrift, stock purchase or stock option plan, or any other
compensation, welfare, fringe benefit or retirement plan,
program, policy, understanding or arrangement of any kind
whatsoever, whether formal or informal, providing for
benefits for or the welfare of any or all of the current or
former employees or agents of Actava and their beneficiaries
or dependents, or (ii) multiemployer plans as defined in
section 3(37) of ERISA, or (iii) multiple employer plans as
defined in Section 413 of the Code, under which Actava has
or in the future could have, directly or indirectly through
an entity which is considered a "single employer" within the
meaning of sections 414(b), (c), (m) and (o) of the Code (a
"Commonly Controlled Entity"), any liability with respect to
any current or former employee of Actava or any Commonly
Controlled Entity (collectively, "Actava Benefit Plans").
(ii) With respect to each Actava Benefit
Plan (where applicable), Actava has delivered to each of
Orion, Sterling and MITI complete and accurate copies or
summaries of (a) all plan texts and material agreements,
(b) all material employee communications, (c) the most
recent annual report, (d) the most recent annual and
periodic accounting of plan assets, (e) the most recent
determination letter received from the Internal Revenue
Service and (f) the most recent actuarial valuation.
(iii) With respect to each Actava Benefit
Plan, except as set forth on Schedule 3.15(iii), (a) if
intended to qualify under Code sections 401(a) or 403(a),
(i) such Actava Benefit Plan has received a favorable
determination letter from the Internal Revenue Service (the
"Service") indicating that such Plan meets such require-
ments, and such determination by the Service includes any
new or modified requirements under the Tax Reform Act of
1986 and subsequent legislation enacted thereafter through
and including the Omnibus Budget Reconciliation Act of 1993,
or (ii) an application for a favorable determination letter
including such legislation was filed with the Service prior
to the expiration of the remedial amendment period (as
defined in Code section 401(b) and regulations thereunder,
and as extended pursuant to notices and revenue rulings of
the Service) for filing such an application and such Plan
<PAGE>
18
has been substantially amended to comply with the Tax Reform
Act of 1986 and subsequent legislation enacted through and
including the Omnibus Budget Reconciliation Act of 1993, or
(iii) the remedial amendment period (as defined in
(ii) above) with respect to such Plan has not yet expired,
and an application for a favorable determination letter
including such legislation will be timely filed with the
Service prior to the expiration of such period and the Plan
will be amended to comply with the Tax Reform Act of 1986
and subsequent legislation enacted thereafter through and
including the Omnibus Budget Reconciliation Act of 1993
prior to the expiration of such period, (b) if intended to
qualify under Code sections 401(a) or 403(a) and if
originally effective prior to January 1, 1986, such Actava
Benefit Plan has previously received a favorable
determination letter from the Service indicating that such
Plan meets the requirements of Code sections 401(a) or
403(a) as in effect on the date of the letter, including
without limitation, the Tax Equity and Fiscal Responsibility
Act of 1982 ("TEFRA"), the Deficit Reduction Act of 1984
("DEFRA"), and the Retirement Equity Act of 1984 ("REACT"),
(c) such Actava Benefit Plan has been administered in
material compliance with its terms and applicable law,
(d) no event has occurred and there exists no circumstance
under which Actava could, directly or indirectly through a
Commonly Controlled Entity, incur material liability under
ERISA, the Code or otherwise (other than routine claims for
benefits), (e) there are no actions, suits or claims pending
(other than routine claims for benefits) or, to Actava's
knowledge, threatened, with respect to any Actava Benefit
Plan or against the assets of any Actava Benefit Plan,
(f) no "accumulated funding deficiency" (as defined in ERISA
section 302) has occurred, (g) no "prohibited transaction"
(as defined in ERISA section 406 or in Code section 4975)
has occurred, (h) no "reportable event" (as defined in ERISA
section 4043) has occurred, (i) all contributions and PBGC
premiums or premiums due under an insurance contract that
insures benefits payable under an Actava Benefit Plan, as
applicable, have been made on a timely basis and (j) all
contributions made or required to be made under any Actava
Benefit Plan which have been treated as deductible for
purposes of one or more federal income tax returns of Actava
meet the requirements for deductibility under the Code and
all contributions that have not been made have been properly
recorded on the books of Actava or a Commonly Controlled
Entity in accordance with generally accepted accounting
principles.
(iv) With respect to each Actava Benefit
Plan that is subject to Title IV of ERISA, except as set
forth on Schedule 3.15(iv), (a) as of the date hereof and
<PAGE>
19
at the Effective Time, the market value of assets (exclusive
of any contribution due to such Actava Benefit Plan) equals
or exceeds the present value of benefit liabilities as of
the latest actuarial valuation date shown for such plan (but
not prior to 12 months prior to the date hereof), determined
on the basis of a shutdown of Actava and termination of such
Actava Benefit Plan in accordance with actuarial assumptions
used by the Pension Benefit Guaranty Corporation in single-
employer plan terminations and since its last valuation
date, there have been no amendments to such Actava Benefit
Plan that materially increased the present value of benefit
liabilities (determined as provided above) nor any other
material adverse changes in the funding status of such
Actava Benefit Plan, and (b) Actava has not incurred,
directly or indirectly through a Commonly Controlled Entity,
any liability arising from a plan termination or plan
withdrawal from a multiemployer plan.
(v) With respect to each Actava Benefit Plan
that is a "welfare plan" (as defined in ERISA section 3(1)),
except as set forth on Schedule 3.15(v), (a) no such plan
provides medical or death benefits (whether or not insured)
with respect to current or former employees beyond their
termination of employment or the end of the month of their
termination of employment (other than coverage mandated by
law), (b) there are no reserves, assets, surplus or prepaid
premiums under any such plan and (c) Actava and any Commonly
Controlled Entity have materially complied with the
requirements of Code section 4980B.
(vi) With respect to each Actava Benefit
Plan that is a multiemployer plan, (a) Schedule 3.15(vi)
indicates the number of employees with respect to whom
Actava or any Commonly Controlled Entity makes contributions
to each such plan and the most recent information available
to Actava or any Commonly Controlled Entity with respect to
the withdrawal liability of Actava or such Commonly
Controlled Entity under each such plan, (b) each such plan
is not, as of the date hereof, insolvent or in
reorganization, nor does it have an accumulated funding
deficiency, and Actava does not know of any reason why such
plan would become insolvent or in reorganization or have an
accumulated funding deficiency in the foreseeable future,
(c) Actava or any Commonly Controlled Entity has made all
contributions to each such plan due or accrued as of the
date hereof and will have made all such contributions as of
the Effective Time and (d) the withdrawal liability with
respect to each such Plan if any Commonly Controlled Entity
were to withdraw from the plan at the Effective Time is less
than or equal to $0.
<PAGE>
20
(vii) Except as set forth on
Schedule 3.15(vii), the consummation of the transactions
contemplated by this Agreement will not (a) entitle any
individual to severance pay, or (b) accelerate the time of
payment, vesting of benefits (including stock options and
restricted stock) or increase the amount of compensation due
to any individual.
3.16 Taxes.
-----
(a) Except as set forth on Schedule 3.16,
(i) Actava and each of its subsidiaries timely has filed
(after giving effect to any extensions of the time to file
which were obtained) prior to the date of this Agreement,
and will file prior to the Effective Time, all returns
required to be filed prior to the date of this Agreement
and/or required to be filed prior to the Effective Time by
any of them with respect to, and has paid (or Actava has
paid on its behalf), or has or will set up an adequate
reserve for the payment of, all taxes, together with
interest and penalties thereon ("Taxes"), required to be
paid prior to the date of the Agreement or the Effective
Time, as the case may be, and the most recent financial
statements contained in the SEC Filings reflect an adequate
reserve for all Taxes payable by Actava and its subsidiaries
accrued through the date of such financial statements and
(ii) no deficiencies for any Taxes have been proposed,
asserted or assessed against Actava or any of its subsid-
iaries other than those which are being contested in good
faith and by proper proceedings by Actava, except in the
case of clauses (i) and (ii) above, any of the foregoing
which do not and will not have an Actava Material Adverse
Effect.
(b) The Federal income tax returns of Actava
and each of its subsidiaries consolidated in such returns
have been examined by and settled with the IRS, or the
statute of limitations with respect to such years has
expired, for all years through 1987.
(c) Except as set forth on Schedule 3.16,
none of Actava, any subsidiary of Actava, or to Actava's
knowledge, any group of which Actava or any subsidiary of
Actava is now or ever was a member, has filed or entered
into any election, consent or extension agreement that
extends any applicable statute of limitations or the time
within which a return must be filed which statute of
limitations has not expired or return has not been timely
filed.
<PAGE>
21
(d) Except as set forth on Schedule 3.16,
(i) none of Actava, any subsidiary of Actava or, to Actava's
knowledge, any group of which Actava or any subsidiary of
Actava is now or ever was a member, is a party to any action
or proceeding pending or, to Actava's knowledge, threatened
by any governmental authority for assessment or collection
of Taxes, (ii) no unresolved claim for assessment or
collection of Taxes has, to Actava's knowledge, been
asserted, (iii) no audit or investigation of Actava or any
subsidiary of Actava by any governmental authority is
pending or, to Actava's knowledge, threatened and (iv) no
such matters are under discussion with any governmental
authority which, in the case of clauses (i-iv), could have
an Actava Material Adverse Effect.
3.17 Liabilities. Except (i) as expressly dis-
-----------
closed in the Actava SEC Filings or (ii) as set forth on
Schedule 3.17, and in the case of (i) and (ii) above, as
does not and will not have an Actava Material Adverse
Effect, Actava and its subsidiaries do not have any direct
or indirect indebtedness, liability, claim, loss, damage,
deficiency, obligation or responsibility, fixed or unfixed,
choate or inchoate, liquidated or unliquidated, secured or
unsecured, accrued, absolute, contingent or otherwise
("Liabilities"), whether or not of a kind required by
generally accepted accounting principles to be set forth in
a financial statement, other than Liabilities incurred since
December 31, 1994 in the ordinary course of business.
Except as set forth on Schedule 3.17 or reflected in the
Actava SEC Filings, Actava and its subsidiaries do not have
(i) material obligations in respect of borrowed money,
(ii) material obligations evidenced by bonds, debentures,
notes or other similar instruments, (iii) material
obligations which would be required by generally accepted
accounting principles to be classified as "capital leases",
(iv) material obligations to pay the deferred purchase price
of property or services, except trade accounts payable
arising in the ordinary course of business and payable not
more than twelve (12) months from the date of incurrence,
and (v) any guaranties of any material obligations of any
other person.
3.18 Environmental Matters. Except as disclosed
---------------------
on Schedule 3.18:
(i) Neither Actava nor any of its subsid-
iaries is or has been in violation in any material respect
of any applicable Safety and Environmental Law (as hereafter
defined).
<PAGE>
22
(ii) Actava and its subsidiaries have all
Permits (as hereafter defined) required pursuant to Safety
and Environmental Laws that are material to the conduct of
the business of Actava or any of its subsidiaries, all such
Permits are in full force and effect, no action or proceed-
ing to revoke, limit or modify any of such Permits is
pending, and Actava and each of its subsidiaries is in
compliance in all material respects with all terms and
conditions thereof.
(iii) Neither Actava nor any of its subsid-
iaries has received, or expects to receive due to the
consummation of the Mergers, any material Environmental
Claim (as hereafter defined).
(iv) To Actava's knowledge, Actava and its
subsidiaries have filed all notices required under Safety
and Environmental Laws indicating the past or present
Release (as hereafter defined), generation, treatment,
storage or disposal of Hazardous Substances (as hereafter
defined).
(v) Neither Actava nor any of its subsid-
iaries have entered into any written agreement with any
Governmental Body (as hereafter defined) or any other person
by which Actava or any of its subsidiaries has assumed
responsibility, either directly or as a guarantor or surety,
for the remediation of any condition arising from or
relating to a Release or threatened Release of Hazardous
Substances into the Environment (as hereafter defined).
(vi) To Actava's knowledge, there is not now
and has not been at any time in the past a Release or
threatened Release of Hazardous Substances into the
Environment for which Actava or any of its subsidiaries may
be directly or indirectly responsible.
(vii) To Actava's knowledge, there is not now
and has not been at any time in the past at, on or in any of
the real properties owned, leased or operated by Actava or
any of its subsidiaries, and, to Actava's knowledge, was not
at, on or in any real property previously owned, leased or
operated by Actava or any of its subsidiaries or any
predecessor: (A) any generation, use, handling, Release,
treatment, recycling, storage or disposal of any Hazardous
Substances, (B) any underground storage tank, surface
impoundment, lagoon or other containment facility (past or
present) for the temporary or permanent storage, treatment
or disposal of Hazardous Substances, (C) any landfill or
solid waste disposal area, (D) any asbestos-containing
material in a condition requiring abatement, (E) any
<PAGE>
23
polychlorinated biphenyls (PCBs) used in hydraulic oils,
electrical transformers or other equipment, (F) any Release
or threatened Release, or any visible signs of Releases or
threatened Releases, of a Hazardous Substance to the Envi-
ronment in form or quantity requiring Remedial Action (as
hereafter defined) under Safety and Environmental Laws, or
(G) any Hazardous Substances present at such property,
excepting such quantities as are handled in accordance with
all applicable manufacturer's instructions and Safety and
Environmental Laws and in proper storage containers, and as
are necessary for the operations of Actava and its subsid-
iaries.
(viii) To Actava's knowledge, there is no basis
or reasonably anticipated basis for any material Environ-
mental Claim or material Environmental Compliance Costs (as
hereafter defined).
(ix) Neither Actava nor any of its subsid-
iaries have transported, stored, treated or disposed, nor
have they allowed or arranged for any third persons to
transport, store, treat or dispose, any Hazardous Substance
to or at: (a) any location other than a site lawfully
permitted to receive such substances for such purposes, or
(b) any location designated for Remedial Action pursuant to
Safety and Environmental Laws; nor have they performed,
arranged for or allowed by any method or procedure such
transportation or disposal in contravention of any Safety
and Environmental Laws or in any other manner which may
result in Environmental Compliance Costs or in an Environ-
mental Claim. All locations at which Actava or any of its
subsidiaries have disposed of any Hazardous Substance are
listed on Schedule 3.18(ix).
For purposes of this Agreement, the following
terms have the following meanings:
(i) "Environment" means navigable waters,
-----------
waters of the contiguous zone, ocean waters, natural
resources, surface waters, ground water, drinking water
supply, land surface, subsurface strata, ambient air, both
inside and outside of buildings and structures, man-made
buildings and structures, and plant and animal life on
earth.
(ii) "Environmental Claims" means any
--------------------
notification, whether direct or indirect, formal or
informal, written or oral, pursuant to Safety and Envi-
ronmental Laws or principles of common law relating to
pollution, protection of the Environment or health and
safety, that any of the current or past operations of any of
<PAGE>
24
the Merging Parties or any of their subsidiaries, or any by-
product thereof, or any of the property currently or
formerly owned, leased or operated by any of the Merging
Parties or any of their subsidiaries, or the operations or
property of any predecessor of any of the Merging Parties or
any of their subsidiaries is or may be implicated in or
subject to any proceeding, action, investigation, claim,
lawsuit, order, agreement or evaluation by any Governmental
Body or any other person.
(iii) "Environmental Compliance Costs" means
------------------------------
any expenditures, costs, assessments or expenses (including,
without limitation, any expenditures, costs, assessments or
expenses in connection with the conduct of any Remedial
Action, as well as reasonable fees, disbursements and
expenses of attorneys, experts, personnel and consultants),
whether direct or indirect, necessary to cause the opera-
tions, real property, assets, equipment or facilities owned,
leased, operated or used by any of the Merging Parties or by
any of their subsidiaries to be in compliance with any and
all requirements, as in effect as of the date hereof, of
Safety and Environmental Laws, principles of common law
concerning pollution, protection of the Environment or
health and safety, or Permits issued pursuant to Safety and
Environmental Laws; provided, however, that Environmental
-------- -------
Compliance Costs do not include expenditures, costs,
assessments or expenses necessary in connection with normal
maintenance of such real property, assets, equipment or
facilities or the replacement of equipment in the normal
course of events due to ordinary wear and tear.
(iv) "Governmental Body" means any government
-----------------
or political subdivision thereof, whether federal, state,
local or foreign, or any agency or instrumentality of any
such government or political subdivision, or any court or
arbitrator.
(v) "Hazardous Substance" means any toxic
-------------------
waste, pollutant, hazardous substance, toxic substance,
hazardous waste, special waste, industrial substance or
waste, petroleum or petroleum-derived substance or waste,
radioactive substance or waste, or any constituent of any
such substance or waste, or any other substance regulated
under or defined by any Safety and Environmental Law.
(vi) "Permits" means all licenses, permits,
-------
orders or approvals of, and all required registrations with,
any Governmental Body that are material to the conduct of
the business of any of the Merging Parties or any of their
subsidiaries.
<PAGE>
25
(vii) "Release" means any release, spill,
-------
emission, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, leaching or migration into or through
the indoor or outdoor Environment or into, through or out of
any property, including the movement of Hazardous Substances
through or in the air, soil, surface water, ground water or
property.
(viii) "Remedial Action" means all actions,
---------------
whether voluntary or involuntary, reasonably necessary to
comply with Safety and Environmental Laws to (A) clean up,
remove, treat, cover or in any other way adjust Hazardous
Substances in the indoor or outdoor Environment; (B) prevent
or control the Release of Hazardous Substances so that they
do not migrate or endanger or threaten to endanger public
health or welfare or the Environment; or (C) perform
remedial studies, investigations, restoration and post-
remedial studies, investigations and monitoring on, about or
in any real property.
(ix) "Safety and Environmental Laws" means
-----------------------------
all federal, state and local laws and orders relating to
pollution, protection of the Environment, public or worker
health and safety, or the emission, discharge, release or
threatened release of pollutants, contaminants or
industrial, toxic or hazardous substances or wastes into the
Environment or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or
industrial, toxic or hazardous substances or wastes,
including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, 42
U.S.C. Sec. 9601 et seq., the Resource Conservation and
-- ----
Recovery Act, 42 U.S.C. Sec. 6901 et seq., the Toxic Substances
-- ----
Control Act, 15 U.S.C. Sec. 2601 et seq., the Federal Water
-- ----
Pollution Control Act, 33 U.S.C. Sec. 1251 et seq., the Clean
-- ----
Air Act, 42 U.S.C. Sec. 7401 et seq., the Federal Insecticide,
-- ----
Fungicide and Rodenticide Act, 7 U.S.C. Sec. 121 et seq., the
-- ----
Occupational Safety and Health Act, 29 U.S.C. Sec. 651 et seq.,
-- ----
the Asbestos Hazard Emergency Response Act, 15 U.S.C. Sec. 2601
et seq., the Safe Drinking Water Act, 42 U.S.C. Sec. 300f
-- ----
et seq., the Oil Pollution Act of 1990 and analogous state
-- ----
acts.
3.19 Intellectual Property. Schedule 3.19 sets
---------------------
forth a list of all of Actava's and its subsidiaries'
registered patents, registered trademarks, registered
service marks, registered trade names, registered copyrights
and franchises, all applications for any of the foregoing
and all permits, grants and licenses or other rights running
to or from Actava and any of its subsidiaries relating to
<PAGE>
26
any of the foregoing that are material to the business of
Actava and its subsidiaries taken as a whole. Except as set
forth on Schedule 3.19, to Actava's knowledge (i) Actava or
one of its subsidiaries own, or are licensed to, or other-
wise have, the right to use all registered patents,
registered trademarks, registered service marks, registered
trade names, registered copyrights and franchises set forth
on Schedule 3.19, and (ii) Actava's rights in the property
set forth on such list are free and clear of any liens or
other encumbrances and Actava and its subsidiaries have not
received written notice of any adversely-held patent,
invention, trademark, service mark or trade name of any
other person, or notice of any charge or claim of any person
relating to such intellectual property or any process or
confidential information of Actava and its subsidiaries and
to Actava's knowledge there is no basis for any such charge
or claim, and (iii) Actava, its subsidiaries and their
respective predecessors, if any, have not conducted business
at any time during the period beginning five years prior to
the date hereof under any corporate or partnership, trade or
fictitious names other than their current corporate or
partnership names, except in the case of clauses (i), (ii)
and (iii) above, any of the foregoing which do not and will
not have an Actava Material Adverse Effect.
3.20 Real Estate.
-----------
(a) Schedule 3.20(a) sets forth a true,
correct and complete schedule of all real property owned by
Actava or any of its subsidiaries. Actava or one of its
subsidiaries is the owner of fee title to the real property
described on Schedule 3.20(a) and to all of the buildings,
structures and other improvements located thereon free and
clear of any mortgage, deed of trust, lien, pledge, security
interest, claim, lease, charge, option, right of first
refusal, easement, restrictive covenant, encroachment or
other survey defect, encumbrance or other restriction or
limitation except for the matters listed on Schedule 3.20(a)
and any exceptions or restrictions which, individually or in
the aggregate, do not and will not have an Actava Material
Adverse Effect.
(b) Schedule 3.20(b) sets forth a true,
correct and complete schedule of all material leases,
subleases, licenses or other agreements under which Actava
or any of its subsidiaries uses or occupies, or has the
right to use or occupy, now or in the future, any real
property or improvements thereon (the "Actava Real Property
Leases"). Except for the matters listed on Sche-
dule 3.20(b), to Actava's knowledge, Actava holds the
leasehold estate under and interest in each Actava Real
<PAGE>
27
Property Lease free and clear of all material liens,
encumbrances and other rights of occupancy. Except as set
forth on Schedule 3.20(b), all Actava Real Property Leases
are valid and binding on the lessors thereunder in
accordance with their respective terms and to Actava's
knowledge, there is not under any such Actava Real Property
Leases any existing default, or any condition, event or act
which with notice or lapse of time or both would constitute
such a default, which in either case, considered
individually or in the aggregate with all such other Actava
Real Property Leases under which there is such a default,
condition, event or act, has or will have an Actava Material
Adverse Effect.
3.21 Records. The respective minute books of
-------
Actava and each of its subsidiaries made available to each
of Orion, Sterling and MITI contain materially accurate and
complete records of all material corporate actions of the
respective stockholders and directors (and committees
thereof).
3.22 Title to and Condition of Personal Property.
-------------------------------------------
Except as set forth on Schedule 3.22, Actava and each of its
subsidiaries have good and marketable title to the material
personal property reflected in its or their financial
statements or currently used in the operation of their
businesses (other than leased property), and such property
is free and clear of all liens, claims, charges, security
interests, options, or other title defects or encumbrances,
except for those which would not have an Actava Material
Adverse Effect. All such personal property is in good
operating condition and repair, ordinary wear and tear
excepted, is suitable for the use to which the same is
customarily put, is free from defects and is merchantable
and is of a quality and quantity presently usable in the
ordinary course of the operation of the business of Actava
and its subsidiaries, other than such matters as would not
have an Actava Material Adverse Effect.
3.23 No Adverse Actions. There is no existing,
------------------
pending or, to Actava's knowledge, threatened termination,
cancellation, modification or change in the business
relationship of Actava or any of its subsidiaries, with any
supplier, customer or other person or entity except those
which do not and will not have an Actava Material Adverse
Effect. To Actava's knowledge, none of Actava, any subsid-
iary of Actava or any stockholder, director, officer, agent,
employee or other person associated with or acting on behalf
of any of the foregoing has used any corporate funds for
unlawful contributions, payments, gifts, entertainment or
other unlawful expenses relating to political activity, or
<PAGE>
28
made any direct or indirect unlawful payments to
governmental or regulatory officials.
3.24 Labor Matters.
-------------
(a) Except as set forth on Schedule 3.24(a),
neither Actava nor any of its subsidiaries has any material
obligations, contingent or otherwise, under any employment
or consulting agreement (except if and as set forth in the
schedules hereto), collective bargaining agreement or other
contract with a labor union or other labor or employee
group. There are no efforts presently being made or, to
Actava's knowledge, threatened by or on behalf of any labor
union with respect to employees of Actava or any subsidiary
of Actava. No unfair labor practice complaint against
Actava or any subsidiary of Actava is pending or, to
Actava's knowledge, threatened before the National Labor
Relations Board; there is no labor strike, dispute, slowdown
or stoppage pending or, to Actava's knowledge, threatened
against or involving Actava or any subsidiary of Actava; no
collective bargaining representation question exists
respecting the employees of Actava or any subsidiary of
Actava; no grievance or internal or informal complaint
exists under any collective bargaining agreement, no
arbitration proceeding arising out of or under any
collective bargaining agreement is pending and no claim
therefor has been asserted; no collective bargaining agree-
ment is currently being negotiated by Actava or any subsid-
iary of Actava; and neither Actava nor any subsidiary of
Actava has experienced any labor difficulty, except as to
each of the foregoing, any matter which would not have an
Actava Material Adverse Effect.
(b) Except as set forth on Schedule 3.24(b),
in the last three years, neither Actava nor any of its
subsidiaries has effectuated, nor will Actava or any of its
subsidiaries at any time before the Effective Time,
effectuate (i) a "plant closing" (as defined in the Worker
Adjustment and Retraining Notification Act (and applicable
similar state law (the "WARN ACT")) affecting any site of
employment or one or more facilities or operating units
within any site of employment or facility of Actava or its
subsidiaries; or (ii) a "mass layoff" (as defined in the
WARN Act) affecting any site of employment or facility of
Actava or its subsidiaries; nor has Actava or its
subsidiaries been affected by any transaction or engaged in
layoffs or employment terminations sufficient in number to
trigger application of any similar state or local law.
(c) Except as set forth on Schedule 3.24(c),
Actava and all of its subsidiaries are in compliance with
<PAGE>
29
all federal and state laws respecting immigration,
employment and employment practices, fair labor practices,
family and medical leave, terms and conditions of employment
(including nondiscrimination in race, age, sex, religion,
disability, etc.), and wages and hours except to the extent
failure to comply would not have an Actava Material Adverse
Effect.
3.25 Investment Company Act. Actava and each of
----------------------
its subsidiaries either (a) is not an "investment company,"
or a company "controlled" by, or an "affiliated company"
with respect to, an "investment company," within the meaning
of the Investment Company Act of 1940, as amended (the
"Investment Company Act") or (b) satisfies all conditions
for an exemption from the Investment Company Act, and,
accordingly, neither Actava nor any of its subsidiaries is
required to be registered under the Investment Company Act.
3.26 Insurance. Except as set forth on Schedule
---------
3.26, neither Actava nor any subsidiary of Actava has
received notice of default under, or intended cancellation
or nonrenewal of, any material policies of insurance which
insure the properties, business or liability of Actava or
any subsidiary of Actava, except any of the foregoing which
do not and will not have an Actava Material Adverse Effect.
3.27 Products.
--------
(a) Except (i) as set forth on Sched-
ule 3.27(a) and (ii) as does not and will not have an Actava
Material Adverse Effect, there are no product liability
claims against or involving Actava or any of its subsidi-
aries or any product manufactured, marketed or distributed
at any time by Actava or any of its subsidiaries ("Actava
Products") and no such claims have been settled, adjudicated
or otherwise disposed of since December 31, 1994.
(b) Except (i) as set forth on Sched-
ule 3.27(b) and (ii) as does not and will not have an Actava
Material Adverse Effect, there are no statements, citations
or decisions by any Governmental Body specifically stating
that any Actava Product is defective or unsafe or fails to
meet any standards promulgated by any such Governmental
Body. Except (i) as set forth on Schedule 3.27(b) and
(ii) as does not and will not have an Actava Material
Adverse Effect, there have been no recalls ordered by any
such Governmental Body with respect to any Actava Product.
Except (i) as set forth on Schedule 3.27(b) and (ii) as does
not and will not have an Actava Material Adverse Effect, to
Actava's knowledge, there is no (A) fact relating to any
Actava Product that may impose upon Actava or any of its
<PAGE>
30
subsidiaries a duty to recall any Actava Product or a duty
to warn customers of a defect in any Actava Product,
(B) latent or overt design, manufacturing or other defect in
any Actava Product or (C) material liability for warranty
claims or returns with respect to any Actava Product not
fully reflected on Actava's financial statements referred to
in Section 3.9 hereof.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF ORION
Orion represents and warrants to each of Actava,
Sterling and MITI as follows:
4.1 Organization and Good Standing. Orion and
------------------------------
each of its material subsidiaries is a corporation duly
organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now
being conducted. Orion and each of its material
subsidiaries is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the
character of the property owned, leased or operated by it or
the nature of the business conducted by it makes such
qualification or licensing necessary, except where the
failure to be so duly qualified or licensed and in good
standing would not have an Orion Material Adverse Effect (as
defined in Section 15.9). Orion has heretofore delivered or
made available to each of Actava, Sterling and MITI accurate
and complete copies of the Certificates of Incorporation and
By-laws, or equivalent governing instruments, as currently
in effect, of Orion and each of its subsidiaries.
4.2 Capitalization. The authorized capital stock
--------------
of Orion consists of 100,000,000 shares of Orion Common
Stock and 10,000,000 shares of Preferred Stock, par value
$1.00 per share ("Orion Preferred Stock"). As of March 31,
1995, 20,000,000 shares of Orion Common Stock and no shares
of Orion Preferred Stock were issued and outstanding. No
other capital stock of Orion is authorized or issued. All
issued and outstanding shares of capital stock of Orion are
validly issued, fully paid and non-assessable and were
issued free of preemptive rights and in compliance with
applicable federal and state securities laws and
regulations. Except as set forth on Schedule 4.2(a), at the
date hereof there are not any outstanding rights,
subscriptions, warrants, calls, unsatisfied preemptive
<PAGE>
31
rights, options or other agreements of any kind to purchase
or otherwise receive from Orion any of the outstanding,
authorized but unissued, unauthorized or treasury shares of
the capital stock or any other security of Orion, and there
is no authorized or outstanding security of any kind
convertible into or exchangeable for any such capital stock.
Since March 31, 1995, Orion has not (i) issued any shares of
capital stock or (ii) repurchased any shares of Orion Common
Stock.
4.3 Subsidiaries. Exhibit 21 to Orion's filing
------------
on Form 10-K for the year ended February 28, 1994, sets
forth the name, jurisdiction of incorporation or organiza-
tion and percentages of outstanding capital stock or other
equivalent equity ownership owned, directly or indirectly,
by Orion, with respect to each subsidiary of Orion. Except
as set forth on Schedule 4.3, Orion and its subsidiaries own
no material direct or indirect equity interest in any cor-
poration (other than direct or indirect subsidiaries of
Orion), partnership, joint venture or other entity, domestic
or foreign. All of the outstanding shares of capital stock
in each of Orion's subsidiaries have been duly authorized
and validly issued and are fully paid and non-assessable.
To Orion's knowledge, there are no irrevocable proxies or
similar obligations with respect to such capital stock and
no equity securities or other interests of any of the
subsidiaries are or may become required to be issued by
reason of any options, warrants, rights to subscribe to,
calls or commitments of any character whatsoever relating
to, or securities or rights convertible into or exchangeable
for, shares of any capital stock of any subsidiary, and
there are no contracts, commitments, understandings or
arrangements by which any subsidiary is bound to issue addi-
tional shares of its capital stock, or options, warrants or
rights to purchase or acquire any additional shares of its
capital stock or securities convertible into or exchangeable
for such shares. All of such shares so owned by Orion are
owned by it free and clear of any claim, lien, encumbrance,
security interest or agreement with respect thereto.
4.4 Authorization; Binding Agreement. Orion has
--------------------------------
requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions
contemplated hereby, subject to the approval and adoption of
this Agreement by the Board of Directors and stockholders of
Orion. This Agreement has been duly and validly executed
and delivered by Orion, and, subject to the approval and
adoption of this Agreement by the Board of Directors and
stockholders of Orion, constitutes the legal, valid and
binding agreement of Orion, enforceable against Orion in
accordance with its terms, except to the extent that
<PAGE>
32
enforceability thereof may be limited by applicable future
bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and
by principles of equity regarding the availability of
remedies.
4.5 Governmental Approvals. No consent, approval
----------------------
or authorization of or declaration or filing with any
governmental agency or regulatory authority on the part of
Orion or any of its subsidiaries is required in connection
with the execution or delivery by Orion of this Agreement or
the consummation by Orion of the transactions contemplated
hereby other than (i) the filing of this Agreement (or the
Certificate of Merger in lieu thereof) with the Secretary of
State of Delaware in accordance with the DGCL, (ii) filings
with the SEC and any applicable national securities
exchange, (iii) filings under state securities or "Blue Sky"
laws, (iv) federal, state and local regulatory approvals and
consents and (v) filings under the HSR Act.
4.6 No Violations. The execution and delivery of
-------------
this Agreement, the consummation of the transactions
contemplated hereby and compliance by Orion with any of the
provisions hereof will not (i) conflict with or result in
any breach of any provision of the Articles or Certificates
of Incorporation or By-laws or other governing instruments
of Orion or any of its subsidiaries, (ii) except as set
forth on Schedule 4.6 and except for any of the following
which does not and will not have an Orion Material Adverse
Effect, require any consent, approval or notice under or
result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or
acceleration or augment the performance required) under any
of the terms, conditions or provisions of the Plan (as
defined in Section 4.17) or any note, bond, mortgage,
indenture, lease, license, agreement or other instrument or
obligation to which Orion or any of its subsidiaries is a
party or by which any of them or any of their properties or
assets may be bound, (iii) result in the creation or
imposition of any lien, charge or other encumbrance of any
kind upon any of the assets of Orion or any of its
subsidiaries other than any such lien, charge or other
encumbrance which does not or will not have an Orion
Material Adverse Effect or (iv) subject to obtaining the
governmental and other consents referred to in Section 4.5,
contravene any material law, rule or regulation of any state
or of the United States or any political subdivision thereof
or therein, or any material order, writ, injunction,
determination or award currently in effect to which Orion or
<PAGE>
33
any of its subsidiaries or any of their respective assets or
properties are subject.
4.7 Proxy Statement; Form S-4. None of the
-------------------------
information relating to Orion and its subsidiaries included
in the Proxy Statement or Form S-4 will be false or
misleading with respect to any material fact, or omit to
state any material fact required to be stated therein or
necessary in order to make the statements therein, in light
of the circumstances under which they were made, not
misleading. Except for information supplied or to be
supplied by Actava, Sterling or MITI in writing for
inclusion therein, as to which no representation is made,
the Proxy Statement and Form S-4, and any supplements or
amendments thereto, will comply in all material respects
with the Exchange Act and the Securities Act, as the case
may be, and in each case the rules and regulations
thereunder.
4.8 SEC Filings. Orion has made available to
-----------
each of Actava, Sterling and MITI true and complete copies
of (i) its Annual Reports on Form 10-K, as amended, for the
years ended February 29, 1992, and February 28, 1993 and
1994, as filed with the SEC, (ii) its proxy statements
relating to all of Orion's meetings of stockholders (whether
annual or special) since March 1, 1992, as filed with the
SEC, and (iii) all other reports, statements and
registration statements (including Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K, as amended) filed
by Orion with the SEC since March 1, 1992 (the reports and
statements set forth in clauses (i), (ii) and (iii) are
referred to collectively as the "Orion SEC Filings"). As of
their respective dates, none of the Orion SEC Filings
(including all exhibits and schedules thereto and documents
incorporated by reference therein), contained any untrue
statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under
which they were made, not misleading. Each of the Orion SEC
Filings at the time of filing complied in all material
respects with the Exchange Act or the Securities Act, as the
case may be, and the rules and regulations thereunder. As
of the date hereof there are no claims, actions or
proceedings (and to Orion's knowledge no investigations)
pending by or against, or to Orion's knowledge threatened
against Orion or any of its subsidiaries, or any properties
or rights of Orion or any of its subsidiaries, before any
court or any administrative, governmental or regulatory
authority or body which is required to be described in any
Orion SEC Filing that is not so described which have or will
have an Orion Material Adverse Effect.
<PAGE>
34
4.9 Financial Statements. The consolidated
--------------------
balance sheets of Orion as of February 29, 1992 and
February 28, 1993 and 1994 and the related consolidated
statements of operations, stockholders' equity and cash
flows for the years then ended, including the footnotes
thereto, certified by Ernst & Young LLP as to 1992 and KPMG
Peat Marwick LLP as to 1993 and 1994, Orion's independent
certified public accountants, as set forth in Orion's Annual
Reports on Form 10-K, as amended, for the years ended
February 29, 1992 and February 28, 1993 and 1994 and the
unaudited consolidated balance sheet of Orion for the nine
months ended November 30, 1994, and the related consolidated
statements of operations, stockholders' equity and cash
flows, including the footnotes thereto, as set forth in
Orion's Quarterly Report on Form 10-Q for the period ended
November 30, 1994, have been prepared in accordance with
generally accepted accounting principles applied on a
consistent basis during the periods involved and fairly
present the financial position of Orion and its consolidated
subsidiaries as of the dates thereof and the results of
their operations for the periods then ended (subject, in the
case of any unaudited interim financial statements, to
normal year-end audit adjustments and to the lack of
complete footnotes).
4.10 Absence of Certain Changes or Events.
------------------------------------
Except as set forth in the Orion SEC Filings, since November
30, 1994, there has not been: (i) any material adverse
change in the business, assets, prospects, condition
(financial or other) or the results of operations of Orion
and its subsidiaries taken as a whole other than any such
change set forth on Schedule 4.10(i) or caused by general
economic conditions, political or governmental instability
or uncertainty, civil disturbances or unrest, war or other
similar acts of force majeure; (ii) any declaration, payment
or setting aside for payment of any dividend or any
redemption, purchase or other acquisition of any shares of
capital stock or securities of Orion; (iii) any return of
any capital or other distribution of assets to stockholders
of Orion; (iv) any material investment of a capital nature
by Orion or any of its subsidiaries either by the purchase
of any property or assets or by any acquisition (by merger,
consolidation or acquisition of stock or assets) of any
corporation, partnership or other business organization or
division thereof; (v) except as set forth on
Schedule 4.10(v), any sale, disposition, license or other
transfer of assets or properties of Orion and its
subsidiaries (A) in excess of $100,000 individually or
$1,000,000 in the aggregate for sales, dispositions or
transfers of assets other than licensing of film and
television product and (B) pursuant to a license for film
<PAGE>
35
and television product other than such a license (I) entered
into in the ordinary course of business, (II) with a
duration not in excess of seven years and (III) providing
for payments not in excess of $500,000 in the aggregate;
(vi) except as set forth on Schedule 4.10(vi), any
employment or consulting agreement entered into by Orion and
its subsidiaries with any officer or consultant of Orion and
its subsidiaries providing for annual salary or other annual
payments in excess of $100,000 or any amendment or
modification to, or termination of, any current employment
or consulting agreement to which Orion or any of its
subsidiaries is a party which provides for annual salary or
other annual payments in excess of $100,000; (vii) any
agreement to take, whether in writing or otherwise, any
action which, if taken prior to the date hereof, would have
made any representation or warranty in this Article 4
untrue, incomplete or incorrect in any material respect;
(viii) any change in accounting methods or practices or any
change in depreciation or amortization policies or rates; or
(ix) any failure by Orion or its subsidiaries to conduct
their respective businesses only in the ordinary course
consistent with past practice.
4.11 Compliance with Laws. The business of Orion
--------------------
and its subsidiaries has been operated in compliance with
all laws, ordinances, regulations and orders of all govern-
mental entities, domestic or foreign, except for any
instances of non-compliance which do not and will not have
an Orion Material Adverse Effect.
4.12 Permits. Except as set forth on Sched-
-------
ule 4.12, (i) Orion and its subsidiaries have all permits,
certificates, licenses, approvals and other authorizations
(collectively, "Orion Permits") required in connection with
the operation of their businesses, (ii) neither Orion nor
any of its subsidiaries are in violation of any Orion Permit
applicable to any of them or to the operation of their
businesses, and (iii) no proceedings are pending or, to
Orion's knowledge threatened, to revoke or terminate any
Orion Permit, except, in the case of clause (i) or (ii)
above, those the absence or violation of which do not and
will not have an Orion Material Adverse Effect.
4.13 Finders and Investment Bankers. Neither
------------------------------
Orion nor any of its officers or directors has employed any
broker or finder or incurred any liability for any brokerage
fees, commissions or finders' fees in connection with the
transactions contemplated hereby except a fee payable to
Alex. Brown & Sons Incorporated ("Alex. Brown") pursuant to
that certain engagement letter dated as of March 16, 1995
<PAGE>
36
between Alex. Brown and Orion and a fee payable to
Donaldson, Lufkin & Jenrette Securities Corporation.
4.14 Contracts. There is no Contract required to
---------
be described in or filed as an exhibit to any Orion SEC
Filing that is not described in or filed as required by the
Securities Act or the Exchange Act, as the case may be. All
such Contracts are valid and binding and are in full force
and effect and enforceable in accordance with their
respective terms other than such Contracts which by their
terms are no longer in force or effect or were otherwise
rejected by Orion in connection with Orion's filing under
and emergence from Chapter 11 of the United States
Bankruptcy Code. Except as set forth in Schedule 4.6 or
4.14, (i) no approval or consent of, or notice to, any
person is needed in order to ensure that such Contracts
shall continue in full force and effect in accordance with
their respective terms without penalty, acceleration or
rights of early termination following the consummation of
the transactions contemplated by this Agreement, and
(ii) Orion or its subsidiaries is not in violation or breach
of or default under any such Contract; nor to Orion's
knowledge is any other party to any such Contract in
violation or breach of or default under any such Contract,
except in the case of clauses (i) and (ii) above, any of the
foregoing which do not and will not have an Orion Material
Adverse Effect.
4.15 Employee Benefit Plans.
----------------------
(i) Except as set forth on Schedule 4.15(i),
there are no employee benefit plans or arrangements of any
type, including (i) plans described in section 3(3) of ERISA
and any other material plans, programs, practices or
policies, including, but not limited to, any pension, profit
sharing, retirement, thrift, stock purchase or stock option
plan, or any other compensation, welfare, fringe benefit or
retirement plan, program, policy, understanding or
arrangement of any kind whatsoever, whether formal or
informal, providing for benefits for or the welfare of any
or all of the current or former employees or agents of Orion
and their beneficiaries or dependents, or (ii) multiemployer
plans as defined in section 3(37) of ERISA, or
(iii) multiple employer plans as defined in Section 413 of
the Code, under which Orion has or in the future could have,
directly or indirectly through a "Commonly Controlled
Entity" (within the meaning of sections 414(b), (c), (m) and
(o) of the Code), any liability with respect to any current
or former employee of Orion or any Commonly Controlled
Entity (collectively, "Orion Benefit Plans").
<PAGE>
37
(ii) With respect to each Orion Benefit Plan
(where applicable), Orion has delivered to each of Actava,
Sterling and MITI complete and accurate copies or summaries
of (a) all plan texts and material agreements, (b) all
material employee communications, (c) the most recent annual
report, (d) the most recent annual and periodic accounting
of plan assets, (e) the most recent determination letter
received from the Internal Revenue Service and (f) the most
recent actuarial valuation.
(iii) With respect to each Orion Benefit Plan,
except as set forth on Schedule 4.15(iii), (a) if intended
to qualify under Code sections 401(a) or 403(a), (i) such
Orion Benefit Plan has received a favorable determination
letter from the Internal Revenue Service (the "Service")
indicating that such Plan meets such requirements, and such
determination by the Service includes any new or modified
requirements under the Tax Reform Act of 1986 and subsequent
legislation enacted thereafter through and including the
Omnibus Budget Reconciliation Act of 1993, or (ii) an
application for a favorable determination letter including
such legislation was filed with the Service prior to the
expiration of the remedial amendment period (as defined in
Code section 401(b) and regulations thereunder, and as
extended pursuant to notices and revenue rulings of the
Service) for filing such an application and such Plan has
been substantially amended to comply with the Tax Reform Act
of 1986 and subsequent legislation enacted through and
including the Omnibus Budget Reconciliation Act of 1993, or
(iii) the remedial amendment period (as defined in
(ii) above) with respect to such Plan has not yet expired,
and an application for a favorable determination letter
including such legislation will be timely filed with the
Service prior to the expiration of such period and the Plan
will be amended to comply with the Tax Reform Act of 1986
and subsequent legislation enacted thereafter through and
including the Omnibus Budget Reconciliation Act of 1993
prior to the expiration of such period, (b) if intended to
qualify under Code sections 401(a) or 403(a) and if
originally effective prior to January 1, 1986, such Orion
Benefit Plan has previously received a favorable
determination letter from the Service indicating that such
Plan meets the requirements of Code sections 401(a) or
403(a) as in effect on the date of the letter, including
without limitation, TEFRA, DEFRA, and REACT, (c) such Orion
Benefit Plan has been administered in material compliance
with its terms and applicable law, (d) no event has occurred
and there exists no circumstance under which Orion could,
directly or indirectly through a Commonly Controlled Entity,
incur material liability under ERISA, the Code or otherwise
(other than routine claims for benefits), (e) there are no
<PAGE>
38
actions, suits or claims pending (other than routine claims
for benefits) or, to Orion's knowledge, threatened, with
respect to any Orion Benefit Plan or against the assets of
any Orion Benefit Plan, (f) no "accumulated funding
deficiency" (as defined in ERISA section 302) has occurred,
(g) no "prohibited transaction" (as defined in ERISA
section 406 or in Code section 4975) has occurred, (h) no
"reportable event" (as defined in ERISA section 4043) has
occurred, (i) all contributions and PBGC premiums or
premiums due under an insurance contract that insures
benefits payable under an Orion Benefit Plan, as applicable,
have been made on a timely basis and (j) all contributions
made or required to be made under any Orion Benefit Plan
which have been treated as deductible for purposes of one or
more federal income tax returns of Orion meet the
requirements for deductibility under the Code and all
contributions that have not been made have been properly
recorded on the books of Orion or a Commonly Controlled
Entity in accordance with generally accepted accounting
principles.
(iv) With respect to each Orion Benefit Plan
that is subject to Title IV of ERISA, except as set forth on
Schedule 4.15(iv), (a) as of the date hereof and at the
Effective Time, the market value of assets (exclusive of any
contribution due to such Orion Benefit Plan) equals or
exceeds the present value of benefit liabilities as of the
latest actuarial valuation date shown for such plan (but not
prior to 12 months prior to the date hereof), determined on
the basis of a shutdown of Orion and termination of such
Orion Benefit Plan in accordance with actuarial assumptions
used by the Pension Benefit Guaranty Corporation in single-
employer plan terminations and since its last valuation
date, there have been no amendments to such Orion Benefit
Plan that materially increased the present value of benefit
liabilities (determined as provided above) nor any other
material adverse changes in the funding status of such Orion
Benefit Plan, and (b) Orion has not incurred, directly or
indirectly through a Commonly Controlled Entity, any
liability arising from a plan termination or plan withdrawal
from a multiemployer plan.
(v) With respect to each Orion Benefit Plan
that is a "welfare plan" (as defined in ERISA section 3(1)),
except as set forth on Schedule 4.15(v), (a) no such plan
provides medical or death benefits (whether or not insured)
with respect to current or former employees beyond their
termination of employment or the end of the month of their
termination of employment (other than coverage mandated by
law), (b) there are no reserves, assets, surplus or prepaid
premiums under any such plan and (c) Orion and any Commonly
<PAGE>
39
Controlled Entity have materially complied with the
requirements of Code section 4980B.
(vi) With respect to each Orion Benefit Plan
that is a multiemployer plan, (a) Schedule 4.15(vi)
indicates the number of employees with respect to whom Orion
or any Commonly Controlled Entity makes contributions to
each such plan and the most recent information available to
Orion or any Commonly Controlled Entity with respect to the
withdrawal liability of Orion or such Commonly Controlled
Entity under each such plan, (b) each such plan is not, as
of the date hereof, insolvent or in reorganization, nor does
it have an accumulated funding deficiency, and Orion does
not know of any reason why such plan would become insolvent
or in reorganization or have an accumulated funding
deficiency in the foreseeable future, (c) Orion or any
Commonly Controlled Entity has made all contributions to
each such plan due or accrued as of the date hereof and will
have made all such contributions as of the Effective Time
and (d) the withdrawal liability with respect to each such
Plan if any Commonly Controlled Entity were to withdraw from
the plan at the Effective Time is less than or equal to $0.
(vii) Except as set forth on Schedule 4.15-
(vii), the consummation of the transactions contemplated by
this Agreement will not (a) entitle any individual to
severance pay, or (b) accelerate the time of payment,
vesting of benefits (including stock options and restricted
stock) or increase the amount of compensation due to any
individual.
4.16 Taxes.
-----
(a) Except as set forth on Schedule 4.16,
(i) Orion and each of its subsidiaries timely has filed
(after giving effect to any extensions of the time to file
which were obtained) prior to the date of this Agreement,
and will file prior to the Effective Time, all returns
required to be filed prior to the date of this Agreement
and/or required to be filed prior to the Effective Time by
any of them with respect to, and has paid (or Orion has paid
on its behalf), or has or will set up an adequate reserve
for the payment of, all Taxes required to be paid prior to
the date of the Agreement or the Effective Time, as the case
may be, and the most recent financial statements contained
in the SEC Filings reflect an adequate reserve for all Taxes
payable by Orion and its subsidiaries accrued through the
date of such financial statements and (ii) no deficiencies
for any Taxes have been proposed, asserted or assessed
against Orion or any of its subsidiaries other than those
which are being contested in good faith and by proper
<PAGE>
40
proceedings by Orion, except in the case of clauses (i) and
(ii) above, any of the foregoing which do not and will not
have an Orion Material Adverse Effect.
(b) The Federal income tax returns of Orion
and each of its subsidiaries consolidated in such returns
have been examined by and settled with the IRS, or the
statute of limitations with respect to such years has
expired, for all years through 1991.
(c) Except as set forth on Schedule 4.16,
none of Orion, any subsidiary of Orion or, to Orion's
knowledge, any group of which Orion or any subsidiary of
Orion is now or ever was a member has filed or entered into
any election, consent or extension agreement that extends
any applicable statute of limitations or the time within
which a return must be filed, which statute of limitations
has not expired or return has not been timely filed.
(d) Except as set forth on Schedule 4.16,
(i) none of Orion, any subsidiary of Orion or, to Orion's
knowledge, any group of which Orion or any subsidiary of
Orion is now or ever was a member, is a party to any action
or proceeding pending or, to Orion's knowledge, threatened
by any governmental authority for assessment or collection
of Taxes, (ii) no unresolved claim for assessment or
collection of Taxes has to Orion's knowledge been asserted,
(iii) no audit or investigation of Orion or any subsidiary
of Orion by any governmental authority is pending or, to
Orion's knowledge, threatened and (iv) no such matters are
under discussion with any governmental authority which in
the case of clauses (i-iv), could have an Orion Material
Adverse Effect.
4.17 Liabilities. Except (i) as expressly dis-
-----------
closed in the Orion SEC Filings or (ii) as set forth on
Schedule 4.17, and in the case of (i) and (ii) above, as
does not and will not have an Orion Material Adverse Effect,
Orion and its subsidiaries do not have any direct or
indirect Liabilities, whether or not of a kind required by
generally accepted accounting principles to be set forth in
a financial statement, other than Liabilities incurred since
November 30, 1994 in the ordinary course of business.
Except as set forth on Schedule 4.17 or reflected in the
Orion SEC Filings, Orion and its subsidiaries do not have
(i) material obligations in respect of borrowed money,
(ii) material obligations evidenced by bonds, debentures,
notes or other similar instruments, (iii) material
obligations which would be required by generally accepted
accounting principles to be classified as "capital leases",
(iv) material obligations to pay the deferred purchase price
<PAGE>
41
of property or services, except trade accounts payable
arising in the ordinary course of business and payable not
more than twelve (12) months from the date of incurrence,
and (v) any guaranties of any material obligations of any
other person. Schedule 4.17 sets forth a list, dated as of
the date hereof, of all unresolved "Claims" in excess of
$100,000 as defined in and arising out of Orion's Modified
Third Amended Joint Consolidated Plan of Reorganization
dated October 20, 1992, as amended (the "Plan") specifying
in reasonable detail the name of such claimant and the
amount and classification of each such Claim.
4.18 Environmental Protection. Except as dis-
------------------------
closed on Schedule 4.18:
(i) Neither Orion nor any of its subsid-
iaries is or has been in violation in any material respect
of any applicable Safety and Environmental Law.
(ii) Orion and its subsidiaries have all
Permits required pursuant to Safety and Environmental Laws
that are material to the conduct of the business of Orion or
any of its subsidiaries, all such Permits are in full force
and effect, no action or proceeding to revoke, limit or
modify any of such Permits is pending, and Orion and each of
its subsidiaries is in compliance in all material respects
with all terms and conditions thereof.
(iii) Neither Orion nor any of its subsid-
iaries has received, or expects to receive due to the
consummation of the Orion Merger, any material Environmental
Claim.
(iv) To Orion's knowledge, Orion and its
subsidiaries have filed all notices required under Safety
and Environmental Laws indicating the past or present
Release, generation, treatment, storage or disposal of
Hazardous Substances.
(v) Neither Orion nor any of its subsid-
iaries have entered into any written agreement with any
Governmental Body or any other person by which Orion or any
of its subsidiaries has assumed responsibility, either
directly or as a guarantor or surety, for the remediation of
any condition arising from or relating to a Release or
threatened Release of Hazardous Substances into the
Environment.
(vi) To Orion's knowledge, there is not now
and has not been at any time in the past a Release or
threatened Release of Hazardous Substances into the
<PAGE>
42
Environment for which Orion or any of its subsidiaries may
be directly or indirectly responsible.
(vii) To Orion's knowledge, there is not now
and has not been at any time in the past at, on or in any of
the real properties owned, leased or operated by Orion or
any of its subsidiaries, and, to Orion's knowledge, was not
at, on or in any real property previously owned, leased or
operated by Orion or any of its subsidiaries or any
predecessor: (A) any generation, use, handling, Release,
treatment, recycling, storage or disposal of any Hazardous
Substances, (B) any underground storage tank, surface
impoundment, lagoon or other containment facility (past or
present) for the temporary or permanent storage, treatment
or disposal of Hazardous Substances, (C) any landfill or
solid waste disposal area, (D) any asbestos-containing
material in a condition requiring abatement, (E) any
polychlorinated biphenyls (PCBs) used in hydraulic oils,
electrical transformers or other equipment, (F) any Release
or threatened Release, or any visible signs of Releases or
threatened Releases, of a Hazardous Substance to the Envi-
ronment in form or quantity requiring Remedial Action under
Safety and Environmental Laws, or (G) any Hazardous Sub-
stances present at such property, excepting such quantities
as are handled in accordance with all applicable manufac-
turer's instructions and Safety and Environmental Laws and
in proper storage containers, and as are necessary for the
operations of Orion and its subsidiaries.
(viii) To Orion's knowledge, there is no basis
or reasonably anticipated basis for any material Environ-
mental Claim or material Environmental Compliance Costs.
(ix) Neither Orion nor any of its subsid-
iaries have transported, stored, treated or disposed, nor
have they allowed or arranged for any third persons to
transport, store, treat or dispose, any Hazardous Substance
to or at: (a) any location other than a site lawfully
permitted to receive such substances for such purposes, or
(b) any location designated for Remedial Action pursuant to
Safety and Environmental Laws; nor have they performed,
arranged for or allowed by any method or procedure such
transportation or disposal in contravention of any Safety
and Environmental Laws or in any other manner which may
result in Environmental Compliance Costs or in an Environ-
mental Claim. All locations at which Orion or any of its
subsidiaries have disposed of any Hazardous Substance are
listed on Schedule 4.18(ix).
4.19 Intellectual Property. Schedule 4.19 sets
---------------------
forth a list of all of Orion's and its subsidiaries'
<PAGE>
43
registered patents, registered trademarks, registered
service marks, registered trade names, registered copyrights
and franchises, all applications for any of the foregoing
and all permits, grants and licenses or other rights running
to Orion and any of its subsidiaries relating to any of the
foregoing that are material to the business of Orion and its
subsidiaries taken as a whole. Except as set forth on
Schedule 4.19, to Orion's knowledge (i) Orion or one of its
subsidiaries own, or are licensed to, or otherwise have, the
right to use all registered patents, registered trademarks,
registered service marks, registered trade names, registered
copyrights and franchises set forth on Schedule 4.19, and
(ii) Orion's rights in the property set forth on such list
are free and clear of any liens or other encumbrances and
Orion and its subsidiaries have not received written notice
of any adversely-held patent, invention, trademark, service
mark or trade name of any other person, or notice of any
charge or claim of any person relating to such intellectual
property or any process or confidential information of Orion
and its subsidiaries and to Orion's knowledge there is no
basis for any such charge or claim, and (iii) Orion, its
subsidiaries and their respective predecessors, if any, have
not conducted business at any time during the period
beginning five years prior to the date hereof under any
corporate or partnership, trade or fictitious names other
than their current corporate or partnership names, except in
the case of clauses (i), (ii) and (iii) above, any of the
foregoing which do not and will not have an Orion Material
Adverse Effect.
4.20 Real Estate.
-----------
(a) Schedule 4.20(a) sets forth a true,
correct and complete schedule of all real property owned by
Orion or any of its subsidiaries. Orion or one of its
subsidiaries is the owner of fee title to the real property
described on Schedule 4.20(a) and to all of the buildings,
structures and other improvements located thereon free and
clear of any mortgage, deed of trust, lien, pledge, security
interest, claim, lease, charge, option, right of first
refusal, easement, restrictive covenant, encroachment or
other survey defect, encumbrance or other restriction or
limitation except for the matters listed on Schedule 4.20(a)
and any exceptions or restrictions which, individually or in
the aggregate, do not and will not have an Orion Material
Adverse Effect.
(b) Schedule 4.20(b) sets forth a true,
correct and complete schedule of all material leases,
subleases, licenses or other agreements under which Orion or
any of its subsidiaries uses or occupies, or has the right
<PAGE>
44
to use or occupy, now or in the future, any real property or
improvements thereon (the "Orion Real Property Leases").
Except for the matters listed on Schedule 4.20(b), to
Orion's knowledge, Orion holds the leasehold estate under
and interest in each Orion Real Property Lease free and
clear of all material liens, encumbrances and other rights
of occupancy. Except as set forth on Schedule 4.20(b), all
Orion Real Property Leases are valid and binding on the
lessors thereunder in accordance with their respective terms
and to Orion's knowledge, there is not under any such Orion
Real Property Leases any existing default, or any condition,
event or act which with notice or lapse of time or both
would constitute such a default, which in either case,
considered individually or in the aggregate with all such
other Orion Real Property Leases under which there is such a
default, condition, event or act, has or will have an Orion
Material Adverse Effect.
4.21 Records. The respective minute books of
-------
Orion and each of its subsidiaries made available to each of
Actava, Sterling and MITI contain materially accurate and
complete records of all material corporate actions of the
respective stockholders and directors (and committees
thereof).
4.22 Title to and Condition of Personal Property.
-------------------------------------------
Except as set forth on Schedule 4.22, Orion and each of its
subsidiaries have good and marketable title to the material
personal property reflected in its or their financial
statements or currently used in the operation of their
businesses (other than leased property), and such property
is free and clear of all liens, claims, charges, security
interests, options, or other title defects or encumbrances,
except for those which would not have an Orion Material
Adverse Effect. All such personal property is in good
operating condition and repair, ordinary wear and tear
excepted, is suitable for the use to which the same is
customarily put, is free from defects and is merchantable
and is of a quality and quantity presently usable in the
ordinary course of the operation of the businesses of Orion
and its subsidiaries, other than such matters as would not
have an Orion Material Adverse Effect.
4.23 No Adverse Actions. There is no existing,
------------------
pending or, to Orion's knowledge, threatened termination,
cancellation, modification or change in the business
relationship of Orion or any of its subsidiaries, with any
supplier, customer or other person or entity except those
which do not and will not have an Orion Material Adverse
Effect. To Orion's knowledge, none of Orion, any subsidiary
of Orion or any stockholder, director, officer, agent,
<PAGE>
45
employee or other person associated with or acting on behalf
of any of the foregoing has used any corporate funds for
unlawful contributions, payments, gifts, entertainment or
other unlawful expenses relating to political activity, or
made any direct or indirect unlawful payments to
governmental or regulatory officials.
4.24 Labor Matters.
-------------
(a) Except as set forth on Schedule 4.24(a),
neither Orion nor any of its subsidiaries has any material
obligations, contingent or otherwise, under any employment
or consulting agreement (except if and as set forth in the
schedules hereto), collective bargaining agreement or other
contract with a labor union or other labor or employee
group. There are no efforts presently being made or, to
Orion's knowledge, threatened by or on behalf of any labor
union with respect to employees of Orion or any subsidiary
of Orion. No unfair labor practice complaint against Orion
or any subsidiary of Orion is pending or, to Orion's
knowledge, threatened before the National Labor Relations
Board; there is no labor strike, dispute, slowdown or
stoppage pending or, to Orion's knowledge, threatened
against or involving Orion or any subsidiary of Orion; no
collective bargaining representation question exists
respecting the employees of Orion or any subsidiary of
Orion; no grievance or internal or informal complaint exists
under any collective bargaining agreement, no arbitration
proceeding arising out of or under any collective bargaining
agreement is pending and no claim therefor has been
asserted; no collective bargaining agreement is currently
being negotiated by Orion or any subsidiary of Orion; and
neither Orion nor any subsidiary of Orion has experienced
any labor difficulty, except as to each of the foregoing,
any matter which would not have an Orion Material Adverse
Effect.
(b) Except as set forth on Schedule 4.24(b),
in the last three years, neither Orion nor any of its
subsidiaries has effectuated, nor will Orion or any of its
subsidiaries at any time before the Effective Time,
effectuate (i) a "plant closing" (as defined in the WARN
Act) affecting any site of employment or one or more
facilities or operating units within any site of employment
or facility of Orion or its subsidiaries; or (ii) a "mass
layoff" (as defined in the WARN Act) affecting any site of
employment or facility of Orion or its subsidiaries; nor has
Orion or its subsidiaries been affected by any transaction
or engaged in layoffs or employment terminations sufficient
in number to trigger application of any similar state or
local law.
<PAGE>
46
(c) Except as set forth on Schedule 4.24(c),
Orion and all of its subsidiaries are in compliance with all
federal and state laws respecting immigration, employment
and employment practices, fair labor practices, family and
medical leave, terms and conditions of employment (including
nondiscrimination in race, age, sex, religion, disability,
etc.) and wages and hours except to the extent failure to
comply would not have an Orion Material Adverse Effect.
4.25 Investment Company Act. Orion and each of
----------------------
its subsidiaries either (a) is not an "investment company,"
or a company "controlled" by, or an "affiliated company"
with respect to, an "investment company," within the meaning
of the Investment Company Act or (b) satisfies all condi-
tions for an exemption from the Investment Company Act, and,
accordingly, neither Orion nor any of its subsidiaries is
required to be registered under the Investment Company Act.
4.26 Insurance. Except as set forth on Schedule
---------
4.26, neither Orion nor any subsidiary of Orion has received
notice of default under, or intended cancellation or
nonrenewal of, any material policies of insurance which
insure the properties, business or liability of Orion or any
subsidiary of Orion, except any of the foregoing which do
not and will not have an Orion Material Adverse Effect.
4.27 Products. (a) Except (i) as set forth on
--------
Schedule 4.27(a) and (ii) as does not and will not have an
Orion Material Adverse Effect, there are no product
liability claims against or involving Orion or any of its
subsidiaries or any product manufactured, marketed or
distributed at any time by Orion or any of its subsidiaries
("Orion Products") and no such claims have been settled,
adjudicated or otherwise disposed of since November 30,
1994.
(b) Except (i) as set forth on Sched-
ule 4.27(b) and (ii) as does not and will not have an Orion
Material Adverse Effect, there are no statements, citations
or decisions by any Governmental Body specifically stating
that any Orion Product is defective or unsafe or fails to
meet any standards promulgated by any such Governmental
Body. Except (i) as set forth on Schedule 4.27(b) and
(ii) as does not and will not have an Orion Material Adverse
Effect, there have been no recalls ordered by any such
Governmental Body with respect to any Orion Product. Except
(i) as set forth on Schedule 4.27(b) and (ii) as does not
and will not have an Orion Material Adverse Effect, to
Orion's knowledge, there is no (A) fact relating to any
Orion Product that may impose upon Orion or any of its
subsidiaries a duty to recall any Orion Product or a duty to
<PAGE>
47
warn customers of a defect in any Orion Product, (B) latent
or overt design, manufacturing or other defect in any Orion
Product or (C) material liability for warranty claims or
returns with respect to any Orion Product not fully
reflected on Orion's financial statements referred to in
Section 4.9 hereof.
4.28 MetProductions Indebtedness. As of March 31,
---------------------------
1995, the principal amount outstanding of the MetProductions
Indebtedness was $6.28 million.
4.29 No Conflict. Other than the restrictions
-----------
and covenants set forth in the agreements, instruments and
indentures referred to in Sections 12.2.9 and 12.2.10, Orion
is not a party to any note, bond, mortgage, indenture,
lease, license, agreement or other instrument or obligation
which would (i) restrict Orion's ability to produce or
acquire from third parties film product other than with
financing which is non-recourse to Orion or (ii) require
Orion to deposit and distribute its Net Cash Flow (as
defined below) in accordance with the Collateral Trust
Agreement (as defined below). The representation and
warranty made in this Section 4.29 shall be deemed an
Orian Modified Representation (as hereafter defined)
subject to the provisions of Section 12.2.2(i) of this
Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
OF STERLING
Sterling represents and warrants to each of
Actava, Orion and MITI as follows:
5.1 Organization and Good Standing. Sterling and
------------------------------
each of its material subsidiaries as disclosed on
Exhibit 22.1 to Sterling's filing on Form 10-K for the year
ended March 31, 1994, is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite
corporate power and authority to own, lease and operate its
properties and to carry on its business as now being
conducted. Sterling and each of its material subsidiaries
is duly qualified or licensed and in good standing to do
business in each jurisdiction in which the character of the
property owned, leased or operated by it or the nature of
the business conducted by it makes such qualification or
licensing necessary, except where the failure to be so duly
qualified or licensed and in good standing would not have a
Sterling Material Adverse Effect (as defined in
Section 15.9). Sterling has heretofore delivered or made
<PAGE>
48
available to each of Actava, Orion and MITI accurate and
complete copies of the Certificates of Incorporation and
By-laws, or equivalent governing instruments, as currently
in effect, of Sterling and each of its subsidiaries.
5.2 Capitalization. The authorized capital stock
--------------
of Sterling consists of 25,000,000 shares of Sterling Common
Stock and 1,000,000 shares of preferred stock, par value
$.01 per share ("Sterling Preferred Stock"). As of
March 31, 1995 11,215,000 shares of Sterling Common Stock
were issued and outstanding and no shares of Sterling
Preferred Stock were issued and outstanding. No other
capital stock of Sterling is authorized or issued. All
issued and outstanding shares of capital stock of Sterling
are validly issued, fully paid and non-assessable and were
issued free of preemptive rights and in compliance with
applicable federal and state securities laws and
regulations. Except as set forth on Schedule 5.2(a), at the
date hereof there are not any outstanding rights,
subscriptions, warrants, calls, unsatisfied preemptive
rights, options or other agreements of any kind to purchase
or otherwise receive from Sterling any of the outstanding,
authorized but unissued, unauthorized or treasury shares of
the capital stock or any other security of Sterling, and
there is no authorized or outstanding security of any kind
convertible into or exchangeable for any such capital stock.
Except as set forth on Schedule 5.2(b), since March 31,
1995, Sterling has not (i) issued any shares of capital
stock, except pursuant to the exercise of then outstanding
options or warrants in accordance with their terms or
(ii) repurchased any shares of Sterling Common Stock.
5.3 Subsidiaries. Exhibit 22.1 to Sterling's
------------
filing on Form 10-K for the year ended March 31, 1994 sets
forth the name, jurisdiction of incorporation or
organization and percentages of outstanding capital stock or
other equivalent equity ownership owned, directly or
indirectly, by Sterling, with respect to each material
subsidiary of Sterling. Except as set forth on
Schedule 5.3, Sterling and its subsidiaries own no material
direct or indirect equity interest in any corporation (other
than direct or indirect subsidiaries of Sterling),
partnership, joint venture or other entity, domestic or
foreign. All of the outstanding shares of capital stock in
each of Sterling's subsidiaries have been duly authorized
and validly issued and are fully paid and non-assessable.
Except as set forth on Schedule 5.3, to Sterling's knowledge
there are no irrevocable proxies or similar obligations with
respect to such capital stock and no equity securities or
other interests of any of the subsidiaries are or may become
required to be issued by reason of any options, warrants,
<PAGE>
49
rights to subscribe to, calls or commitments of any char-
acter whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of any capital
stock of any subsidiary, and there are no contracts,
commitments, understandings or arrangements by which any
subsidiary is bound to issue additional shares of its
capital stock, or options, warrants or rights to purchase or
acquire any additional shares of its capital stock or secu-
rities convertible into or exchangeable for such shares.
Except as set forth on Schedule 5.3, all of such shares so
owned by Sterling are owned by it free and clear of any
claim, lien, encumbrance, security interest or agreement
with respect thereto.
5.4 Authorization; Binding Agreement. Sterling
--------------------------------
has requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions
contemplated hereby, subject to the approval and adoption of
this Agreement by the stockholders of Sterling. The
execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby,
including but not limited to the Sterling Merger, have been
duly and validly authorized by Sterling's Board of Directors
and no other corporate proceedings on the part of Sterling
or any subsidiary of Sterling are necessary to authorize the
execution and delivery of this Agreement or to consummate
the transactions so contemplated (other than the approval
and adoption of this Agreement by the stockholders of
Sterling in accordance with the DGCL and the Certificate of
Incorporation and By-laws of Sterling). This Agreement has
been duly and validly executed and delivered by Sterling,
and, subject to the approval and adoption of this Agreement
by the stockholders of Sterling, constitutes the legal,
valid and binding agreement of Sterling, enforceable against
Sterling in accordance with its terms, except to the extent
that enforceability thereof may be limited by applicable
future bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights
generally and by principles of equity regarding the
availability of remedies.
5.5 Governmental Approvals. No consent, approval
----------------------
or authorization of or declaration or filing with any
governmental agency or regulatory authority on the part of
Sterling or any of its subsidiaries is required in
connection with the execution or delivery by Sterling of
this Agreement or the consummation by Sterling of the
transactions contemplated hereby other than (i) the filing
of this Agreement (or the Certificate of Merger in lieu
thereof) with the Secretary of State of Delaware in
accordance with the DGCL, (ii) filings with the SEC and any
<PAGE>
50
applicable national securities exchange, (iii) filings under
state securities or "Blue Sky" laws, (iv) federal, state and
local regulatory approvals and consents and (v) filings
under the HSR Act.
5.6 No Violations. The execution and delivery of
-------------
this Agreement, the consummation of the transactions
contemplated hereby and compliance by Sterling with any of
the provisions hereof will not (i) conflict with or result
in any breach of any provision of the Articles or
Certificates of Incorporation or By-laws or other governing
instruments of Sterling or any of its subsidiaries,
(ii) except as set forth on Schedule 5.6 and except for any
of the following which does not and will not have a Sterling
Material Adverse Effect, require any consent, approval or
notice under or result in a violation or breach of, or
constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination,
cancellation or acceleration or augment the performance
required) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license,
agreement or other instrument or obligation to which
Sterling or any of its subsidiaries is a party or by which
any of them or any of their properties or assets may be
bound, (iii) result in the creation or imposition of any
lien, charge or other encumbrance of any kind upon any of
the assets of Sterling or any of its subsidiaries other than
any such lien, charge or other encumbrance which does not
and will not have a Sterling Material Adverse Effect or
(iv) subject to obtaining the governmental and other con-
sents referred to in Section 5.5, contravene any material
law, rule or regulation of any state or of the United States
or any political subdivision thereof or therein, or any
material order, writ, injunction, determination or award
currently in effect to which Sterling or any of its
subsidiaries or any of their respective assets or properties
are subject.
5.7 Proxy Statement; Form S-4. None of the
-------------------------
information relating to Sterling and its subsidiaries
included in the Proxy Statement or Form S-4 will be false or
misleading with respect to any material fact, or omit to
state any material fact required to be stated therein or
necessary in order to make the statements therein, in light
of the circumstances under which they were made, not
misleading. Except for information supplied or to be
supplied by Actava, Orion and MITI in writing for inclusion
therein, as to which no representation is made, the Proxy
Statement, and any supplements or amendments thereto, will
comply in all material respects with the Exchange Act and
the rules and regulations thereunder.
<PAGE>
51
5.8 SEC Filings. Sterling has made available to
-----------
each of Actava, Orion and MITI true and complete copies of
(i) its Annual Reports on Form 10-K, as amended, for the
years ended March 31, 1992, 1993 and 1994, as filed with the
SEC, (ii) its proxy statements relating to all of Sterling's
meetings of stockholders (whether annual or special) since
April 1, 1992, as filed with the SEC, and (iii) all other
reports, statements and registration statements (including
Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, as amended) filed by Sterling with the SEC since
April 1, 1992 (the reports and statements set forth in
clauses (i), (ii) and (iii) are referred to collectively as
the "Sterling SEC Filings"). As of their respective dates,
none of the Sterling SEC Filings (including all exhibits and
schedules thereto and documents incorporated by reference
therein), contained any untrue statement of a material fact
or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading. Each of the Sterling SEC Filings at the time of
filing complied in all material respects with the Exchange
Act or the Securities Act, as the case may be, and the rules
and regulations thereunder. As of the date hereof there are
no claims, actions or proceedings (and to Sterling's know-
ledge no investigations) pending by or against or, to
Sterling's knowledge, threatened against Sterling or any of
its subsidiaries, or any properties or rights of Sterling or
any of its subsidiaries, before any court or any administra-
tive, governmental or regulatory authority or body which is
required to be described in any Sterling SEC Filing that is
not so described which have or will have a Sterling Material
Adverse Effect.
5.9 Financial Statements. The consolidated
--------------------
balance sheets of Sterling as of March 31, 1993 and 1994 and
the related consolidated statements of operations,
stockholders' equity and cash flows for the years then
ended, including the footnotes thereto, audited by Arthur
Andersen LLP, Sterling's independent public accountants, as
set forth in Sterling's Annual Reports on Form 10-K, as
amended, for the years ended March 31, 1992, 1993 and 1994,
and the unaudited consolidated balance sheet of Sterling for
the nine months ended December 31, 1994 and the related
consolidated statements of operations, stockholders' equity
and cash flows, including the footnotes thereto, as set
forth in Sterling's Quarterly Report on Form 10-Q for the
period ended December 31, 1994, have been prepared in
accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved
and fairly present the financial position of Sterling and
its consolidated subsidiaries as of the dates thereof and
<PAGE>
52
the results of their operations for the periods then ended
(subject, in the case of any unaudited interim financial
statements, to normal year-end audit adjustments and to the
lack of complete footnotes).
5.10 Absence of Certain Changes or Events. Except
------------------------------------
as set forth in the Sterling SEC Filings, since December 31,
1994 there has not been: (i) any material adverse change in
the business, assets, prospects, condition (financial or
other) or the results of operations of Sterling and its
subsidiaries taken as a whole other than any such change
caused by general economic conditions, political or
governmental instability or uncertainty, civil disturbances
or unrest, war or other similar acts of force majeure;
(ii) any declaration, payment or setting aside for payment
of any dividend or any redemption, purchase or other acqui-
sition of any shares of capital stock or securities of
Sterling; (iii) any return of any capital or other
distribution of assets to stockholders of Sterling;
(iv) except as set forth on Schedule 5.10(v), any material
investment of a capital nature by Sterling or any of its
subsidiaries either by the purchase of any property or
assets or by any acquisition (by merger, consolidation or
acquisition of stock or assets) of any corporation,
partnership or other business organization or division
thereof; (v) except as set forth on Schedule 5.10(v), any
sale, disposition, license or other transfer of assets or
properties of Sterling and its subsidiaries (A) in excess of
$100,000 individually or $1,000,000 in the aggregate for
sales, dispositions or transfers of assets other than
licensing a film and television product and (B) pursuant to
a license of film or television product other than such a
license (I) entered into in the ordinary course of business,
(II) with a duration not in excess of 7 years and
(III) providing for payments not in excess of $500,000 in
the aggregate; (vi) any employment or consulting agreement
entered into by Sterling and its subsidiaries with any
officer or consultant of Sterling and its subsidiaries pro-
viding for annual salary or other annual payments in excess
of $100,000 or any amendment or modification to, or ter-
mination of, any current employment or consulting agreement
to which Sterling or any of its subsidiaries is a party
which provides for annual salary or other annual payments in
excess of $100,000; (vii) any agreement to take, whether in
writing or otherwise, any action which, if taken prior to
the date hereof, would have made any representation or
warranty in this Article 5 untrue, incomplete or incorrect
in any material respect; (viii) any change in accounting
methods or practices or any change in depreciation or
amortization policies or rates; or (ix) any failure by
Sterling or its subsidiaries to conduct their respective
<PAGE>
53
businesses only in the ordinary course consistent with past
practice.
5.11 Compliance with Laws. The business of
--------------------
Sterling and its subsidiaries has been operated in
compliance with all laws, ordinances, regulations and orders
of all governmental entities, domestic or foreign, except
for any instances of non-compliance which do not and will
not have a Sterling Material Adverse Effect.
5.12 Permits. Except as set forth on
-------
Schedule 5.12, (i) Sterling and its subsidiaries have all
permits, certificates, licenses, approvals and other
authorizations (collectively, "Sterling Permits") required
in connection with the operation of their businesses,
(ii) neither Sterling nor any of its subsidiaries are in
violation of any Sterling Permit applicable to any of them
or to the operation of their businesses, and (iii) no
proceedings are pending or, to Sterling's knowledge,
threatened, to revoke or terminate any Sterling Permit,
except, in the case of clause (i) or (ii) above, those the
absence or violation of which do not and will not have a
Sterling Material Adverse Effect.
5.13 Finders and Investment Bankers. Neither
------------------------------
Sterling nor any of its officers or directors has employed
any broker or finder or incurred any liability for any
brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby, except a fee
payable to Houlihan, Lokey, Howard & Zukin ("Houlihan
Lokey") pursuant to that certain engagement letter dated
April 11, 1995 between Houlihan Lokey and Sterling.
5.14 Contracts. There is no Contract required to
---------
be described in or filed as an exhibit to any Sterling SEC
Filing that is not described in or filed as required by the
Securities Act or the Exchange Act, as the case may be. All
such Contracts are valid and binding and are in full force
and effect and enforceable in accordance with their
respective terms other than such Contracts which by their
terms are no longer in force or effect. Except as set forth
in Schedule 5.6 or 5.14, (i) no approval or consent of, or
notice to, any person is needed in order to ensure that such
Contracts shall continue in full force and effect in
accordance with their respective terms without penalty,
acceleration or rights of early termination following the
consummation of the transactions contemplated by this
Agreement, and (ii) Sterling or its subsidiaries is not in
violation or breach of or default under any such Contract;
nor to Sterling's knowledge is any other party to any such
Contract in violation or breach of or default under any such
<PAGE>
54
Contract, except in the case of clauses (i) and (ii) above,
any of the foregoing which do not and will not have a
Sterling Material Adverse Effect.
5.15 Employee Benefit Plans.
----------------------
(i) Except as set forth on Schedule 5.15(i),
there are no employee benefit plans or arrangements of any
type, including (i) plans described in section 3(3) of ERISA
and any other material programs, practices or policies,
including, but not limited to, any pension, profit sharing,
retirement, thrift, stock purchase or stock option plan, or
any other compensation, welfare, fringe benefit or
retirement plan, program, policy, understanding or
arrangement of any kind whatsoever, whether formal or
informal, providing for benefits for or the welfare of any
or all of the current or former employees or agents of
Sterling and their beneficiaries or dependents, or
(ii) multiemployer plans as defined in section 3(37) of
ERISA, or (iii) multiple employer plans as defined in
Section 413 of the Code, under which Sterling has or in the
future could have, directly or indirectly through a
"Commonly Controlled Entity" (within the meaning of
sections 414(b), (c), (m) and (o) of the Code), any
liability with respect to any current or former employee of
Sterling or any Commonly Controlled Entity (collectively,
"Sterling Benefit Plans").
(ii) With respect to each Sterling Benefit
Plan (where applicable), Sterling has delivered to each of
Actava, Orion and MITI complete and accurate copies or
summaries of (a) all plan texts and material agreements,
(b) all material employee communications, (c) the most
recent annual report, (d) the most recent annual and
periodic accounting of plan assets, (e) the most recent
determination letter received from the Internal Revenue
Service and (f) the most recent actuarial valuation.
(iii) With respect to each Sterling Benefit
Plan, except as set forth on Schedule 5.15(iii), (a) if
intended to qualify under Code sections 401(a) or 403(a),
(i) such Sterling Benefit Plan has received a favorable
determination letter from the Internal Revenue Service (the
"Service") indicating that such Plan meets such
requirements, and such determination by the Service includes
any new or modified requirements under the Tax Reform Act of
1986 and subsequent legislation enacted thereafter through
and including the Omnibus Budget Reconciliation Act of 1993,
or (ii) an application for a favorable determination letter
including such legislation was filed with the Service prior
to the expiration of the remedial amendment period (as
<PAGE>
55
defined in Code section 401(b) and regulations thereunder,
and as extended pursuant to notices and revenue rulings of
the Service) for filing such an application and such Plan
has been substantially amended to comply with the Tax Reform
Act of 1986 and subsequent legislation enacted through and
including the Omnibus Budget Reconciliation Act of 1993, or
(iii) the remedial amendment period (as defined in
(ii) above) with respect to such Plan has not yet expired,
and an application for a favorable determination letter
including such legislation will be timely filed with the
Service prior to the expiration of such period and the Plan
will be amended to comply with the Tax Reform Act of 1986
and subsequent legislation enacted thereafter through and
including the Omnibus Budget Reconciliation Act of 1993
prior to the expiration of such period, (b) if intended to
qualify under Code sections 401(a) or 403(a) and if
originally effective prior to January 1, 1986, such Sterling
Benefit Plan has previously received a favorable
determination letter from the Service indicating that such
Plan meets the requirements of Code sections 401(a) or
403(a) as in effect on the date of the letter, including
without limitation, TEFRA, DEFRA, and REACT, (c) such
Sterling Benefit Plan has been administered in material
compliance with its terms and applicable law, (d) no event
has occurred and there exists no circumstance under which
Sterling could, directly or indirectly through a Commonly
Controlled Entity, incur material liability under ERISA, the
Code or otherwise (other than routine claims for benefits),
(e) there are no actions, suits or claims pending (other
than routine claims for benefits) or, to Sterling's
knowledge, threatened, with respect to any Sterling Benefit
Plan or against the assets of any Sterling Benefit Plan,
(f) no "accumulated funding deficiency" (as defined in ERISA
section 302) has occurred, (g) no "prohibited transaction"
(as defined in ERISA section 406 or in Code section 4975)
has occurred, (h) no "reportable event" (as defined in ERISA
section 4043) has occurred, (i) all contributions and PBGC
premiums or premiums due under an insurance contract that
insures benefits payable under an Sterling Benefit Plan, as
applicable, have been made on a timely basis and (j) all
contributions made or required to be made under any Sterling
Benefit Plan which have been treated as deductible for
purposes of one or more federal income tax returns of
Sterling meet the requirements for deductibility under the
Code and all contributions that have not been made have been
properly recorded on the books of Sterling or a Commonly
Controlled Entity in accordance with generally accepted
accounting principles.
(iv) With respect to each Sterling Benefit
Plan that is subject to Title IV of ERISA, except as set
<PAGE>
56
forth on Schedule 5.15(iv), (a) as of the date hereof and at
the Effective Time, the market value of assets (exclusive of
any contribution due to such Sterling Benefit Plan) equals
or exceeds the present value of benefit liabilities as of
the latest actuarial valuation date shown for such plan (but
not prior to 12 months prior to the date hereof), determined
on the basis of a shutdown of Sterling and termination of
such Sterling Benefit Plan in accordance with actuarial
assumptions used by the Pension Benefit Guaranty Corporation
in single-employer plan terminations and since its last
valuation date, there have been no amendments to such
Sterling Benefit Plan that materially increased the present
value of benefit liabilities (determined as provided above)
nor any other material adverse changes in the funding status
of such Sterling Benefit Plan, and (b) Sterling has not
incurred, directly or indirectly through a Commonly
Controlled Entity, any liability arising from a plan
termination or plan withdrawal from a multiemployer plan.
(v) With respect to each Sterling Benefit
Plan that is a "welfare plan" (as defined in ERISA
section 3(1)), except as set forth on Schedule 5.15(v),
(a) no such plan provides medical or death benefits (whether
or not insured) with respect to current or former employees
beyond their termination of employment or the end of the
month of their termination of employment (other than
coverage mandated by law), (b) there are no reserves,
assets, surplus or prepaid premiums under any such plan and
(c) Sterling and any Commonly Controlled Entity have
materially complied with the requirements of Code
section 4980B.
(vi) With respect to each Sterling Benefit
Plan that is a multiemployer plan, (a) Schedule 5.15(vi)
indicates the number of employees with respect to whom
Sterling or any Commonly Controlled Entity makes
contributions to each such plan and the most recent
information available to Sterling or any Commonly Controlled
Entity with respect to the withdrawal liability of Sterling
or such Commonly Controlled Entity under each such plan,
(b) each such plan is not, as of the date hereof, insolvent
or in reorganization, nor does it have an accumulated
funding deficiency, and Sterling does not know of any reason
why such plan would become insolvent or in reorganization or
have an accumulated funding deficiency in the foreseeable
future, (c) Sterling or any Commonly Controlled Entity has
made all contributions to each such plan due or accrued as
of the date hereof and will have made all such contributions
as of the Effective Time and (d) the withdrawal liability
with respect to each such Plan if any Commonly Controlled
<PAGE>
57
Entity were to withdraw from the plan at the Effective Time
is less than or equal to $0.
(vii) Except as set forth on
Schedule 5.15(vii), the consummation of the transactions
contemplated by this Agreement will not (a) entitle any
individual to severance pay, or (b) accelerate the time of
payment, vesting of benefits (including stock options and
restricted stock) or increase the amount of compensation due
to any individual.
5.16 Taxes.
-----
(a) Except as set forth on Schedule 5.16,
(i) Sterling and each of its subsidiaries timely has filed
(after giving effect to any extensions of the time to file
which were obtained) prior to the date of this Agreement,
and will file prior to the Effective Time, all returns
required to be filed prior to the date of this Agreement
and/or required to be filed prior to the Effective Time by
any of them with respect to, and has paid (or Sterling has
paid on its behalf), or has or will set up an adequate
reserve for the payment of, all Taxes required to be paid
prior to the date of this Agreement or the Effective Time,
as the case may be, and the most recent financial statements
contained in the SEC Filings reflect an adequate reserve for
all Taxes payable by Sterling and its subsidiaries accrued
through the date of such financial statements and (ii) no
deficiencies for any Taxes have been proposed, asserted or
assessed against Sterling or any of its subsidiaries other
than those which are being contested in good faith and by
proper proceedings by Sterling, except in the case of
clauses (i) and (ii) above, any of the foregoing which do
not and will not have a Sterling Material Adverse Effect.
(b) The Federal income tax returns of
Sterling and each of its subsidiaries consolidated in such
returns have been examined by and settled with the IRS, or
the statute of limitations with respect to such years has
expired, for all years through 1990.
(c) Except as set forth on Schedule 5.16,
none of Sterling, any subsidiary of Sterling or, to
Sterling's knowledge, any group of which Sterling or any
subsidiary of Sterling is now or ever was a member has filed
or entered into any election, consent or extension agreement
that extends any applicable statute of limitations or the
time within which a return must be filed which statute of
limitations has not expired or return has not been timely
filed.
<PAGE>
58
(d) Except as set forth on Schedule 5.16,
(i) none of Sterling, any subsidiary of Sterling or, to
Sterling's knowledge, any group of which Sterling or any
subsidiary of Sterling is now or ever was a member, is a
party to any action or proceeding pending or, to Sterling's
knowledge, threatened by any governmental authority for
assessment or collection of Taxes, (ii) no unresolved claim
for assessment or collection of Taxes has to Sterling's
knowledge been asserted, (iii) no audit or investigation by
any governmental authority is pending or, to Sterling's
knowledge, threatened and (iv) no such matters are under
discussion with any governmental authority which, in the
case of clauses (i-iv), could have a Sterling Material
Adverse Effect.
5.17 Liabilities. Except (i) as expressly
-----------
disclosed in the Sterling SEC Filings or (ii) as set forth
on Schedule 5.17, and in the case of (i) and (ii) above, as
does not and will not have a Sterling Material Adverse
Effect, Sterling and its subsidiaries do not have any direct
or indirect Liabilities, whether or not of a kind required
by generally accepted accounting principles to be set forth
in a financial statement, other than Liabilities incurred
since December 31, 1994 in the ordinary course of business.
Except as set forth on Schedule 5.17 or reflected in the
Sterling SEC Filings, Sterling and its subsidiaries do not
have (i) material obligations in respect of borrowed money,
(ii) material obligations evidenced by bonds, debentures,
notes or other similar instruments, (iii) material
obligations which would be required by generally accepted
accounting principles to be classified as "capital leases",
(iv) material obligations to pay the deferred purchase price
of property or services, except trade accounts payable
arising in the ordinary course of business and payable not
more than twelve (12) months from the date of incurrence,
and (v) any guaranties of any material obligations of any
other person. Schedule 5.17 sets forth a list, dated as of
the date hereof, of all unresolved "Claims" in excess of
$25,000, whether payable in cash or Sterling Common Stock,
as defined in and arising out of Sterling's Second Amended
Joint Plan of Reorganization dated February 5, 1992,
specifying in reasonable detail the name of such claimant
and the amount and classification of each such Claim.
5.18 Environmental Protection. Except as dis-
------------------------
closed on Schedule 5.18:
(i) Neither Sterling nor any of its subsid-
iaries is or has been in violation in any material respect
of any applicable Safety and Environmental Law.
<PAGE>
59
(ii) Sterling and its subsidiaries have all
Permits required pursuant to Safety and Environmental Laws
that are material to the conduct of the business of Sterling
or any of its subsidiaries, all such Permits are in full
force and effect, no action or proceeding to revoke, limit
or modify any of such Permits is pending, and Sterling and
each of its subsidiaries is in compliance in all material
respects with all terms and conditions thereof.
(iii) Neither Sterling nor any of its subsid-
iaries has received, or expects to receive due to the
consummation of the Sterling Merger, any material
Environmental Claim.
(iv) To Sterling's knowledge, Sterling and
its subsidiaries have filed all notices required under
Safety and Environmental Laws indicating the past or present
Release, generation, treatment, storage or disposal of
Hazardous Substances.
(v) Neither Sterling nor any of its subsid-
iaries have entered into any written agreement with any
Governmental Body or any other person by which Sterling or
any of its subsidiaries has assumed responsibility, either
directly or as a guarantor or surety, for the remediation of
any condition arising from or relating to a Release or
threatened Release of Hazardous Substances into the
Environment.
(vi) To Sterling's knowledge, there is not
now and has not been at any time in the past a Release or
threatened Release of Hazardous Substances into the
Environment for which Sterling or any of its subsidiaries
may be directly or indirectly responsible.
(vii) To Sterling's knowledge, there is not
now and has not been at any time in the past at, on or in
any of the real properties owned, leased or operated by
Sterling or any of its subsidiaries, and, to Sterling's
knowledge, was not at, on or in any real property previously
owned, leased or operated by Sterling or any of its
subsidiaries or any predecessor: (A) any generation, use,
handling, Release, treatment, recycling, storage or disposal
of any Hazardous Substances, (B) any underground storage
tank, surface impoundment, lagoon or other containment
facility (past or present) for the temporary or permanent
storage, treatment or disposal of Hazardous Substances,
(C) any landfill or solid waste disposal area, (D) any
asbestos-containing material in a condition requiring
abatement, (E) any polychlorinated biphenyls (PCBs) used in
hydraulic oils, electrical transformers or other equipment,
<PAGE>
60
(F) any Release or threatened Release, or any visible signs
of Releases or threatened Releases, of a Hazardous Substance
to the Environment in form or quantity requiring Remedial
Action (as hereafter defined) under Safety and Environmental
Laws, or (G) any Hazardous Substances present at such
property, excepting such quantities as are handled in
accordance with all applicable manufacturer's instructions
and Safety and Environmental Laws and in proper storage
containers, and as are necessary for the operations of
Sterling and its subsidiaries.
(viii) To Sterling's knowledge, there is no
basis or reasonably anticipated basis for any material Envi-
ronmental Claim or material Environmental Compliance Costs.
(ix) Neither Sterling nor any of its subsid-
iaries have transported, stored, treated or disposed, nor
have they allowed or arranged for any third persons to
transport, store, treat or dispose, any Hazardous Substance
to or at: (a) any location other than a site lawfully
permitted to receive such substances for such purposes, or
(b) any location designated for Remedial Action pursuant to
Safety and Environmental Laws; nor have they performed,
arranged for or allowed by any method or procedure such
transportation or disposal in contravention of any Safety
and Environmental Laws or in any other manner which may
result in Environmental Compliance Costs or in an Environ-
mental Claim. All locations at which Sterling or any of its
subsidiaries have disposed of any Hazardous Substance are
listed on Schedule 5.18(ix).
5.19 Intellectual Property. Schedule 5.19 sets
---------------------
forth a list of all of Sterling's and its subsidiaries'
registered patents, registered trademarks, registered
service marks, registered trade names, registered copyrights
for filmed product in which Sterling or one of its
consolidated subsidiaries is the registered owner of such
product, and not the licensee of distribution rights for
filmed product ("Sterling Copyrights") and franchises, all
applications for any of the foregoing and all permits,
grants and licenses or other rights running to or from
Sterling and any of its subsidiaries relating to any of the
foregoing and Sterling has delivered or made available a
true and correct listing of availabilities of all filmed
product to which Sterling or any of its consolidated
subsidiaries has licensed distribution rights that are
material to the business of Sterling and its subsidiaries
taken as a whole. Except as set forth on Schedule 5.19, to
Sterling's knowledge (i) Sterling or one of its subsidiaries
own, or are licensed to, or otherwise have, the right to use
all registered patents, registered trademarks, registered
<PAGE>
61
service marks, registered trade names, Sterling Copyrights
and franchises set forth on Schedule 5.19, and
(ii) Sterling's rights in the property set forth on such
list are free and clear of any liens or other encumbrances
and Sterling and its subsidiaries have not received written
notice of any adversely-held patent, invention, trademark,
service mark or trade name of any other person, or notice of
any charge or claim of any person relating to such
intellectual property or any process or confidential infor-
mation of Sterling and its subsidiaries and to Sterling's
knowledge there is no basis for any such charge or claim,
and (iii) Sterling, its subsidiaries and their respective
predecessors, if any, have not conducted business at any
time during the period beginning five years prior to the
date hereof under any corporate or partnership, trade or
fictitious names other than their current corporate or
partnership names, except in the case of clauses (i), (ii)
and (iii) above, any of the foregoing which do not and will
not have a Sterling Material Adverse Effect.
5.20 Real Estate.
-----------
(a) Neither Sterling nor any of its subsid-
iaries owns any real property.
(b) Schedule 5.20(b) sets forth a true,
correct and complete schedule of all material leases,
subleases, licenses or other agreements under which Sterling
or any of its subsidiaries uses or occupies, or has the
right to use or occupy, now or in the future, any real
property or improvements thereon (the "Sterling Real
Property Leases"). Except for the matters listed on Sched-
ule 5.20(b), to Sterling's knowledge, Sterling holds the
leasehold estate under and interest in each Sterling Real
Property Lease free and clear of all material liens, encum-
brances and other rights of occupancy. All Sterling Real
Property Leases are valid and binding on the lessors there-
under in accordance with their respective terms and to
Sterling's knowledge, there is not under any such Sterling
Real Property Leases any existing default, or any condition,
event or act which with notice or lapse of time or both
would constitute such a default, which in either case,
considered individually or in the aggregate with all such
other Sterling Real Property Leases under which there is
such a default, condition, event or act, do not or will not
have a Sterling Material Adverse Effect.
5.21 Records. The respective minute books of
-------
Sterling and each of its subsidiaries made available to each
of Actava, Orion and MITI contain materially accurate and
complete records of all material corporate actions of the
<PAGE>
62
respective stockholders and directors (and committees
thereof).
5.22 Title to and Condition of Personal Property.
-------------------------------------------
Sterling and each of its subsidiaries have good and
marketable title to the material personal property reflected
in its or their financial statements or currently used in
the operation of their businesses (other than leased
property), and such property is free and clear of all liens,
claims, charges, security interests, options, or other title
defects or encumbrances, except for those which would not
have a Sterling Material Adverse Effect. All such personal
property is in good operating condition and repair, ordinary
wear and tear excepted, is suitable for the use to which the
same is customarily put, is free from defects and is
merchantable and is of a quality and quantity presently
usable in the ordinary course of the operation of the
business of Sterling and its subsidiaries, other than such
matters as would not have a Sterling Material Adverse
Effect.
5.23 No Adverse Actions. There is no existing,
------------------
pending or, to Sterling's knowledge, threatened termination,
cancellation, modification or change in the business rela-
tionship of Sterling or any of its subsidiaries, with any
supplier, customer or other person or entity except those
which do not and will not have a Sterling Material Adverse
Effect. To Sterling's knowledge, none of Sterling, any
subsidiary of Sterling or any stockholder, director,
officer, agent, employee or other person associated with or
acting on behalf of any of the foregoing has used any
corporate funds for unlawful contributions, payments, gifts,
entertainment or other unlawful expenses relating to
political activity, or made any direct or indirect unlawful
payments to governmental or regulatory officials.
5.24 Labor Matters.
-------------
(a) Except as set forth on Schedule 5.24(a),
neither Sterling nor any of its subsidiaries has any
material obligations, contingent or otherwise, under any
employment or consulting agreement (except if and as set
forth in the schedules hereto), collective bargaining
agreement or other contract with a labor union or other
labor or employee group. There are no efforts presently
being made or, to Sterling's knowledge, threatened by or on
behalf of any labor union with respect to employees of
Sterling or any subsidiary of Sterling. No unfair labor
practice complaint against Sterling or any subsidiary of
Sterling is pending or, to Sterling's knowledge, threatened
before the National Labor Relations Board; there is no labor
<PAGE>
63
strike, dispute, slowdown or stoppage pending or, to
Sterling's knowledge, threatened against or involving
Sterling or any subsidiary of Sterling; no collective
bargaining representation question exists respecting the
employees of Sterling or any subsidiary of Sterling; no
grievance or internal or informal complaint exists under any
collective bargaining agreement, no arbitration proceeding
arising out of or under any collective bargaining agreement
is pending and no claim therefor has been asserted; no
collective bargaining agreement is currently being
negotiated by Sterling or any subsidiary of Sterling; and
neither Sterling nor any subsidiary of Sterling has
experienced any labor difficulty, except as to each of the
foregoing, any matter which would not have a Sterling
Material Adverse Effect.
(b) Except as set forth on Schedule 5.24(b),
in the last three years, neither Sterling nor any of its
subsidiaries has effectuated, nor will Sterling or any of
its subsidiaries at any time before the Effective Time,
effectuate (i) a "plant closing" (as defined in the WARN
Act) affecting any site of employment or one or more
facilities or operating units within any site of employment
or facility of Sterling or its subsidiaries; or (ii) a "mass
layoff" (as defined in the WARN Act) affecting any site of
employment or facility of Sterling or its subsidiaries; nor
has Sterling or its subsidiaries been affected by any
transaction or engaged in layoffs or employment terminations
sufficient in number to trigger application of any similar
state or local law.
(c) Except as set forth on Schedule 5.24(c),
Sterling and all of its subsidiaries are in compliance with
all federal and state laws respecting immigration,
employment and employment practices, fair labor practices,
family and medical leave, terms and conditions of employment
(including nondiscrimination in race, age, sex, religion,
disability, etc.), and wages and hours except to the extent
failure to comply would not have a Sterling Material Adverse
Effect.
5.25 Investment Company Act. Sterling and each of
----------------------
its subsidiaries either (a) is not an "investment company,"
or a company "controlled" by, or an "affiliated company"
with respect to, an "investment company," within the meaning
of the Investment Company Act or (b) satisfies all condi-
tions for an exemption from the Investment Company Act, and,
accordingly, neither Sterling nor any of its subsidiaries is
required to be registered under the Investment Company Act.
<PAGE>
64
5.26 Insurance. Except as set forth on
---------
Schedule 5.26, neither Sterling nor any subsidiary of
Sterling has received notice of default under, or intended
cancellation or nonrenewal of, any material policies of
insurance which insure the properties, business or liability
of Sterling or any subsidiary of Sterling, except any of the
foregoing which do not and will not have a Sterling Material
Adverse Effect.
5.27 Products. (a) Except (i) as set forth on
--------
Schedule 5.27(a) and (ii) as does not and will not have an
Sterling Material Adverse Effect, there are no product
liability claims against or involving Sterling or any of its
subsidiaries or any product manufactured, marketed or dis-
tributed at any time by Sterling or any of its subsidiaries
("Sterling Products") and no such claims have been settled,
adjudicated or otherwise disposed of since December 31,
1994.
(b) Except (i) as set forth on Sched-
ule 5.27(b) and (ii) as does not and will not have an
Sterling Material Adverse Effect, there are no statements,
citations or decisions by any Governmental Body specifically
stating that any Sterling Product is defective or unsafe or
fails to meet any standards promulgated by any such Govern-
mental Body. Except (i) as set forth on Schedule 5.27(b)
and (ii) does not and will not have a Sterling Material
Adverse Effect, there have been no recalls ordered by any
such Governmental Body with respect to any Sterling Product.
Except (i) as set forth on Schedule 5.27(b) and (ii) as does
not and will not have a Sterling Material Adverse Effect, to
Sterling's knowledge, there is no (A) fact relating to any
Sterling Product that may impose upon Sterling or any of its
subsidiaries a duty to recall any Sterling Product or a duty
to warn customers of a defect in any Sterling Product,
(B) latent or overt design, manufacturing or other defect in
any Sterling Product or (C) material liability for warranty
claims or returns with respect to any Sterling Product not
fully reflected on Sterling's financial statements referred
to in Section 5.9 hereof.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF MITI
MITI represents and warrants to each of Actava,
Orion and Sterling as follows:
6.1 Organization and Good Standing. MITI and
------------------------------
each of its material United States subsidiaries is a
<PAGE>
65
corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to
carry on its business as now being conducted. Each of the
foreign entities in which MITI or one of its United States
subsidiaries owns an interest is listed on Schedule 6.1(a)
(collectively, the "Joint Venture Entities") and each such
Joint Venture Entity is duly organized under the laws of its
organization and has all requisite power and authority to
own, lease and operate its properties and to carry on its
business as now being conducted. Except as set forth on
Schedule 6.1(b), the organizational documents for each Joint
Venture Entity were properly filed under the laws of the
jurisdiction in which such Joint Venture Entity was
organized. MITI and each of its material United States
subsidiaries is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the
character of the property owned, leased or operated by it or
the nature of the business conducted by it makes such
qualification or licensing necessary, except where the
failure to be so duly qualified or licensed and in good
standing would not have a MITI Material Adverse Effect (as
defined in Section 15.9). MITI has heretofore delivered or
made available to each of Actava, Orion and Sterling
accurate and complete copies of the Certificates of
Incorporation and By-laws, or equivalent governing
instruments, as currently in effect, of MITI and each of its
United States subsidiaries and, subject to the exceptions
set forth on Schedule 6.1(b), the organizational documents
for each of the Joint Venture Entities.
6.2 Capitalization. The authorized capital stock
--------------
of MITI consists of 2,500,000 shares of MITI Common Stock.
As of March 31, 1995, 1,716,198 shares of MITI Common Stock
were issued and outstanding. No other capital stock of MITI
is authorized or issued. All issued and outstanding shares
of MITI Common Stock are validly issued, fully paid and non-
assessable and were either issued free of preemptive rights
or in accordance with waivers of such preemptive rights and
in compliance with applicable federal and state securities
laws and regulations. Except as set forth on Schedule
6.2(a), at the date hereof there are not any outstanding
rights, subscriptions, warrants, calls, unsatisfied
preemptive rights, options or other agreements of any kind
to purchase or otherwise receive from MITI any of the
outstanding, authorized but unissued, unauthorized or
treasury shares of the capital stock or any other security
of MITI, and there is no authorized or outstanding security
of any kind convertible into or exchangeable for any such
capital stock. Except as set forth on Schedule 6.2(b),
<PAGE>
66
since March 31, 1995, MITI has not (i) issued any shares of
capital stock, except pursuant to the exercise of then
outstanding options or warrants in accordance with their
terms or (ii) repurchased any shares of MITI Common Stock.
6.3 Subsidiaries. Schedule 6.3 sets forth the
------------
name, jurisdiction of incorporation or organization and
percentages of outstanding capital stock or other equivalent
equity ownership owned, directly or indirectly, by MITI,
with respect to each United States subsidiary of MITI and
each Joint Venture Entity. Except as set forth on
Schedule 6.3, MITI and its subsidiaries own no material
direct or indirect equity interest in any corporation (other
than direct or indirect subsidiaries of MITI), partnership,
joint venture or other entity, domestic or foreign. All of
the outstanding shares of capital stock in each of MITI's
United States subsidiaries have been duly authorized and
validly issued and are fully paid and non-assessable. All
of MITI's direct or indirect equity interests in the Joint
Venture Entities have been issued in accordance with the law
of the jurisdiction in which each such Joint Venture Entity
was organized. Except as set forth on Schedule 6.3, to
MITI's knowledge, there are no irrevocable proxies or
similar obligations with respect to such capital stock and
no equity securities or other interests of any of the United
States subsidiaries or Joint Venture Entities are or may
become required to be issued by reason of any options,
warrants, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of any
capital stock of any United States subsidiary or Joint
Venture Entities, and there are no contracts, commitments,
understandings or arrangements by which any subsidiary is
bound to issue additional shares of its capital stock, or
options, warrants or rights to purchase or acquire any
additional shares of its capital stock or securities
convertible into or exchangeable for such shares. Except as
set forth on Schedule 6.3, all of the shares of capital
stock of MITI's United States subsidiaries owned by MITI and
each interest in a Joint Venture Entity owned directly or
indirectly by MITI are owned by it free and clear of any
claim, lien, encumbrance, security interest or agreement
with respect thereto.
6.4 Authorization; Binding Agreement. MITI has
--------------------------------
the requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions
contemplated hereby, subject to the approval and adoption of
this Agreement by the stockholders of MITI. The execution
and delivery of this Agreement and the consummation of the
transactions contemplated hereby, including but not limited
<PAGE>
67
to the MITI Merger, have been duly and validly authorized by
MITI's Board of Directors and no other corporate proceedings
on the part of MITI are necessary to authorize the execution
and delivery of this Agreement or to consummate the trans-
actions so contemplated (other than the approval and
adoption of this Agreement by the stockholders of MITI in
accordance with the DGCL, the Certificate of Incorporation
and By-laws of MITI and the MITI Stockholders Agreement (as
defined in Section 12.1.1(iii) hereof)). This Agreement has
been duly and validly authorized, executed and delivered by
MITI and, subject to the approval and adoption of this
Agreement by the stockholders of MITI, constitutes the
legal, valid and binding agreement of MITI, enforceable
against it in accordance with its terms, except that
enforceability thereof may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting
creditors' rights generally and by principles of equity
regarding the availability of remedies.
6.5 No Violations. The execution and delivery by
-------------
MITI of this Agreement, the consummation of the transactions
contemplated hereby and compliance by MITI with any of the
provisions hereof will not (i) conflict with or result in a
breach of any of the provisions of the Articles or the
Certificates of Incorporation or By-laws or other governing
instruments of MITI, any of its United States subsidiaries
or any of the Joint Venture Entities, (ii) except as set
forth on Schedule 6.5 and except for any of the following
which does not and will not have an MITI Material Adverse
Effect, require any consent, approval or notice under or
result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or
acceleration or augment the performance required) under any
of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, agreement or other
instrument or obligation to which MITI, any of its United
States subsidiaries or any of the Joint Venture Entities is
a party or by which any of them or any of their properties
or assets may be bound, (iii) result in the creation or
imposition of any lien, charge or other encumbrance of any
kind upon any of the assets of MITI, any of its United
States subsidiaries or any of the Joint Venture Entities
other than any such lien, charge or other encumbrance which
does not and will not have a MITI Material Adverse Effect,
or (iv) subject to the obtaining of the governmental and
other consents referred to in Section 6.7, contravene any
material law, rule or regulation of any state or of the
United States or any political subdivision thereof or
therein or of any foreign country or political subdivision
thereof or therein, or any material order, writ, judgment,
<PAGE>
68
injunction, decree, determination or award currently in
effect to which MITI, any of its United States subsidiaries
or any of the Joint Venture Entities or any of their assets
or properties are subject.
6.6 Proxy Statement; Form S-4. None of the
-------------------------
information relating to MITI, its United States subsidiaries
or any Joint Venture Entity included in the Proxy Statement
or the Form S-4 will be false or misleading with respect to
any material fact or will omit to state any material fact
required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under
which they were made, not misleading.
6.7 Governmental Approvals. Except as set forth
----------------------
on Schedule 6.7, no consent, approval or authorization of or
declaration or filing with any governmental agency or
regulatory authority on the part of MITI, any of its United
States subsidiaries or any Joint Venture Entity is required
in connection with the execution or delivery by MITI of this
Agreement or the consummation by MITI of the transactions
contemplated hereby other than (i) the filing of this
Agreement (or the Certificate of Merger in lieu thereof)
with the Secretary of State of Delaware in accordance with
the DGCL, (ii) filings with the SEC and any applicable
national securities exchange, (iii) filings under state
securities or "Blue Sky" laws, (iv) federal, state or local
regulatory approvals and consents and (v) filings under the
HSR Act.
6.8 Financial Statements. The consolidated
--------------------
balance sheets of MITI and its predecessors, International
Telcell, Inc., a Delaware corporation ("ITI") and Metromedia
International Inc., a Delaware corporation ("MII") as of
December 31, 1993 and 1994 and the related consolidated
statements of operations, stockholders' equity and cash
flows for the years then ended, including the footnotes
thereto, certified by KPMG Peat Marwick LLP, MITI's
independent certified public accountants, other than with
respect to a "going concern" qualification contained in
KPMG Peat Marwick LLP's report for the fiscal year ended
December 31, 1994, which have been delivered to each of
Actava, Orion and Sterling, have been prepared in accordance
with generally accepted accounting principles applied on a
consistent basis (except that during 1994 MITI changed its
policy of accounting for its Joint Venture Entities by
recording its equity interest in the losses of such Joint
Venture Entities based on a three month lag) during the
periods involved and fairly present the financial position
of MITI, its consolidated subsidiaries and its investments
in the Joint Venture Entities, including but not limited to
<PAGE>
69
ITI and MII as of the dates thereof and the results of their
operations for the periods then ended.
6.9 Absence of Certain Changes or Events. Except
------------------------------------
as set forth on Schedule 6.9, since December 31, 1994
(September 30, 1994 with respect to the Joint Venture
Entities) there has not been: (i) any material adverse
change in the business, assets, prospects, condition
(financial or other) or the results of operations of MITI,
its United States subsidiaries or any of the Joint Venture
Entities which are marked with a star on Schedule 6.1(a)
(such Joint Venture Entities marked with a star are referred
to collectively as the "Operating Joint Venture Entities")
taken as a whole other than any such change caused by
general economic conditions, political or governmental
instability or uncertainty, civil disturbances or unrest,
war or other similar acts of force majeure; (ii) any
declaration, payment or setting aside for payment of any
dividend or any redemption, purchase or other acquisition of
any shares of capital stock or securities of MITI; (iii) any
return of any capital or other distribution of assets to
stockholders of MITI; (iv) any material investments of a
capital nature in excess of $10,000,000 in the aggregate by
MITI, its United States subsidiaries and the Joint Venture
Entities, either by the purchase of any property or assets
or by any acquisition (by merger, consolidation or
acquisition of stock or assets) of any corporation,
partnership or other business organization or division
thereof other than in accordance with the aggregate amount
provided for in MITI's budget for the year ended
December 31, 1995 (the "MITI Budget"); (v) any sale,
disposition or other transfer of assets or properties of
MITI, its United States subsidiaries or any Joint Venture
Entity in excess of $100,000 individually or $1,000,000 in
the aggregate other than investments (whether in the form of
debt or equity) in any subsidiary of MITI or any Joint
Venture Entity in accordance with the aggregate amount
provided for in the MITI Budget; (vi) any employment or
consulting agreement entered into by MITI, its United States
subsidiaries or any Joint Venture Entity with any officer or
consultant of MITI, its United States subsidiaries or any
Joint Venture Entity providing for annual salary or other
annual payments in excess of $100,000 or any amendment or
modification to, or termination of, any current employment
or consulting agreement to which MITI, any of its United
States subsidiaries or any Joint Venture Entity is a party
which provides for annual salary or other annual payments in
excess of $100,000; (vii) any agreement to take, whether in
writing or otherwise, any action which, if taken prior to
the date hereof, would have made any representation or
warranty in this Article 6 untrue, incomplete or incorrect
<PAGE>
70
in any material respect; (viii) any change in accounting
methods or practices or any change in depreciation or amor-
tization policies or rates (other than any such changes made
in connection with the initial audits of the Joint Venture
Entities); or (ix) any failure by MITI, its United States
subsidiaries or any Operating Joint Venture Entity to
conduct their respective businesses only in the ordinary
course consistent with past practice (other than any changes
made in connection with the initial audits of the Joint
Venture Entities or changes made in an effort to conduct
operations more effectively).
6.10 Compliance with Laws. Except as set forth on
--------------------
Schedule 6.10, the businesses of MITI, its United States
subsidiaries and the Joint Venture Entities have been
operated in compliance with all laws, ordinances,
regulations and orders of all governmental entities,
domestic or foreign, except for any instances of non-
compliance which do not and will not have a MITI Material
Adverse Effect.
6.11 Permits. Except as set forth on Schedule
-------
6.11, (i) MITI, its United States subsidiaries and the
Operating Joint Venture Entities have all permits, certifi-
cates, licenses, approvals and other authorizations
(collectively, "MITI Permits") required in connection with
the operation of their businesses, (ii) none of MITI, any of
its United States subsidiaries nor any of the Operating
Joint Venture Entities are in violation of any MITI Permit
applicable to it or to the operation of their businesses,
and (iii) no proceedings are pending or, to MITI's
knowledge, threatened, to revoke or terminate any MITI
Permit, except in the case of clause (i), (ii) or (iii)
above, those the absence or violation of which do not and
will not have a MITI Material Adverse Effect.
6.12 Finders and Investment Bankers. Neither MITI
------------------------------
nor any of its officers or directors has employed any broker
or finder or incurred any liability for any brokerage fees,
commissions or finders' fees in connection with the trans-
actions contemplated hereby except a fee payable to Gerard
Klauer Mattison & Co. ("GKMC") pursuant to that certain
engagement letter dated April 7, 1995 between GKMC and MITI.
6.13 Employee Benefit Plans.
----------------------
(i) Except as set forth on Schedule 6.13(i),
there are no employee benefit plans or arrangements of any
type, including (i) plans described in section 3(3) of ERISA
and any other material plans, programs, practices or
policies, including, but not limited to, any pension, profit
<PAGE>
71
sharing, retirement, thrift, stock purchase or stock option
plan, or any other compensation, welfare, fringe benefit or
retirement plan, program, policy, understanding or
arrangement of any kind whatsoever, whether formal or
informal, providing for benefits for or the welfare of any
or all of the current or former employees or agents of MITI
and their beneficiaries or dependents, or (ii) multiemployer
plans as defined in section 3(37) of ERISA, or
(iii) multiple employer plans as defined in Section 413 of
the Code, under which MITI has or in the future could have,
directly or indirectly through a "Commonly Controlled
Entity" (within the meaning of sections 414(b), (c), (m) and
(o) of the Code), any liability with respect to any current
or former employee of MITI or any Commonly Controlled Entity
(collectively, "MITI Benefit Plans").
(ii) With respect to each MITI Benefit Plan
(where applicable), MITI has delivered to each of Orion,
Actava and Sterling complete and accurate copies or
summaries of (a) all plan texts and material agreements,
(b) all material employee communications, (c) the most
recent annual report, (d) the most recent annual and
periodic accounting of plan assets, (e) the most recent
determination letter received from the Internal Revenue
Service and (f) the most recent actuarial valuation.
(iii) With respect to each MITI Benefit Plan,
except as set forth on Schedule 6.13(iii), (a) if intended
to qualify under Code sections 401(a) or 403(a), (i) such
MITI Benefit Plan has received a favorable determination
letter from the Internal Revenue Service (the "Service")
indicating that such Plan meets such requirements, and such
determination by the Service includes any new or modified
requirements under the Tax Reform Act of 1986 and subsequent
legislation enacted thereafter through and including the
Omnibus Budget Reconciliation Act of 1993, or (ii) an
application for a favorable determination letter including
such legislation was filed with the Service prior to the
expiration of the remedial amendment period (as defined in
Code section 401(b) and regulations thereunder, and as
extended pursuant to notices and revenue rulings of the
Service) for filing such an application and such Plan has
been substantially amended to comply with the Tax Reform Act
of 1986 and subsequent legislation enacted through and
including the Omnibus Budget Reconciliation Act of 1993, or
(iii) the remedial amendment period (as defined in
(ii) above) with respect to such Plan has not yet expired,
and an application for a favorable determination letter
including such legislation will be timely filed with the
Service prior to the expiration of such period and the Plan
will be amended to comply with the Tax Reform Act of 1986
<PAGE>
72
and subsequent legislation enacted thereafter through and
including the Omnibus Budget Reconciliation Act of 1993
prior to the expiration of such period, (b) if intended to
qualify under Code sections 401(a) or 403(a) and if
originally effective prior to January 1, 1986, such MITI
Benefit Plan has previously received a favorable
determination letter from the Service indicating that such
Plan meets the requirements of Code sections 401(a) or
403(a) as in effect on the date of the letter, including
without limitation, TEFRA, DEFRA, and REACT, (c) such MITI
Benefit Plan has been administered in material compliance
with its terms and applicable law, (d) no event has occurred
and there exists no circumstance under which MITI could,
directly or indirectly through a Commonly Controlled Entity,
incur material liability under ERISA, the Code or otherwise
(other than routine claims for benefits), (e) there are no
actions, suits or claims pending (other than routine claims
for benefits) or, to MITI's knowledge, threatened, with
respect to any MITI Benefit Plan or against the assets of
any MITI Benefit Plan, (f) no "accumulated funding
deficiency" (as defined in ERISA section 302) has occurred,
(g) no "prohibited transaction" (as defined in ERISA
section 406 or in Code section 4975) has occurred, (h) no
"reportable event" (as defined in ERISA section 4043) has
occurred, (i) all contributions and PBGC premiums or
premiums due under an insurance contract that insures
benefits payable under an MITI Benefit Plan, as applicable,
have been made on a timely basis and (j) all contributions
made or required to be made under any MITI Benefit Plan
which have been treated as deductible for purposes of one or
more federal income tax returns of MITI meet the
requirements for deductibility under the Code and all
contributions that have not been made have been properly
recorded on the books of MITI or a Commonly Controlled
Entity in accordance with generally accepted accounting
principles.
(iv) With respect to each MITI Benefit Plan
that is subject to Title IV of ERISA, except as set forth on
Schedule 6.13(iv), (a) as of the date hereof and at the
Effective Time, the market value of assets (exclusive of any
contribution due to such MITI Benefit Plan) equals or
exceeds the present value of benefit liabilities as of the
latest actuarial valuation date shown for such plan (but not
prior to 12 months prior to the date hereof), determined on
the basis of a shutdown of MITI and termination of such MITI
Benefit Plan in accordance with actuarial assumptions used
by the Pension Benefit Guaranty Corporation in single-
employer plan terminations and since its last valuation
date, there have been no amendments to such MITI Benefit
Plan that materially increased the present value of benefit
<PAGE>
73
liabilities (determined as provided above) nor any other
material adverse changes in the funding status of such MITI
Benefit Plan, and (b) MITI has not incurred, directly or
indirectly through a Commonly Controlled Entity, any
liability arising from a plan termination or plan withdrawal
from a multiemployer plan.
(v) With respect to each MITI Benefit Plan
that is a "welfare plan" (as defined in ERISA section 3(1)),
except as set forth on Schedule 6.13(v), (a) no such plan
provides medical or death benefits (whether or not insured)
with respect to current or former employees beyond their
termination of employment or the end of the month of their
termination of employment (other than coverage mandated by
law), (b) there are no reserves, assets, surplus or prepaid
premiums under any such plan and (c) MITI and any Commonly
Controlled Entity have materially complied with the
requirements of Code section 4980B.
(vi) With respect to each MITI Benefit Plan
that is a multiemployer plan, (a) Schedule 6.13(vi)
indicates the number of employees with respect to whom MITI
or any Commonly Controlled Entity makes contributions to
each such plan and the most recent information available to
MITI or any Commonly Controlled Entity with respect to the
withdrawal liability of MITI or such Commonly Controlled
Entity under each such plan, (b) each such plan is not, as
of the date hereof, insolvent or in reorganization, nor does
it have an accumulated funding deficiency, and MITI does not
know of any reason why such plan would become insolvent or
in reorganization or have an accumulated funding deficiency
in the foreseeable future, (c) MITI or any Commonly
Controlled Entity has made all contributions to each such
plan due or accrued as of the date hereof and will have made
all such contributions as of the Effective Time and (d) the
withdrawal liability with respect to the Plan if any
Commonly Controlled Entity were to withdraw from each such
plan at the Effective Time is less than or equal to $0.
(vii) Except as set forth on
Schedule 6.13(vii), the consummation of the transactions
contemplated by this Agreement will not (a) entitle any
individual to severance pay, or (b) accelerate the time of
payment, vesting of benefits (including stock options and
restricted stock) or increase the amount of compensation due
to any individual.
6.14 Taxes.
-----
(a) Except as set forth on Schedule 6.14,
(i) MITI, each of its United States subsidiaries and, to
<PAGE>
74
MITI's knowledge after due inquiry, each Joint Venture
Entity timely has filed (after giving effect to any
extensions of the time to file which were obtained) prior to
the date of this Agreement and will file prior to the
Effective Time, all returns required to be filed prior to
the date of this Agreement and/or required to be filed prior
to the Effective Time by any of them with respect to, and
has paid (or MITI has paid on its behalf), or has or will
set up an adequate reserve for the payment of, all Taxes
required to be paid prior to the date of this Agreement or
the Effective Time, as the case may be, and the most recent
financial statements of MITI reflect an adequate reserve for
all Taxes payable by MITI and its United States subsidiaries
and each Joint Venture Entity, to the extent that a reserve
for taxes of Joint Venture Entities is reflected in the
"loss for equity investment" line appearing in MITI's
statements of operations referred to in Section 6.8 of this
Agreement accrued through the date of such financial
statements and (ii) no deficiencies for any Taxes have been
proposed, asserted or assessed against MITI, any of its
United States subsidiaries or any Joint Venture Entity other
than those which are being contested in good faith and by
proper proceedings by MITI, except in the case of
clauses (i) and (ii) above, any of the foregoing which do
not and will not have a MITI Material Adverse Effect.
(b) None of the Federal income tax returns
of MITI or its subsidiaries have been examined by the IRS,
and the statute of limitations with respect to each of the
years subject to such federal income tax returns has not
expired.
(c) Except as set forth on Schedule 6.14,
none of MITI or any United States subsidiary of MITI, or to
MITI's knowledge any Operating Joint Venture Entity or any
group of which MITI or any subsidiary of MITI is now or ever
was a member, has filed or entered into any election,
consent or extension agreement that extends any applicable
statute of limitations or the time within which a return
must be filed which statute of limitations has not expired
or return has not been timely filed.
(d) Except as set forth on Schedule 6.14,
(i) none of MITI, any United States subsidiary of MITI, any
Operating Joint Venture Entity or, to MITI's knowledge, any
group of which MITI or any United States subsidiary of MITI
is now or ever was a member, is a party to any action or
proceeding pending or, to MITI's knowledge, threatened by
any governmental authority for assessment or collection of
Taxes, (ii) no unresolved claim for assessment or collection
of Taxes has, to MITI's knowledge, been asserted, (iii) no
<PAGE>
75
audit or investigation by any governmental authority is
pending or, to MITI's knowledge, threatened and (iv) no such
matters are under discussion with any governmental authority
which, in the case of clauses (i-iv), could have a MITI
Material Adverse Effect.
6.15 Liabilities. Except (i) as set forth on
-----------
Schedule 6.15 or (ii) as reflected in the financial
statements referred to in Section 6.8, and in the case of
(i) and (ii) above, as does not and will not have a MITI
Material Adverse Effect, MITI, its United States
subsidiaries and the Joint Venture Entities do not have any
Liabilities, whether or not of a kind required by generally
accepted accounting principles to be set forth in a
financial statement, other than Liabilities incurred since
December 31, 1994 in the ordinary course of business.
Except as set forth on Schedule 6.15 or reflected in the
financial statements referred to in Section 6.8, MITI, its
United States subsidiaries and the Joint Venture Entities do
not have (i) material obligations in respect of borrowed
money, (ii) material obligations evidenced by bonds,
debentures, notes or other similar instruments,
(iii) material obligations which would be required by
generally accepted accounting principles to be classified as
"capital leases," (iv) material obligations to pay the
deferred purchase price of property or services, except
trade accounts payable arising in the ordinary course of
business and payable not more than twelve (12) months from
the date of incurrence, and (v) any guaranties of any
material obligations of any other person.
6.16 Environmental Protection. Except as dis-
------------------------
closed on Schedule 6.16:
(i) Neither MITI nor any of its subsidiaries
is or has been in violation in any material respect of any
applicable Safety and Environmental Law.
(ii) MITI and its subsidiaries have all
Permits required pursuant to Safety and Environmental Laws
that are material to the conduct of the business of MITI or
any of its subsidiaries, all such Permits are in full force
and effect, no action or proceeding to revoke, limit or
modify any of such Permits is pending, and MITI and each of
its subsidiaries is in compliance in all material respects
with all terms and conditions thereof.
(iii) Neither MITI nor any of its subsidiaries
has received, or expects to receive due to the consummation
of the MITI Merger, any material Environmental Claim.
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76
(iv) To MITI's knowledge, MITI and its
subsidiaries have filed all notices required under Safety
and Environmental Laws indicating the past or present
Release, generation, treatment, storage or disposal of
Hazardous Substances.
(v) Neither MITI nor any of its subsidiaries
has entered into any written agreement with any Governmental
Body or any other person by which MITI or any of its
subsidiaries has assumed responsibility, either directly or
as a guarantor or surety, for the remediation of any
condition arising from or relating to a Release or
threatened Release of Hazardous Substances into the
Environment.
(vi) To MITI's knowledge, there is not now
and has not been at any time in the past a Release or
threatened Release of Hazardous Substances into the
Environment for which MITI or any of its subsidiaries may be
directly or indirectly responsible.
(vii) To MITI's knowledge, there is not now
and has not been at any time in the past at, on or in any of
the real properties owned, leased or operated by MITI or any
of its subsidiaries, and, to MITI's knowledge, was not at,
on or in any real property previously owned, leased or
operated by MITI or any of its subsidiaries or any
predecessor: (A) any generation, use, handling, Release,
treatment, recycling, storage or disposal of any Hazardous
Substances, (B) any underground storage tank, surface
impoundment, lagoon or other containment facility (past or
present) for the temporary or permanent storage, treatment
or disposal of Hazardous Substances, (C) any landfill or
solid waste disposal area, (D) any asbestos-containing
material in a condition requiring abatement, (E) any
polychlorinated biphenyls (PCBs) used in hydraulic oils,
electrical transformers or other equipment, (F) any Release
or threatened Release, or any visible signs of Releases or
threatened Releases, of a Hazardous Substance to the Envi-
ronment in form or quantity requiring Remedial Action under
Safety and Environmental Laws, or (G) any Hazardous
Substances present at such property, excepting such
quantities as are handled in accordance with all applicable
manufacturer's instructions and Safety and Environmental
Laws and in proper storage containers, and as are necessary
for the operations of MITI and its subsidiaries.
(viii) To MITI's knowledge, there is no basis
or reasonably anticipated basis for any material Environ-
mental Claim or material Environmental Compliance Costs.
<PAGE>
77
(ix) Neither MITI nor any of its subsidiaries
have transported, stored, treated or disposed, nor have they
allowed or arranged for any third persons to transport,
store, treat or dispose, any Hazardous Substance to or at:
(a) any location other than a site lawfully permitted to
receive such substances for such purposes, or (b) any
location designated for Remedial Action pursuant to Safety
and Environmental Laws; nor have they performed, arranged
for or allowed by any method or procedure such
transportation or disposal in contravention of any Safety
and Environmental Laws or in any other manner which may
result in Environmental Compliance Costs or in an Environ-
mental Claim. All locations at which MITI or any of its
subsidiaries have disposed of any Hazardous Substance are
listed on Schedule 6.16(ix).
6.17 Intellectual Property. Schedule 6.17 sets
---------------------
forth a list of all of MITI's, its United States
subsidiaries' and the Joint Venture Entities' registered
patents, registered trademarks, registered service marks,
registered trade names, registered copyrights and
franchises, all applications for any of the foregoing and
all permits, grants and licenses or other rights running to
or from MITI, any of its United States subsidiaries and the
Joint Venture Entities relating to any of the foregoing that
are material to the business of MITI, its United States
subsidiaries and the Joint Venture Entities taken as a
whole. Except as set forth on Schedule 6.17, to MITI's
knowledge (i) MITI, one of its United States subsidiaries or
one of the Joint Venture Entities owns, or is licensed to,
or otherwise has, the right to use all registered patents,
registered trademarks, registered service marks, registered
trade names, registered copyrights and franchises set forth
on Schedule 6.17, (ii) MITI's rights in the property set
forth on such list are free and clear of any liens or other
encumbrances and MITI, its United States subsidiaries and
the Joint Venture Entities have not received written notice
of any adversely-held patent, invention, trademark, service
mark or trade name of any other person, or notice of any
charge or claim of any person relating to such intellectual
property or any process or confidential information of MITI,
its United States subsidiaries, the Joint Venture Entities
and MITI does not know of any basis for any such charge or
claim, and (iii) MITI, its United States subsidiaries, the
Joint Venture Entities and their respective predecessors, if
any, have not conducted business at any time during the
period beginning five years prior to the date hereof under
any corporate or partnership, trade or fictitious name other
than their current corporate or partnership name, except in
the case of clauses (i), (ii) and (iii) above, any of the
<PAGE>
78
foregoing which do not and will not have a MITI Material
Adverse Effect.
6.18 Real Estate.
-----------
(a) Neither MITI nor any of its United
States subsidiaries owns any real property and to MITI's
knowledge, none of the Joint Venture Entities owns any real
property.
(b) Schedule 6.18(b) sets forth a true,
correct and complete schedule of all material leases,
subleases, licenses or other agreements under which MITI,
any of its United States subsidiaries or any Operating Joint
Venture Entity uses or occupies, or has the right to use or
occupy, now or in the future, any real property or
improvements thereon (the "MITI Real Property Leases").
Except for the matters listed on Schedule 6.18(b), to MITI's
knowledge, MITI or an Operating Joint Venture Entity holds
the leasehold estate under and interest in each MITI Real
Property Lease free and clear of all material liens,
encumbrances and other rights of occupancy. All MITI Real
Property Leases are valid and binding on the lessors there-
under in accordance with their respective terms and to
MITI's knowledge, there is not under any such MITI Real
Property Leases any existing default, or any condition,
event or act which with notice or lapse of time or both
would constitute such a default, which in either case,
considered individually or in the aggregate with all such
other MITI Real Property Leases under which there is such a
default, condition, event or act, does not or will not have
a MITI Material Adverse Effect.
6.19 Contracts. Schedule 6.19 sets forth each
---------
Contract to which MITI, its United States subsidiaries or
any Joint Venture Entity or their respective assets or
properties are bound or subject. Except as set forth on
Schedule 6.19, all such Contracts are valid and binding and
are in full force and effect and enforceable in accordance
with their respective terms. Except as set forth in
Schedule 6.19, (i) no approval or consent of, or notice to,
any person is needed in order to ensure that any Contract
shall continue in full force and effect in accordance with
its terms without penalty, acceleration or right of early
termination following the consummation of the transactions
contemplated by this Agreement and (ii) MITI, its United
States subsidiaries or any Joint Venture Entity is not in
violation or breach of, or in default under, any Contract;
nor, to MITI's knowledge, is any other party in violation or
breach of, or in default under, any Contract, except in the
case of clauses (i) and (ii) above, any of the foregoing
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79
which do not and will not have a MITI Material Adverse
Effect.
6.20 Litigation. Except as set forth in
----------
Schedule 6.20, there are no claims, actions or proceedings
(and, to MITI's knowledge, no investigations) pending by or
against, or to MITI's knowledge, threatened against MITI,
any of its United States subsidiaries or any Joint Venture
Entity or any properties or rights of MITI, any of its
United States subsidiaries or any Joint Venture Entity,
before any court or any administrative, governmental or
regulatory authority or body which have or will have a MITI
Material Adverse Effect.
6.21 Records. The respective minute books of
-------
MITI, each of its United States subsidiaries and the Joint
Venture Entities made available to each of Actava, Orion and
Sterling contain materially accurate and complete records of
all material corporate actions of the respective stockholder
and directors (and any committees thereof).
6.22 Title to and Condition of Personal Property.
-------------------------------------------
MITI, each of its United States subsidiaries and the
Operating Joint Venture Entities have good and marketable
title to the material personal property reflected in its or
their financial statements or currently used in the
operation of their businesses (other than leased property),
and such property is free and clear of all liens, claims,
charges, security interests, options, or other title defects
or encumbrances, except for those which would not have a
MITI Material Adverse Effect. All such personal property is
in good operating condition and repair, ordinary wear and
tear excepted, is suitable for the use to which the same is
customarily put, is free from defects and is merchantable
and is of a quality and quantity presently usable in the
ordinary course of the operation of the business of MITI,
its United States subsidiaries and the Operating Joint
Venture Entities, other than such matters as would not have
a MITI Material Adverse Effect.
6.23 No Adverse Actions. There is no existing,
------------------
pending or, to MITI's knowledge, threatened termination,
cancellation, modification or change in the business
relationship of MITI, any of its United States subsidiaries
or any Operating Joint Venture Entity, with any supplier,
customer or other person or entity except those which do not
and will not have a MITI Material Adverse Effect. To MITI's
knowledge, none of MITI, any United States subsidiary of
MITI or any Operating Joint Venture Entity or any
stockholder, director, officer, agent, employee or other
person associated with or acting on behalf of any of the
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80
foregoing has used any corporate funds for unlawful
contributions, payments, gifts, entertainment or other
unlawful expenses relating to political activity, or made
any direct or indirect unlawful payments to governmental or
regulatory officials.
6.24 Labor Matters.
-------------
(a) Except as set forth on Schedule 6.24(a),
none of MITI, any of its United States subsidiaries nor any
of the Joint Venture Entities has any material obligations,
contingent or otherwise, under any employment or consulting
agreement (except if and as set forth in the schedules
hereto), collective bargaining agreement or other contract
with a labor union or other labor or employee group. There
are no efforts presently being made or, to MITI's knowledge,
threatened by or on behalf of any labor union with respect
to employees of MITI, any United States subsidiary of MITI
or any of the Joint Venture Entities. No unfair labor
practice complaint against MITI is pending or, to MITI's
knowledge, threatened before the National Labor Relations
Board; there is no labor strike, dispute, slowdown or
stoppage pending or, to MITI's knowledge, threatened against
or involving MITI, any United States subsidiary of MITI or
any of the Joint Venture Entities; no collective bargaining
representation question exists respecting the employees of
MITI, any United States subsidiary of MITI or any of the
Joint Venture Entities; no grievance or internal or informal
complaint exists under any collective bargaining agreement,
no arbitration proceeding arising out of or under any
collective bargaining agreement is pending and no claim
therefor has been asserted; no collective bargaining
agreement is currently being negotiated by MITI, any United
States subsidiary of MITI or any of the Joint Venture
Entities; and none of MITI, any United States subsidiary of
MITI or any of the Joint Venture Entities has experienced
any labor difficulty, except as to each of the foregoing,
any matter which would not have a MITI Material Adverse
Effect.
(b) In the last three years, neither MITI
nor any of its United States subsidiaries has effectuated,
nor will MITI or any of its United States subsidiaries at
any time before the Effective Time, effectuate (i) a "plant
closing" (as defined in the WARN Act) affecting any site of
employment or one or more facilities or operating units
within any site of employment or facility of MITI or its
subsidiaries; or (ii) a "mass layoff" (as defined in the
WARN Act) affecting any site of employment or facility of
MITI or its subsidiaries; nor has MITI or its United States
subsidiaries been affected by any transaction or engaged in
<PAGE>
81
layoffs or employment terminations sufficient in number to
trigger application of any similar state or local law.
(c) Except as set forth on Schedule 6.24(c),
MITI and all of its United States subsidiaries are in
compliance with all federal and state laws respecting
immigration, employment and employment practices, fair labor
practices, family and medical leave, terms and conditions of
employment (including nondiscrimination in race, age, sex,
religion, disability, etc.) and wages and hours except to
the extent the failure to comply would not have a MITI
Material Adverse Effect.
6.25 Investment Company Act. MITI and each of its
----------------------
United States subsidiaries either (a) is not an "investment
company," or a company "controlled" by, or an "affiliated
company" with respect to, an "investment company," within
the meaning of the Investment Company Act or (b) satisfies
all conditions for an exemption from the Investment Company
Act, and, accordingly, neither MITI nor any of its United
States subsidiaries is required to be registered under the
Investment Company Act.
6.26 Insurance. Except as set forth on
---------
Schedule 6.26, none of MITI, any United States subsidiary of
MITI nor any Joint Venture Entity has received notice of
default under, or intended cancellation or nonrenewal of,
any material policies of insurance which insure the
properties, business or liability of MITI, any United States
subsidiary of MITI or any Joint Venture Entity, except any
of the foregoing as do not and will not have a MITI Material
Adverse Effect.
6.27 Products. (a) Except (i) as set forth on
--------
Schedule 6.27(a) and (ii) as does not and will not have an
MITI Material Adverse Effect, there are no product liability
claims against or involving MITI, any of its United States
subsidiaries or any Joint Venture Entity or any product
manufactured, marketed or distributed at any time by MITI,
any of its United States subsidiaries or any Joint Venture
Entity ("MITI Products") and no such claims have been
settled, adjudicated or otherwise disposed of since
December 31, 1994.
(b) Except (i) as set forth on Sched-
ule 6.27(b) and (ii) as does not and will not have an MITI
Material Adverse Effect, there are no statements, citations
or decisions by any Governmental Body specifically stating
that any MITI Product is defective or unsafe or fails to
meet any standards promulgated by any such Governmental
Body. Except (i) as set forth on Schedule 6.27(b) and
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82
(ii) as does not and will not have a MITI Material Adverse
Effect, there have been no recalls ordered by any such
Governmental Body with respect to any MITI Product. Except
(i) as set forth on Schedule 6.27(b) and (ii) as does not
and will not have a MITI Material Adverse Effect, to MITI's
knowledge, there is no (A) fact relating to any MITI Product
that may impose upon MITI or any of its subsidiaries or any
of the Joint Venture Entities a duty to recall any MITI
Product or a duty to warn customers of a defect in any MITI
Product, (B) latent or overt design, manufacturing or other
defect in any MITI Product or (C) material liability for
warranty claims or returns with respect to any MITI Product
not fully reflected on MITI's financial statements referred
to in Section 6.8 hereof.
ARTICLE 7
COVENANTS OF ACTAVA
Actava covenants and agrees that from and after
the execution and delivery of this Agreement to the
Effective Time:
7.1 Conduct of Business of Actava. Except as
-----------------------------
expressly contemplated by this Agreement, Actava shall, and
it shall cause its subsidiaries to, conduct its and their
businesses in the ordinary course and consistent with past
practice, and Actava shall, and it shall cause its
subsidiaries to, use its best efforts to preserve intact its
business organization, to keep available the services of its
officers and employees and to maintain satisfactory
relationships with all persons with which it does business.
Without limiting the generality of the foregoing, and except
as otherwise expressly provided in this Agreement, prior to
the Effective Time, neither Actava nor any or its
subsidiaries will, without the prior written consent of
Orion, Sterling and MITI:
(i) except as contemplated by this
Agreement, amend or propose to amend its Certificate of
Incorporation or By-laws (or comparable governing
instruments);
(ii) authorize for issuance, issue, grant,
sell, pledge, dispose of or propose to issue, grant, sell,
pledge or dispose of any shares of, or any options,
warrants, commitments, subscriptions or rights of any kind
to acquire any shares of, the capital stock of Actava or any
securities convertible into or exchangeable for shares of
stock of any class of Actava or any of its subsidiaries
<PAGE>
83
except for the issuance of shares of Common Stock pursuant
to the exercise of stock options or warrants or the
conversion of convertible securities described on Sched-
ule 3.2(a) and outstanding on the date hereof in accordance
with their present terms;
(iii) split, combine, subdivide or reclassify
any shares of its capital stock or, except as contemplated
by this Agreement and the Share Exchange Agreement, issue or
authorize the issuance of other securities in respect of, in
lieu of or in substitution for shares of its capital stock
or declare, pay or set aside any dividend or other
distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, or
redeem, purchase or otherwise acquire or offer to acquire
any shares of its own capital stock or any of its
subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other
securities;
(iv) (a) except for (I) indebtedness under
the Finance and Security Agreement, dated as of October 23,
1992 between ITT Commercial Finance Corp. and Actava, as
amended from time to time, (II) indebtedness (including
obligations in respect of capital leases) to be used to
finance the operations of Actava's Snapper Power Equipment
Company division not in excess of $10,000,000 and (III)
other indebtedness (including obligations in respect of
capital leases) not in excess of $1,000,000, create, incur
or assume any short-term debt, long-term debt or obligations
in respect of capital leases; (b) assume, guarantee, endorse
or otherwise become liable or responsible (whether directly,
indirectly, contingently or otherwise) for the obligations
of any other person except wholly-owned subsidiaries of
Actava, in the ordinary course of business consistent with
past practice; (c) make any capital expenditures or make any
loans, advances or capital contributions to, or investments
in, any other person (other than customary travel or
business advances to employees, representatives,
consultants, directors or advisors or subsidiaries made in
the ordinary course of business consistent with past
practice and currently committed, budgeted capital
expenditures and additional capital expenditures for use in
the operations of Actava's Snapper Power Equipment Company
division not in excess of $5,000,000); or (d) incur any
material liability or obligation (absolute, accrued,
contingent or otherwise) other than in the ordinary and
usual course of business and consistent with past practice;
(v) except in the ordinary course of
business consistent with past practice or as may be required
<PAGE>
84
by local law, sell, transfer, mortgage, or otherwise dispose
of, or encumber, or agree to sell, transfer, mortgage or
otherwise dispose of or encumber, any material assets or
properties, real, personal or mixed;
(vi) increase in any manner the compensation
of any of its officers, except in the ordinary course of
business consistent with past practice; or
(vii) agree, commit or arrange to do any of
the foregoing.
Notwithstanding the foregoing, nothing in this
Agreement shall preclude Actava from taking any or all of
the following actions and actions incident thereto or
require the consent of Orion, Sterling and MITI with respect
thereto:
(a) in accordance with and as required by
the terms of the 6 1/2% Convertible Debentures of Actava (the
"Actava Convertible Debentures"), the issuance of Common
Stock upon the conversion by the holders thereof of the
Actava Convertible Debentures into Common Stock;
(b) grants of options having an exercise
price at least equal to the market price on the grant date
of the underlying Common Stock to employees, representa-
tives, consultants, advisors or directors of Actava or its
subsidiaries pursuant to plans in effect on the date of this
Agreement, and consistent with past practice or issuances of
shares pursuant to authorization of the Actava Board of
Directors of up to 280,000 shares of Common Stock to
advisors or consultants in return for the performance of
services for Actava, where Actava's obligation to any such
advisors or consultants is not in excess of the fair market
value of the Common Stock being issued in respect of such
obligation for the performance of services;
(c) declaration and payment of dividends and
other distributions to Actava by its subsidiaries;
(d) draws and payments under and pursuant to
the existing Actava credit facility or facilities listed on
Schedule 7.1;
(e) entering into severance, termination or
retention agreements, and terminating any employment
agreements, with its officers and key employees in the
ordinary course of business and in accordance with past
practice;
<PAGE>
85
(f) payment of mandatory sinking fund
payments under Actava indentures existing on the date
hereof; and
(g) ministerial amendments to the Certifi-
cate or Articles of Incorporation or By-laws of Actava's
subsidiaries not inconsistent with the terms of this
Agreement.
7.2 Notification of Certain Matters. Actava
-------------------------------
shall give prompt written notice to Orion, Sterling and MITI
specifying in reasonable detail: (i) any notice of, or
other communication relating to, a default or event which,
with notice or lapse of time or both, would become a default
under any agreement, indenture or instrument material to the
business, assets, property, condition (financial or
otherwise) or the results of operations of Actava and its
subsidiaries, taken as a whole, to which Actava or any of
its subsidiaries is a party or is subject; (ii) any material
notice or other communication from any third party alleging
that the consent of such third party is or may be required
in connection with the transactions contemplated by this
Agreement including the Mergers; (iii) any material notice
or other communication from any regulatory authority
(including the SEC or the NYSE in connection with the
transactions contemplated by this Agreement; (iv) any event
which has an Actava Material Adverse Effect or the
occurrence of an event which, so far as reasonably can be
foreseen at the time of its occurrence, would result in an
Actava Material Adverse Effect; (v) any claims, actions,
proceedings or investigations commenced or, to Actava's
knowledge, threatened, involving or affecting Actava or any
of its subsidiaries or any of its property or assets, or, to
Actava's knowledge, any employee, consultant, director or
officer, in his or her capacity as such, of Actava or any of
its subsidiaries which, if pending on the date hereof, would
have been required to have been disclosed in a Schedule
pursuant to this Agreement or which relates to the
consummation of the Mergers; and (vi) any event or action
which if known on the date hereof (a) would have caused a
representation or warranty set forth in Article 3 hereof to
be untrue or incomplete or incorrect in any material respect
or (b) would have been required to have been disclosed in a
Schedule pursuant to this Agreement.
7.3 Access and Information.
----------------------
(i) Actava will give each of Orion, Sterling
and MITI and their respective authorized representatives
(including in each case their financial advisors,
accountants and legal counsel) at all reasonable times and
<PAGE>
86
on reasonable advance notice access to all plants, offices,
warehouses and other facilities and to all contracts,
agreements, commitments, books and records (including tax
returns) of it and its subsidiaries (except to the extent
any such agreements or contracts by their terms restrict
access to third parties and the consent of the other
party(ies) thereto cannot be obtained after reasonable
efforts to do so), will permit Orion, Sterling or MITI, as
the case may be, to make such inspections as it may require
and will cause its officers and those of its subsidiaries
promptly to furnish Orion, Sterling or MITI, as the case may
be, with (a) such financial and operating data and other
information with respect to the business and properties of
Actava and its subsidiaries as Orion, Sterling or MITI may
from time to time request, and (b) a copy of each report,
schedule and other document filed or received by Actava or
any of its subsidiaries pursuant to the requirements of
federal or state securities laws or of the NYSE.
(ii) Each of Orion, Sterling and MITI will
hold and will each cause its respective affiliates,
employees, representatives, consultants and advisors to hold
in strict confidence, unless compelled to disclose by
judicial or administrative process, or, in the opinion of
its counsel, by other requirements of law, all documents and
information concerning the other party hereto and its
subsidiaries and affiliates furnished to Orion, Sterling or
MITI in connection with the transactions contemplated by
this Agreement (except to the extent that such information
can be shown to have been (a) previously known by Orion,
Sterling or MITI, as the case may be, or any affiliate of
either of them, (b) in the public domain through no fault of
any of Orion, Sterling or MITI, as the case may be, or any
of their affiliates, employees, representatives, consultants
or advisors or (c) later lawfully acquired from other
sources unless any of Orion, Sterling or MITI, as the case
may be, knew such information was obtained in violation of
an agreement of confidentiality) and will not release or
disclose such information to any other person, except its
auditors, attorneys, financial advisors, and other consul-
tants and advisors and lending institutions (including
banks) in connection with this Agreement (it being under-
stood that such persons shall be informed by Orion, Sterling
or MITI, as the case may be, of the confidential nature of
such information and shall be directed by Orion, Sterling or
MITI, as the case may be, to treat such information
confidentially). If the transactions contemplated by this
Agreement are not consummated, such confidence shall be
maintained except to the extent such information comes into
the public domain under judicial or administrative process
or other requirements of law or through no fault of any of
<PAGE>
87
Orion, Sterling or MITI, as the case may be, or any of their
affiliates, employees, representatives, consultants or
advisors and, if requested by Actava, each of Orion,
Sterling and MITI, as the case may be, will promptly destroy
or return to Actava all copies of written information
furnished by Actava or its respective affiliates, agents,
representatives or advisors and all copies thereof and
excerpts therefrom. If Orion, Sterling or MITI shall be
required to make disclosure of any such information by
operation of law, Orion, Sterling or MITI, as the case may
be, shall give Actava prior written notice of the making of
such disclosure and shall use all reasonable efforts to
afford Actava an opportunity to contest the making of such
disclosures.
7.4 Stockholder Approval. As soon as
--------------------
practicable, Actava will take all steps necessary to duly
call, give notice of, convene and hold a meeting of its
stockholders (including filing with the SEC and mailing to
its stockholders the Proxy Statement) for the purpose of
adopting and approving this Agreement, the Mergers and the
Share Exchange Agreement and for such other purposes as may
be necessary or desirable in connection with effectuating
the transactions contemplated hereby and thereby. Subject
to the compliance by Orion, Sterling and MITI with the
material terms and conditions of this Agreement, the Board
of Directors of Actava, subject to applicable law and the
fiduciary duties of loyalty and care, (i) will not change
its recommendation to the stockholders of Actava that they
adopt and approve this Agreement, the Mergers and the Share
Exchange Agreement and (ii) will use its best efforts to
obtain any necessary approval by its stockholders of the
transactions contemplated hereby and thereby.
7.5 Benefit Plans. Except as otherwise provided
-------------
in this Agreement, no award or grant of Actava securities
under any of Actava's stock option plans or any other
benefit plan or program shall be made without the consent of
Orion, Sterling and MITI; nor shall Actava take any action
or permit any action to be taken to accelerate the vesting
of any options or other restricted securities previously
granted pursuant to any stock option plans or other benefit
plan. Actava shall not make any material amendment to any
(i) stock option plan or options outstanding thereunder,
(ii) any other option or warrant agreement or other stock-
based benefit plan, or (iii) the terms of any other security
convertible into or exchangeable for Common Stock without
the consent of Orion, Sterling and MITI.
7.6 No Inconsistent Activities. Subject to
--------------------------
applicable law and the fiduciary duties of loyalty and care
<PAGE>
88
of the Actava Board of Directors, Actava will not, and will
direct its officers, directors and other representatives
(including, without limitation, any financial advisor,
attorney or accountant retained by Actava) not to, directly
or indirectly, solicit, encourage, or participate in any way
in discussions or negotiations with, or provide any
information, data or assistance to, any third party (other
than Orion, Sterling and MITI) concerning any acquisition of
shares of capital stock of Actava or all or any significant
portion of the total assets of Actava or any material
subsidiary or division of Actava (in either case whether by
merger, consolidation, purchase of assets, tender offer or
otherwise). Actava will promptly communicate to Orion,
Sterling and MITI in writing the terms of any proposal or
contact it may receive in respect of any such transaction.
Actava agrees not to release any third party from any
confidentiality or standstill agreements to which Actava or
any of its subsidiaries is a party.
7.7 SEC and Stockholder Filings. Actava shall
---------------------------
send to Orion, Sterling and MITI copies of all public
reports and materials as and when it sends the same to its
stockholders or the SEC.
7.8 Consents, Waivers, Authorizations, etc.
--------------------------------------
Actava will use its best efforts to obtain all consents,
waivers, authorizations, orders and approvals of and make
all filings and registrations with, any governmental com-
mission, board or other regulatory body or any nongovern-
mental third party, required for, or in connection with, the
performance by it of this Agreement and the consummation by
it of the transactions contemplated hereby, or as may be
required in order not to accelerate, violate, breach or
terminate any agreement to which Actava or any of its
subsidiaries may be subject, if the failure to obtain or
make such consent, waiver, authorization, order, approval,
filing or registration would have an Actava Material Adverse
Effect. Actava will cooperate fully with each of Orion,
Sterling and MITI in assisting it to obtain such consents,
authorizations, orders and approvals. Actava will not take
any action which could reasonably be anticipated to have the
effect of delaying, impairing or impeding the receipt of any
required approvals, regulatory or otherwise.
7.9 Roadmaster Approval of the Mergers. Actava
----------------------------------
shall use best efforts and will cause its officers and
directors to use best efforts to have the Board of Directors
of Roadmaster approve the Mergers in the manner provided in
Section 203 of the DGCL.
<PAGE>
89
7.10 Related Agreements. Actava covenants and
------------------
agrees that it will comply with the terms and provisions of
the Share Exchange Agreement and the Registration Rights
Agreement, to be dated as of the date of the Effective Time
(the "Registration Rights Agreement"), between the
Exchanging Holders and Actava, substantially in the form of
the copies attached hereto as Exhibits C-1 and C-2,
respectively.
7.11 Indemnification. From and after the
---------------
Effective Time, Actava, as the Surviving Corporation in the
Mergers, shall not take any action nor permit any action to
be taken which would have the effect of eliminating or
impairing the rights of current or former officers and
directors of Actava, Orion, Sterling or MITI, prior to the
Effective Time, to be indemnified by the Surviving
Corporation for any actions taken by such officers directors
in such capacities so long as such indemnification would have
been available to such parties at such time in accordance with
the respective By-laws and certificates of incorporation of
Actava, Orion, Sterling or MITI, as the case may be, and
applicable law.
ARTICLE 8
COVENANTS OF ORION
Orion covenants and agrees that from and after the
execution and delivery of this Agreement to the Effective
Time:
8.1 Conduct of Business of Orion. Except as
----------------------------
expressly contemplated by this Agreement, Orion shall, and
it shall cause its subsidiaries to, conduct its and their
businesses in the ordinary course and consistent with past
practice, and Orion shall, and it shall cause its
subsidiaries to, use its best efforts to preserve intact its
business organization, to keep available the services of its
officers and employees and to maintain satisfactory
relationships with all persons with which it does business.
Without limiting the generality of the foregoing, and except
as otherwise expressly provided in this Agreement, prior to
the Effective Time, neither Orion nor any or its
subsidiaries will, without the prior written consent of
Actava, Sterling and MITI:
(i) amend or propose to amend its
Certificate of Incorporation or By-laws (or comparable
governing instruments);
<PAGE>
90
(ii) authorize for issuance, issue, grant,
sell, pledge, dispose of or propose to issue, grant, sell,
pledge or dispose of any shares of, or any options,
warrants, commitments, subscriptions or rights of any kind
to acquire any shares of, the capital stock of Orion or any
securities convertible into or exchangeable for shares of
stock of any class of Orion or any of its subsidiaries
except for the issuance of shares of Orion Common Stock
pursuant to the exercise of stock options or warrants or the
conversion of convertible securities described on Schedule
4.2(a) and outstanding on the date hereof in accordance with
their present terms;
(iii) split, combine, subdivide or reclassify
any shares of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock or
declare, pay or set aside any dividend or other distribution
(whether in cash, stock or property or any combination
thereof) in respect of its capital stock, or redeem,
purchase or otherwise acquire or offer to acquire any shares
of its own capital stock or any of its subsidiaries or any
other securities thereof or any rights, warrants or options
to acquire any such shares or other securities;
(iv) (a) except for debt (including obliga-
tions in respect of capital leases) not in excess of
$3,000,000 or indebtedness which is non-recourse to Orion
and its Restricted Subsidiaries (as defined in Sec-
tion 15.9), create, incur or assume any short-term debt,
long-term debt or obligations in respect of capital leases;
(b) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, indirectly, contingently or
otherwise) for the obligations of any other person except
wholly-owned subsidiaries of Orion, in the ordinary course
of business consistent with past practice; (c) make any
capital expenditures or make any loans, advances or capital
contributions to, or investments in, any other person (other
than customary travel or business advances to employees,
representatives, consultants, directors or advisors or
subsidiaries made in the ordinary course of business
consistent with past practice and currently committed,
budgeted capital expenditures and additional capital
expenditures not in excess of $1,000,000); or (d) incur any
material liability or obligation (absolute, accrued,
contingent or otherwise) other than in the ordinary and
usual course of business and consistent with past practice;
(v) except in the ordinary course of
business consistent with past practice or as may be required
by local law, sell, transfer, mortgage, or otherwise dispose
<PAGE>
91
of, or encumber, or agree to sell, transfer, mortgage or
otherwise dispose of or encumber, any material assets or
properties, real, personal or mixed;
(vi) increase in any manner the compensation
of any of its officers, except in the ordinary course of
business consistent with past practice; or
(vii) agree, commit or arrange to do any of
the foregoing.
Notwithstanding the foregoing, nothing in this
Agreement shall preclude Orion from taking any or all of the
following actions and actions incident thereto or require
the consent of Actava, Sterling and MITI with respect
thereto:
(a) declaration and payment of dividends and
other distributions to Orion by its subsidiaries;
(b) draws and payments under and pursuant to
the existing Orion credit facility or facilities or the
other indebtedness listed on Schedule 8.1;
(c) entering into severance, termination or
retention agreements, and terminating any employment
agreements, with its officers and key employees in the
ordinary course of business and in accordance with past
practice;
(d) making payments in accordance with the
terms of the Orion Pictures Corporation Incentive Bonus Plan
or the termination thereof; and
(e) ministerial amendments to the Certifi-
cate or Articles of Incorporation or By-laws of Orion's
subsidiaries not inconsistent with the terms of this
Agreement.
8.2 Notification of Certain Matters. Orion shall
-------------------------------
give prompt written notice to Actava, Sterling and MITI
specifying in reasonable detail: (i) any notice of, or
other communication relating to, a default or event which,
with notice or lapse of time or both, would become a default
under any agreement, indenture or instrument material to the
business, assets, property, condition (financial or
otherwise) or the results of operations of Orion and its
subsidiaries, taken as a whole, to which Orion or any of its
subsidiaries is a party or is subject; (ii) any material
notice or other communication from any third party alleging
that the consent of such third party is or may be required
<PAGE>
92
in connection with the transactions contemplated by this
Agreement including the Mergers; (iii) any material notice
or other communication from any regulatory authority
(including the SEC or the National Association of Securities
Dealers (the "NASD") in connection with the transactions
contemplated by this Agreement; (iv) any event which has an
Orion Material Adverse Effect or the occurrence of an event
which, so far as reasonably can be foreseen at the time of
its occurrence, would result in an Orion Material Adverse
Effect; (v) any claims, actions, proceedings or
investigations commenced or, to Orion's knowledge,
threatened, involving or affecting Orion or any of its
subsidiaries or any of its property or assets, or, to
Orion's knowledge, any employee, consultant, director or
officer, in his or her capacity as such, of Orion or any of
its subsidiaries which, if pending on the date hereof, would
have been required to have been disclosed in a Schedule
pursuant to this Agreement or which relates to the
consummation of the Orion Merger; and (vi) any event or
action which if known on the date hereof (a) would have
caused a representation or warranty set forth in Article 4
hereof to be untrue or incomplete or incorrect in any
material respect or (b) would have been required to have
been disclosed on a Schedule pursuant to this Agreement.
8.3 Access and Information.
----------------------
(i) Orion will give each of Actava, Sterling
and MITI and their respective authorized representatives
(including in each case their financial advisors,
accountants and legal counsel) at all reasonable times and
on reasonable advance notice access to all plants, offices,
warehouses and other facilities and to all contracts,
agreements, commitments, books and records (including tax
returns) of it and its subsidiaries (except to the extent
any such agreements or contracts by their terms restrict
access to third parties and the consent of the other
party(ies) thereto cannot be obtained after reasonable
efforts to do so), will permit Actava, Sterling or MITI, as
the case may be, to make such inspections as it may require
and will cause its officers and those of its subsidiaries
promptly to furnish Actava, Sterling or MITI, as the case
may be, with (a) such financial and operating data and other
information with respect to the business and properties of
Orion and its subsidiaries as Actava, Sterling or MITI may
from time to time request, and (b) a copy of each report,
schedule and other document filed or received by Orion, or
any of its subsidiaries pursuant to the requirements of
federal or state securities laws or of the NASD.
<PAGE>
93
(ii) Each of Actava, Sterling and MITI will
hold and will each cause its respective affiliates,
employees, representatives, consultants and advisors to hold
in strict confidence, unless compelled to disclose by
judicial or administrative process, or, in the opinion of
its counsel, by other requirements of law, all documents and
information concerning the other party hereto and its
subsidiaries and affiliates furnished to Actava, Sterling or
MITI in connection with the transactions contemplated by
this Agreement (except to the extent that such information
can be shown to have been (a) previously known by Actava,
Sterling or MITI, as the case may be, or any affiliate of
either of them, (b) in the public domain through no fault of
any of Actava, Sterling or MITI, as the case may be, or any
of their affiliates, employees, representatives, consultants
or advisors or (c) later lawfully acquired from other
sources unless any of Actava, Sterling or MITI, as the case
may be, knew such information was obtained in violation of
an agreement of confidentiality) and will not release or
disclose such information to any other person, except its
auditors, attorneys, financial advisors, and other
consultants and advisors and lending institutions (including
banks) in connection with this Agreement (it being
understood that such persons shall be informed by Actava,
Sterling or MITI, as the case may be, of the confidential
nature of such information and shall be directed by Actava,
Sterling or MITI, as the case may be, to treat such
information confidentially). If the transactions
contemplated by this Agreement are not consummated, such
confidence shall be maintained except to the extent such
information comes into the public domain under judicial or
administrative process or other requirements of law or
through no fault of any of Actava, Sterling or MITI, as the
case may be, or any of their affiliates, employees,
representatives, consultants or advisors and, if requested
by Orion, each of Actava, Sterling and MITI, as the case may
be, will promptly destroy or return to Actava all copies of
written information furnished by Orion or its respective
affiliates, agents, representatives or advisors and all
copies thereof and excerpts therefrom. If Actava, Sterling
or MITI shall be required to make disclosure of any such
information by operation of law, Actava, Sterling or MITI,
as the case may be, shall give Orion prior written notice of
the making of such disclosure and shall use all reasonable
efforts to afford Orion an opportunity to contest the making
of such disclosures.
8.4 Stockholder Approval. As soon as
--------------------
practicable, Orion will take all steps necessary to duly
call, give notice of, convene and hold a meeting of its
stockholders (including filing with the SEC and mailing to
<PAGE>
94
its stockholders the Proxy Statement) for the purpose of
adopting and approving this Agreement and the Orion Merger
and for such other purposes as may be necessary or desirable
in connection with effectuating the transactions
contemplated hereby. Subject to the compliance by Actava,
Sterling and MITI with the material terms and conditions of
this Agreement, the Board of Directors of Orion, subject to
applicable law and the fiduciary duties of loyalty and care,
(i) will not change its recommendation to the stockholders
of Orion that they adopt and approve this Agreement and the
Orion Merger and (ii) will use its best efforts to obtain
any necessary approval by its stockholders of the trans-
actions contemplated hereby.
8.5 Benefit Plans. Except as otherwise provided
-------------
in this Agreement, no award or grant under any of Orion's
stock option plans or any other benefit plan or program
shall be made without the consent of Actava, Sterling and
MITI; nor shall Orion take any action or permit any action
to be taken to accelerate the vesting of any options or
other restricted securities previously granted pursuant to
any stock option plans or other benefit plan. Orion shall
not make any material amendment to any (i) stock option plan
or options outstanding thereunder, (ii) any other option or
warrant agreement or other stock-based benefit plan, or
(iii) the terms of any other security convertible into or
exchangeable for Orion Common Stock without the consent of
Actava, Sterling and MITI.
8.6 No Inconsistent Activities. Subject to
--------------------------
applicable law and the fiduciary duties of loyalty and care
of the Orion Board of Directors, Orion will not, and will
direct its officers, directors and other representatives
(including, without limitation, any financial adviser,
attorney or accountant retained by Orion) not to, directly
or indirectly, solicit, encourage, or participate in any way
in discussions or negotiations with, or provide any informa-
tion, data or assistance to, any third party (other than
Actava, Sterling and MITI) concerning any acquisition of
shares of capital stock of Orion or all or any significant
portion of the total assets of Orion or any material
subsidiary or division of Orion (in either case whether by
merger, consolidation, purchase of assets, tender offer or
otherwise). Orion will promptly communicate to Actava,
Sterling and MITI in writing the terms of any proposal or
contact it may receive in respect of any such transaction.
Orion agrees not to release any third party from any
confidentiality or standstill agreements to which Orion or
any of its subsidiaries is a party.
<PAGE>
95
8.7 SEC and Stockholder Filings. Orion shall
---------------------------
send to Actava, Sterling and MITI copies of all public
reports and materials as and when it sends the same to its
stockholders or the SEC.
8.8 Consents, Waivers, Authorizations, etc.
--------------------------------------
Orion will use its best efforts to obtain all consents,
waivers, authorizations, orders and approvals of and make
all filings and registrations with, any governmental com-
mission, board or other regulatory body or any nongovern-
mental third party, required for, or in connection with, the
performance by it of this Agreement and the consummation by
it of the transactions contemplated hereby, or as may be
required in order not to accelerate, violate, breach or
terminate any agreement to which Orion or any of its
subsidiaries may be subject, if the failure to obtain or
make such consent, waiver, authorization, order, approval,
filing or registration would have an Orion Material Adverse
Effect. Orion will cooperate fully with each of Actava,
Sterling and MITI in assisting it to obtain such consents,
authorizations, orders and approvals. Orion will not take
any action which could reasonably be anticipated to have the
effect of delaying, impairing or impeding the receipt of any
required approvals, regulatory or otherwise.
ARTICLE 9
COVENANTS OF STERLING
Sterling covenants and agrees that from and after
the execution and delivery of this Agreement to the
Effective Time:
9.1 Conduct of Business of Sterling. Except as
-------------------------------
expressly contemplated by this Agreement, Sterling shall,
and it shall cause its subsidiaries to, conduct its and
their businesses in the ordinary course and consistent with
past practice, and Sterling shall, and it shall cause its
subsidiaries to, use its best efforts to preserve intact its
business organization, to keep available the services of its
officers and employees and to maintain satisfactory
relationships with all persons with which it does business.
Without limiting the generality of the foregoing, and except
as otherwise expressly provided in this Agreement, prior to
the Effective Time, neither Sterling nor any or its
subsidiaries will, without the prior written consent of
Actava, Orion and MITI:
<PAGE>
96
(i) amend or propose to amend its
Certificate of Incorporation or By-laws (or comparable
governing instruments);
(ii) authorize for issuance, issue, grant,
sell, pledge, dispose of or propose to issue, grant, sell,
pledge or dispose of any shares of, or any options,
warrants, commitments, subscriptions or rights of any kind
to acquire any shares of, the capital stock of Sterling or
any securities convertible into or exchangeable for shares
of stock of any class of Sterling or any of its subsidiaries
except for the issuance of shares of Sterling Common Stock
pursuant to the exercise of stock options or warrants or the
conversion of convertible securities described on
Schedule 5.2(a) and outstanding on the date hereof in
accordance with their present terms;
(iii) split, combine, subdivide or reclassify
any shares of its capital stock or issue or authorize the
issuance of any other securities in respect, in lieu of or
in substitution for shares of its capital stock or declare,
pay or set aside any dividend or other distribution (whether
in cash, stock or property or any combination thereof) in
respect of its capital stock, or redeem, purchase or
otherwise acquire or offer to acquire any shares of its own
capital stock or any of its subsidiaries or any other
securities thereof or any rights, warrants or options to
acquire any such shares or other securities;
(iv) (a) except for debt entered into in
connection with the transactions set forth on Schedule
5.10(v), which require the consent of Orion pursuant to
Section 9.1(v) hereof and debt (including obligations in
respect of capital leases) not in excess of $100,000 create,
incur or assume any short-term debt, long-term debt or
obligations in respect of capital leases; assume, guarantee,
endorse or otherwise become liable or responsible (whether
directly, indirectly, contingently or otherwise) for the
obligations of any other person except wholly-owned
subsidiaries of Sterling, in the ordinary course of business
consistent with past practice; (c) make any capital expendi-
tures or make any loans, advances or capital contributions
to, or investments in, any other person (other than
customary travel or business advances to employees,
representatives, consultants, advisors or directors or
subsidiaries made in the ordinary course of business
consistent with past practice and currently committed,
budgeted capital expenditures and additional capital
expenditures not in excess of $100,000); or (d) incur any
material liability or obligation (absolute, accrued,
<PAGE>
97
contingent or otherwise) other than in the ordinary and
usual course of business and consistent with past practice;
(v) except in the ordinary course of
business consistent with past practice or as may be required
by local law, sell, transfer, mortgage, or otherwise dispose
of, or encumber, or agree to sell, transfer, mortgage or
otherwise dispose of or encumber, any material assets or
properties, real, personal or mixed or enter into any
agreements with the Showtime Networks, Inc. without the
prior written consent of Orion;
(vi) increase in any manner the compensation
of any of its officers, except in the ordinary course of
business consistent with past practice; or
(vii) agree, commit or arrange to do any of
the foregoing.
Notwithstanding the foregoing, nothing in this
Agreement shall preclude Sterling from taking any or all of
the following actions and actions incident thereto or
require the consent of Actava, Orion and MITI with respect
thereto:
(a) grants of up to 1,000,000 shares of
Sterling Common Stock and cash payments in an amount not to
exceed $650,000 in the aggregate to employees and
consultants of Sterling in accordance with the MCEG Sterling
Incorporated Incentive Bonus Plan;
(b) declaration and payment of dividends and
other distributions to Sterling by its subsidiaries;
(c) draws and payments under and pursuant to
the existing Sterling credit facility or facilities listed
on Schedule 9.1;
(d) entering into severance, termination or
retention agreements, and terminating any employment
agreements, with its officers and key employees in the
ordinary course of business and in accordance with past
practice; and
(e) ministerial amendments to the Certifi-
cate or Articles of Incorporation or By-laws of Sterling's
subsidiaries not inconsistent with the terms of this
Agreement.
9.2 Notification of Certain Matters. Sterling
-------------------------------
shall give prompt written notice to Actava, Orion and MITI
<PAGE>
98
specifying in reasonable detail: (i) any notice of, or
other communication relating to, a default or event which,
with notice or lapse of time or both, would become a default
under any agreement, indenture or instrument material to the
business, assets, property, condition (financial or
otherwise) or the results of operations of Sterling and its
subsidiaries, taken as a whole, to which Sterling or any of
its subsidiaries is a party or is subject; (ii) any material
notice or other communication from any third party alleging
that the consent of such third party is or may be required
in connection with the transactions contemplated by this
Agreement including the Mergers; (iii) any material notice
or other communication from any regulatory authority
(including the SEC or the NASD) in connection with the
transactions contemplated by this Agreement; (iv) any event
which has a Sterling Material Adverse Effect or the
occurrence of an event which, so far as reasonably can be
foreseen at the time of its occurrence, would result in a
Sterling Material Adverse Effect; (v) any claims, actions,
proceedings or investigations commenced or, to Sterling's
knowledge, threatened, involving or affecting Sterling or
any of its subsidiaries or any of its property or assets,
or, to Sterling's knowledge, any employee, consultant,
director or officer, in his or her capacity as such, of
Sterling or any of its subsidiaries which, if pending on the
date hereof, would have been required to have been disclosed
in a Schedule pursuant to this Agreement or which relates to
the consummation of the Sterling Merger; and (vi) any event
or action which if known on the date hereof (a) would have
caused a representation or warranty set forth in Article 5
hereof to be untrue or incomplete or incorrect in any
material respect or (b) would have been required to have
been disclosed in a Schedule pursuant to this Agreement.
9.3 Access and Information.
----------------------
(i) Sterling will give each of Actava, Orion
and MITI and their respective authorized representatives
(including in each case their financial advisors,
accountants and legal counsel) at all reasonable times and
on reasonable advance notice access to all plants, offices,
warehouses and other facilities and to all contracts,
agreements, commitments, books and records (including tax
returns) of it and its subsidiaries (except to the extent
any such agreements or contracts by their terms restrict
access to third parties and the consent of the other
party(ies) thereto cannot be obtained after reasonable
efforts to do so), will permit Actava, Orion or MITI, as the
case may be, to make such inspections as it may require and
will cause its officers and those of its subsidiaries
promptly to furnish Actava, Orion or MITI, as the case may
<PAGE>
99
be, with (a) such financial and operating data and other
information with respect to the business and properties of
Sterling and its subsidiaries as Actava, Orion or MITI may
from time to time request, and (b) a copy of each report,
schedule and other document filed or received by Sterling or
any of its subsidiaries pursuant to the requirements of
federal or state securities laws.
(ii) Each of Actava, Orion and MITI will hold
and will each cause its respective affiliates, employees,
representatives, consultants and advisors to hold in strict
confidence, unless compelled to disclose by judicial or
administrative process, or, in the opinion of its counsel,
by other requirements of law, all documents and information
concerning the other party hereto and its subsidiaries and
affiliates furnished to Actava, Orion or MITI in connection
with the transactions contemplated by this Agreement (except
to the extent that such information can be shown to have
been (a) previously known by Actava, Orion or MITI, as the
case may be, or any affiliate of either of them, (b) in the
public domain through no fault of any of Actava, Orion or
MITI, as the case may be, or any of their affiliates,
employees, representatives, consultants or advisors or
(c) later lawfully acquired from other sources unless any of
Actava, Orion or MITI, as the case may be, knew such
information was obtained in violation of an agreement of
confidentiality) and will not release or disclose such
information to any other person, except its auditors,
attorneys, financial advisors, and other consultants and
advisors and lending institutions (including banks) in
connection with this Agreement (it being understood that
such persons shall be informed by Actava, Orion or MITI, as
the case may be, of the confidential nature of such
information and shall be directed by Actava, Orion or MITI,
as the case may be, to treat such information
confidentially). If the transactions contemplated by this
Agreement are not consummated, such confidence shall be
maintained except to the extent such information comes into
the public domain under judicial or administrative process
or other requirements of law or through no fault of any of
Actava, Orion or MITI, as the case may be, or any of their
affiliates, employees, representatives, consultants or
advisors and, if requested by Sterling, each of Actava,
Orion or MITI, as the case may be, will promptly destroy or
return to Sterling all copies of written information
furnished by Sterling or its respective affiliates, agents,
representatives or advisors and all copies thereof and
excerpts therefrom. If Actava, Orion or MITI shall be
required to make disclosure of any such information by
operation of law, Actava, Orion and MITI, as the case may
be, shall give Sterling prior written notice of the making
<PAGE>
100
of such disclosure and shall use all reasonable efforts to
afford Sterling an opportunity to contest the making of such
disclosures.
9.4 Stockholder Approval. As soon as prac-
--------------------
ticable, Sterling will take all steps necessary to duly
call, give notice of, convene and hold a meeting of its
stockholders (including filing with the SEC and mailing to
its stockholders the Proxy Statement) for the purpose of
adopting and approving this Agreement and the Sterling
Merger and for such other purposes as may be necessary or
desirable in connection with effectuating the transactions
contemplated hereby. Subject to the compliance by Actava,
Orion and MITI with the material terms and conditions of
this Agreement, the Board of Directors of Sterling, subject
to applicable law and the fiduciary duties of loyalty and
care (and also subject to the understanding that members of
the Sterling Board of Directors who serve as voting trustees
of the Sterling Voting Trust, shall not be required as a
result of this Agreement to take any actions contrary to
their fiduciary duties in their capacities as trustees),
(i) will not change its recommendation to the stockholders
of Sterling that they adopt and approve this Agreement and
the Sterling Merger and (ii) will use its best efforts to
obtain any necessary approval by its stockholders of the
transactions contemplated hereby.
9.5 Benefit Plans. Except as otherwise provided
-------------
in this Agreement, no award or grant under any of Sterling's
stock option plans or any other benefit plan or program
shall be made without the consent of Actava, Orion and MITI;
nor shall Sterling take any action or permit any action to
be taken to accelerate the vesting of any options or other
restricted securities previously granted pursuant to any
stock option plans or other benefit plan. Sterling shall
not make any material amendment to any (i) stock option plan
or options outstanding thereunder, (ii) any other option or
warrant agreement or other stock-based benefit plan, or
(iii) the terms of any other security convertible into or
exchangeable for Sterling Common Stock without the consent
of Actava, Orion and MITI.
9.6 No Inconsistent Activities. Subject to
--------------------------
applicable law and the fiduciary duties of loyalty and care
of the Sterling Board of Directors, Sterling will not, and
will direct its officers, directors and other
representatives (including, without limitation, any
financial advisor, attorney or accountant retained by
Sterling) not to, directly or indirectly, solicit,
encourage, or participate in any way in discussions or
negotiations with, or provide any information, data or
<PAGE>
101
assistance to, any third party (other than Actava, Orion,
and MITI) concerning any acquisition of shares of capital
stock of Sterling or all or any significant portion of the
total assets of Sterling or any material subsidiary or
division of Sterling (in either case whether by merger,
consolidation, purchase of assets, tender offer or
otherwise). Sterling will promptly communicate to Actava,
Orion and MITI in writing the terms of any proposal or
contact it may receive in respect of any such transaction.
Sterling agrees not to release any third party from any
confidentiality or standstill agreements to which Sterling
or any of its subsidiaries is a party.
9.7 SEC and Stockholder Filings. Sterling shall
---------------------------
send to Actava, Orion and MITI copies of all public reports
and materials as and when it sends the same to its
stockholders or the SEC.
9.8 Consents, Waivers, Authorizations, etc.
--------------------------------------
Sterling will use its best efforts to obtain all consents,
waivers, authorizations, orders and approvals of and make
all filings and registrations with, any governmental com-
mission, board or other regulatory body or any nongovern-
mental third party, required for, or in connection with, the
performance by it of this Agreement and the consummation by
it of the transactions contemplated hereby, or as may be
required in order not to accelerate, violate, breach or
terminate any agreement to which Sterling or any of its
subsidiaries may be subject, if the failure to obtain or
make such consent, waiver, authorization, order, approval,
filing or registration would have a Sterling Material
Adverse Effect. Sterling will cooperate fully with each of
Actava, Orion and MITI in assisting it to obtain such
consents, authorizations, orders and approvals. Sterling
will not take any action which could reasonably be antici-
pated to have the effect of delaying, impairing or impeding
the receipt of any required approvals, regulatory or
otherwise.
ARTICLE 10
COVENANTS OF MITI
MITI covenants and agrees that from and after the
execution and delivery of this Agreement to the Effective
Time:
10.1 Conduct of Business of MITI. Except as
---------------------------
expressly contemplated by this Agreement, MITI shall, and it
shall use its best efforts to cause its United States
<PAGE>
102
subsidiaries and Joint Venture Entities to, conduct its and
their businesses in the ordinary course and consistent with
past practice (other than any changes made in connection
with the initial audits of the Joint Venture Entities or
changes made in an effort to conduct business operations
more effectively), and MITI shall, and it shall use its best
efforts to cause each of the United States subsidiaries and
the Joint Venture Entities to, use its best efforts to
preserve intact its business organization, to keep available
the services of its officers and employees and to maintain,
in accordance with past practice, satisfactory relationships
with all persons with which it does business. Without
limiting the generality of the foregoing, and except as
otherwise expressly provided in this Agreement, prior to the
Effective Time, none of MITI, any of its United States
subsidiaries nor any Operating Joint Venture Entity will,
without the prior written consent of Actava, Orion and
Sterling:
(i) amend or propose to amend its
Certificate of Incorporation or By-laws (or comparable
governing instruments);
(ii) authorize for issuance, issue, grant,
sell, pledge, dispose of or propose to issue, grant, sell,
pledge or dispose of any shares of, or any options,
warrants, commitments, subscriptions or rights of any kind
to acquire any shares of, the capital stock of MITI, any
United States subsidiary or any Operating Joint Venture
Entity or any securities convertible into or exchangeable
for shares of stock of any class of MITI, any of its United
States subsidiaries or any Operating Joint Venture Entity
except for (A) the issuance of shares of MITI Common Stock
pursuant to the exercise of stock options or warrants or
other rights or the conversion of convertible securities
described on Schedule 6.2(a) and outstanding on the date
hereof in accordance with their present terms or (B)
issuances as contemplated by Schedule 10.1(ii);
(iii) other than as contemplated on
Schedules 6.2(a) and 6.2(b), split, combine, subdivide or
reclassify any shares of its capital stock or issue or
authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital
stock or declare, pay or set aside any dividend or other
distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, or
redeem, purchase or otherwise acquire or offer to acquire
any shares of its own capital stock or any of its United
States subsidiaries or any other securities thereof or any
<PAGE>
103
rights, warrants or options to acquire any such shares or
other securities;
(iv) (a) except for (I) indebtedness which
is contemplated by the MITI Budget, (II) indebtedness
(including obligations in respect of capital leases) not in
excess of $10,000,000 or (III) indebtedness owed or
guaranteed by MITI and its United States subsidiaries to the
Overseas Private Investment Corporation (the "OPIC Loan"),
create, incur or assume any short-term debt, long-term debt
or obligations in respect of capital leases; (b) assume,
guarantee, endorse or otherwise become liable or responsible
(whether directly, indirectly, contingently or otherwise)
for the obligations of any other person except direct or
indirect wholly-owned subsidiaries of MITI or the Joint
Venture Entities, in the ordinary course of business
consistent with past practice; (c) make any capital expendi-
tures or make any loans, advances or capital contributions
to, or investments in, any other person (other than
(I) customary travel or business advances to employees,
directors, representatives, consultants or advisors or
subsidiaries made in the ordinary course of business
consistent with past practice, (II) loans, advances, capital
contributions to or investments in foreign entities in
accordance with currently committed, budgeted capital
expenditures and (III) additional capital expenditures not
in excess of $10,000,000) or (d) incur any material
liability or obligation (absolute, accrued, contingent or
otherwise) other than in the ordinary and usual course of
business and consistent with past practice;
(v) except in the ordinary course of
business consistent with past practice, as may be required
by local law or except for liens and other security
interests granted by MITI and its United States subsidiaries
to secure the OPIC Loan or in connection with the incurrence
of any indebtedness by MITI which is permitted by the
preceding clause (iv) hereof, sell, transfer, mortgage, or
otherwise dispose of, or encumber, or agree to sell,
transfer, mortgage or otherwise dispose of or encumber, any
material assets or properties, real, personal or mixed;
(vi) increase in any manner the compensation
of any of its officers in excess of $100,000, except in the
ordinary course of business consistent with past practice;
or
(vii) agree, commit or arrange to do any of
the foregoing.
<PAGE>
104
Notwithstanding the foregoing, nothing in this
Agreement shall preclude MITI, any of its United States
subsidiaries or any Operating Joint Venture Entity from
taking any or all of the following actions and actions
incident thereto or require the consent of Actava, Orion and
Sterling with respect thereto:
(a) grants of options to acquire up to
107,000 shares of MITI Common Stock (subject to adjustment
in accordance with the MITI 1994 Stock Option Plan) to
officers, directors, employees and consultants of MITI in
accordance with the MITI 1994 Stock Option Plan and grants
of options having an exercise price at least equal to the
market price on the grant date of the underlying MITI Common
Stock to employees, directors, representatives, consultants
or advisors of MITI or its United States subsidiaries
pursuant to plans in effect on the date of this Agreement,
as the same may be amended to increase the number of shares
available thereunder, and consistent with past practice;
(b) declaration and payment of dividends and
other distributions to MITI or its subsidiaries by their
respective subsidiaries or any of the Joint Venture
Entities;
(c) draws under and pursuant to the existing
MITI credit facility or facilities listed on Schedule 10.1;
(d) entering into severance, termination or
retention agreements, and terminating any employment
agreements, with its officers and key employees in the
ordinary course of business and in accordance with past
practice;
(e) ministerial amendments to the Certifi-
cate or Articles of Incorporation or By-laws of MITI's
United States subsidiaries not inconsistent with the terms
of this Agreement; and
(f) amendments, modifications or restate-
ments of the Certificate or Articles of Incorporation or By-
laws (or comparable governing instruments and charter
documents) of the Joint Venture Entities, so long as any of
the above would not have a MITI Material Adverse Effect.
10.2 Notification of Certain Matters. MITI shall
-------------------------------
give prompt written notice to Actava, Orion and Sterling
specifying in reasonable detail: (i) any notice of, or
other communication relating to, a default or event which,
with notice or lapse of time or both, would become a default
under any agreement, indenture or instrument material to the
<PAGE>
105
business, assets, property, condition (financial or
otherwise) or the results of operations of MITI, its United
States subsidiaries or any Joint Venture Entity, taken as a
whole, to which MITI, any of its United States subsidiaries
or any Joint Venture Entity is a party or is subject;
(ii) any material notice or other communication from any
third party alleging that the consent of such third party is
or may be required in connection with the transactions
contemplated by this Agreement including the Mergers;
(iii) any material notice or other communication from any
regulatory authority in connection with the transactions
contemplated by this Agreement; (iv) any event which has a
MITI Material Adverse Effect, or the occurrence of an event
which, so far as reasonably can be foreseen at the time of
its occurrence, would result in any MITI Material Adverse
Effect; (v) any claims, actions, proceedings or investi-
gations commenced or, to MITI's knowledge, threatened,
involving or affecting MITI, any of its United States
subsidiaries or any Joint Venture Entity or any of their
respective property or assets, or, to MITI's knowledge, any
employee, consultant, director or officer, in his or her
capacity as such, of MITI or any of its subsidiaries which,
if pending on the date hereof, would have been required to
have been disclosed in a Schedule pursuant to this Agreement
or which relates to the consummation of the MITI Merger; and
(vi) any event or action which if known on the date hereof
(a) would have caused a representation or warranty set forth
in Article 6 hereof to be untrue or incomplete or incorrect
in any material respect or (b) would have been required to
have been disclosed in a Schedule pursuant to this
Agreement.
10.3 Access and Information.
----------------------
(i) MITI will give each of Actava, Orion and
Sterling and their respective authorized representatives
(including in each case their financial advisors, accoun-
tants and legal counsel) at all reasonable times and on
reasonable advance notice access to all plants, offices,
warehouses and other facilities and to all contracts,
agreements, commitments, books and records (including tax
returns) of it and its subsidiaries (except to the extent
any such agreements or contracts by their terms restrict
access to third parties and the consent of the other
party(ies) thereto cannot be obtained after reasonable
efforts to do so), will permit Actava, Orion or Sterling, as
the case may be, to make such inspections as it may require
and will cause its officers and those of its United States
subsidiaries and will use its best efforts to cause
representatives of the Joint Venture Entities promptly to
furnish Actava, Orion or Sterling, as the case may be, with
<PAGE>
106
such financial and operating data and other information with
respect to the business and properties of MITI, its United
States subsidiaries and its Joint Venture Entities as
Actava, Orion, or Sterling may from time to time request.
(ii) Each of Actava, Orion and Sterling will
hold and will each cause its respective affiliates,
employees, representatives, consultants and advisors to hold
in strict confidence, unless compelled to disclose by
judicial or administrative process, or, in the opinion of
its counsel, by other requirements of law, all documents and
information concerning the other party hereto and its
subsidiaries and affiliates furnished to Actava, Orion or
Sterling in connection with the transactions contemplated by
this Agreement (except to the extent that such information
can be shown to have been (a) previously known by Actava,
Orion or Sterling, as the case may be, or any affiliate of
either of them, (b) in the public domain through no fault of
any of Actava, Orion or Sterling, as the case may be, or any
of their affiliates, employees, representatives, consultants
or advisors or (c) later lawfully acquired from other
sources unless any of Actava, Orion or Sterling, as the case
may be, knew such information was obtained in violation of
an agreement of confidentiality) and will not release or
disclose such information to any other person, except its
auditors, attorneys, financial advisors, and other consul-
tants and advisors and lending institutions (including
banks) in connection with this Agreement (it being under-
stood that such persons shall be informed by Actava, Orion
or Sterling, as the case may be, of the confidential nature
of such information and shall be directed by Actava, Orion
or Sterling, as the case may be, to treat such information
confidentially). If the transactions contemplated by this
Agreement are not consummated, such confidence shall be
maintained except to the extent such information comes into
the public domain under judicial or administrative process
or other requirements of law or through no fault of any of
Actava, Orion or Sterling, as the case may be, or any of
their affiliates, employees, representatives, consultants or
advisors and, if requested by MITI, each of Actava, Orion
and Sterling, as the case may be, will promptly destroy or
return to MITI all copies of written information furnished
by MITI or its respective affiliates, agents, representa-
tives or advisors and all copies thereof and excerpts
therefrom. If Actava, Orion or Sterling shall be required
to make disclosure of any such information by operation of
law, Actava, Orion or Sterling, as the case may be, shall
give MITI prior written notice of the making of such dis-
closure and shall use all reasonable efforts to afford MITI
an opportunity to contest the making of such disclosures.
<PAGE>
107
10.4 Stockholder Approval. As soon as
--------------------
practicable, MITI will take all steps necessary to duly
call, give notice of, convene and hold a meeting of its
stockholders for the purpose of adopting and approving this
Agreement and the MITI Merger and for such other purposes as
may be necessary or desirable in connection with
effectuating the transactions contemplated hereby unless
MITI's stockholders, in lieu of such a meeting, have acted
by written consent pursuant to the provisions of Section 228
of the DGCL, with respect to the foregoing in which case
MITI will have no obligation hereunder to convene and hold a
meeting of its stockholders. Subject to the compliance by
Actava, Orion and Sterling with the material terms and
conditions of this Agreement, the Board of Directors of
MITI, subject to applicable law and the fiduciary duties of
loyalty and care, (i) will not change its recommendation to
the stockholders of MITI that they adopt and approve this
Agreement and (ii) will use its best efforts to obtain any
necessary approval by its stockholders of the transactions
contemplated hereby.
10.5 Benefit Plans. Except as otherwise provided
-------------
in this Agreement, no award or grant under any of MITI's
stock option plans or any other benefit plan or program
shall be made without the consent of Actava, Orion and
Sterling; nor shall MITI take any action or permit any
action to be taken to accelerate the vesting of any options
or other restricted securities previously granted pursuant
to any stock option plans or other benefit plan. MITI shall
not make any material amendment to any (i) stock option plan
or options outstanding thereunder, (ii) any other option or
warrant agreement or other stock-based benefit plan, or
(iii) the terms of any other security convertible into or
exchangeable for MITI Common Stock without the consent of
Actava, Orion and Sterling.
10.6 No Inconsistent Activities. Subject to
--------------------------
applicable law and the fiduciary duties of loyalty and care
of the MITI Board of Directors, MITI will not, and will
direct its officers, directors and other representatives
(including, without limitation, any financial advisor,
attorney or accountant retained by MITI) not to, directly or
indirectly, solicit, encourage, or participate in any way in
discussions or negotiations with, or provide any informa-
tion, data or assistance to, any third party (other than
Actava, Orion and Sterling) concerning any acquisition of
shares of capital stock of MITI or all or any significant
portion of the total assets of MITI or any material
subsidiary or division of MITI (in either case whether by
merger, consolidation, purchase of assets, tender offer or
otherwise). MITI will promptly communicate to Actava, Orion
<PAGE>
108
and Sterling in writing the terms of any proposal or contact
it may receive in respect of any such transaction. MITI
agrees not to release any third party from any confidential-
ity or standstill agreements to which MITI or any of its
subsidiaries is a party.
10.7 Stockholder Communications. MITI shall send
--------------------------
or make available to Actava, Orion and Sterling copies of
all reports and materials sent by MITI to all of its
stockholders as and when it sends the same to its
stockholders.
10.8 Consents, Waivers, Authorizations, etc.
--------------------------------------
MITI will use its best efforts to obtain all consents,
waivers, authorizations, orders and approvals of and make
all filings and registrations with, any governmental com-
mission, board or other regulatory body or any nongovern-
mental third party, required for, or in connection with, the
performance by it of this Agreement and the consummation by
it of the transactions contemplated hereby, or as may be
required in order not to accelerate, violate, breach or
terminate any agreement to which MITI or any of its
subsidiaries may be subject, if the failure to obtain or
make such consent, waiver, authorization, order, approval,
filing or registration would have a MITI Material Adverse
Effect. MITI will cooperate fully with each of Actava,
Orion and Sterling in assisting it to obtain such consents,
authorizations, orders and approvals. MITI will not take
any action which could reasonably be anticipated to have the
effect of delaying, impairing or impeding the receipt of any
required approvals, regulatory or otherwise.
ARTICLE 11
COVENANTS OF EACH OF ACTAVA, ORION, STERLING AND MITI
11.1 Further Assurances. Subject to the terms
------------------
and conditions herein provided, each of Actava, Orion,
Sterling and MITI agrees to use its best efforts to take, or
cause to be taken, all actions, and to do, or cause to be
done, all things reasonably necessary, proper or advisable
to consummate and make effective as promptly as practicable
the transactions contemplated by this Agreement, including
(i) the defending of any lawsuits or other legal proceed-
ings, whether judicial or administrative, challenging this
Agreement or the consummation of the transactions contem-
plated hereby, (ii) obtaining all governmental consents
required for the consummation of the Mergers and the
transactions contemplated thereby, and (iii) making and
causing their stockholders, as applicable, to timely make
<PAGE>
109
all necessary filings under the HSR Act. Upon the terms and
subject to the conditions hereof, each of Actava, Orion,
Sterling and MITI agrees to use any and all best efforts to
take, or cause to be taken, all actions and to do, or cause
to be done, all things reasonably necessary to satisfy the
other conditions of the closing set forth herein. Each
Merging Party will consult with counsel for the other
Merging Parties as to, and will permit such counsel to
participate in, at such other Merging Party's expense, any
lawsuits or proceedings referred to in clause (i) above
brought against any Merging Party or Merging Parties but not
against any or all of the other Merging Parties. In case at
any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this
Agreement, the officers and directors of the Surviving
Corporation shall take all such necessary action.
11.2 Public Announcements. So long as this
--------------------
Agreement is in effect, each of Actava, Orion, Sterling and
MITI shall not, and shall cause their affiliates not to,
issue or cause the publication of any press release or any
other announcement with respect to the Mergers or the
transactions contemplated by this Agreement without the
written consent of the other Merging Parties, except where
such release or announcement is required by applicable law
or pursuant to any listing agreement with, or the rules or
regulations of the SEC or NYSE or NASD or other national
securities exchange in which case each of Actava, Orion,
Sterling and MITI will deliver simultaneously a copy of such
release or announcement to the other Merging Parties.
11.3 Exchange Act and Securities Act Compliance.
------------------------------------------
In consummating the Mergers and the transactions contem-
plated hereby, each Merging Party shall comply in all
material respects with the provisions of the Exchange Act
and the Securities Act and the rules and regulations
thereunder.
11.4 Surviving Corporation Board of Directors. It
----------------------------------------
is the intention of the Merging Parties that the Surviving
Corporation will obtain the necessary director and/or
stockholder approvals to fix, as of the Effective Time, the
number of directors constituting a full Board of Directors
of the Surviving Corporation at ten and to elect initially
as directors of the Surviving Corporation six individuals
designated prior to the Effective Time by the then Board of
Directors of Orion and four individuals designated prior to
the Effective Time by the then Board of Directors of Actava.
Each of the Merging Parties agrees to use its best efforts
to establish such a Board of Directors of the Surviving
Corporation.
<PAGE>
110
11.5 Listing of Common Stock. Each of the Merging
-----------------------
Parties shall use its best efforts to take, or cause to be
taken, all action, and to do, or cause to be done, all
things reasonably necessary, proper or advisable to cause
the Common Stock to be authorized for listing on the NYSE or
the American Stock Exchange Inc. ("AMEX") or to be quoted on
the National Market System of the National Association of
Securities Dealers, Inc. Automatic Quotations System
("NMS/NASDAQ").
11.6 Labor Matters. Each of the Merging Parties
-------------
agrees to deliver to each of the other Merging Parties any
written communications which implicate the WARN ACT and
relate to the transactions contemplated by this Agreement
provided to the employees of the Merging Parties during the
period from the date hereof until the Effective Time,
understanding (a) that one or more of the Merging Parties
may be required by the WARN Act to give notices to some of
its employees of their imminent termination, (b) that one or
more of the Merging Parties may be required by applicable
law to communicate with some of its employees regarding
their impending termination of employment and matters
connected therewith, and (c) that all of the Merging Parties
have an interest in any written communications made to their
respective employees concerning the matters contemplated by
this Agreement.
11.7 Refinancing of Indebtedness. Each of the
---------------------------
Merging Parties agrees to use its best efforts and to take
all necessary steps and actions to facilitate the
refinancing by Orion and Actava of the Orion Senior
Indebtedness (as defined in Section 15.9), the Orion
Subordinated Indebtedness (as defined in Section 15.9) and
the Actava Convertible Debentures.
ARTICLE 12
CONDITIONS
12.1 Conditions to Each Merging Party's
----------------------------------
Obligations. The respective obligations of each Merging
-----------
Party to effect the Merger or Mergers to which it is a party
shall be subject to the fulfillment at or prior to the
Effective Time of the following conditions:
12.1.1 Stockholder Approval.
--------------------
(i) This Agreement and the Orion Merger
shall have been adopted at or prior to the
Effective Time by the requisite vote of the
<PAGE>
111
stockholders of Actava and Orion in accordance
with applicable law;
(ii) This Agreement and the Sterling Merger
shall have been adopted at or prior to the
Effective Time by the requisite vote of the
stockholders of Actava and Sterling in accordance
with applicable law;
(iii) This Agreement and the MITI Merger shall
have been adopted at or prior to the Effective
Time by the requisite vote of the stockholders of
Actava and MITI in accordance with applicable law
and the terms of that certain Stockholders
Agreement, dated as of August 15, 1994 among MITI
and its stockholders (the "MITI Stockholders
Agreement"); and
(iv) The Share Exchange Agreement and the
transactions contemplated thereby shall have been
adopted at or prior to the Effective Time by the
requisite vote of the stockholders of Actava.
12.1.2 Consummation of the Mergers. Each of
---------------------------
the Mergers shall have been concurrently consummated.
12.1.3 No Injunction. No order, statute,
-------------
rule, regulation, executive order, stay, decree,
judgment or injunction shall have been enacted,
entered, promulgated or enforced by any court or
governmental authority which prohibits or prevents the
consummation of any of the Mergers and which has not
been stayed or vacated by the Effective Time. Actava,
Orion, Sterling and MITI shall use their best efforts
and shall cooperate with each other to have any such
order, statute, rule, regulation, executive order,
stay, decree, judgment or injunction vacated or stayed.
12.1.4 HSR Act. Any waiting period appli-
-------
cable to each of the Mergers under the HSR Act shall
have expired or earlier termination thereof shall have
been granted.
12.1.5 Required Consents. Any required
-----------------
consents or approvals of any person to the Mergers or
the transactions contemplated hereby shall have been
obtained and be in full force and effect, except for
those the failure of which to obtain will not have a
material adverse effect on the business, assets,
properties, prospects, condition (financial or
otherwise) or the results of operations of the
<PAGE>
112
Surviving Corporation and its subsidiaries taken as a
whole.
12.1.6 Effective Form S-4 and Refinancing
----------------------------------
Registration Statement. The Form S-4 and any regis-
----------------------
tration statement relating to the refinancing of the
Orion Subordinated Indebtedness, if any, shall have
been declared effective and no stop order suspending
the effectiveness of the Form S-4 and any registration
statement relating to the refinancing of the Orion
Subordinated Indebtedness, if any, shall have been
issued and no proceeding for that purpose shall have
been initiated or threatened by the SEC.
12.1.7 Appraisal Rights. There shall not
----------------
have been either (i) Sterling Dissenting Shares in
excess of 25% of the Sterling Common Stock entitled to
vote at the meeting of Sterling stockholders held to
vote on this Agreement and the transactions contem-
plated hereby or (ii) MITI Dissenting Shares in excess
of 25% of the MITI Common Stock entitled to vote at the
meeting, if any, of MITI stockholders, or the action
taken by consent pursuant to the provisions of Section
228 of the DGCL held or undertaken to vote on this
Agreement and the transactions contemplated hereby.
12.1.8 Board Approval. This Agreement and
--------------
the transactions contemplated hereby shall have been
approved by the Board of Directors of Orion on or prior
to June 30, 1995.
12.2 Conditions to Obligations of Actava. The
-----------------------------------
obligation of Actava to effect the Mergers shall be subject
to the fulfillment at or prior to the Effective Time of the
following additional conditions, any one or more of which
may be waived by Actava:
12.2.1 Obligations Performed. Each of
---------------------
Orion, Sterling and MITI shall have performed and
complied with in all material respects its obligations,
agreements and covenants under this Agreement which are
required to be performed or complied with by it at or
prior to the Effective Time.
12.2.2 Representations and Warranties. As
------------------------------
of the Effective Time as if made as of the Effective
Time, each of the representations and warranties
contained in (i) Article 4 of this Agreement which are
modified by "materiality" or an "Orion Material Adverse
Effect" (an "Orion Modified Representation"),
(ii) Article 5 of this Agreement which are modified by
<PAGE>
113
"materiality" or a "Sterling Material Adverse Effect"
(a "Sterling Modified Representation") and
(iii) Article 6 of this Agreement which are modified by
"materiality" or a "MITI Material Adverse Effect" (a
"MITI Modified Representation") shall be true and
correct in all respects and each representation and
warranty contained in (x) Article 4 which is not so
modified (an "Orion Non-Modified Representation"),
(y) Article 5 which is not so modified (a "Sterling
Non-Modified Representation") and (z) Article 6 which
is not so modified (a "MITI Non-Modified Representa-
tion") shall be true and correct in all material
respects (except in each case for such changes that are
caused by Orion's, Sterling's or MITI's compliance, as
the case may be, with the terms of this Agreement or
are contemplated hereby).
12.2.3 Certificates Delivered. Each of
----------------------
Orion, Sterling and MITI shall have delivered to Actava
a certificate executed on its behalf by its President
or another authorized executive officer in their
corporate capacity to the effect that the conditions
set forth in subsections 12.2.1 and 12.2.2 as such
conditions apply to such officer's company have been
satisfied.
12.2.4 No Material Adverse Change. There
--------------------------
shall not have occurred after the date hereof any
material adverse change in the business, assets,
prospects, condition (financial or otherwise) and the
results of operations of any of (i) Orion and its
subsidiaries, taken as a whole, (ii) Sterling and its
consolidated subsidiaries, taken as a whole or
(iii) MITI, its United States subsidiaries and
Operating Joint Venture Entities, taken as a whole,
(except in each such case for such changes that are
caused by compliance with the terms of this Agreement
and are contemplated hereby).
12.2.5 Actava Stock Price. The Average
------------------
Closing Price shall not be less than $8.25 (subject to
appropriate upward or downward adjustment in the event
of a stock split, stock dividend or recapitalization or
other similar event applicable to shares of Common
Stock prior to the Effective Time).
12.2.6 Opinions of Counsel. Actava shall
-------------------
have received an opinion of (i) Paul, Weiss, Rifkind,
Wharton and Garrison, counsel to Orion, substantially
in the form of Exhibit D hereto (the "Paul Weiss
Opinion"), (ii) Robinson, Brog, Leinwand, Reich,
<PAGE>
114
Genovese & Gluck, P.C., counsel to Sterling, substan-
tially in the form of Exhibit E hereto (the "Robinson
Brog Opinion") and (iii) Rubin Baum Levin Constant &
Friedman, counsel to MITI, substantially in the form of
Exhibit F hereto (the "Rubin Baum Opinion") and (iv) an
opinion of Long, Aldridge & Norman, counsel to Actava,
substantially to the effect that no gain or loss will
be recognized for federal income tax purposes by the
Actava Stockholders as a result of the Mergers.
12.2.7 Fairness Opinion. The opinion of
----------------
First Boston, dated as of the date of the Proxy
Statement, that as of such date the Orion Exchange
Ratio, the Sterling Exchange Ratio, the MITI Exchange
Ratio and the Share Exchange, taken as a whole, are
fair from a financial point of view to the stockholders
of Actava, shall have not been withdrawn, amended or
modified.
12.2.8 Listing. The shares of Common Stock
-------
shall have been accepted for listing on the NYSE or the
AMEX or accepted for quotation on the NMS/NASDAQ.
12.2.9 Refinancing of Orion Senior
---------------------------
Indebtedness. The Orion Senior Indebtedness shall have
------------
(i) been refinanced in accordance with the terms set
forth on Schedule 12.2.9 hereto and the provisions in
each of the Credit Agreement, the Collateral Trust
Agreement (as defined in the Credit Agreement), the
Plan Security Agreement (as defined in the Credit
Agreement) and the Reimbursement Agreement (as defined
below) and the Sony Letter (as defined below) which
(a) restrict the ability of Orion to produce or acquire
from third parties film product other than with
financing which is non-recourse to Orion and
(b) require Orion to deposit and cause the distribution
of its Net Cash Flow (as defined in the Plan) in the
manner specified in the Collateral Trust Agreement,
shall have been terminated or (ii) the Executive
Committee of the Board of Directors of Actava shall
have been otherwise reasonably satisfied with the terms
and conditions of the refinancing.
12.2.10 Refinancing of Orion Subordinated
---------------------------------
Indebtedness. The Orion Subordinated Indebtedness
------------
shall have (i) been refinanced in accordance with the
terms set forth on Schedule 12.2.10 hereto and the
indentures pursuant to which the Orion Subordinated
Indebtedness were issued shall be discharged, cancelled
or terminated or otherwise amended to (a) delete
restrictions on the ability of Orion to produce or
<PAGE>
115
acquire from third parties film product in such
Indentures other than with financing which is non-
recourse to Orion and (b) delete the restrictions
contained in such indentures that require Orion to
deposit and cause the distribution of its Net Cash Flow
in the manner specified in the Collateral Trust
Agreement or (ii) the Executive Committee of the Board
of Directors of Actava shall have been otherwise
reasonably satisfied with the terms and conditions of
the refinancing.
12.2.11 FIRPTA Certificate. Actava shall
------------------
have received a certificate of an executive officer of
each of Orion, Sterling and MITI, sworn to under
penalty of perjury, setting forth the name, address and
Federal tax identification number of Orion, Sterling or
MITI, as the case may be, and stating that no interest
in Orion, Sterling or MITI, as the case may be, consti-
tutes a "United States real property interest" within
the meaning of Section 897(c)(1) of the Code. If, on
or before the Effective Time, Actava shall not have
received any such certificate, Actava may withhold from
the Common Stock payable at the Effective Time to the
stockholders of the company with respect to which such
certificate was not received such amounts as may be
required to be withheld therefrom under Section 1445 of
the Code.
12.2.12 Investigation. On or before
-------------
May 14, 1995 Actava shall have completed its business,
legal, financial and accounting due diligence review
(including but not limited to its review of MITI's
Schedules delivered pursuant to this Agreement) of the
assets, properties, technology, operations and
financial and other condition of MITI and such review
shall not have disclosed any event or fact which would
have a MITI Material Adverse Effect. Actava's
determination under this subsection 12.2.12 shall not
constitute a waiver of, or acknowledgement or
satisfaction of, any other condition set forth in this
Agreement.
12.3 Conditions to Obligations of Orion. The
----------------------------------
obligations of Orion to effect the Orion Merger shall be
subject to the fulfillment at or prior to the Effective Time
of the following additional conditions, any one or more of
which may be waived by Orion:
12.3.1 Obligations Performed. Each of
---------------------
Actava, Sterling and MITI shall have performed and
complied with in all material respects its obligations,
<PAGE>
116
agreements and covenants under this Agreement which are
required to be performed or complied with by it at or
prior to the Effective Time.
12.3.2 Representations and Warranties. As
------------------------------
of the Effective Time as if made as of the Effective
Time, each of (i) the representations and warranties
contained in Article 3 of this Agreement which are
modified by "materiality" or an "Actava Material
Adverse Effect" (an "Actava Modified Representation"),
(ii) the Sterling Modified Representations and
(iii) the MITI Modified Representations shall be true
and correct in all respects and each representation and
warranty contained in (x) Article 3 which is not so
modified (an "Actava Non-Modified Representation"),
(y) each Sterling Non-Modified Representation and
(z) each MITI Non-Modified Representation shall be true
and correct in all material respects (except in each
case for such changes that are caused by Actava's,
Sterling's or MITI's compliance, as the case may be,
with the terms of this Agreement or are contemplated
hereby).
12.3.3 Certificate. Each of Actava,
-----------
Sterling and MITI shall have delivered to Orion a
certificate executed on its behalf by its President or
another duly authorized executive officer in their
corporate capacity to the effect that the conditions
set forth in subsections 12.3.1 and 12.3.2 as such
conditions apply to such officer's company have been
satisfied.
12.3.4 No Material Adverse Change. There
--------------------------
shall not have occurred after the date hereof any
material adverse change in the business, assets,
prospects, condition (financial or otherwise) or the
results of operations of (i) Actava, Roadmaster and
their respective subsidiaries, taken as a whole,
(ii) Sterling and its consolidated subsidiaries, taken
as a whole or (iii) MITI, its United States subsidi-
aries and Operating Joint Venture Entities, taken as a
whole (except, in each such case, for such changes that
are caused by compliance with the terms of this
Agreement and are contemplated hereby).
12.3.5 Opinions of Counsel. Orion shall
-------------------
have received (i) the opinion of Long, Aldridge &
Norman substantially in the form of Exhibit G hereto,
(the "Long Aldridge Opinion"), (ii) the Robinson Brog
Opinion and (iii) the Rubin Baum Opinion and (iv) an
opinion of Paul, Weiss, Rifkind, Wharton & Garrison,
<PAGE>
117
substantially to the effect that the Orion Merger will
be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of
the Code.
12.3.6 Fairness Opinion. The opinion
----------------
of Alex. Brown, dated as of the date of the Proxy
Statement, that the value of the consideration to be
paid to the stockholders of Orion in the Orion Merger
is fair from a financial point of view to the stock-
holders of Orion, shall have not been withdrawn,
amended or modified.
12.3.7 Refinancing of Orion Senior Indebted-
-------------------------------------
ness. The Orion Senior Indebtedness shall have been refi-
----
nanced on terms reasonably satisfactory to Orion.
12.3.8 Refinancing of Orion Subordinated
---------------------------------
Indebtedness. The Orion Subordinated Indebtedness shall
------------
have been refinanced on terms reasonably satisfactory to
Orion.
12.3.9 Refinancing of Other Indebtedness.
---------------------------------
The Other Indebtedness (as defined in Section 15.9) shall
have been refinanced or repaid in full.
12.3.10 Refinancing or Contribution of
------------------------------
MetProductions Indebtedness and MII Indebtedness. The
------------------------------------------------
MetProductions Indebtedness and the MII Indebtedness shall
have been refinanced or repaid in full or MetProductions
Inc., a Delaware corporation ("MetProductions"), or Met
International, Inc., a Delaware corporation ("Met
International"), shall, at Orion's option, convert the
MetProductions Indebtedness or MII Indebtedness, as the case
may be, into shares of Class A Common Stock as provided for
in the Share Exchange Agreement.
12.4 Conditions to Obligations of Sterling. The
-------------------------------------
obligation of Sterling to effect the Sterling Merger shall
be subject to the fulfillment at or prior to the Effective
Time of the following additional conditions, any one or more
of which may be waived by Sterling:
12.4.1 Obligations Performed. Each of
---------------------
Actava, Orion and MITI shall have performed and com-
plied with in all material respects its obligations,
agreements and covenants under this Agreement which are
required to be performed or complied with by it at or
prior to the Effective Time.
12.4.2 Representations and Warranties. As
------------------------------
of the Effective Time as if made as of the Effective
<PAGE>
118
Time, each of the Actava Modified Representations, the
Orion Modified Representations and the MITI Modified
Representations shall be true and correct in all
respects and each Actava Non-Modified Representation,
each Orion Non-Modified Representation and each MITI
Non-Modified Representation shall be true and correct
in all material respects (except in each case for such
changes that are caused by Actava's, Orion's or MITI's
compliance, as the case may be, with the terms of this
Agreement or are contemplated hereby).
12.4.3 Certificates Delivered. Each of
----------------------
Actava, Orion and MITI shall have delivered to Sterling
a certificate executed on its behalf by its President
or another authorized executive officer in their
corporate capacity to the effect that the conditions
set forth in subsections 12.4.1 and 12.4.2 as such
conditions apply to such officer's company have been
satisfied.
12.4.4 No Material Adverse Change. There
--------------------------
shall not have occurred after the date hereof any mate-
rial adverse change in the business, assets, prospects,
condition (financial or otherwise) or the results of
operations of (i) Actava, Roadmaster or Orion and their
respective subsidiaries, taken as a whole, respectively
or (ii) MITI, its United States subsidiaries and
Operating Joint Venture Entities, taken as a whole
(except, in each such case, for such changes that are
caused by compliance with the terms of this Agreement
and are contemplated hereby).
12.4.5 Opinions of Counsel. Sterling shall
-------------------
have received the Long Aldridge Opinion, the Paul Weiss
Opinion and the Rubin Baum Opinion and an opinion of
Robinson, Brog, Leinwand, Reich, Genovese & Gluck, P.C.
substantially to the effect that the Sterling Merger
will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of
the Code.
12.4.6 Fairness Opinion. The opinion
----------------
of Houlihan Lokey, dated as of the date of the Proxy
Statement, that the value of the consideration to be
paid to the stockholders of Sterling in the Sterling
Merger is fair from a financial point of view to the
stockholders of Sterling, shall have not been
withdrawn, amended or modified.
12.5 Conditions to Obligations of MITI. The
---------------------------------
obligation of MITI to effect the MITI Merger shall be
<PAGE>
119
subject to the fulfillment at or prior to the Effective Time
of the following additional conditions, any one or more of
which may be waived by MITI.
12.5.1 Obligations Performed. Each of
---------------------
Actava, Orion and Sterling shall have performed and
complied with in all material respects its obligations,
agreements and covenants under this Agreement which are
required to be performed or complied with by it at or
prior to the Effective Time.
12.5.2 Representations and Warranties. As
------------------------------
of the Effective Time as if made as of the Effective
Time, each of the Actava Modified Representations, the
Orion Modified Representations and the Sterling
Modified Representations shall be true and correct in
all respects and each of the Actava Non-Modified
Representations, the Orion Non-Modified Representations
and the Sterling Non-Modified Representations shall be
true and correct in all material respects (except in
each case for such changes that are caused by Actava's,
Orion's or MITI's compliance, as the case may be, with
the terms of this Agreement or are contemplated
hereby).
12.5.3 Certificates Delivered. Each of
----------------------
Actava, Orion and Sterling shall have delivered to MITI
a certificate executed on its behalf by its President
or another authorized executive officer in their
corporate capacity to the effect that the conditions
set forth in subsections 12.5.1 and 12.5.2 as such
conditions apply to such officer's company have been
satisfied.
12.5.4 No Material Adverse Change. There
--------------------------
shall not have occurred after the date hereof any
material adverse change in the business, assets,
prospects, condition (financial or otherwise) or the
results of operation of (i) Actava, Roadmaster and
their respective subsidiaries, taken as a whole,
(ii) Orion and its respective subsidiaries, taken as a
whole or (iii) Sterling and its consolidated subsidi-
aries, taken as a whole (except, in each such case, for
such changes that are caused by compliance with the
terms of this Agreement and are contemplated hereby).
12.5.5 Opinions of Counsel. MITI shall have
-------------------
received the Long Aldridge Opinion, the Paul Weiss
Opinion and the Robinson Brog Opinion and an opinion of
Rubin Baum Levin Constant and Friedman, substantially
to the effect that the MITI Merger will be treated for
<PAGE>
120
federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code.
12.5.6 Fairness Opinion. The opinion of
----------------
GKMC, dated as of the date of the Proxy Statement, that
the value of the consideration to be paid to the
stockholders of MITI in the MITI Merger is fair from a
financial point of view to the stockholders of MITI,
shall not have been amended, withdrawn or modified.
12.5.7 Listing. The shares of Common Stock
-------
shall have been accepted for listing on the NYSE or the
AMEX or accepted for quotation on the NMS/NASDAQ.
ARTICLE 13
CLOSING
13.1 Time and Place; Filing of Certificate of
----------------------------------------
Merger. The closing of the Mergers (the "Closing") shall
------
take place as soon as practicable after each of the
conditions set forth in Article 12 have been satisfied or
waived by the party or parties entitled to the benefit of
such conditions at 10:00 a.m. at the offices of Paul, Weiss,
Rifkind, Wharton & Garrison, 1285 Avenue of the Americas,
New York, New York 10019-6064; or at such time and place as
the Merging Parties mutually agree. The date on which the
Closing actually occurs is herein referred to as the
"Closing Date."
13.2 Filing of Certificate of Merger, Etc. At the
------------------------------------
Closing, (i) Actava, Orion, Sterling and MITI shall cause
the Certificate of Merger to be executed and filed with the
Secretary of State of Delaware as provided in the DGCL and
(ii) Actava, Orion, Sterling and MITI shall take any and all
other lawful actions and do any and all other lawful things
necessary to cause the Mergers to become effective.
ARTICLE 14
TERMINATION AND ABANDONMENT
14.1 Termination. This Agreement may be
-----------
terminated and the Mergers contemplated hereby may be
abandoned at any time prior to the Effective Time, whether
before or after approval by the stockholders of Actava,
Orion, Sterling and MITI:
<PAGE>
121
(i) by a majority of the members of each of
the Boards of Directors of Actava, Orion, Sterling and MITI;
(ii) by any of Actava, Orion, Sterling or
MITI if the Mergers shall not have been consummated on or
before December 31, 1995 (or such later date as may be
agreed to by Actava, Orion, Sterling or MITI); provided,
--------
that, none of Actava, Orion, Sterling or MITI may terminate
----
this Agreement under this Section 14.1(ii) if the failure
has been caused by such party's material breach or default
of its obligations under this Agreement;
(iii) by Actava, Orion or Sterling if
(x) there are any inaccuracies, misrepresentations or
breaches of any MITI Modified Representations, (y) there are
any material inaccuracies, misrepresentations or breaches of
any MITI Non-Modified Representations or (z) MITI has
breached or failed to perform any of its material obliga-
tions, covenants or agreements contained herein as to which
written notice has been given to MITI and MITI has failed to
cure or otherwise resolve the same to the reasonable satis-
faction of Actava, Orion and Sterling within 30 days after
receipt of such notice;
(iv) by Actava, Orion or MITI if (x) there
are any inaccuracies, misrepresentations or breaches of any
Sterling Modified Representations, (y) there are any
material inaccuracies, misrepresentations or breaches of any
Sterling Non-Modified Representations or (z) Sterling has
breached or failed to perform any of its material obliga-
tions, covenants or agreements contained herein as to which
written notice has been given to Sterling and Sterling has
failed to cure or otherwise resolve the same to the rea-
sonable satisfaction of Actava, Orion and MITI within 30
days after receipt of such notice;
(v) by Actava, Sterling or MITI if (x) there
are any inaccuracies, misrepresentations or breaches of any
Orion Modified Representations, (y) there are any material
inaccuracies, misrepresentations or breaches of any Orion
Non-Modified Representations or (z) Orion has breached or
failed to perform any of its material obligations, covenants
or agreements contained herein as to which written notice
has been given to Orion and Orion has failed to cure or
otherwise resolve the same to the reasonable satisfaction of
Actava, Sterling and MITI within 30 days after receipt of
such notice;
(vi) by Orion, Sterling or MITI if (x) there
are any inaccuracies, misrepresentations or breaches of any
Actava Modified Representations, (y) there are any material
<PAGE>
122
inaccuracies, misrepresentations or breaches of any Actava
Non-Modified Representations or (z) Actava has breached or
failed to perform any of its material obligations, covenants
or agreements contained herein as to which written notice
has been given to Actava and Actava has failed to cure or
otherwise resolve the same to the reasonable satisfaction of
Orion, Sterling and MITI within 30 days after receipt of
such notice; or
(vii) by Actava, Orion, Sterling or MITI if a
court of competent jurisdiction or other governmental body
shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting
any of the Mergers and such order, decree, ruling or other
action shall have become final and nonappealable.
14.2 Procedure and Effect of Termination. In the
-----------------------------------
event of termination and abandonment of any of the Mergers
by Actava, Orion, Sterling or MITI pursuant to Section 14.1,
written notice thereof shall forthwith be given to each of
the other parties hereto and this Agreement shall terminate
and the Mergers shall be abandoned without further action by
any of the parties hereto. If this Agreement is terminated
as provided herein no party hereto shall have any liability
or further obligation to any other party under the terms of
this Agreement except for a willful breach, violation or
default by any party hereto of any provision of this
Agreement and except as stated in Sections 7.3(ii), 8.3(ii),
9.3(ii), 10.3(ii) and 15.6.
ARTICLE 15
MISCELLANEOUS
15.1 Amendment and Modification. Subject to
--------------------------
applicable law, this Agreement may be amended, modified or
supplemented only by a written instrument among Actava,
Orion, Sterling and MITI, at any time prior to the Effective
Time with respect to any of the terms contained herein.
15.2 Waiver of Compliance; Consents. Any failure
------------------------------
of any Merging Party to comply with any obligation,
covenant, agreement or condition contained herein may be
waived by the other Merging Parties, only by a written
instrument signed by the Merging Party or Merging Parties
granting such waiver, but such waiver with or failure to
insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a
waiver of, or estoppel with respect to, any subsequent or
other failure by any Merging Party to comply with any
<PAGE>
123
obligation, agreement or condition contained herein.
Whenever this Agreement requires or permits consent by or on
behalf of any Merging Party, such consent shall be given in
writing in a manner consistent with the requirements for a
waiver of compliance as set forth in this Section 15.2.
15.3 Survival of Representations and Warranties.
------------------------------------------
The respective representations and warranties of Actava,
Orion, Sterling and MITI contained herein or in any
certificates or other documents delivered prior to or at the
Closing by such parties pursuant to the terms of this
Agreement shall survive the execution and delivery of this
Agreement but shall terminate upon the consummation of the
Mergers.
15.4 Notices. All notices and other communica-
-------
tions hereunder shall be in writing and shall be deemed to
have been duly given when delivered in person, by facsimile,
receipt confirmed, or on the next business day when sent by
overnight courier or on the second succeeding business day
when sent by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as
shall be specified by like notice).
(i) if to Actava, to
The Actava Group Inc.
4900 Georgia-Pacific Center
Atlanta, Georgia 30303
Attention: John D. Phillips
Telecopy: (404) 525-3010
with a copy to:
Long, Aldridge & Norman
One Peachtree Center, Suite 5300
303 Peachtree Street
Atlanta, Georgia 30308
Attention: Clay C. Long, Esq.
Telecopy: (404) 527-4198
(ii) if to Orion, to
Orion Pictures Corporation
1888 Century Park East
Los Angeles, California 90067
Attention: Leonard White
Telecopy: (310) 282-9902
<PAGE>
124
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: James M. Dubin, Esq.
Telecopy: (212) 757-3990
(iii) if to Sterling, to:
MCEG Sterling Incorporated
1888 Century Park East
Suite 1777
Los Angeles, California 90067-1721
Attention: John Hyde
Telecopy: (310) 282-8303
with a copy to:
Robinson, Brog, Leinwand, Reich,
Genovese & Gluck, P.C.
1345 Avenue of the Americas
New York, New York 10105-0143
Attention: Avron I. Brog, Esq.
Telecopy: (212) 956-2164
and
(iv) if to MITI, to:
Metromedia International
Telecommunications, Inc.
41 West Putnam Avenue
Greenwich, Connecticut 06830
Attention: Richard J. Sherwin
Telecopy: (203) 862-9225
with a copy to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10112
Attention: Barry A. Adelman, Esq.
Telecopy: (212) 698-7825
15.5 Assignment. This Agreement and all of the
----------
provisions hereof shall be binding upon and inure to the
benefit of the parties hereto and their respective
successors (including but not limited to the Sterling
Corporation) and permitted assigns. Neither this Agreement
nor any of the rights, interests or obligations hereunder
<PAGE>
125
shall be assigned by any of the parties hereto prior to the
Effective Time without the prior written consent of the
other parties hereto. This Agreement is not intended to
confer upon any other person except the parties hereto any
rights or remedies hereunder.
15.6 Expenses. If the Mergers are consummated,
--------
the Surviving Corporation shall pay all costs and expenses
(including, without limitation, legal, accounting and
investment banking costs and expenses) incurred in connec-
tion with this Agreement and the transactions contemplated
hereby. If the Mergers are not consummated, all costs and
expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party
incurring such costs or expenses, subject to the rights of
such party contemplated under Section 14.2 with respect to a
willful breach, violation or default by another party
hereto.
15.7 GOVERNING LAW. THIS AGREEMENT SHALL BE
-------------
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE, APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH
STATE.
15.8 Counterparts. This Agreement may be executed
------------
in one or more counterparts, each of which shall be deemed
an original, but all of which together shall constitute one
and the same instrument.
15.9 Interpretation; Definitions. The article and
---------------------------
section headings contained in this Agreement are solely for
the purpose of reference, are not part of the agreement of
the parties and shall not in any way affect the meaning or
interpretation of this Agreement. As used in this Agree-
ment,
(i) the term "person" means and include an
individual, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization and a government or
any department or agency thereof;
(ii) the term "affiliate," with respect to
any person, shall mean and include any person directly or
indirectly controlling, controlled by or under common
control with such person;
(iii) the term "Actava Material Adverse
Effect" means a material adverse effect on the business,
assets, prospects, condition (financial or otherwise) or the
results of operation of Actava and its subsidiaries, taken
as a whole;
<PAGE>
126
(iv) the term "Orion Material Adverse Effect"
means a material adverse effect on the business, assets,
prospects, condition (financial or otherwise) or the results
of operation of Orion and its subsidiaries, taken as a
whole;
(v) the term "Sterling Material Adverse
Effect" means a material adverse effect on the business,
assets, prospects, condition (financial or otherwise) or the
results of operation of Sterling and its consolidated
subsidiaries, taken as a whole;
(vi) the term "MITI Material Adverse Effect"
means a material adverse effect on the business, assets,
prospects, conditions (financial or otherwise) or the
results of operation of MITI, its United States subsidiaries
and the Operating Joint Venture Entities, taken as a whole;
(vii) the "Orion Exchange Ratio" if the
Average Closing Price is greater than or equal to $10.50,
shall be equal to a fraction, the numerator of which is
11,428,572 and the denominator of which is the number of
shares of Orion Common Stock outstanding on the business day
immediately preceding the Effective Time; provided, that, if
-------- ----
the Average Closing Price is less than $10.50, the Orion
Exchange Ratio shall instead have the meaning set forth in
and shall be determined in accordance with Sched-
ule 15.9(viii);
(viii) the "MITI Exchange Ratio" if the Average
Closing Price is greater than or equal to $10.50, shall be
equal to a fraction, the numerator of which is 9,523,810 and
the denominator of which is the number of shares of MITI
Common Stock outstanding on the business day immediately
preceding the Effective Time; provided, that, if the Average
-------- ----
Closing Price is less than $10.50, the MITI Exchange Ratio
shall instead have the meaning set forth in and shall be
determined in accordance with Schedule 15.9(ix);
(ix) the "Sterling Exchange Ratio" if the
Average Closing Price is greater than or equal to $10.50,
but less than or equal to $14.875, shall be equal to a
fraction, the numerator of which is 571,428 and the
denominator of which is the number of shares of Sterling
Common Stock outstanding on the business day immediately
preceding the Effective Time; provided, that, if the Average
-------- ----
Closing Price is less than $10.50, the Sterling Exchange
Ratio shall instead have the meaning set forth in and shall
be determined in accordance with Schedule 15.9(x)(a);
provided, further, that if the Average Closing Price is
--------
greater than $14.875, the Sterling Exchange Ratio shall
<PAGE>
127
instead have the meaning set forth in and shall be
determined in accordance with Schedule 15.9(x)(b);
(x) the term "Orion Senior Indebtedness"
means (a) Orion's indebtedness to Chemical Bank, as Agent
and the banks (the "Banks") parties to the Third Amended and
Restated Credit Agreement, dated as of October 20, 1992
among Orion, the Agent and the Banks (the "Credit Agree-
ment") and (b) its indebtedness to Sony Pictures
Entertainment Inc. ("Sony") pursuant to that certain letter
agreement between Orion and Sony attached as Exhibit F to
Orion's Disclosure Statement for its Modified Third Amended
Joint Consolidated Plan of Reorganization (the "Sony
Letter");
(xi) the term "Orion Subordinated Indebted-
ness" means Orion's Talent Notes due 1999, Orion's Creditor
Notes due 1999 and Orion's 10% Subordinated Debentures due
2001;
(xii) the term "Restricted Subsidiary" shall
have the meaning assigned thereto in the Credit Agreement;
(xiii) the term "Other Indebtedness" means
(a) all outstanding Bank Reimbursable Amounts (as defined in
the Reimbursement Agreement, dated as of October 20, 1992
(the "Reimbursement Agreement") between Orion and Metromedia
Company), (b) all outstanding Sony Reimbursable Amounts (as
defined in the Reimbursement Agreement) payable to
Metromedia Company, (c) all amounts owed to Metromedia
Company by Sterling and its subsidiaries and (d) all amounts
owed by MITI to Metromedia Company (other than the MII
Indebtedness), plus in the case of (a), (b), (c) and (d)
above, all accrued, but unpaid interest thereon;
(xiv) the term "MII Indebtedness" means all of
the indebtedness of MII to Met International at the
Effective Time, plus all accrued, but unpaid interest thereon;
(xv) the term "MetProductions Indebtedness"
means the amounts described in Section 4.28, any other
indebtedness of Orion and its subsidiaries to MetProductions
incurred prior to the Effective Time in accordance with this
Agreement and all accrued and unpaid interest on such
amounts;
(xvi) the term "subsidiary" of any specified
person means any corporation 50 percent or more of the
outstanding voting power of which, or any partnership, joint
venture or other entity 50 percent or more of the total
equity interest of which, is directly or indirectly owned by
such specified person. For purposes of this Agreement, all
<PAGE>
128
references to "subsidiaries" of a person shall be deemed to
mean "subsidiary" if such person has only one subsidiary.
(xvii) the term "Sterling Voting Trust" shall
mean the trust created by the Voting Trust Agreement dated
March 30, 1992 by and among Sterling, the voting trustees
specified therein and the Liquidation Estate.
15.10 Entire Agreement. This Agreement and the
----------------
documents or instruments referred to herein, embodies the
entire agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are
no restrictions, promises, representations, warranties,
agreements, covenants, or undertakings, other than those
expressly set forth or referred to herein. This Agreement
supersedes all prior agreements and the understandings
between the parties with respect to such subject matter.
<PAGE>
IN WITNESS WHEREOF, Actava, Orion, Sterling and
MITI, have caused this Agreement to be signed by their
respective duly authorized officers as of the date first
above written.
THE ACTAVA GROUP INC.
By /s/ John D. Phillips
_________________________________
Name: John D. Phillips
Title: President and CEO
ORION PICTURES CORPORATION
By /s/ Leonard White
_________________________________
Name: Leonard White
Title: President and CEO
MCEG STERLING INCORPORATED
By /s/ Ann K. Jacobus
_________________________________
Name: Ann K. Jacobus
Title: Executive Vice President
METROMEDIA INTERNATIONAL
TELECOMMUNICATIONS, INC.
By /s/ Richard J. Sherwin
_________________________________
Name: Richard J. Sherwin
Title: Co-President
<PAGE>
Schedule 15.9(viii)
Orion Exchange Ratio
--------------------
If the Average Closing Price is less than $10.50,
the Orion Exchange Ratio shall be determined by solving for
"Y" in the following formula and dividing "Y" by the number
of shares of Orion Common Stock outstanding on the business
day immediately preceding the Effective Time:
120,000,000 = "Y" x Average Closing Price
<PAGE>
Schedule 15.9(ix)
MITI Exchange Ratio
-------------------
If the Average Closing Price is less than $10.50,
the MITI Exchange Ratio shall be determined by solving for
"Y" in the following formula and dividing "Y" by the number
of shares of MITI Common Stock outstanding on the business
day immediately preceding the Effective Time:
100,000,000 = "Y" x Average Closing Price.
<PAGE>
Schedule 15.9(x)(a)
Adjustment to Sterling Exchange Ratio
-------------------------------------
If the Average Closing Price is less than $10.50,
the Sterling Exchange Ratio shall be determined by solving
for "Y" in the following formula and then dividing "Y" by
the number of shares of Sterling Common Stock outstanding on
the business day immediately preceding the Effective Time:
6,000,000 = "Y" x Average Closing Price
<PAGE>
Schedule 15.9(x)(b)
Adjustment to Sterling Exchange Ratio
-------------------------------------
If the Average Closing Price is greater than
$14.875, the Sterling Exchange Ratio shall be determined by
solving for "Y" in the following formula and then dividing
"Y" by the number of shares of Sterling Common Stock
outstanding on the business day immediately preceding the
Effective Time:
8,500,000 = "Y" x Average Closing Price
<PAGE>
Exhibit A
CERTIFICATE OF MERGER
OF
ORION PICTURES CORPORATION,
METROMEDIA INTERNATIONAL TELECOMMUNICATIONS, INC.
AND
MCEG STERLING INCORPORATED
INTO
THE ACTAVA GROUP INC.
___________________________________________________________
The undersigned corporation does hereby certify:
FIRST: The name and state of incorporation of
-----
each of the constituent corporations of each of the mergers
provided for herein (the "Merger") are as follows:
NAME STATE OF INCORPORATION
---- ----------------------
Orion Pictures Corporation Delaware
MCEG Sterling Incorporated Delaware
Metromedia International Delaware
Telecommunications, Inc.
The Actava Group Inc. Delaware
SECOND: An agreement and plan of merger, which is
------
hereinafter sometimes referred to as the "Merger Agreement,"
between each of the parties to the Merger has been approved,
adopted, certified, executed and acknowledged by each of the
constituent corporations in accordance with the requirements
of Section 251 of the General Corporation Law of the State
of Delaware.
<PAGE>
2
THIRD: The surviving corporation of the Merger is
-----
The Actava Group Inc., the name of which is changed as a
result thereof to Metromedia International Group, Inc.
FOURTH: The Restated Certificate of Incorporation
------
of The Actava Group Inc. with such amendments as are
affected by the Merger is attached to this Certificate of
Merger as Exhibit A and shall be the Restated Certificate of
Incorporation of the surviving corporation.
FIFTH: The executed Merger Agreement is on file
-----
at the principal place of business of the surviving
corporation. The address of said principal place of
business is 4900 Georgia-Pacific Center, Atlanta, Georgia
30303.
SIXTH: A copy of the Merger Agreement will be
-----
furnished on request and without cost to any stockholder of
any constituent corporation.
* * * *
<PAGE>
3
IN WITNESS WHEREOF, the undersigned has executed
this Certificate of Merger on _______ __, 1995.
THE ACTAVA GROUP INC.
By:_________________________
Name:
Title:
ATTEST:
By:______________________
Name:
Title:
<PAGE>
Exhibit A
RESTATED CERTIFICATE OF INCORPORATION
of
THE ACTAVA GROUP INC.
(Originally incorporated on March 15, 1968
under the name F.I., Inc.)
FIRST: The name of the corporation is METROMEDIA
INTERNATIONAL GROUP, INC. (the "Corporation").
SECOND: The address of the Corporation's
registered office is 32 Loockerman Square, Suite L-100, City
of Dover, County of Kent, State of Delaware; and its
registered agent at such address is The Prentice-Hall
Corporation System, Inc.
THIRD: The purpose of the Corporation is to
engage in, carry on and conduct any lawful act or activity
for which corporations may be organized under the Delaware
General Corporation Law.
FOURTH: The total number of shares of stock that
the Corporation shall have authority to issue is
160,000,000, divided as follows: 10,000,000 shares of
Preferred Stock, of the par value of $1.00 per share (the
"Preferred Stock"), 50,000,000 shares of Class A Common
Stock, of the par value of $1.00 per share (the "Class A
Common Stock") and 10,000,000 shares of Common Stock, of the
par value of $1.00 per share (the "Common Stock").
<PAGE>
2
PART A. Preferred Stock. The shares of
---------------
Preferred Stock may be issued from time to time in one or
more series of any number of shares, provided that the
aggregate number of shares issued and not cancelled of any
and all such series shall not exceed the total number of
shares of Preferred Stock hereinabove authorized, and with
such powers, preferences and rights and qualifications,
limitations or restrictions thereof, and such distinctive
serial designations, all as shall hereafter be stated and
expressed in the resolution or resolutions providing for the
issue of such shares of Preferred Stock from time to time
adopted by the Board of Directors pursuant to authority so
to do which is hereby vested in the Board of Directors.
Each series of shares of Preferred Stock (a) may have such
voting rights or powers, full or limited, or may be without
voting rights or powers; (b) may be subject to redemption at
such time or times and at such prices; (c) may be entitled
to receive dividends (which may be cumulative or non-
cumulative) at such rate or rates, on such conditions and at
such times, and payable in preference to, or in such
relation to, the dividends payable on any other class or
classes or series of stock; (d) may have such rights upon
the voluntary or involuntary liquidation, winding up or
dissolution of, or upon any distribution of the assets of,
the Corporation; (e) may be made convertible into or
exchangeable for, shares of any other class or classes or of
<PAGE>
3
any other series of the same or any other class or classes
of stock of the Corporation at such price or prices or at
such rates of exchange and with such adjustments; (f) may be
entitled to the benefit of a sinking fund to be applied to
the purchase or redemption of shares of such series in such
amount or amounts; (g) may be entitled to the benefit of
conditions and restrictions upon the creation of
indebtedness of the Corporation or any subsidiary, upon the
issue of any additional shares (including additional shares
of such series or of any other series) and upon the payment
of dividends or the making of other distributions on, and
the purchase, redemption or other acquisition by the
Corporation or any subsidiary of, any outstanding shares of
the Corporation and (h) may have such other relative,
participating, optional or other special rights, qualifica-
tions, limitations or restrictions thereof; all as shall be
stated in said resolution or resolutions providing for the
issue of such shares of Preferred Stock. Shares of
Preferred Stock of any series that have been redeemed
(whether through the operation of a sinking fund or other-
wise) or that if convertible or exchangeable, have been
converted into or exchanged for shares of any other class or
classes shall have the status of authorized and unissued
shares of Preferred Stock undesignated as to series and may
be reissued as a part of the series of which they were
originally a part or as part of a new series of shares of
<PAGE>
4
Preferred Stock to be created by resolution or resolutions
of the Board of Directors or as part of any other series of
shares of Preferred Stock, all subject to the conditions or
restrictions on issuance set forth in the resolution or
resolutions adopted by the Board of Directors providing for
the issue of any series of shares of Preferred Stock.
PART B. Common Stock. (a) Except as
------------
otherwise provided in this Article FOURTH, Part B, Class A
Common Stock and Common Stock shall be identical in all
respects and shall have equal rights and privileges,
including, without limitation, the right to receive any and
all dividends declared and paid on the shares of Common
Stock or Class A Common Stock, as the case may be. The
relative powers, preferences and rights and qualifications,
limitations and restrictions of the Class A Common Stock and
Common Stock are as follows:
(i) With respect to the election of
directors, holders of Class A Common Stock shall vote
as a separate class and be entitled to elect six (6)
directors (the "Class A Directors") nominated by the
Class A Nominating Committee (as defined in Article
NINTH hereof). Holders of Common Stock, voting as a
separate class, shall be entitled to elect four (4)
directors (the "Common Stock Directors") nominated by
the Common Stock Nominating Committee (as defined in
Article NINTH hereof).
<PAGE>
5
(ii) Any vacancy in the office of a
Class A Director may be filled by a vote of the holders
of Class A Common Stock, voting as a separate class,
and any vacancy in the office of a Common Stock Direc-
tor may be filled by a vote of the holders of Common
Stock, voting as a separate class or, in the absence of
a stockholder vote, in the case of a vacancy in the
office of a Class A Director, such vacancy may be
filled by a vote of the majority of the remaining
Class A Directors then in office, although less than a
quorum, or by a sole remaining Class A Director, or in
the case of a vacancy in the office of a Common Stock
Director, such vacancy may be filled by a vote of the
majority of the remaining Common Stock Directors then
in office, although less than a quorum, or by a sole
remaining Common Stock Director. Any directors elected
by either the holders of Class A Common Stock or
holders of Common Stock or by either the remaining
Class A Directors or Common Stock Directors to fill a
vacancy shall serve until the next annual meeting of
stockholders and until his or her successor has been
elected and has qualified.
(iii) The holders of Class A Common
Stock and Common Stock shall, in all matters not
specified in sections (i) and (ii) of this Article
FOURTH, Part B, vote together as a single class, pro-
<PAGE>
6
vided that the holders of Class A Common Stock shall
have three (3) votes per share and the holders of Com-
mon Stock shall have one (1) vote per share on all mat-
ters not specified in Sections (i) and (ii) of this
Article FOURTH, Part B.
(iv) Holders of shares of Class A Com-
mon Stock shall have the right, at such holders'
option, at any time to convert all or a portion of such
shares into an equivalent number of shares of fully
paid and non-assessable shares of Common Stock by
surrendering such shares of Class A Common Stock as
follows: the holder of such shares of Class A Common
Stock to be converted shall surrender the certificate
or certificates representing such shares, duly endorsed
or assigned to the Corporation or in blank, to the
Transfer Agent of the Corporation, accompanied by
written notice to the Corporation that the holder
thereof elects to convert Class A Common Stock. Unless
the shares issuable on conversion are to be issued in
the same name as the name in which such share of
Class A Common Stock is registered, each share
surrendered for conversion shall be accompanied by
instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder or such hol-
der's duly authorized attorney and an amount sufficient
to pay any transfer or similar tax (or evidence reason-
<PAGE>
7
ably satisfactory to the Corporation demonstrating that
such taxes have been paid).
As promptly as practicable (but in any event
within 5 days) after the surrender of certificates for
shares of Class A Common Stock as aforesaid, the Corporation
shall issue and shall deliver at such office to such holder,
or on his or her written order, a certificate or certif-
icates for the number of full shares of Common Stock issu-
able upon the conversion of such shares in accordance with
the provisions of this Article FOURTH, Part B, subpara-
graph (iv). Each conversion shall be deemed to have been
effected immediately prior to the close of business on the
date on which the certificates for shares of Class A Common
Stock shall have been surrendered and such notice received
by the Corporation as aforesaid, and the person or persons
in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such conver-
sion shall be deemed to have become the holder or holders of
record of the shares represented thereby at such time on
such date, unless the stock transfer books of the Corpora-
tion shall be closed on that date, in which event such per-
son or persons shall be deemed to have become such holder or
holders of record at the close of business on the next suc-
ceeding day on which such stock transfer books are open.
<PAGE>
8
(b) If the Corporation shall, at any
time or from time to time while any shares of the Class A
Common Stock is outstanding, (i) pay a dividend in shares of
its Common Stock, (ii) combine its outstanding shares of
Common Stock into a smaller number of shares,
(iii) subdivide its outstanding shares of Common Stock or
(iv) issue by reclassification of its shares of Common Stock
any shares of stock of the Corporation, then the Corporation
shall simultaneously either (A) pay a dividend to holders of
Class A Common Stock in shares of its Class A Common Stock
on the same basis on which the Common Stock dividend is
paid, (B) combine its outstanding shares of Class A Common
Stock into a smaller number of shares on the same basis as
the Common Stock is being combined, (C) subdivide its
outstanding shares of Class A Common Stock on the same basis
as the Common Stock is being subdivided or (D) issue by
reclassification of its shares of Class A Common Stock,
shares of stock of the Corporation having the same terms and
conditions as the Class A Common Stock and on the same basis
as the reclassification with respect to the Common Stock, as
the case may be. Any action taken pursuant to this
subsection shall become effective retroactively immediately
after the record date in the case of a dividend or
distribution and shall become effective retroactively
immediately after the effective date in the case of a
subdivision, combination or reclassification.
<PAGE>
9
(c) If the Corporation shall, at any
time or from time to time while any shares of the Class A
Common Stock is outstanding, issue rights or warrants to all
holders of shares of its Common Stock entitling them (for a
period expiring within 45 days after the record date for
such issuance) to subscribe for or purchase shares of Common
Stock (or securities exercisable, convertible or exchange-
able for or into shares of Common Stock) at a price per
share less than the current market price of the Common Stock
at such record date (treating the price per share of the
securities exercisable, convertible or exchangeable for or
into Common Stock as equal to (x) the sum of (i) the price
for a unit of the security exercisable, convertible or
exchangeable for or into shares of Common Stock plus
(ii) any additional consideration initially payable upon the
exercise, conversion or exchange of such security for or
into shares of Common Stock divided by (y) the number of
shares of Common Stock initially underlying such
exercisable, convertible or exchangeable security), the
Corporation shall issue to all holders of shares of Class A
Common Stock rights or warrants exercisable for shares of
Class A Common Stock (or securities exercisable, convertible
or exchangeable for or into shares of Class A Common Stock)
on the same terms and conditions as the rights or warrants
issued to holders of Common Stock.
<PAGE>
10
(d) If the Corporation shall, at any
time or from time to time while any of the Class A Common
Stock is outstanding, distribute to all holders of shares of
its Common Stock (including any such distribution made in
connection with a consolidation or merger in which the
Corporation is the continuing or surviving corporation and
the Common Stock is not changed or exchanged) cash,
evidences of its indebtedness, securities or other assets
(excluding dividends payable in shares of Common Stock which
are provided for under subsection (b)) or rights or warrants
to subscribe for or purchase securities of the Corporation
(excluding those which are provided for under subsec-
tion (c)), then in each such case the Corporation shall
distribute to all holders of shares of its Class A Common
Stock, their pro rata share of any such distribution.
FIFTH: Members of the Board of Directors may be
elected either by written ballot or by voice vote.
SIXTH: Whenever a compromise or arrangement is
proposed between this Corporation and its creditors or any
class of them and/or between this Corporation and its stock-
holders or any class of them, any court of equitable juris-
diction within the State of Delaware may, on the application
in a summary way of this Corporation or of any creditor or
stockholder thereof or on the application of any receiver or
receivers appointed for this Corporation under the provi-
sions of Section 291 of Title 8 of the Delaware Code or on
<PAGE>
11
the application of trustees in dissolution or of any
receiver or receivers appointed for this Corporation under
the provisions of Section 279 of Title 8 of the Delaware
Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such man-
ner as the said court directs. If a majority in number rep-
resenting three-fourths in value of the creditors or class
of creditors, and/or of the stockholders or class of stock-
holders of this Corporation, as the case may be, agree to
any compromise or arrangement and to any reorganization of
this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which
the said application has been made, be binding on all the
creditors or class of creditors, and/or on all stockholders
or class of stockholders of this Corporation, as the case
may be, and also on this Corporation.
SEVENTH: No director of the Corporation shall be
personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director,
except for liability (a) for any breach of the director's
duty of loyalty to the Corporation or its stockholders,
(b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law,
(c) under Section 174 of the Delaware General Corporation
<PAGE>
12
Law or (d) for any transaction from which the director
derived any improper personal benefits. If the Delaware
General Corporation Law is hereafter amended to authorize
corporate action further eliminating or limiting the per-
sonal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited
to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of the foregoing para-
graph by the stockholders of the Corporation shall not
adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or
modification.
EIGHTH: (a) To the extent not prohibited by
law, the Corporation shall indemnify any person who is or
was made, or threatened to be made, a party to any
threatened, pending or completed action, suit or proceeding
(a "Proceeding"), whether civil, criminal, administrative or
investigative, including, without limitation, an action by
or in the right of the Corporation to procure a judgment in
its favor, by reason of the fact that such person, or a per-
son of whom such person is the legal representative, is or
was a director or officer of the Corporation, or is or was
serving in any capacity at the request of the Corporation
for any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise (an "Other
<PAGE>
13
Entity"), against judgments, fines, penalties, excise taxes,
amounts paid in settlement and costs, charges and expenses
(including attorneys' fees and disbursements). Persons who
are not directors or officers of the Corporation may be
similarly indemnified in respect of service to the Corpora-
tion or to an Other Entity at the request of the Corporation
to the extent the Board at any time specifies that such per-
sons are entitled to the benefits of this Article EIGHTH.
(b) The Corporation shall, from time to
time, reimburse or advance to any director or officer or
other person entitled to indemnification hereunder the funds
necessary for payment of expenses, including attorneys' fees
and disbursements, incurred in connection with any Proceed-
ing, in advance of the final disposition of such Proceeding;
provided, however, that, if required by the Delaware General
-------- -------
Corporation Law, such expenses incurred by or on behalf of
any director or officer or other person may be paid in
advance of the final disposition of a Proceeding only upon
receipt by the Corporation of an undertaking, by or on
behalf of such director or officer (or other person indemni-
fied hereunder), to repay any such amount so advanced if it
shall ultimately be determined by final judicial decision
from which there is no further right of appeal that such
director, officer or other person is not entitled to be
indemnified for such expenses.
<PAGE>
14
(c) The rights to indemnification and reim-
bursement or advancement of expenses provided by, or granted
pursuant to, this Article EIGHTH shall not be deemed
exclusive of any other rights to which a person seeking
indemnification or reimbursement or advancement of expenses
may have or hereafter be entitled under any statute, this
Certificate of Incorporation, the By-laws of the Corporation
(the "By-laws"), any agreement, any vote of stockholders or
disinterested directors or otherwise, both as to action in
his or her official capacity and as to action in another
capacity while holding such office.
(d) The rights to indemnification and reim-
bursement or advancement of expenses provided by, or granted
pursuant to, this Article EIGHTH shall continue as to a per-
son who has ceased to be a director or officer (or other
person indemnified hereunder) and shall inure to the benefit
of the executors, administrators, legatees and distributees
of such person.
(e) The Corporation shall have power to pur-
chase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corpo-
ration, or is or was serving at the request of the Corpora-
tion as a director, officer, employee or agent of an Other
Entity, against any liability asserted against such person
and incurred by such person in any such capacity, or arising
out of such person's status as such, whether or not the Cor-
<PAGE>
15
poration would have the power to indemnify such person
against such liability under the provisions of this Article
EIGHTH, the By-laws or under Section 145 of the Delaware
General Corporation Law or any other provision of law.
(f) The provisions of this Article EIGHTH
shall be a contract between the Corporation, on the one
hand, and each director and officer who serves in such
capacity at any time while this Article EIGHTH is in effect
and any other person indemnified hereunder, on the other
hand, pursuant to which the Corporation and each such direc-
tor, officer, or other person intend to be legally bound.
No repeal or modification of this Article EIGHTH shall
affect any rights or obligations with respect to any state
of facts then or theretofore existing or thereafter arising
or any proceeding theretofore or thereafter brought or
threatened based in whole or in part upon any such state of
facts.
(g) The rights to indemnification and reim-
bursement or advancement of expenses provided by, or granted
pursuant to, this Article EIGHTH shall be enforceable by any
person entitled to such indemnification or reimbursement or
advancement of expenses in any court of competent jurisdic-
tion. The burden of proving that such indemnification or
reimbursement or advancement of expenses is not appropriate
shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, its indepen-
<PAGE>
16
dent legal counsel and its stockholders) to have made a
determination prior to the commencement of such action that
such indemnification or reimbursement or advancement of
expenses is proper in the circumstances nor an actual deter-
mination by the Corporation (including its Board of Direc-
tors, its independent legal counsel and its stockholders)
that such person is not entitled to such indemnification or
reimbursement or advancement of expenses shall constitute a
defense to the action or create a presumption that such per-
son is not so entitled. Such a person shall also be indem-
nified for any expenses incurred in connection with success-
fully establishing his or her right to such indemnification
or reimbursement or advancement of expenses, in whole or in
part, in any such proceeding.
(h) Any director or officer of the Corpora-
tion serving in any capacity (i) another corporation of
which a majority of the shares entitled to vote in the elec-
tion of its directors is held, directly or indirectly, by
the Corporation or (ii) any employee benefit plan of the
Corporation or any corporation referred to in clause (i)
shall be deemed to be doing so at the request of the Corpo-
ration.
(i) Any person entitled to be indemnified or
to reimbursement or advancement of expenses as a matter of
right pursuant to this Article EIGHTH may elect to have the
right to indemnification or reimbursement or advancement of
<PAGE>
17
expenses interpreted on the basis of the applicable law in
effect at the time of the occurrence of the event or events
giving rise to the applicable Proceeding, to the extent
permitted by law, or on the basis of the applicable law in
effect at the time such indemnification or reimbursement or
advancement of expenses is sought. Such election shall be
made, by a notice in writing to the Corporation, at the time
indemnification or reimbursement or advancement of expenses
is sought; provided, however, that if no such notice is
-------- -------
given, the right to indemnification or reimbursement or
advancement of expenses shall be determined by the law in
effect at the time indemnification or reimbursement or
advancement of expenses is sought.
NINTH: The following committees of the Board of
Directors shall be constituted and exist with the
membership, functions, powers and authorizations set forth
below:
(a) Class A Nominating Committee. The Class
----------------------------
A Nominating Committee shall consist of at least two Class A
Directors. The function of the Class A Nominating Committee
shall be to nominate, on behalf of the Board of Directors,
individuals to be the Board's nominees for election by the
holders of the Class A Common Stock to serve as Class A
Directors upon the expiration of the term of the Class A
Directors then in office.
<PAGE>
18
(b) Common Stock Nominating Committee. The
---------------------------------
Common Stock Nominating Committee shall consist of at least
two Common Stock Directors. The function of the Common
Stock Nominating Committee shall be to nominate, on behalf
of the Board of Directors, individuals to be the Board's
nominees for election by the holders of the Common Stock to
serve as Common Stock Directors upon the expiration of the
term of the Common Stock Directors then in office.
(c) Any member of the Class A Nominating
Committee or the Common Stock Nominating Committee, as the
case may be, may be removed at any time, with or without
cause, by the Class A Directors or the Common Stock
Directors, respectively. Any vacancy in the Class A
Nominating Committee or the Common Stock Nominating
Committee, as the case may be, occurring from any cause
whatsoever may be filled by the Class A Directors or the
Common Stock Directors, respectively.
(d) Any member of the Class A Nominating
Committee or the Common Stock Nominating Committee, as the
case may be, may resign at any time by written notice to the
Corporation. Such resignation shall be made in writing and
shall take effect at the time specified therein, or, if no
time be specified, at the time of its receipt by the
President or Secretary. The acceptance of a resignation
shall not be necessary to make it effective unless so
<PAGE>
19
specified in the notice of resignation provided to the
Corporation.
TENTH: The Board of Directors may from time to
time make, alter or repeal the By-laws by a vote of a
majority of the entire Board of Directors that would be in
office if no vacancy existed, whether or not present at a
meeting; provided, however, that any By-laws made, amended
-------- -------
or repealed by the Board of Directors may be amended or
repealed, and any By-laws may be made, by the stockholders
of the Corporation by vote of a majority of the holders of
shares of stock of the Corporation entitled to vote in the
election of directors of the Corporation.
<PAGE>
20
IN WITNESS WHEREOF, this Restated Certificate of
Incorporation, which restates and integrates and also
further amends the Restated Certificate of Incorporation of
the Corporation, and which has been adopted in accordance
with the provisions of Sections 242 and 245 of the Delaware
General Corporation Law, has been duly executed this ____
day of __________ 1995.
THE ACTAVA GROUP INC.
_____________________________________
Name:
Title:
<PAGE>
Exhibit B
METROMEDIA INTERNATIONAL GROUP, INC.
Incorporated Under the Laws of
the State of Delaware
BY-LAWS
-------
ARTICLE I
OFFICES
The registered office of Metromedia International
Group, Inc. (the "Corporation") in Delaware shall be at
32 Loockerman Square, Suite L-100 in the City of Dover,
County of Kent, in the State of Delaware, and The Prentice-
Hall Corporation System, Inc. shall be the resident agent of
this Corporation in charge thereof. The Corporation may
also have such other offices at such other places, within or
without the State of Delaware, as the Board of Directors may
from time to time designate or the business of the Corpora-
tion may require.
ARTICLE II
STOCKHOLDERS
Section 1. Annual Meeting. The annual meeting of
--------------
stockholders for the election of directors and the transac-
tion of any other business shall be held in the month of
March, April or May on such date as may be designated by the
Board of Directors, and in the absence of any such designa-
<PAGE>
2
tion it shall be held on the second Tuesday of April each
year, or as soon after such date as may be practicable, in
such city and state and at such time and place as may be
designated by the Board of Directors, and set forth in the
notice of such meeting. If said day be a legal holiday,
said meeting shall be held on the next succeeding business
day. At the annual meeting any business may be transacted
and any corporate action may be taken, whether stated in the
notice of meeting or not, except as otherwise expressly
provided by statute or the Restated Certificate of Incorpo-
ration of the Corporation (the same, as it shall from time
to time be in effect, is hereinafter referred to as the
"Certificate of Incorporation").
Section 2. Special Meetings. Special meetings of
----------------
the stockholders for any purpose may be called at any time
by the Board of Directors, or by the President, and shall be
called by the President at the request of the holders of at
least 25% of the outstanding shares of capital stock
entitled to vote. Special meetings shall be held at such
place or places within or without the State of Delaware as
shall from time to time be designated by the Board of
Directors and stated in the notice of such meeting. At a
special meeting no business shall be transacted and no
corporate action shall be taken other than that stated in
the notice of the meeting.
Section 3. Notice of Meetings. Written notice of
------------------
the time, date and place of any stockholders' meeting and
<PAGE>
3
the purpose or purposes for which it is called, whether
annual or special, shall be given to each stockholder
entitled to vote thereat, by personal delivery or by mailing
the same to him at his address as the same appears upon the
records of the Corporation at least ten days but not more
than sixty days before the day of the meeting. Notice of
any adjourned meeting need not be given except by announce-
ment at the meeting so adjourned, unless otherwise ordered
in connection with such adjournment. Such further notice, if
any, shall be given as may be required by law.
Section 4. Quorum. Any number of stockholders,
------
together holding at least a majority of the shares of stock
of the Corporation issued and outstanding and entitled to
vote, who shall be present in person or represented by proxy
at any meeting duly called, shall constitute a quorum for
the transaction of all business, except as otherwise
provided by law, by the Certificate of Incorporation or by
these By-laws.
Section 5. Adjournment of Meetings. If less than
-----------------------
a quorum shall attend at the time for which a meeting shall
have been called, the meeting may adjourn from time to time
by a majority vote of the stockholders present or
represented by proxy and entitled to vote. Any meeting at
which a quorum is present may also be adjourned in like
manner and for such time or upon such call as may be
determined by a majority vote of the stockholders present or
represented by proxy and entitled to vote. At any adjourned
<PAGE>
4
meeting at which a quorum shall be present, any business may
be transacted and any corporate action may be taken which
might have been transacted at the meeting as originally
called.
Section 6. Voting List. The Secretary shall
-----------
prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled
to vote, arranged in alphabetical order and showing the
address of each stockholder and the number of shares of each
stockholder of each class of capital stock of the
Corporation. Such list shall be open at the place where the
meeting is to be held for said ten days, to the examination
of any stockholder, and shall be produced and kept at the
time and place of the meeting during the whole time thereof,
and shall be subject to the inspection of any stockholder
who may be present.
Section 7. Voting. Each stockholder entitled to
------
vote at any meeting may vote either in person or by proxy,
but no proxy shall be voted on or after three years from its
date unless said proxy provides for a longer period. Unless
otherwise provided in the Certificate of Incorporation, each
stockholder entitled to vote shall at every meeting of the
stockholders be entitled to one vote for each share of
common stock registered in his name on the record of stock-
holders. If the Certificate of Incorporation provides for
more than one vote for any share, on any matter, every
reference in these By-laws or the General Corporation Law of
<PAGE>
5
the State of Delaware, as amended from time to time (the
"GCL"), to a majority or other proportion of stock shall
refer to such majority or other proportion of the votes of
such stock. At all meetings of stockholders, the election
of directors shall be determined by the affirmative vote of
the plurality of shares present in person or by proxy and
entitled to vote on the subject matter and all other
matters, except as otherwise provided by statute, shall be
determined by the affirmative vote of the majority of shares
present in person or by proxy and entitled to vote on the
subject matter. Voting at meetings of stockholders need not
be by written ballot.
Section 8. Record Date of Stockholders. The
---------------------------
Board of Directors is authorized to fix in advance a date
not exceeding sixty days nor less than ten days preceding
the date of any meeting of stockholders, or the date for the
payment of any dividend, or the date for the allotment of
rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or a date in
connection with obtaining the consent of stockholders for
any purposes, as a record date for the determination of the
stockholders entitled to notice of, and to vote at, any such
meeting, and any adjournment thereof, or entitled to receive
payment of any such dividend, or to any such allotment of
rights, or to exercise the rights in respect of any such
change, conversion or exchange of capital stock, or to give
such consent, and, in such case, such stockholders and only
<PAGE>
6
such stockholders as shall be stockholders of record on the
date so fixed shall be entitled to such notice of, and to
vote at, such meeting, and any adjournment thereof, or to
receive payment of such dividend, or to receive such allot-
ment of rights, or to exercise such rights, or to give such
consent, as the case may be, notwithstanding any transfer of
any stock on the books of the Corporation, after such record
date fixed as aforesaid.
Section 9. Action Without Meeting. Any action
----------------------
required or permitted to be taken at any annual or special
meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken,
shall be signed by the holders having not less than the
minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be
delivered to the Corporation by delivery to its registered
office in the State of Delaware, its principal place of
business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corpora-
tion's registered office shall be by hand or by certified or
registered mail, return receipt requested. Prompt notice of
the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those
stockholders who have not consented in writing.
<PAGE>
7
Section 10. Conduct of Meetings. The Chairman of
-------------------
the Board of Directors or, in his absence the President or
any Vice President designated by the Chairman of the Board,
shall preside at all regular or special meetings of stock-
holders. To the maximum extent permitted by law, such
presiding person shall have the power to set procedural
rules, including but not limited to rules respecting the
time allotted to stockholders to speak, governing all
aspects of the conduct of such meetings.
ARTICLE III
DIRECTORS
Section 1. General Powers. Except as otherwise
--------------
provided in the Certificate of Incorporation, the business
and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors. The Board of
Directors may adopt such rules and regulations, not
inconsistent with the Certificate of Incorporation or these
By-laws or applicable laws, as it may deem proper for the
conduct of its meetings and the management of the
Corporation. In addition to the powers expressly conferred
by these By-laws, the Board of Directors may exercise all
powers and perform all acts that are not required, by these
By-laws or the Certificate of Incorporation or by statute,
to be exercised and performed by the stockholders.
Section 2. Number and Qualifications. The Board
-------------------------
of Directors shall consist of ten (10) directors. The Board
<PAGE>
8
of Directors shall be comprised as follows: six (6) direc-
tors shall be designated "Class A Directors" who shall be
elected by the holders of the Corporation's Class A Common
Stock, $1.00 par value (the "Class A Common Stock"), voting
separately as a class, in accordance with Article FOURTH,
Part B of the Certificate of Incorporation and four (4)
directors shall be designated "Common Stock Directors" who
shall be elected by the holders of the Corporation's Common
Stock, $1.00 par value (the "Common Stock"), voting
separately as a class, in accordance with Article FOURTH,
Part B of the Certificate of Incorporation (the Class A
Directors and the Common Stock Directors being collectively
referred to as the "Directors"). The Directors need not be
stockholders.
Section 3. Election of Directors.
---------------------
(a) Class A Directors shall, except as otherwise
required by statute or by the Certificate of Incorporation,
be elected by a plurality of the votes cast at a meeting of
stockholders by the holders of shares of Class A Common
Stock entitled to vote in the election, voting as a separate
class.
(b) Common Stock Directors shall, except as
otherwise required by statute or by the Certificate of
Incorporation, be elected by a plurality of the votes cast
at a meeting of stockholders by the holders of shares of
Common Stock entitled to vote in the election, voting
separately as a class.
<PAGE>
9
Section 4. Duration of Office. The Directors
------------------
chosen at any annual meeting shall, except as hereinafter
provided, hold office until the next annual election and
until their successors are elected and qualified.
Section 5. Removal and Resignation of Directors.
------------------------------------
(a) Any Director may be removed from the Board of
Directors without cause by the affirmative vote of the
holders of a majority in voting power of the shares of the
class or classes or series of stock that are entitled to
vote for the election of such Director, voting separately as
a class or series, either by written consent or consents or
at any special meeting of such stockholders called for that
purpose, and the office of such Director shall forthwith
become vacant.
(b) Any Director or the entire Board of Directors
may be removed for cause as provided under the GCL.
(c) Any Director may resign at any time by
written notice to the Corporation. Such resignation shall
take effect at the time specified therein, and if no time be
specified, at the time of its receipt by the President or
Secretary. The acceptance of a resignation shall not be
necessary to make it effective, unless so specified therein.
Section 6. Filling of Vacancies. Vacancies among
--------------------
the Directors may only be filled as provided in the
Certificate of Incorporation.
Section 7. Regular Meetings. The Board of Direc-
----------------
tors shall hold an annual meeting for the purpose of organi-
<PAGE>
10
zation and the transaction of any business immediately after
the annual meeting of the stockholders, provided a quorum of
Directors is present. Other regular meetings may be held at
such times as may be determined from time to time by resolu-
tion of the Board of Directors.
Section 8. Special Meetings. Special meetings of
----------------
the Board of Directors may be called by the Chairman of the
Board of Directors, the Vice Chairman of the Board of Direc-
tors, by the President or by a majority of the Directors.
Section 9. Notice and Place of Meetings. Meet-
----------------------------
ings of the Board of Directors may be held at the principal
office of the Corporation, or at such other place as shall
be stated in the notice of such meeting. Notice of any
special meeting, and, except as the Executive Committee may
unanimously recommend and the Board of Directors may other-
wise determine by resolution, notice of any regular meeting
also, shall be mailed to each Director addressed to him at
his residence or usual place of business at least four days
before the day on which the meeting is to be held, or if
sent to him at such place by telegraph or cable or delivered
personally or by overnight mail service, telephone or tele-
copy not later than 24 hours before the time at which the
meeting is to be held. Notice of the annual meeting of the
Board of Directors shall not be required if it is held
immediately after the annual meeting of the stockholders and
if a quorum is present.
<PAGE>
11
Section 10. Business Transacted at Meetings, Etc.
-------------------------------------
Any business may be transacted and any corporate action may
be taken at any regular or special meeting of the Board of
Directors at which a quorum shall be present, whether such
business or proposed action be stated in the notice of such
meeting or not, unless special notice of such business or
proposed action shall be required by statute.
Section 11. Quorum. A majority of the Board of
------
Directors at any time in office shall constitute a quorum.
At any meeting at which a quorum is present, the vote of a
majority of the members present shall be the act of the
Board of Directors unless the act of a greater number is
specifically required by law or by the Certificate of
Incorporation or these By-laws.
Section 12. Compensation. Each Director, in
------------
consideration of his or her service as such, shall be
entitled to receive from the Corporation such amount per
annum or such fees for attendance at Directors' meetings, or
both, as the Board of Directors may from time to time
determine, together with reimbursement for the reasonable
out-of-pocket expenses, if any, incurred by such Director in
connection with the performance of his or her duties.
Nothing contained in this Section 12 shall preclude any
Director from serving the Corporation or its subsidiaries in
any other capacity and receiving proper compensation
therefor.
<PAGE>
12
Section 13. Action Without a Meeting. Any action
------------------------
required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be
taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of
the proceedings of the Board or committee.
Section 14. Meetings Through Use of Communica-
----------------------------------
tions Equipment. Members of the Board of Directors, or any
---------------
committee designated by the Board of Directors, shall,
except as otherwise provided by law, the Certificate of
Incorporation or these By-laws, have the power to attend and
participate in a meeting of the Board of Directors, or any
committee, by means of a conference telephone or similar
communications equipment by means of which all persons
participating in the meeting can hear each other, and such
participation shall constitute presence in person at the
meeting.
ARTICLE IV
COMMITTEES
The following committees of the Board of Directors
shall be constituted and exist with the membership,
functions, powers and authorizations set forth below:
Executive Committee, Class A Nominating Committee, Common
Stock Nominating Committee and Audit Committee.
Section 1. Executive Committee. The Board of
-------------------
Directors shall, by resolution passed by a majority of the
<PAGE>
13
entire Board, designate two or more of their number to
constitute an Executive Committee to hold office at the
pleasure of the Board. The Executive Committee shall have
reasonable access during normal working hours to all sig-
nificant information (including all books and records)
respecting the Corporation and its assets. Subject to the
provisions of the GCL, the Executive Committee shall have
and may exercise all of the powers of the Board of Directors
in the management and affairs of the Corporation including,
without limitation, the power and authority to declare a
dividend, to authorize the issuance of stock or to adopt a
certificate of ownership and merger in connection with the
merger of the Corporation and any of its subsidiaries.
The membership of the Executive Committee may be
changed at any time by a resolution of a majority of the
entire Board of Directors.
Any person ceasing to be a Director shall ipso
----
facto cease to be a member of the Executive Committee.
-----
Any vacancy in the Executive Committee occurring
from any cause whatsoever may be filled from among the
Directors by a resolution of a majority of the entire Board
of Directors.
Section 2. Audit Committee. The Board of Direc-
---------------
tors shall, by resolution passed by a majority of the entire
Board, designate two or more of their number to constitute
an Audit Committee to hold office at the pleasure of the
Board. The function of the Audit Committee shall be (a) to
<PAGE>
14
review the professional services and independence of the
Corporation's independent auditors and the scope of the
annual external audit as recommended by the independent
auditors, (b) to ensure that the scope of the annual
external audit is sufficiently comprehensive, (c) to review,
in consultation with the independent auditors and the
internal auditors, the plan and results of the annual
external audit, the adequacy of the Corporation's internal
control systems and the results of the Corporation's
internal audits, (d) to review, with management and the
independent auditors, the Corporation's annual financial
statements, financial reporting practices and the results of
each external audit and (e) to undertake reasonably related
activities to those set forth in clauses (a) through (d) of
this Section 2. The Audit Committee shall also have the
authority to consider the qualification of the Corporation's
independent auditors, to make recommendations to the Board
of Directors as to their selection and retention and to
review and resolve disputes between such independent
auditors and management relating to the preparation of the
annual financial statements.
Section 3. Class A Nominating Committee and the
------------------------------------
Common Stock Nominating Committee. The membership
---------------------------------
functions, powers and authorizations of the Class A
Nominating Committee and the Common Stock Nominating
Committee shall be as set forth in the Certificate of
Incorporation.
<PAGE>
15
Section 4. Other Committees. Other committees
----------------
may be appointed by the Board of Directors, the members of
which committees shall hold office for such time and have
such powers and perform such duties as may from time to time
be assigned to them by the Board of Directors; provided,
--------
however, that no such committee shall have any power not
-------
permitted to the Executive Committee under the GCL;
provided, further, that no such committee shall have the
-------- -------
powers granted to the Class A Nominating Committee and the
Common Stock Nominating Committee in the Certificate of
Incorporation.
Except as set forth in the Certificate of
Incorporation, the membership of any committee of the
Corporation may be changed at any time by the Board of
Directors. Any vacancy in such a committee (other than the
Class A Nominating Committee and the Common Stock Nominating
Committee) occurring from any cause whatsoever may be filled
from among the Directors by the Board of Directors.
Section 5. Resignation. Any member of a
-----------
committee may resign at any time by written notice to the
Corporation. Such resignation shall be made in writing and
shall take effect at the time specified therein, or, if no
time be specified, at the time of its receipt by the
President or Secretary. The acceptance of a resignation
shall not be necessary to make it effective unless so
specified therein.
<PAGE>
16
Section 6. Quorum. A majority of the members of
------
a committee shall constitute a quorum. The act of a
majority of the members of a committee present at any meet-
ing at which a quorum is present shall be the act of such
committee. The members of a committee shall act only as a
committee, and the individual members thereof shall not have
any powers as such.
Section 7. Record of Proceedings, Etc. Each
---------------------------
committee shall keep minutes of all meetings thereof, sum-
marizing its acts and proceedings, and shall promptly report
the same to the Board of Directors when and as required by
the Board of Directors.
Section 8. Organization, Meetings, Notices, Etc.
-------------------------------------
A committee may hold its meetings at the principal office of
the Corporation, or at any other place which a majority of
the committee may at any time agree upon. Each committee
may make such rules as it may deem expedient for the regula-
tion and carrying on of its meetings and proceedings.
Unless otherwise ordered by the Executive Committee, any
notice of a meeting of such committee may be given by the
Secretary of the Corporation or by the chairman of the
committee and shall be sufficiently given if mailed to each
member at his residence or usual place of business at least
two days before the day on which the meeting is to be held,
or if sent to him at such place by telegraph or cable or
delivered personally or by telephone or by telecopy not
<PAGE>
17
later than 24 hours before the time at which the meeting is
to be held.
Section 9. Compensation. The members of any
------------
committee shall be entitled to such compensation as may be
allowed them by resolution of the Board of Directors.
ARTICLE V
OFFICERS
Section 1. Number. The Officers of the Corpora-
------
tion shall be a President, one or more Vice-Presidents, a
Secretary, one or more Assistant Secretaries, a Treasurer,
and one or more Assistant Treasurers, and such other offi-
cers as may be appointed in accordance with the provisions
of Section 3 of this Article V. The Board of Directors in
its discretion may also elect a Chairman of the Board of
Directors and a Vice Chairman of the Board of Directors.
Section 2. Election, Term of Office and
----------------------------
Qualifications. The officers, except as provided in Section
--------------
3 of this Article V, shall be chosen annually by the Board
of Directors. Each such officer shall, except as herein
otherwise provided, hold office until his successor shall
have been chosen and shall qualify. The Chairman of the
Board of Directors and the Vice Chairman of the Board of
Directors, if any, and the President shall be Directors of
the Corporation, and should any one of them cease to be a
Director, he shall ipso facto cease to be such officer.
---- -----
<PAGE>
18
Except as otherwise provided by law, any number of offices
may be held by the same person.
Section 3. Other Officers. Other officers,
--------------
including one or more additional Vice-Presidents, Assistant
Secretaries or Assistant Treasurers, may from time to time
be appointed by the Board of Directors, which other officers
shall have such powers and perform such duties as may be
assigned to them by the Board of Directors.
Section 4. Removal of Officers. Any officer of
-------------------
the Corporation may be removed from office, with or without
cause, by a vote of a majority of the Board of Directors.
Section 5. Resignation. Any officer of the
-----------
Corporation may resign at any time by written notice to the
Corporation. Such resignation shall take effect at the time
specified therein, and if no time be specified, at the time
of its receipt by the President or Secretary. The
acceptance of a resignation shall not be necessary in order
to make it effective, unless so specified therein.
Section 6. Filling of Vacancies. A vacancy in
--------------------
any office shall be filled by the Board of Directors.
Section 7. Compensation. The compensation of the
------------
officers shall be fixed by the Board of Directors, or by any
committee upon whom power in that regard may be conferred by
the Board of Directors.
Section 8. Chairman of the Board of Directors.
----------------------------------
The Chairman of the Board of Directors shall be a Director
and shall preside at all meetings of the Board of Directors
<PAGE>
19
at which he shall be present, and shall have such power and
perform such duties as may from time to time be assigned to
him by the Board of Directors.
Section 9. Vice Chairman of the Board of Direc-
------------------------------------
tors. The Vice Chairman of the Board of Directors of the
----
Corporation shall be a Director and shall, in the absence of
the Chairman of the Board of Directors, preside, when pre-
sent, at meetings of the Board of Directors, and shall have
such powers and perform such duties as may from time to time
be assigned to him by the Board of Directors or the Chair-
man.
Section 10. President. The President shall, when
---------
present, preside at all meetings of the stockholders, and,
in the absence of the Chairman and the Vice Chairman of the
Board of Directors, at all meetings of the Board of
Directors. He shall have power to call special meetings of
the stockholders or of the Board of Directors or of the
Executive Committee at any time. He shall be the chief
executive officer of the Corporation, and shall have
responsibility for the general direction of the business,
affairs and property of the Corporation, and of its several
officers, and shall have and exercise all such powers and
discharge such duties as usually pertain to the office of
President.
Section 11. Office of the Chairman. The Office
----------------------
of the Chairman shall be composed of the Chairman, the Vice
Chairman and the President. The members of the Office of
<PAGE>
20
the Chairman shall have the authority to oversee the day-to-
day management of the business and affairs of the
Corporation, subject, however, to the control of the Board
of Directors and the Executive Committee.
Section 12. Vice-Presidents. The Vice-
---------------
Presidents, or any of them, shall, subject to the direction
of the Board of Directors, at the request of the President
or in his absence, or in case of his inability to perform
his duties from any cause, perform the duties of the
President, and, when so acting, shall have all the powers
of, and be subject to all restrictions upon, the President.
The Vice-Presidents shall also perform such other duties as
may be assigned to them by the Board of Directors, and the
Board of Directors may determine the order of priority among
them.
Section 13. Secretary. The Secretary shall
---------
perform such duties as are incident to the office of Secre-
tary, or as may from time to time be assigned to him by the
Board of Directors, or as are prescribed by these By-laws.
Section 14. Treasurer. The Treasurer shall
---------
perform such duties and have powers as are usually incident
to the office of Treasurer or which may be assigned to him
by the Board of Directors.
<PAGE>
21
ARTICLE VI
CAPITAL STOCK
Section 1. Issue of Certificates of Stock.
------------------------------
Certificates of capital stock shall be in such form as shall
be approved by the Board of Directors. They shall be num-
bered in the order of their issue and shall be signed by the
Chairman of the Board of Directors, the President or one of
the Vice-Presidents, and the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer, and
the seal of the Corporation or a facsimile thereof shall be
impressed or affixed or reproduced thereon; provided, how-
-------- ----
ever, that where such certificates are signed by a transfer
----
agent or an assistant transfer agent or by a transfer clerk
acting on behalf of the Corporation and a registrar, the
signature of any such Chairman of the Board of Directors,
President, Vice-President, Secretary, Assistant Secretary,
Treasurer or Assistant Treasurer may be facsimile. In case
any officer or officers who shall have signed, or whose
facsimile signature or signatures shall have been used on
any such certificate or certificates shall cease to be such
officer or officers of the Corporation, whether because of
death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation,
such certificate or certificates may nevertheless be adopted
by the Corporation and be issued and delivered as though the
person or persons who signed such certificate or certifi-
cates, or whose facsimile signature or signatures shall have
<PAGE>
22
been used thereon, have not ceased to be such officer or
officers of the Corporation.
Section 2. Registration and Transfer of Shares.
-----------------------------------
The name of each person owning any share of the capital
stock of the Corporation shall be entered on the books of
the Corporation together with the number of shares of each
class of capital stock held by him, the numbers of the
certificates covering such shares and the dates of issue of
such certificates. The shares of stock of the Corporation
shall be transferable on the books of the Corporation by the
holders thereof in person, or by their duly authorized
attorneys or legal representatives, on surrender and
cancellation of certificates for a like number of shares,
accompanied by an assignment or power of transfer endorsed
thereon or attached thereto, duly executed, and with such
proof of the authenticity of the signature as the
Corporation or its agents may reasonably require. A record
shall be made of each transfer.
The Board of Directors may make other and further
rules and regulations concerning the transfer and registra-
tion of certificates for stock and may appoint a transfer
agent or registrar or both and may require all certificates
of stock to bear the signature of either or both.
Section 3. Lost, Destroyed and Mutilated Certifi-
--------------------------------------
cates. The holder of any stock of the Corporation shall
-----
immediately notify the Corporation of any loss, theft,
destruction or mutilation of the certificates therefor. The
<PAGE>
23
Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it alleged to
have been lost, stolen or destroyed, and the Board of Direc-
tors may, in its discretion, require the owner of the lost,
stolen or destroyed certificate, or his legal representa-
tives, to give the Corporation a bond, in such sum not
exceeding double the value of the stock and with such surety
or sureties as they may require, to indemnify it against any
claim that may be made against it by reason of the issue of
such new certificate and against all other liability in the
premises, or may remit such owner to such remedy or remedies
as he may have under the laws of the State of Delaware.
ARTICLE VII
DIVIDENDS, SURPLUS, ETC.
The Board of Directors shall have power to fix and
vary the amount to be set aside or reserved as working
capital of the Corporation, or as reserves, or for other
proper purposes of the Corporation, and, subject to the
requirements of the Certificate of Incorporation, to deter-
mine whether any part of the surplus or net profits of the
Corporation, if any, shall be declared as dividends and paid
to the stockholders, and to fix the date or dates for the
payment of dividends.
<PAGE>
24
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 1. Fiscal Year. The fiscal year of the
-----------
Corporation shall commence on the first day of January and
end on the last day of December, inclusive, or consist of
such other 12 consecutive months as the Board of Directors
may by resolution designate.
Section 2. Corporate Seal. The corporate seal
--------------
shall be circular in form, with the name of the corporation
in the circumference and the words and figures "Corporate
Seal - 1968 - Delaware" in the center. The form of the
corporate seal of the Corporation may be altered at the
pleasure of the Board of Directors. The corporate seal may
be used by causing it or a facsimile thereof to be impressed
or affixed or reproduced or otherwise.
Section 3. Notices. Except as otherwise
-------
expressly provided, any notice required by these By-laws to
be given shall be sufficient if given by depositing the same
in a post office or letter box in a sealed postpaid wrapper
addressed to the person entitled thereto at his address, as
the same appears upon the books of the Corporation, or by
telecopying, telegraphing or cabling the same to such person
at such addresses; and such notice shall be deemed to be
given at the time it is mailed, telecopied, telegraphed or
cabled.
Section 4. Waiver of Notice. Any stockholder,
----------------
Director or member of a committee may at any time, by
<PAGE>
25
writing or by telecopy, telegraph or by cable, waive any
notice required to be given under these By-laws, and if any
stockholder, Director or member of a committee shall be
present at any meeting his presence shall constitute a
waiver of such notice unless he shall appear solely for the
purpose of objecting to the absence of notice and at the
beginning of the meeting shall declare such right to the
other stockholders, Directors or committee members then
present.
Section 5. Checks, Drafts, Etc. All checks,
--------------------
drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the
Corporation, shall be signed by such officer or officers,
agent or agents of the Corporation, and in such manner, as
shall from time to time be designated by resolution of the
Board of Directors.
Section 6. Deposits. All funds of the Corpora-
--------
tion shall be deposited from time to time to the credit of
the Corporation in such bank or banks, trust companies or
other depositories as may be selected by the Board of Direc-
tors or by such officers of the Corporation as may from time
to time be designated by resolution of the Board of Direc-
tors. For the purpose of such deposit, checks, drafts,
warrants and other orders for the payment of money which are
payable to the order of the Corporation may be endorsed for
deposit, assigned and delivered by any officer of the Corpo-
<PAGE>
26
ration, or by such agents of the Corporation as the Board of
Directors or the President may authorize for that purpose.
Section 7. Voting Stock of Other Corporations.
----------------------------------
Except as otherwise ordered by the Board of Directors or the
Executive Committee, the President or any Vice President,
acting jointly with the Treasurer, shall have the full power
and authority on behalf of the Corporation to attend and to
act and to vote at any meeting of the stockholders of any
corporation of which the Corporation is a stockholder and to
execute a proxy to any other person to represent the Corpo-
ration at any such meeting, and at any such meeting, the
President or any Vice President, acting jointly with the
Treasurer, or the holder of any such proxy, as the case may
be, shall possess and may exercise any and all rights and
powers incident to ownership of such stock and which, as
owner thereof, the Corporation might have possessed and
exercised if present. The Board of Directors or the Execu-
tive Committee may from time to time confer like powers upon
any other person or persons.
ARTICLE IX
AMENDMENTS
The Board of Directors may from time to time make,
alter or repeal the By-laws by a vote of a majority of the
entire Board of Directors that would be in office if no
vacancy existed, whether or not present at a meeting;
provided, however, that any By-laws made, amended or
-------- -------
<PAGE>
27
repealed by the Board of Directors may be amended or
repealed, and any By-laws may be made, by the stockholders
of the Corporation by vote of a majority of the holders of
shares of stock of the Corporation entitled to vote in the
election of Directors of the Corporation.
<PAGE>
Exhibit C-1
SHARE EXCHANGE AGREEMENT
------------------------
SHARE EXCHANGE AGREEMENT ("Agreement"), dated as
of April 12, 1995 among Metromedia Company, a Delaware
general partnership ("Metromedia"), Met Telcell, Inc., a
Delaware corporation ("Met Telcell"), Met International
Inc., a Delaware corporation ("Met International"),
MetProductions, Inc., a Delaware corporation
("MetProductions"), John W. Kluge ("Kluge") and Anita H.
Subotnick and Stuart Subotnick, as joint tenants
("Subotnick" and together with Metromedia, Met Telcell, Met
International, subject to Section 1.2, MetProductions, and
Kluge, the "Exchanging Holders") and The Actava Group Inc.,
a Delaware corporation ("Actava").
WHEREAS, pursuant to an Agreement and Plan of
Merger, dated as of April 12, 1995 (the "Merger Agreement"),
among Actava, Orion Pictures Corporation, a Delaware corpo-
ration ("Orion"), MCEG Sterling Incorporated, a Delaware
corporation ("Sterling") and Metromedia International
Telecommunications, Inc., a Delaware corporation ("MITI"),
each of Orion, Sterling and MITI, have agreed to merge with
and into Actava (together the "Mergers"), with Actava being
the surviving corporation (the "Surviving Corporation") of
each of the Mergers;
WHEREAS, immediately following the consummation of
the Mergers, the Exchanging Holders will exchange their
shares of common stock, par value $1.00 per share, of the
<PAGE>
2
Surviving Corporation ("Common Stock"), received pursuant to
the Mergers, for an equivalent number of shares of Class A
Common Stock, par value $1.00 per share, of the Surviving
Corporation ("Class A Common Stock"), which shares of Class
A Common Stock will be convertible at any time at the option
of the holder into shares of Common Stock;
WHEREAS, pursuant to Section 12.3.10 of the Merger
Agreement, it is a condition to the consummation of the
Mergers that all MetProductions Indebtedness (as defined in
the Merger Agreement) and the MII Indebtedness (as defined
in the Merger Agreement) will be either refinanced, or
repaid in full or converted into shares of Class A Common
Stock (the "Section 12.3.10 Condition");
WHEREAS, if the MetProductions Indebtedness and/or
the MII Indebtedness is to be converted into shares of Class
A Common Stock, MetProductions or Met International, as the
case may be, will contribute to the Surviving Corporation
the MetProductions Indebtedness and/or the MII Indebtedness,
as the case may be, in exchange for shares of Class A Common
Stock in accordance with Section 1.2 hereof.
NOW, THEREFORE, in consideration of the premises
and mutual agreements contained herein, and for other good
and valuable consideration, the receipt and sufficiency of
which hereby are acknowledged, the parties hereto agree as
follows:
<PAGE>
3
ARTICLE I
EXCHANGE OF THE SHARES
----------------------
1.1 The Share Exchange. On the terms and subject
------------------
to the conditions set forth herein, immediately following
the consummation of the Mergers, (a) each Exchanging Holder
shall transfer, assign and deliver to the Surviving Corpora-
tion certificates representing such number of shares of
Common Stock that it receives pursuant to Sections 2.2.1(i)
and 2.2.3(i) of the Merger Agreement, as the case may be,
together with stock powers endorsed in blank and (b) the
Surviving Corporation shall issue, in exchange for the
shares of Common Stock specified in clause (a) above, to
such Exchanging Holder a certificate or certificates regis-
tered in the name of such Exchanging Holder representing an
equivalent number of shares of Class A Common Stock (such
exchange, and the transaction described in Section 1.2
hereof, if any, are referred to as the "Share Exchange").
1.2 Contribution of Indebtedness and Issuance of
--------------------------------------------
Stock. If the Section 12.3.10 Condition is to be satisfied
-----
by converting the MII Indebtedness and/or the MetProductions
Indebtedness into Class A Common Stock simultaneously with
the exchange described in Section 1.1(a), MetProductions or
Met International, as the case may be, will execute all
necessary documentation in order to contribute, assign or
convey to the Surviving Corporation such MetProductions
Indebtedness or MII Indebtedness, respectively and (b) in
<PAGE>
4
exchange therefor, the Surviving Corporation shall issue
(i) to MetProductions, a certificate or certificates
registered in the name of MetProductions, or any permitted
assignee of MetProductions, representing a number of shares
of Class A Common Stock equal to the product of (A) the
quotient of (I) the aggregate amount of such MetProductions
Indebtedness as of the Effective Time (as defined in the
Merger Agreement) divided by (II) 6, multiplied by (B) the
Orion Exchange Ratio (as defined in the Merger Agreement),
or (ii) to Met International, a certificate or certificates
registered in the name of Met International, or any
permitted assignee of Met International, representing a
number of shares of Class A Common Stock equal to the
product of (A) the quotient of (I) the aggregate amount of
such MII Indebtedness as of the Effective Time divided by
(II) the quotient of (a) 100,000,000 divided by (b) the
number of shares of MITI Common Stock (as defined in the
Merger Agreement) outstanding as of the Effective Time,
multiplied by (B) the MITI Exchange Ratio.
If MetProductions or Met International does
contribute, assign or convey to the Surviving Corporation
the MetProductions Indebtedness or the MII Indebtedness in
the manner described above, for purposes of this Agreement,
such contribution, assignment or conveyance shall be con-
sidered part of the "Share Exchange" and MetProductions will
be referred to as an "Exchanging Holder."
<PAGE>
5
1.3 Closing of the Share Exchange. The closing
-----------------------------
of such Share Exchange (the "Share Exchange Closing") shall
take place immediately following the consummation of the
Mergers and satisfaction or waiver of the other conditions
set forth in Article III hereof at the offices of Paul,
Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the
Americas, New York, New York 10019.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 2.1 Actava Representations and
--------------------------
Warranties. Actava represents and warrants that:
----------
(a) Organization and Good Standing. Actava and
------------------------------
each of its material subsidiaries is a corporation duly
organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now
being conducted. Actava and each of its material sub-
sidiaries is duly qualified or licensed and in good standing
to do business in each jurisdiction in which the character
of the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualifica-
tion or licensing necessary, except where the failure to be
so duly qualified or licensed and in good standing would not
have a material adverse effect on the business, assets,
<PAGE>
6
condition (financial or otherwise) or the results of opera-
tions of Actava and its material subsidiaries, taken as a
whole.
(b) Authorization; Binding Agreement. Actava has
--------------------------------
all requisite corporate power and authority to execute and
deliver this Agreement and the Registration Rights Agreement
(as defined below) and to consummate the transactions con-
templated hereby and thereby, subject to the approval and
adoption of this Agreement by the stockholders of Actava.
This Agreement has been and the Registration Rights Agree-
ment will be duly and validly executed and delivered by
Actava, and, subject to the approval and adoption of this
Agreement by the stockholders of Actava, this Agreement
constitutes and the Registration Rights Agreement will
constitute the legal, valid and binding agreement of Actava,
enforceable against Actava in accordance with their respec-
tive terms, except to the extent that enforceability thereof
may be limited by applicable bankruptcy, insolvency, reor-
ganization or other similar laws affecting the enforcement
of creditors' rights generally and by principles of equity
regarding the availability of remedies.
(c) Actava is not required to obtain any consent,
authorization or order of, or filing or registration with,
any court or governmental agency or other party for the
execution and delivery by Actava of this Agreement or the
Registration Rights Agreement and the performance of this
<PAGE>
7
Agreement or the Registration Rights Agreement and the
transactions contemplated hereby or thereby.
(d) All shares of Class A Common Stock to be
issued hereunder to the Exchanging Holders shall be duly
authorized, validly issued, fully paid and non-assessable
and will not be subject to any preemptive or similar rights.
Section 2.2 Exchanging Holder Representations
---------------------------------
and Warranties. The Exchanging Holders represent and
--------------
warrant that:
(a) Each Exchanging Holder which is a
corporation or a partnership has the requisite corporate or
partnership power and authority, as the case may be, to
execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been
duly and validly executed by each of the Exchanging Holders
and constitutes the legal, valid and binding obligation of
each of the Exchanging Holders, enforceable against the
Exchanging Holders in accordance with its terms, except to
the extent that enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforce-
ability of creditors' rights generally and by general
principles of equity regarding the availability of remedies.
(b) Except for the consents listed on
Schedule 2.2, no consent, authorization or order of, or
filing or registration with, any court or governmental
<PAGE>
8
agency or other party is required to be obtained by any of
the Exchanging Holders for the execution and delivery by the
Exchanging Holders of this Agreement and the performance by
the Exchanging Holders of this Agreement and the transac-
tions contemplated hereby.
ARTICLE III
CONDITIONS TO OBLIGATIONS
-------------------------
Section 3.1 Mutual Conditions. The obligations
-----------------
of Actava and the Exchanging Holders to effect the Share
Exchange shall be subject to the fulfillment at or prior to
the time of the Share Exchange of the following conditions,
any one or more of which may be waived by Actava and the
Exchanging Holders:
(a) The Mergers shall have been consummated.
(b) As of the Share Exchange Closing, as if
made as of the Share Exchange Closing, each of the represen-
tations and warranties contained in Article II of this
Agreement shall be true and correct in all material respects
(except for changes which are caused by compliance with the
terms of this Agreement or are contemplated hereby).
Section 3.2 Conditions to Obligations of the
--------------------------------
Exchanging Holders. The obligation of the Exchanging
------------------
Holders to effect the Share Exchange shall be subject to the
fulfillment at or prior to the time of the Share Exchange of
<PAGE>
9
the following conditions, any one or more of which may be
waived by the Exchanging Holders:
(a) Amendment to Certificate of
---------------------------
Incorporation. Actava's Restated Certificate of
-------------
Incorporation shall have been amended (by approval of the
Merger Agreement) to increase the number of shares of
authorized Common Stock and to authorize the Class A Common
Stock entitled to three votes per share on all matters voted
upon by the Surviving Corporation's stockholders as provided
for in the Restated Certificate of Incorporation of the
Surviving Corporation substantially in the form of
Schedule 3.2(a) hereto.
(b) Registration Rights Agreement. Actava
-----------------------------
shall have entered into the Registration Rights Agreement
substantially in the form of Schedule 3.2(b) hereto (the
"Registration Rights Agreement").
(c) Opinion of Counsel. The Exchanging
------------------
Holders shall have received an opinion of Long, Aldridge &
Norman, counsel to Actava, substantially in the form of
Exhibit 3.2(c) to this Agreement.
ARTICLE IV
COVENANTS OF ACTAVA
-------------------
Actava covenants that it at all times will reserve
and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued shares of Common
<PAGE>
10
Stock or its issued shares of Common Stock held in its
treasury, or both, for the purpose of effecting conversion
of the Class A Common Stock, the full number of shares of
Common Stock deliverable upon the conversion of all out-
standing shares of Class A Common Stock not theretofore
converted. For purposes of this Article, the number of
shares of Common Stock that shall be deliverable upon the
conversion of all outstanding shares of Class A Common Stock
shall be computed as if at the time of computation all such
outstanding shares were held by a single holder. Actava
covenants that any shares of Common Stock issued upon con-
version of the Class A Common Stock shall be validly issued,
fully paid and non-assessable.
Actava shall use its best efforts to list the
shares of Common Stock required to be delivered upon the
conversion of the Class A Common Stock, prior to such
delivery, upon each national securities exchange, if any,
upon which the outstanding Common Stock is listed at the
time of such delivery or to be quoted, prior to such
delivery, on the National Association of Securities Dealers,
Inc.'s Automated Quotation System ("NASDAQ"), if the shares
of Common Stock are quoted at such time on NASDAQ.
Prior to the delivery of any securities that
Actava shall be obligated to deliver upon conversion of the
Class A Common Stock, Actava shall use its best efforts to
comply with all federal and state laws and regulations
<PAGE>
11
thereunder requiring the registration of such securities
with, or an approval of or consent to the delivery of by,
any governmental authority.
ARTICLE V
TERMINATION
-----------
This Agreement shall automatically terminate and
be of no further force or effect in the event of the
termination of the Merger Agreement pursuant to Article 14
thereof.
ARTICLE VI
MISCELLANEOUS
-------------
Section 6.1 Assignment. The Exchanging Holders
----------
may assign all or part of their rights hereunder to one or
more of their Affiliates (as such term is defined pursuant
to Rule 12b-2 of the Securities Exchange Act of 1934, as
amended).
Section 6.2 Amendments. Subject to applicable
----------
law, this Agreement may be amended, modified or supplemented
only by a written instrument among Actava and each of the
Exchanging Holders, at any time prior to the Share Exchange
Closing with respect to any of the terms contained herein.
Section 6.3 Counterparts. This Agreement may
------------
be executed in counterparts, each of which shall be deemed
an original, but all of which together shall constitute one
and the same instrument.
<PAGE>
12
Section 6.4 Headings. The parties to this
--------
Agreement agree that the Article and Section headings have
been prepared for convenience only and are not part of this
Agreement and shall not be taken as an interpretation of any
provision of this Agreement.
Section 6.5 Notices. All demands, notices and
-------
communications hereunder shall be in writing and shall be
delivered or mailed by registered or certified United States
mail, postage prepaid or telecopied or facsimile transmis-
sion and confirmed by first-class mail, and addressed in
each case as follows:
(a) If to Actava:
The Actava Group Inc.
4900 Georgia-Pacific Center
Atlanta, GA 30303
Attention: General Counsel
Telecopy: (404) 525-3010
(b) If to the Exchanging Holders
c/o Metromedia Company
One Metromedia Plaza
East Rutherford, New Jersey 07073
Attention: General Counsel
Telecopy: (201) 531-2803
Any of the foregoing persons may change its address or
telecopier number for notices hereunder by giving notice of
such change to the other persons. All notices and demands
shall be deemed to have been given either at the time of the
delivery thereof to any officer of the person entitled to
receive such notices and demands at the address or tele-
copier number of such person for notices hereunder, or on
<PAGE>
13
the third day after the mailing thereof to such address, as
the case may be.
Section 6.6 Remedies. Each Exchanging Holder,
--------
in addition to being entitled to exercise all rights granted
by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement.
Actava agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by
it of the provisions of this Agreement and hereby agrees to
waive the defense in any action for specific performance
that a remedy at law would be adequate.
Section 6.7 Governing Law. THIS AGREEMENT
-------------
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO
CHOICE-OF-LAW PRINCIPLES.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed and delivered as of the
day and year first written above.
METROMEDIA COMPANY
By:
-------------------------
Name:
Title:
MET TELCELL, INC.
By:
-------------------------
Name:
Title:
MET INTERNATIONAL, INC.
By:
-------------------------
Name:
Title:
____________________________
John W. Kluge
_____________________________
Anita H. Subotnick
and Stuart Subotnick,
as joint tenants
THE ACTAVA GROUP INC.
By:
--------------------------
Name:
Title:
<PAGE>
METPRODUCTIONS, INC.
By:
--------------------------
Name:
Title:
<PAGE>
Exhibit 3.2(c)
Opinion of Counsel to Actava
Opinion of Long, Aldridge & Norman, Counsel to Actava, shall
cover the following matters, subject to customary exceptions
and limitations:
1. Actava is a corporation duly incorporated,
validly existing and in good standing under the laws of the
State of Delaware.
2. Actava has all necessary corporate power and
authority to execute, deliver and perform its obligations
under the Share Exchange Agreement and the Registration
Rights Agreement (collectively, the "Agreements") and the
Merger Agreement, and the execution, delivery and
performance (including consummation of each of the Mergers)
by Actava of the Agreements and the Merger Agreement have
been duly authorized by all necessary action on the part of
the Board of Directors and stockholders of Actava. Each of
the Agreements and the Merger Agreement has been duly
executed and delivered by Actava and constitutes the legal,
valid and binding obligation of Actava, enforceable against
Actava in accordance with its terms.
3. The execution, delivery and performance by
Actava of the Agreements do not violate or result in a
breach of or default under (i) any provision of the
certificate of incorporation or by-laws of Actava, or any
law or regulation of the State of Georgia or the United
States or any provision of the General Corporation Law of
the State of Delaware, (ii) any order, writ, injunction or
decree of which we have knowledge (without independent
investigation) of any court or governmental authority
binding upon Actava or to which Actava is subject, or
(iii) to our knowledge, any provision of any credit
agreement, indenture or similar agreement to which Actava is
a party or to which Actava is bound.
4. Upon the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware in
accordance with Section 1.2 of the Merger Agreement, each of
the Mergers will be effective in accordance with the terms
of the Certificate of Merger.
5. The shares of the Class A Common Stock and
the shares of Common Stock when issued by Actava pursuant to
the terms of the Share Exchange Agreement will constitute
validly issued, fully paid and non-assessable shares of
stock of Actava.
<PAGE>
Exhibit C-2
____________________________________________________________
============================================================
REGISTRATION RIGHTS AGREEMENT
Between
THE ACTAVA GROUP INC.
and
THE EXCHANGING HOLDERS NAMED HEREIN
_____________________________________________________
Class A Common Stock, par value $1.00 per share
Common Stock, par value $1.00 per share
_____________________________________________________
Dated as of _____________, 1995
____________________________________________________________
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TABLE OF CONTENTS
Page
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1. Registration Under Securities Act, etc. . . . . . 2
1.1 Registration on Request . . . . . . . . . . . 2
1.2 Piggy-Back Registration . . . . . . . . . . . 6
1.3 Registration Procedures . . . . . . . . . . . 8
1.4 Underwritten Offerings . . . . . . . . . . . 15
1.5 Preparation; Reasonable Investigation . . . . 18
1.6 Qualification to Obligations under
Registration Covenants . . . . . . . . . . . 19
1.7 Indemnification . . . . . . . . . . . . . . . 20
2. Definitions . . . . . . . . . . . . . . . . . . . 28
3. Rule 144 and Rule 144A . . . . . . . . . . . . . . 31
4. Amendments and Waivers . . . . . . . . . . . . . . 31
5. Nominees for Beneficial Owners . . . . . . . . . . 32
6. Notices . . . . . . . . . . . . . . . . . . . . . 32
7. Assignment . . . . . . . . . . . . . . . . . . . . 33
8. Calculation of Percentage Interests in Registrable
Securities . . . . . . . . . . . . . . . . . . . . 33
9. Investment Only . . . . . . . . . . . . . . . . . 34
10. No Inconsistent Agreements . . . . . . . . . . . . 34
11. Remedies . . . . . . . . . . . . . . . . . . . . . 34
12. Severability . . . . . . . . . . . . . . . . . . . 35
13. Entire Agreement . . . . . . . . . . . . . . . . . 35
14. Descriptive Headings . . . . . . . . . . . . . . . 36
15. Governing Law . . . . . . . . . . . . . . . . . . 36
16. Counterparts . . . . . . . . . . . . . . . . . . . 36
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REGISTRATION RIGHTS AGREEMENT ("Agreement"), dated
as of __________________, 1995 among Metromedia Company, a
Delaware general partnership ("Metromedia"), Met Telcell,
Inc., a Delaware corporation ("Met Telcell"), Met Interna-
tional Inc., ("Met International"), John W. Kluge ("Kluge"),
Anita H. Subotnick and Stuart Subotnick, as joint tenants
and MetProductions, Inc., a Delaware corporation
("MetProductions"), ("Subotnick" and together with
Metromedia, Met Telcell, Met International, MetProductions
and Kluge, the "Exchanging Holders") and The Actava Group
Inc., a Delaware corporation (the "Company"). Capitalized
terms used herein but not otherwise defined shall have the
meanings given them in Section 2 of this Agreement.
WHEREAS, pursuant to an Agreement and Plan of
Merger, dated as of April 12, 1995, among the Company, Orion
Pictures Corporation, a Delaware corporation ("Orion"), MCEG
Sterling Incorporated, a Delaware corporation ("Sterling"),
and Metromedia International Telecommunications, Inc., a
Delaware corporation ("MITI") each of Orion, Sterling and
MITI, have agreed to merge with and into the Company
(together the "Mergers"), with the Company being the
surviving corporation in the Mergers;
WHEREAS, pursuant to a Share Exchange Agreement,
dated as of April 12, 1995, among the Company and the
Exchanging Holders (the "Share Exchange Agreement"),
immediately following the consummation of the Mergers, the
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Exchanging Holders will exchange their shares of common
stock, par value $1.00 per share, of the Company ("Common
Stock") for an equivalent number of shares of Class A Common
Stock, par value $1.00 per share, of the Company ("Class A
Common Stock"), which shares of Class A Common Stock will be
convertible at any time into shares of Common Stock; and
WHEREAS, it is a condition precedent to the
obligations of the Exchanging Holders to consummate the
transactions contemplated by the Share Exchange Agreement
that the Exchanging Holders and the Company enter into this
Agreement.
1. Registration Under Securities Act, etc.
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1.1 Registration on Request.
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(a) Request. At any time, or from time
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to time, upon the written request of one or more holders
(the "Initiating Holders") of Registrable Securities repre-
senting not less than 25% of the Registrable Securities that
the Company effect the registration under the Securities Act
of all or part of such Initiating Holders' Registrable
Securities, the Company promptly will give written notice of
such requested registration (the "Registration Notice") to
all registered holders of Registrable Securities other than
the Initiating Holders, and thereupon the Company will use
its best efforts to effect, at the earliest possible date,
but in any event within 20 days of the date of such written
request, the registration under the Securities Act, includ-
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ing by means of a shelf registration pursuant to Rule 415
under the Securities Act if so requested in such request
(but only if the Company is then eligible to use such a
shelf registration), of (i) the Registrable Securities which
the Company has been so requested to register by such Ini-
tiating Holders, and (ii) all other Registrable Securities
which the Company has been requested to register by the
holders thereof (such holders together with the Initiating
Holders hereinafter are referred to as the "Selling Hold-
ers") by written request given to the Company within 10 days
after the giving of the Registration Notice by the Company,
all to the extent requisite to permit the disposition of the
Registrable Securities so to be registered.
(b) Registration of Other Securities.
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Whenever the Company shall effect a registration pursuant to
this Section 1.1, no securities other than Registrable
Securities shall be included among the securities covered by
such registration.
(c) Registration Statement Form.
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Registrations under this Section 1.1 shall be on such
appropriate registration form of the Commission as shall be
reasonably selected by the Company in consultation with the
Selling Holders.
(d) Effective Registration Statement.
--------------------------------
A registration requested pursuant to this Section 1.1 shall
not be deemed to have been effected until such time as a
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registration statement with respect thereto has become
effective and remained effective in compliance with the
provisions of the Securities Act with respect to the dispo-
sition of all Registrable Securities covered by such regis-
tration statement and all of such Registrable Securities
have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof set
forth in such registration statement.
(e) Selection of Underwriters. If the
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Selling Holders of at least 50% of all Registrable Securi-
ties to be covered by a registration so elect, the offering
of such Registrable Securities pursuant to this Section 1.1
shall be in the form of an underwritten offering. The
underwriter or underwriters of each underwritten offering of
the Registrable Securities so to be registered shall be a
firm or firms of nationally recognized standing selected by
the Selling Holders of at least 50% of the Registrable Secu-
rities to be included in such registration and shall be
reasonably acceptable to the Company, it being agreed that
Donaldson, Lufkin & Jenrette Securities Corporation is rea-
sonably acceptable to the Company.
(f) Priority in Requested Registration.
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If the managing underwriter of an underwritten offering
shall advise the Company in writing or if the Company deter-
mines in good faith based upon the advice of its financial
advisor for any offering which is not underwritten (and in
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each such case the Company shall promptly advise each Sell-
ing Holder of Registrable Securities requesting registration
of such advice) that, in the underwriter's or the Company's
opinion, as the case may be, the total number of Registrable
Securities requested to be included in such registration is
sufficiently large to materially adversely affect the suc-
cess of the offering, to the extent the underwriter or the
Company, as the case may be, determines that certain of the
Registrable Securities requested to be registered by the
Selling Holders must be excluded, they shall be excluded pro
rata among each of the Selling Holders requesting such
registration on the basis of the estimated aggregate gross
proceeds to be received by such Selling Holders from the
sale of their Registrable Securities. To the extent
Registrable Securities requested to be registered are
excluded from the offering pursuant to the immediately
preceding sentence, the holders of such Registrable
Securities shall have the right to one additional demand
registration pursuant to this Section 1.1.
(g) Limitations on Registration on
------------------------------
Request. Notwithstanding anything in this Section 1.1 to
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the contrary (except as provided in Section 1.1(f)), in no
event will the Company be required to effect, in the aggre-
gate, more than five registrations pursuant to this
Section 1.1 and the holders of Registrable Securities may
not make a demand pursuant to Section 1.1 if the Company had
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a registration statement declared effective on behalf of the
holders of Registrable Securities pursuant to Section 1.1
within the prior 9 months.
(h) Expenses. The Company will pay all
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Registration Expenses in connection with any registration
requested pursuant to this Section 1.1.
1.2 Piggy-Back Registration.
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(a) Right to Include Registrable
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Securities. If the Company at any time proposes to file a
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registration statement to register any of its securities
under the Securities Act (except for registration on
Form S-4 or S-8 or any successor or similar forms), whether
or not for sale for its own account, it will each such time
give prompt written notice to all registered holders of
Registrable Securities of its intention to do so and of such
holders' rights under this Section 1.2. Upon the written
request of any such holder (a "Requesting Holder") (which
request shall specify the amount of Registrable Securities
intended to be disposed of by such Requesting Holder) made
as promptly as practicable and in any event within 30 days
after the receipt of any such notice, the Company will use
its best efforts to effect the registration under the
Securities Act of all Registrable Securities which the
Company has been so requested to register by the Requesting
Holders thereof. No registration effected under this
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Section 1.2 shall relieve the Company of its obligation to
effect any registration upon request under Section 1.1.
(b) Priority in Incidental
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Registrations. If the managing underwriter of any under-
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written offering shall advise the Requesting Holders in
writing that in its opinion the total amount of securities
including Registrable Securities requested to be included in
such registration would materially adversely affect the
success of such offering then the Company will include in
such registration, to the extent of the number which the
Company is so advised can reasonably be expected to be sold
in (or during the time of) such offering, first, all
securities proposed by the Company to be sold for its own
account and second, other securities to be sold by holders
including such Registrable Securities requested to be
included in such registration by the Requesting Holders
pursuant to this Agreement, pro rata among all such sellers
on the basis of the estimated aggregate gross proceeds from
the sale thereof; provided, that, if as a result of the
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foregoing procedure regarding priority in incidental regis-
trations, the amount of securities to be sold in such
registration by holders of Registrable Securities would be
less than seventy percent (70%) of the total amount of
securities requested to be included in such registration
(the "Seventy Percent Threshold"), then following such pro
rata reduction to the Seventy Percent Threshold, the Company
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will include in such registration, to the extent of the
number of Registrable Securities which the Company is so
advised by its underwriter can be sold in (or during the
time of) such offering and to the exclusion of holders of
other securities to be sold other than Registrable
Securities, Registrable Securities requested to be included
in such registration pursuant to this Agreement until all
such Registrable Securities are sold.
(c) Expenses. The Company will pay all
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Registration Expenses in connection with any registration
effected pursuant to this Section 1.2.
1.3 Registration Procedures. If and when-
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ever the Company is required to effect the registration of
any Registrable Securities under the Securities Act as
provided in Sections 1.1 and 1.2, the Company will, as
expeditiously as possible:
(i) prepare and (using its best
efforts to do so at the earliest possible date, but in
any event within 20 days of the date of such written
request), file with the Commission the requisite
registration statement to effect such registration and
thereafter use its best efforts to cause such registra-
tion statement to become effective (provided that
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before filing a registration statement or prospectus or
any amendments or supplements thereto, the Company will
furnish to counsel for the sellers of Registrable
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Securities covered by such registration statement, if
any, copies of all such documents proposed to be filed,
which documents will be subject to the review of such
counsel);
(ii) prepare and file with the Commis-
sion such amendments and supplements to such registra-
tion statement and the prospectus used in connection
therewith as may be necessary to keep such registration
statement effective and to comply with the provisions
of the Securities Act with respect to the disposition
of all Registrable Securities covered by such registra-
tion statement until such time as all of such Registr-
able Securities have been disposed of in accordance
with the intended methods of disposition by the seller
or sellers thereof set forth in such registration
statement;
(iii) furnish to each seller of Regis-
trable Securities covered by such registration state-
ment, such number of conformed copies of such registra-
tion statement and of each such amendment and sup-
plement thereto (in each case including all exhibits)
and such number of copies of the prospectus contained
in such registration statement (including each
preliminary prospectus and any summary prospectus) and
any other prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of
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the Securities Act, and such other documents, as such
seller may reasonably request;
(iv) use its best efforts (x) to
register or qualify all Registrable Securities and
other securities covered by such registration statement
under such other securities or blue sky laws of such
States of the United States of America where an exemp-
tion is not available and as the sellers of Registrable
Securities covered by such registration statement shall
reasonably request, (y) to keep such registration or
qualification in effect for so long as such registra-
tion statement remains in effect, and (z) to take any
other action which may be reasonably necessary or
advisable to enable such sellers to consummate the
disposition in such jurisdictions of the securities to
be sold by such sellers, except that the Company shall
not for any such purpose be required to qualify
generally to do business as a foreign corporation in
any jurisdiction wherein it would not but for the
requirements of this subdivision (iv) be obligated to
be so qualified, subject itself to taxation in any such
jurisdiction or to consent to general service of
process in any such jurisdiction;
(v) use its best efforts to cause all
Registrable Securities covered by such registration
statement to be registered with or approved by such
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other federal or state governmental agencies or
authorities as may be necessary in the opinion of
counsel to the Company and counsel to the seller or
sellers of Registrable Securities to enable the seller
or sellers thereof to consummate the disposition of
such Registrable Securities;
(vi) use its best efforts to furnish
at the effective date of such registration statement
and, if applicable, the date of the closing under the
underwriting agreement, to each seller of Registrable
Securities, and each such seller's underwriters, if
any, a signed counterpart of (x) an opinion of counsel
for the Company, dated the effective date of such
registration statement and (y) in connection with an
underwritten offering, a "comfort" letter signed by the
independent public accountants who have certified the
Company's financial statements included or incorporated
by reference in such registration statement, covering
substantially the same matters with respect to such
registration statement (and the prospectus included
therein) and, in the case of the accountants' comfort
letter, with respect to events subsequent to the date
of such financial statements, as are customarily
covered in opinions of issuer's counsel and in
accountants' comfort letters delivered to the under-
writers in underwritten public offerings of securities
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and, in the case of the accountants' comfort letter,
such other financial matters, and, in the case of the
legal opinion, such other legal matters, as the sellers
of the Registrable Securities covered by such registra-
tion statement, or the underwriters, may reasonably
request;
(vii) promptly notify each seller of
Registrable Securities covered by such registration
statement at any time when a prospectus relating
thereto is required to be delivered under the
Securities Act, upon discovery that, or upon the
happening of any event as a result of which, the
prospectus included in such registration statement, as
then in effect, includes an untrue statement of a
material fact or omits to state any material fact
required to be stated therein or necessary to make the
statements therein not misleading, in the light of the
circumstances under which they were made, and at the
request of any such seller promptly prepare and furnish
to it a reasonable number of copies of a supplement to
or an amendment of such prospectus as may be necessary
so that, as thereafter delivered to the purchasers of
such securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a
material fact required to be stated therein or neces-
sary to make the statements therein not misleading in
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the light of the circumstances under which they were
made;
(viii) otherwise use its best efforts to
comply with all applicable rules and regulations of the
Commission, and make available to its security holders,
as soon as reasonably practicable, an earnings state-
ment covering the period of at least twelve months, but
not more than eighteen months, beginning with the first
full calendar month after the effective date of such
registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated thereunder, and
promptly furnish to each such seller of Registrable
Securities a copy of any amendment or supplement to
such registration statement or prospectus; and
(ix) use its best efforts (a) to list
all Registrable Securities covered by such registration
statement on the NYSE or such other national securities
exchange on which Registrable Securities of the same
class and, if applicable, series, covered by such
registration statement are then listed or on the
National Association of Securities Dealers Automated
Quotations System, Inc. ("NASDAQ") if the Registrable
Securities are quoted on NASDAQ, or (b) in the case of
any registration of the Class A Common Stock, use its
best efforts to list all Registrable Securities covered
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by such registration statement on the NYSE or such
other national securities exchange or to be quoted on
NASDAQ, at the option of the sellers of at least 50% of
all Registrable Securities to be covered by such
registration.
The Company may (i) require each seller of Registrable
Securities as to which any registration is being effected to
furnish the Company such information regarding such seller
and the distribution of such securities as the Company may
from time to time reasonably request in writing and
(ii) require each seller of Registrable Securities to agree
to comply with the Securities Act and the Exchange Act in
connection with the registration and distribution of the
Registrable Securities.
Notwithstanding the foregoing, if any such
registration or comparable statement refers to any holder by
name or otherwise as the holder of any securities of the
Company and in its sole and exclusive judgment such holder
is or might be deemed to be a controlling person of the
Company, such holder shall have the right to require the
insertion therein of language, in form and substance reason-
ably satisfactory to such holder and the Company, to the
effect that the holding by such holder of such securities is
not to be construed as a recommendation by such holder of
the investment quality of the Company's securities covered
thereby and that such holding does not imply that such
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holder will assist in meeting any future financial require-
ments of the Company.
Each holder of Registrable Securities agrees by
acquisition of such Registrable Securities that, upon
receipt of any notice from the Company of the happening of
any event of the kind described in subdivision (vii) of this
Section 1.3, such holder will forthwith discontinue such
holder's disposition of Registrable Securities pursuant to
the registration statement relating to such Registrable
Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivi-
sion (vii) of this Section 1.3 and, if so directed by the
Company, will promptly deliver to the Company (at the
Company's expense) all copies, other than permanent file
copies, then in such holder's possession of the prospectus
relating to such Registrable Securities current at the time
of receipt of such notice.
1.4 Underwritten Offerings.
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(a) Requested Underwritten Offerings.
--------------------------------
If requested by the underwriters for any underwritten
offering by holders of Registrable Securities pursuant to a
registration requested under Section 1.1, the Company will
use its best efforts to enter into an underwriting agreement
with such underwriters for such offering, such agreement to
be reasonably satisfactory in form and substance to each
such holder, the Company and the underwriters and to contain
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such representations and warranties by the Company and such
other terms as are generally prevailing in agreements of
that type, including, without limitation, indemnities to the
effect and to the extent provided in Section 1.7. The
holders of the Registrable Securities proposed to be sold by
such underwriters will reasonably cooperate with the Company
in the negotiation of the underwriting agreement. Such
holders of Registrable Securities to be sold by such under-
writers shall be parties to such underwriting agreement and
may, at their option, require that any or all of the repre-
sentations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of
such holders of Registrable Securities and that any or all
of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable
Securities. Any such holder of Registrable Securities shall
not be required to make any representations or warranties to
or agreements with the Company other than representations,
warranties or agreements regarding such holder, such
holder's Registrable Securities and such holder's intended
method of distribution or any other representations required
by applicable law.
(b) Incidental Underwritten Offerings.
---------------------------------
If the Company proposes to register any of its securities
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under the Securities Act as contemplated by Section 1.2 and
such securities are to be distributed by or through one or
more underwriters, the Company will, if requested by any
Requesting Holder of Registrable Securities and subject to
the provisions of Section 1.2(b), use its best efforts to
arrange for such underwriters to include all the Registrable
Securities to be offered and sold by such Requesting Holder
among the securities of the Company to be distributed by
such underwriters. The holders of Registrable Securities to
be distributed by such underwriters shall be parties to the
underwriting agreement between the Company and such
underwriters and may, at their option, require that any or
all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the
benefit of such underwriters shall also be made to and for
the benefit of such holders of Registrable Securities and
that any or all of the conditions precedent to the obliga-
tions of such underwriters under such underwriting agreement
be conditions precedent to the obligations of such holders
of Registrable Securities. Any such Requesting Holder of
Registrable Securities shall not be required to make any
representations or warranties to or agreements with the
Company or the underwriters other than representations,
warranties or agreements regarding such Requesting Holder,
such Requesting Holder's Registrable Securities and such
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Requesting Holder's intended method of distribution or any
other representations required by applicable law.
(c) If, in connection with any under-
written offering of Registrable Securities, any seller of
Registrable Securities disapproves of the terms of any such
underwriting, it may elect to withdraw therefrom by written
notice to the Company and the underwriter, delivered at
least fifteen (15) days prior to the effective date of the
registration statement effecting the registration of such
Registrable Securities. Any Registrable Securities excluded
or withdrawn from such underwriting shall be withdrawn from
the registration.
1.5 Preparation; Reasonable Investigation.
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In connection with the preparation and filing of each
registration statement under the Securities Act pursuant to
this Agreement, the Company (i) shall give a representative
holder designated in writing to the Company by the holders
of a majority of the Registrable Securities registered under
such registration statement (the "Representative"), such
holders' underwriters, if any, and counsel and accountants
designated by the Representative the opportunity to partici-
pate in the preparation of such registration statement, each
prospectus included therein or filed with the Commission,
and each amendment thereof or supplement thereto, (ii) shall
give each of them such reasonable access to its books and
records and such opportunities to discuss the business of
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the Company with its officers and the independent public
accountants who have certified its financial statements as
shall be necessary, in the opinion of the Representative and
such underwriters or such counsel or accountants, to conduct
a reasonable investigation within the meaning of the Securi-
ties Act and (iii) shall promptly notify the Representative
and its counsel of any stop order issued or threatened by
the Commission and promptly take all reasonable actions
required to prevent the entry of such stop order or to
remove it if entered.
1.6 Qualification to Obligations under
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Registration Covenants. The Company shall be entitled to
----------------------
postpone for a reasonable period of time (but not exceeding
60 days) the filing of any registration statement otherwise
required to be prepared and filed by it pursuant to Sec-
tion 1.1 if the Company determines, in its reasonable judg-
ment, that such registration and offering would interfere
with any financing, acquisition, corporate reorganization or
other material transaction involving the Company or any of
its affiliates and promptly gives the holders of Registrable
Securities requesting registration thereof pursuant to Sec-
tion 1.1 a certificate of its Chief Executive Officer cer-
tifying such determination, containing a statement of the
reasons for such postponement and an approximation of the
anticipated delay. The Company may not postpone a filing
under this Section 1.6 more than once in any twelve-month
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period. If the Company shall so postpone the filing of a
registration statement it shall, in conjunction with the
resumption of the filing of such registration statement,
provide another Registration Notice to all of the registered
holders of Registrable Securities in order to provide such
parties with an additional opportunity to require the Com-
pany to effect the registration of the Registrable Securi-
ties which they previously declined to include in such
registration. In addition, in the event of such postpone-
ment of the filing of a registration statement, holders of
Registrable Securities requesting registration thereof
pursuant to Section 1.1, representing not less than 50% of
the Initiating Holders, shall have the right to withdraw the
request for registration by giving written notice to the
Company within 30 days after receipt of the notice of post-
ponement and, in the event of such withdrawal, such request
shall not be counted for purposes of the requests for regis-
tration to which holders of Registrable Securities are
entitled pursuant to Section 1.1(g) hereof.
1.7 Indemnification.
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(a) Indemnification by the Company.
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The Company will, and hereby does, indemnify and hold
harmless, in the case of any registration statement filed
pursuant to Section 1.1 or 1.2, each seller of any Regis-
trable Securities covered by such registration statement and
each other Person who participates as an underwriter in the
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offering or sale of such securities and each other Person,
if any, who controls such seller or any such underwriter
within the meaning of the Securities Act, and their respec-
tive directors, officers, partners, shareholders, employees
and affiliates against any losses, claims, damages or
liabilities, joint or several, to which such seller or
underwriter or any such director, officer, partner, share-
holder, employee, affiliate or controlling person may become
subject under the Securities Act or otherwise, including,
without limitation, the fees and expenses of legal counsel,
insofar as such losses, claims, damages or liabilities (or
actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in any registration statement under which such
securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary pros-
pectus contained therein, or any amendment or supplement
thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein in light of the
circumstances in which they were made not misleading, or any
violation by the Company of the Securities Act or any rule
or regulation thereunder applicable to the Company and the
Company will reimburse each such seller or underwriter and
each such director, officer, partner, shareholder, employee,
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affiliate and controlling Person for any legal or any other
expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability,
action or proceeding; provided, that the Company shall not
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be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged
omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospec-
tus, amendment or supplement in reliance upon and in con-
formity with written information furnished to the Company
through an instrument duly executed by or on behalf of such
seller or underwriter, as the case may be, specifically
stating that it is for use in the preparation thereof. Such
indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of any such seller
or any such director, officer, employee, affiliate, partner
or controlling person and shall survive the transfer of such
securities by such seller.
(b) Indemnification by the Sellers. As
------------------------------
a condition to including any Registrable Securities in any
registration statement, the Company shall have received an
undertaking satisfactory to it from the prospective seller
of such Registrable Securities, to indemnify and hold
harmless (in the same manner and to the same extent as set
22
<PAGE>
forth in subdivision (a) of this Section 1.7) the Company,
and each director, officer, employee and shareholder of the
Company and each other Person, if any, who participates as
an underwriter in the offering or sale of such securities
and each other Person who controls the Company or any such
underwriter within the meaning of the Securities Act, with
respect to any untrue statement or alleged untrue statement
of a material fact contained in or any omission or alleged
omission to state therein a material fact in any such
registration statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, if such untrue statement or
alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written
information furnished to the Company through an instrument
duly executed by or on behalf of such seller specifically
stating that it is for use in the preparation of such
registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement;
provided, however, that the liability of such indemnifying
-------- -------
party under this Section 1.7(b) shall be limited to the
amount of proceeds received by such indemnifying party in
the offering giving rise to such liability. Such indemnity
shall remain in full force and effect, regardless of any
investigation made by or on behalf of the Company or any
such director, officer, employee, shareholder or controlling
23
<PAGE>
person and shall survive the transfer of such securities by
such seller.
(c) Notices of Claims, etc. Promptly
-----------------------
after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim
referred to in the preceding subdivisions of this Sec-
tion 1.7, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such
action; provided, however, that the failure of any
-------- -------
indemnified party to give notice as provided herein shall
not relieve the indemnifying party of its obligations under
the preceding subdivisions of this Section 1.7, except to
the extent that the indemnifying party is actually pre-
judiced by such failure to give notice. In case any such
action is brought against an indemnified party the indemni-
fying party shall be entitled to participate in and to
assume the defense thereof, jointly with any other indemni-
fying party similarly notified to the extent that it may
wish, with counsel reasonably satisfactory to such indemni-
fied party, and after notice from the indemnifying party to
such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable
to such indemnified party for any legal or other expenses
subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investiga-
24
<PAGE>
tion; provided, however, that if the indemnified party
-------- -------
reasonably believes it is advisable for it to be represented
by separate counsel because there exists a conflict of
interest between its interests and those of the indemnifying
party with respect to such claim, or there exist defenses
available to such indemnified party which may not be avail-
able to the indemnifying party, or if the indemnifying party
shall fail to assume responsibility for such defense, the
indemnified party may retain counsel satisfactory to it and
the indemnifying party shall pay all fees and expenses of
such counsel. No indemnifying party shall be liable for any
settlement of any action or proceeding effected without its
written consent, which consent shall not be unreasonably
withheld or delayed. No indemnifying party shall, without
the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release
from all liability in respect to such claim or litigation or
which requires action other than the payment of money by the
indemnifying party. Each indemnified party shall furnish
such information regarding itself or the claim in question
as an indemnifying party may reasonably request in writing
and as shall be reasonably requested in connection with the
defense of such claim and litigation resulting therefrom.
25
<PAGE>
(d) Contribution. If the indemnifica-
------------
tion provided for in this Section 1.7 shall for any reason
be held by a court of competent jurisdiction to be unavail-
able to an indemnified party under subparagraph (a) or (b)
hereof in respect of any loss, claim, damage or liability,
or any action in respect thereof, then, in lieu of the
amount paid or payable under subparagraph (a) or (b) hereof,
the indemnified party and the indemnifying party under
subparagraph (a) or (b) hereof shall contribute to the
aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection
with investigating the same), (i) in such proportion as is
appropriate to reflect the relative fault of the Company and
the prospective sellers of Registrable Securities covered by
the registration statement in connection with the statements
or omissions which resulted in such loss, claim, damage or
liability, or action in respect thereof, as well as any
other relevant equitable considerations (the relative fault
of the Company and such prospective sellers to be determined
by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission
or alleged omission to state a material fact relates to
information supplied by the Company or such prospective
sellers and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such
statement or omission) or (ii) if the allocation provided by
26
<PAGE>
clause (i) above is not permitted by applicable law, in such
proportion as shall be appropriate to reflect the relative
benefits received by the Company and such prospective
sellers from the offering of the securities covered by such
registration statement. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepre-
sentation. Such prospective sellers' obligations to con-
tribute as provided in this subparagraph (d) are several in
proportion to the relative value of their respective Regis-
trable Securities covered by such registration statement and
not joint. In addition, no Person shall be obligated to
contribute hereunder any amounts in payment for any settle-
ment of any action or claim effected without such Person's
consent, which consent shall not be unreasonably withheld or
delayed.
(e) Other Indemnification. Indemnifi-
---------------------
cation and contribution similar to that specified in the
preceding subdivisions of this Section 1.7 (with appropriate
modifications) shall be given by the Company and each seller
of Registrable Securities with respect to any required
registration or other qualification of securities under any
federal or state law, rule or regulation of any governmental
authority other than the Securities Act.
27
<PAGE>
(f) Indemnification Payments. The
------------------------
indemnification and contribution required by this
Section 1.7 shall be made by prompt periodic payments of the
amount thereof during the course of the investigation or
defense, as and when bills are received or expense, loss,
damage or liability is incurred.
2. Definitions. As used herein, unless the
-----------
context otherwise requires, the following terms have the
following respective meanings:
"Commission" means the Securities and Exchange
----------
Commission or any other federal agency at the time
administering the Securities Act.
"Exchange Act" means the Securities Exchange Act
------------
of 1934, as amended, or any successor federal statute, and
the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934,
as amended, shall include a reference to the comparable
section, if any, of any such successor federal statute.
"Initiating Holder" is defined in Section 1.1.
-----------------
"NYSE" means the New York Stock Exchange, Inc.
----
"Person" means any individual, corporation, part-
------
nership, trust, incorporated or unincorporated association,
joint venture, joint stock company, government (or an
agency, department or political subdivision thereof) or
other entity of any kind.
28
<PAGE>
"Registrable Securities" means (i) the Shares,
----------------------
(ii) the shares of Common Stock into which the Shares are
convertible, (iii) any other shares or Common Stock owned by
any Exchanging Holder and (iv) any Related Registrable
Securities. As to any particular Registrable Securities,
once issued such securities shall cease to be Registrable
Securities when (a) a registration statement with respect to
the sale of such securities shall have become effective
under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement,
(b) they shall have been distributed to the public pursuant
to Rule 144 (or any successor provision) under the Securi-
ties Act, (c) they shall have been otherwise transferred,
and new certificates for them not bearing a legend
restricting further transfer shall have been delivered by
the Company and subsequent public distribution of them shall
not, in the opinion of counsel to the holders (or in the
opinion of counsel to the Company, which opinion is reason-
ably satisfactory to the holders), require registration of
them under the Securities Act, or (d) they shall have ceased
to be outstanding. All references to percentages of
Registrable Securities shall be calculated pursuant to
Section 8.
"Registration Expenses" means all costs, fees and
---------------------
expenses incident to the Company's performance of or compli-
ance with Section 1, including, without limitation, all
29
<PAGE>
registration, filing and NASD fees, all fees and expenses of
complying with securities or blue sky laws, all word proc-
essing, duplicating and printing expenses, messenger and
delivery expenses, the fees and disbursements of counsel for
the Company and of its independent public accountants,
including the expenses of "cold comfort" letters required by
or incident to such performance and compliance, any fees and
disbursements of underwriters customarily paid by issuers or
sellers of securities (excluding any underwriting discounts
or commissions or transfer taxes with respect to the
Registrable Securities) and the reasonable fees and expenses
of one counsel to the Selling Holders (selected by Selling
Holders representing at least 50% of the Registrable
Securities covered by such registration).
"Registration Notice" is defined in Section 1.1.
-------------------
"Related Registrable Securities" means any
------------------------------
securities of the Company issued or issuable with respect to
the Shares (or the shares of Common Stock into which the
Shares are convertible) by way of a dividend or stock split
or in connection with a combination of shares,
recapitalization, merger, consolidation or other
reorganization or otherwise.
"Requesting Holder" is defined in Section 1.2.
-----------------
"Securities Act" means the Securities Act of 1933,
--------------
or any successor federal statute, and the rules and regula-
tions of the Commission thereunder, all as the same shall be
30
<PAGE>
in effect at the time. References to a particular sec-
tion of the Securities Act of 1933 shall include a reference
to the comparable section, if any, of any such successor
federal statute.
"Selling Holder" is defined in Section 1.1.
--------------
"Shares" means the Class A Common Stock to be
------
received by the Exchanging Holders pursuant to Article I of
the Share Exchange Agreement.
3. Rule 144 and Rule 144A. The Company shall
----------------------
take all actions reasonably necessary to enable holders of
Registrable Securities to sell such securities without
registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to
time, (b) Rule 144A under the Securities Act, as such
Rule may be amended from time to time, or (c) any similar
rules or regulations hereafter adopted by the Commission,
including, without limiting the generality of the foregoing,
filing on a timely basis all reports required to be filed by
the Exchange Act. Upon the request of any holder of Regis-
trable Securities, the Company will deliver to such holder a
written statement as to whether it has complied with such
requirements.
4. Amendments and Waivers. This Agreement may
----------------------
be amended with the written consent of the Company and the
Company may take any action herein prohibited, or omit to
31
<PAGE>
perform any act herein required to be performed by it, only
if the Company shall have obtained the written consent to
such amendment, action or omission to act, of the holder or
holders of at least 50% of the Registrable Securities
affected by such amendment, action or omission to act. Each
holder of any Registrable Securities at the time or there-
after outstanding shall be bound by any consent authorized
by this Section 4, whether or not such Registrable Securi-
ties shall have been marked to indicate such consent.
5. Nominees for Beneficial Owners. In the event
------------------------------
that any Registrable Securities are held by a nominee for
the beneficial owner thereof, the beneficial owner thereof
may, at its election in writing delivered to the Company, be
treated as the holder of such Registrable Securities for
purposes of any request, consent, waiver or other action by
any holder or holders of Registrable Securities pursuant to
this Agreement or any determination of any number or
percentage of shares of Registrable Securities held by any
holder or holders of Registrable Securities contemplated by
this Agreement. If the beneficial owner of any Registrable
Securities so elects, the Company may require assurances
reasonably satisfactory to it of such owner's beneficial
ownership of such Registrable Securities.
6. Notices. All notices, demands and other
-------
communications provided for or permitted hereunder shall be
made in writing and shall be by registered or certified
32
<PAGE>
first-class mail, return receipt requested, telex, telegram,
telecopier, reputable courier service or personal delivery
to the following addresses (or at such other address for a
party as shall be specified by like notice):
(i) if to any of the Exchanging Holders,
c/o Metromedia Company
One Meadowlands Plaza
East Rutherford, NJ 07073
Attn: General Counsel
Telecopy: (201) 804-6685
(ii) if to the Company, to
The Actava Group Inc.
4900 Georgia-Pacific Center
Atlanta, GA 30303
Attn: General Counsel
Telecopy: (404) 525-3010
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally
delivered; one business day after being sent by reputable
courier service; three business days after being deposited
in the mail, postage prepaid, if mailed; when answered back,
if telexed; and when receipt is acknowledged, if telecopied.
7. Assignment. This Agreement shall be binding
----------
upon and inure to the benefit of and be enforceable by the
parties hereto and, with respect to the Company, its respec-
tive successors and assigns and, with respect to the
Exchanging Holders any holder of any Registrable Securities,
subject to the provisions respecting the minimum numbers of
percentages of shares of Registrable Securities required in
33
<PAGE>
order to be entitled to certain rights, or to take certain
actions, contained herein.
8. Calculation of Percentage Interests in
--------------------------------------
Registrable Securities. For purposes of this Agreement, all
----------------------
references to a percentage of the Registrable Securities
shall be calculated based upon the total number of shares of
Class A Common Stock and Common Stock included in the
definition of the Registrable Securities outstanding at the
time such calculation is made.
9. Investment Only. Each Exchanging Holder
---------------
hereby represents and warrants to the Company that it, he or
she has acquired the Shares for investment only, for its,
his or her own account and not for resale or distribution.
Each Exchanging Holder further acknowledges that the Shares
are being issued pursuant to an exemption from registration
under the Securities Act and agrees not to sell or otherwise
dispose of the Shares in any transaction which, in the
reasonable opinion of Company's counsel, would be in
violation of the Securities Act. The Exchanging Holders
each acknowledge that a legend appears on the certificates
for the Shares reflecting the foregoing restriction and each
of the Exchanging Holders hereby consents to the Company's
maintaining "stop transfer" instructions with its transfer
agent with respect thereto.
10. No Inconsistent Agreements. The Company will
--------------------------
not hereafter enter into any agreement with respect to its
34
<PAGE>
securities which is inconsistent with the rights granted to
the holders of Registrable Securities in this Agreement.
11. Remedies. Each holder of Registrable
--------
Securities, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will
be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would
not be adequate compensation for any loss incurred by reason
of a breach by it of the provisions of this Agreement and
hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
12. Severability. In the event that any one or
------------
more of the provisions contained herein, or the application
thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every
other respect and of the remaining provisions contained
herein shall not be in any way impaired thereby, it being
intended and understood that all of the rights and privi-
leges of the Exchanging Holders shall be enforceable to the
fullest extent permitted by law.
13. Entire Agreement. This Agreement is intended
----------------
by the parties as a final expression of their agreement and
intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect
of the subject matter contained herein. There are no res-
35
<PAGE>
trictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This
Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
14. Descriptive Headings. The descriptive
--------------------
headings of the several sections and paragraphs of this
Agreement are inserted for reference only and shall not
limit or otherwise affect the meaning hereof.
15. Governing Law. THIS AGREEMENT SHALL BE
-------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF
THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF
NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE.
16. Counterparts. This Agreement may be executed
------------
in any number of counterparts, each of which shall be deemed
an original, but all such counterparts shall together con-
stitute one and the same instrument.
36
<PAGE>
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed and delivered by their respective
officers thereunto duly authorized as of the date first
above written.
METROMEDIA COMPANY
By: /s/ Stuart Subotnick
-------------------------
Name: Stuart Subotnick
Title: Executive Vice President
MET TELCELL, INC.
By: /s/ Stuart Subotnick
-------------------------
Name: Stuart Subotnick
Title: Executive Vice President
MET INTERNATIONAL, INC.
By: /s/ Stuart Subotnick
-------------------------
Name: Stuart Subotnick
Title: Executive Vice President
/s/ John W. Kluge
____________________________
John W. Kluge
/s/ Anita H. Subotnick Stuart Subotnick
________________________________________
Anita H. Subotnick
and Stuart Subotnick,
as joint tenants
METPRODUCTIONS, INC.
By: /s/ Robert A. Maresca
--------------------------
Name: Robert A. Maresca
Title: Senior Vice President
THE ACTAVA GROUP INC.
By: /s/ John D. Phillips
--------------------------
Name: John D. Phillips
Title: President and CEO
37
<PAGE>
Exhibit D
Opinion of Counsel to Orion
Opinion of Counsel of Paul, Weiss, Rifkind, Wharton &
Garrison, Counsel to Orion, shall cover the following
matters, subject to customary exceptions and limitations:
1. Orion is a corporation duly incorporated,
validly existing and in good standing under the laws of the
State of Delaware.
2. Orion has all necessary corporate power and
authority to execute, deliver and perform its obligations
under the Merger Agreement and the execution, delivery and
performance (including consummation of the Orion Merger) by
Orion of the Merger Agreement have been duly authorized by
all necessary action on the part of the Board of Directors
and stockholders of Orion. The Merger Agreement has been
duly executed and delivered by Orion and constitutes the
legal, valid and binding obligation of Orion, enforceable
against Orion in accordance with its terms.
3. The execution, delivery and performance by
Orion of the Merger Agreement does not violate or result in
a breach of or default under (i) any provision of its
certificate of incorporation or by-laws or any law or
regulation of the State of New York or the United States or
any provision of the General Corporation Law of the State of
Delaware, (ii) any order, writ, injunction or decree of
which we have knowledge (without independent investigation)
of any court or governmental authority binding upon Orion or
to which Orion is subject, or (iii) to our knowledge, any
provision of any credit agreement, indenture or similar
agreement to which Orion is a party or to which Orion is
bound.
4. Upon the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware in
accordance with Section 1.2 of the Merger Agreement, the
Orion Merger will be effective in accordance with the terms
of the Certificate of Merger.
<PAGE>
Exhibit E
Opinion of Counsel to Sterling
Opinion of Robinson, Brog, Leinwand, Reich, Genovese & Gluck
P.C., Counsel to Sterling, shall cover the following
matters, to be rendered in accordance with the Legal Opinion
Accord of the ABA Section of Business Law (1991):
1. Sterling is a corporation duly incorporated,
validly existing and in good standing under the laws of the
State of Delaware.
2. Sterling has all necessary corporate power
and authority to execute, deliver and perform its
obligations under the Merger Agreement, and the execution,
delivery and performance (including consummation of the
Sterling Merger) by Sterling of the Merger Agreement have
been duly authorized by all necessary action on the part of
the Board of Directors and stockholders of Sterling. The
Merger Agreement has been duly executed and delivered by
Sterling and constitutes the legal, valid and binding
obligation of Sterling, enforceable against Sterling in
accordance with its terms.
3. The execution, delivery and performance by
Sterling of the Merger Agreement do not violate or result in
a breach of or default under (i) any provision of the
certificate of incorporation or by-laws of Sterling, or any
law or regulation of the State of New York or the United
States or any provision of the General Corporation Law of
the State of Delaware, (ii) any order, writ, injunction or
decree of which we have knowledge (without independent
investigation) of any court or governmental authority
binding upon Sterling or to which Sterling is subject, or
(iii) to our knowledge, any provision of any credit
agreement, indenture or similar agreement to which Sterling
is a party or to which Sterling is bound of which we have
Actual Knowledge.
4. Upon the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware in
accordance with Section 1.2 of the Merger Agreement, the
Sterling Merger will be effective in accordance with the
terms of the Certificate of Merger.
<PAGE>
Exhibit F
Opinion of Counsel to MITI
Opinion of Rubin Baum Levin Constant & Friedman, Counsel to
MITI, shall cover the following matters, subject to
customary exceptions and limitations:
1. MITI is a corporation duly incorporated,
validly existing and in good standing under the laws of the
State of Delaware.
2. MITI has all necessary corporate power and
authority to execute, deliver and perform its obligations
under the Merger Agreement, and the execution, delivery and
performance (including consummation of the MITI Merger) by
MITI of the Merger Agreement have been duly authorized by
all necessary action on the part of the Board of Directors
and stockholders of MITI. The Merger Agreement has been
duly executed and delivered by MITI and constitutes the
legal, valid and binding obligation of MITI, enforceable
against MITI in accordance with its terms.
3. The execution, delivery and performance by
MITI of the Merger Agreement do not violate or result in a
breach of or default under (i) any provision of the
certificate of incorporation or by-laws of MITI, or any law
or regulation of the State of New York or the United States
or any provision of the General Corporation Law of the State
of Delaware, (ii) any order, writ, injunction or decree of
which we have knowledge (without independent investigation)
of any court or governmental authority binding upon MITI or
to which MITI is subject, or (iii) to our knowledge, any
provision of any credit agreement, indenture or similar
agreement to which MITI is a party or to which MITI is
bound.
4. Upon the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware in
accordance with Section 1.2 of the Merger Agreement, the
MITI Merger will be effective in accordance with the terms
of the Certificate of Merger.
<PAGE>
Exhibit G
Opinion of Counsel to Actava
Opinion of Long, Aldridge & Norman, Counsel to Actava, shall
cover the following matters, subject to customary exceptions
and limitations:
1. Actava is a corporation duly incorporated,
validly existing and in good standing under the laws of the
State of Delaware.
2. Actava has all necessary corporate power and
authority to execute, deliver and perform its obligations
under the Merger Agreement, the Share Exchange Agreement and
the Registration Rights Agreement (collectively, the
"Agreements"), and the execution, delivery and performance
(including consummation of each of the Mergers) by Actava of
the Agreements have been duly authorized by all necessary
action on the part of the Board of Directors and
stockholders of Actava. Each of the Agreements has been
duly executed and delivered by Actava and constitutes the
legal, valid and binding obligation of Actava, enforceable
against Actava in accordance with its terms.
3. The execution, delivery and performance by
Actava of the Agreements do not violate or result in a
breach of or default under (i) any provision of the
certificate of incorporation or by-laws of Actava, or any
law or regulation of the State of Georgia or the United
States or any provision of the General Corporation Law of
the State of Delaware, (ii) any order, writ, injunction or
decree of which we have knowledge (without independent
investigation) of any court or governmental authority
binding upon Actava or to which Actava is subject, or
(iii) to our knowledge, any provision of any credit
agreement, indenture or similar agreement to which Actava is
a party or to which Actava is bound.
4. Upon the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware in
accordance with Section 1.2 of the Merger Agreement, each of
the Mergers will be effective in accordance with the terms
of the Certificate of Merger.
5. The shares of the Class A Common Stock and
the shares of Common Stock when issued by Actava pursuant to
the terms of the Share Exchange Agreement and the Merger
Agreement, respectively, will constitute validly issued,
fully paid and non-assessable shares of stock of Actava.
EXHIBIT 10.27
LOAN AGREEMENT
--------------
THIS LOAN AGREEMENT (this "Loan Agreement") dated
as of October __, 1994 between Orion Pictures Corporation, a
Delaware corporation (hereinafter referred to as "Orion")
and MetProductions, Inc., a Delaware corporation
(hereinafter referred to as "MetProductions").
W I T N E S S E T H :
WHEREAS, Orion and Steinhardt Baer Pictures
Company ("Steinhardt Baer"), have entered into that certain
Distribution Agreement attached hereto as Exhibit A (the
"Distribution Agreement") dated as of June 24, 1994, as
amended as of September 1, 1994 with respect to certain
distribution rights respecting the two motion pictures
entitled "DEAD BADGE" and "PLAYMAKER" (the "Pictures").
Capitalized terms used herein and not otherwise defined
shall have the meanings assigned thereto in the Distribution
Agreement;
WHEREAS, pursuant to the terms of the Distribution
Agreement, Orion agreed to pay to Steinhardt Baer an advance
(the "Advance") of Two Hundred Fifty Thousand and 00/100
Dollars ($250,000.00);
WHEREAS, in connection with the Distribution
Agreement, Orion has requested and MetProductions has agreed
to loan to Orion the sum of Two Hundred Fifty Thousand and
00/100 Dollars ($250,000.00).
<PAGE>
2
NOW, THEREFORE, in consideration of the promises
and of the mutual covenants and agreements hereinafter set
forth, the parties hereto agree as follows:
1. THE LOAN.
--------
1.1 Loan. Subject to the terms and conditions
----
set forth herein, upon the execution hereof, MetProductions
shall loan to Orion the principal sum of Two Hundred Fifty
Thousand and 00/100 Dollars ($250,000.00) (the "Loan").
1.2 Note. The Loan shall be evidenced by a
----
promissory note of Orion in the principal amount of Two
Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) and
in the form attached hereto as Exhibit B.
1.3 Payments Generally. All payments of
------------------
principal and interest, or any other amount payable
hereunder, shall be made to MetProductions at its address
set forth under its name on the signature page hereof in
immediately available funds by wire transfer in accordance
with the instructions set forth on the signature page
hereto. Upon payment in full of the Loan hereunder,
MetProductions will surrender to Orion such Note duly marked
cancelled and terminate any security interest. Orion may
prepay, in whole or in part, without premium or penalty the
principal amount of the Loan and any accrued interest on the
Loan at any time notwithstanding the accounting terms set
forth in Section 1.5 below.
<PAGE>
3
1.4 Interest. Orion will pay interest on the
--------
principal amount of the Loan from the date of such loan
until the Loan is paid in full hereunder, at a rate per
annum equal to Ten Percent (10%). Interest shall be
calculated on the basis of a 360-day year for the actual
number of days elapsed.
1.5 Repayment of Loan. The Loan and all accrued
-----------------
interest thereon shall be payable first from the Gross
Receipts to which Orion is entitled pursuant to the terms of
the Distribution Agreement, less any distribution expenses
incurred by Orion in connection with distributing the
Pictures (e.g. residuals, marketing costs). Orion shall
remit to MetProductions all Gross Receipts to which Orion is
entitled pursuant to the terms of the Distribution Agreement
(less the costs and expenses set forth in the preceding
sentence) until the full amount of the Loan and all accrued
interest thereunder has been repaid in accordance with the
terms of this Loan Agreement.
2. SECURITY.
--------
2.1 Security. As security for the punctual
--------
payment in full of the Loan and all accrued interest
thereon, and other amounts payable hereunder or any other
agreement or by operation of law or otherwise, relating to
the transactions described herein, Orion hereby grants to
MetProductions a first priority lien on and security
interest in all of Orion's right, title and interest in the
<PAGE>
4
Pictures pursuant to the terms of the Distribution Agreement
but only to the extent necessary to secure MetProductions'
right to receive payments under this Loan Agreement (the
"Collateral"). The security interest hereby created shall
attach immediately on the execution of this Loan Agreement
by MetProductions and Orion. Concurrently with the
execution of this Loan Agreement (or within a reasonable
time thereafter), the parties hereto shall execute and file
the Mortgage of Copyright and Security Agreement (the
"Security Agreement") attached hereto as Exhibit C and any
UCC Financing Statement(s) required to perfect the security
interest created by this Loan Agreement and the Security
Agreement.
3. EVENTS OF DEFAULT.
-----------------
3.1 Each of the following shall constitute an
Event of Default:
(a) the failure of Orion to pay
MetProductions in accordance with Section 1.5 hereof within
three (3) business days after notice from MetProductions
that such amount is due.
(b) the filing by Orion of a voluntary
petition for relief under any federal or state bankruptcy or
insolvency law, or the commencement by Orion of any other
voluntary proceeding or other action, proceeding or other
action in bankruptcy, or the filing of any involuntary
<PAGE>
5
petition against Orion under any federal or state bankruptcy
law.
3.2 If any Event of Default shall occur,
MetProductions may, at its sole option and without notice,
declare the entire principal amount loaned to Orion in
accordance with this Loan Agreement and the Note to be due
and payable in accordance with the terms and conditions of
this Loan Agreement and the Note.
3.3 If any Event of Default shall occur,
MetProductions shall be entitled to exercise all of the
rights, powers and remedies permitted by law, including
without limitation, all rights and remedies of a secured
party of a debtor in default under the Uniform Commercial
Code in effect in the State of New York for the protection
and enforcement of its rights in respect of the Collateral.
4. REPRESENTATIONS AND WARRANTIES OF ORION.
---------------------------------------
Orion hereby represents and warrants to
MetProductions that:
4.1 Orion has the right to enter into this Loan
Agreement and to grant and assign to MetProductions the
interest in the Pictures herein granted.
4.2 The execution, delivery and performance of
this Loan Agreement have been duly authorized by all
necessary action of Orion and do not and will not contravene
or conflict with any corporate or fiduciary obligation Orion
has to its shareholders, including but not limited to, the
<PAGE>
6
terms or provisions of Orion's By-Laws or Orion's Restated
Certificate of Incorporation. This Loan Agreement
constitutes the legally valid and binding obligations of
Orion and is enforceable against Orion in accordance with
its terms.
4.3 The execution, delivery and performance of
this Loan Agreement will not result in a breach of or
constitute (with due notice or lapse of time or both) a
default under any agreement, undertaking or other instrument
to which Orion is a party or by which it may be bound or
affected.
4.4 To the best of Orion's knowledge and except
as disclosed in Orion Pictures Corporation's Annual Report
on Form 10-K for the fiscal year ended February 28, 1994,
and those quarterly reports on Form 10-Q filed up to and
including the date hereof, there is no action, suit or
proceeding pending or threatened against or affecting Orion,
or the Pictures which, if adversely determined, would
materially affect Orion's ability to perform its obligations
under this Loan Agreement.
4.5 Orion agrees to use its reasonable commercial
efforts, consistent with good business practices, in
distributing and exploiting and causing the distribution
and/or exploitation of the Pictures as herein provided.
4.6 Orion agrees to provide MetProductions with
statements of the distribution costs and expenses in
<PAGE>
7
connection with its distribution of the Pictures on a
reasonable basis but not less than semi-annually.
4.7 Orion agrees to maintain records pertaining
to the distribution of the Pictures. MetProductions shall
have the right upon reasonable notice to Orion to inspect
such records until repayment of the Note in full.
5. ACKNOWLEDGMENT OF METPRODUCTIONS.
--------------------------------
5.1 MetProductions acknowledges and agrees that
Orion makes no representation, warranty, guarantee or
agreement as to the amount of the Gross Receipts of the
Pictures which may be derived from the distribution,
exhibition or other exploitation thereof, nor does Orion
guarantee the performance by any distributor, sub-
distributor, sub-licensee and/or agent of the Pictures.
5.2 Orion shall have the right to select
distributors, sub-distributors, sub-licensees, and/or agents
upon such terms and conditions as Orion may determine,
consistent with its past business practices and with the
customs and practices of the motion picture industry in
general, in connection with the distribution, exhibition or
other exploitation of the Pictures.
6. INDEMNIFICATION.
---------------
6.1 Orion agrees, at its own expense, to defend,
indemnify and hold MetProductions, its affiliates, its
assignees and licensees, harmless from and against any and
all loss, damage, liability and expense (including without
<PAGE>
8
limitation, reasonable attorneys' fees and costs) which may
be suffered or incurred by MetProductions, its assignees or
licensees, as the result of (i) any material breach or
default of any of the representations, warranties, covenants
or agreements made by Orion hereunder, (ii) any material
breach or default of any agreement whatsoever entered into
by Orion in connection with the Pictures; or (iii) any claim
arising out of, or related to, the production, distribution,
or other exploitation of the Pictures.
7. MISCELLANEOUS.
-------------
7.1 This Loan Agreement shall be construed in
accordance with and interpreted under the laws of the State
of New York governing agreements which are wholly executed
and performed therein.
7.2 Wherever provision is made in this Loan
Agreement for the giving of any notice, such notice shall be
in writing and shall be deemed to have been duly given if
mailed by first class United States mail, postage prepaid,
addressed to the party entitled to receive the same or
delivered personally to such party at the address specified
below or by facsimile (receipt confirmed) to such party:
If to MetProductions to:
c/o Metromedia Company
One Meadowlands Plaza
East Rutherford, New Jersey 07073
Attention: General Counsel
Telecopy No.: (201) 531-2803
<PAGE>
9
If to Orion:
1888 Century Park East
Los Angeles, California 90067
Attention: General Counsel
Telecopy No.: (310) 282-9902
or to such other address as either party hereto shall have
last designated by notice to the other party. Notice shall
be deemed to have been given three days following the date
on which such notice was so mailed or on the date such
notice was delivered personally or by facsimile.
7.3 This Loan Agreement may be executed by one or
more of the parties to this Loan Agreement on any number of
separate counterparts and all of said counterparts taken
together shall be deemed to constitute one and the same
instrument.
7.4 Each party shall execute and deliver to the
other party from time to time all such other agreements,
instruments and other documents (including without
limitation all requested financing and continuation
statements) and do all such other and further acts and
things as the requesting party may reasonably request in
order further to evidence or carry out the intent of this
Loan Agreement.
7.5 This Loan Agreement represents the entire
agreement between the parties hereto with respect to the
subject matter hereof and supersedes all previous
representations, understandings or agreement, oral or
<PAGE>
10
written, between the parties, with respect to the subject
matter hereof.
7.6 If any inconsistencies between the terms and
conditions of this Loan Agreement and the Distribution
Agreement are deemed to exist, the terms and conditions of
the Distribution Agreement shall govern.
IN WITNESS WHEREOF, the parties hereto have
executed this Loan Agreement as of the date and year first
above written.
MetProductions, Inc.
By:_________________________
Arnold L. Wadler,
Senior Vice President
Orion Pictures Corporation
By:_________________________
Leonard White,
President
<PAGE>
EXHIBIT B
PROMISSORY NOTE
---------------
$250,000.00 New York, New York
October __, 1994
FOR VALUE RECEIVED, Orion Pictures Corporation, a
Delaware corporation ("Borrower"), promises to pay to the
order of MetProductions, Inc. ("Lender") or its assigns, the
principal sum of $250,000.00 in accordance with the terms of
the Loan Agreement between Borrower and Lender of even date
herewith (the "Loan Agreement"); together with accrued
interest on the unpaid principal balance from the date
herewith at the annual rate of Ten (10%) percent. All
payments of principal and interest shall be made at Lender's
offices located at One Meadowlands Plaza, East Rutherford,
New Jersey 07073-2137, Attention: Accounting Department, or
at such other address provided to Borrower, in writing, from
time to time by the holder of this Note.
All capitalized terms used herein and not
otherwise defined shall have the meanings assigned thereto
in the Loan Agreement.
If any Event of Default specified in the Loan
Agreement shall occur, then the holder of this Note can
declare the entire unpaid principal amount of this Note,
together with interest accrued thereon, to be immediately
due and payable and such holder will have all of the rights
and remedies set forth in the Loan Agreement.
B-1
<PAGE>
Borrower hereby waives presentment, demand for
payment, notice of default, dishonor or nonpayment, protest
and notice of protest and all other demands and notices in
connection with the delivery, acceptance, performance or
enforcement of this Note.
This Note shall be governed by and construed in
accordance with the laws of the State of New York, without
reference to the conflict of laws principles thereof.
IN WITNESS WHEREOF, Borrower has executed and
delivered this Note on the __ day of October, 1994.
ATTEST: Orion Pictures Corporation
____________________ By:______________________
Secretary Leonard White
President
B-2
<PAGE>
EXHIBIT C
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT (this "Security
Agreement") is made and entered into as of October __, 1994
between Orion Pictures Corporation, a Delaware corporation,
(the "Debtor"), with offices located at 1888 Century Park
East, Los Angeles, California 90067 and MetProductions,
Inc., a Delaware corporation (the "Secured Party") with
offices of c/o Metromedia Company, One Meadowlands Plaza,
East Rutherford, New Jersey 07073.
R E C I T A L S:
----------------
WHEREAS, pursuant to that certain Distribution
Agreement dated as of June 24, 1994 between Debtor and
Steinhardt Baer Pictures Company ("Steinhardt Baer") (such
agreement as it may be amended, modified, supplemented,
replaced, renewed or superseded from time to time, is herein
referred to as the "Distribution Agreement"), Debtor
acquired certain sole and exclusive distribution rights
respecting two motion pictures presently entitled "DEAD
BADGE" and "PLAYMAKER" to be produced by Steinhardt Baer or
its designee (collectively, the "Pictures"). Capitalized
terms used herein and not otherwise defined shall have the
meanings assigned thereto in the Loan Agreement and the
Distribution Agreement.
WHEREAS, the Debtor and Secured Party have entered
into that certain Loan Agreement of even date herewith (the
C-1
<PAGE>
"Loan Agreement"). Pursuant to the Loan Agreement, Secured
Party has agreed to loan (the "Loan") to Debtor the sum of
Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00)
to fund the Advance.
In consideration of the premises and mutual
covenants herein contained and for other good and valuable
consideration the receipt of which is hereby acknowledged,
and in order to induce the Secured Party to enter into the
Loan Agreement, the parties hereto hereby agree as follows:
1. GRANT OF SECURITY INTEREST.
--------------------------
(a) Grant. Debtor hereby mortgages,
-----
hypothecates, grants and assigns to Secured Party as
security for the Secured Obligations and Rights (as such
term is defined in subparagraph 1(b) below) a continuing
first priority security interest in and to all of Debtor's
right, title, and interest of every kind and nature in and
to (but none of Debtor's obligations with respect to) all of
the items listed in subparagraph 1(c) below, which items are
hereinafter collectively referred to as the "Collateral."
Notwithstanding anything to the contrary contained herein,
except for the security interest granted hereby and pursuant
to the Copyright Mortgages and Assignments referred to in
subparagraph 1(f) below and the Secured Party's rights and
remedies with respect to such security interests, this
Security Agreement is not intended to and does not grant to
Secured Party any greater exploitation rights in the
C-2
<PAGE>
Pictures than granted to Debtor pursuant to the Distribution
Agreement.
(b) Purpose of Grant. The security interest in
----------------
the Collateral granted to the Secured Party pursuant hereto
and pursuant to the Copyright Mortgages and Assignments is
being granted to secure the Secured Obligations and Rights.
The term "Secured Obligations and Rights" shall mean and
include (i) the full and timely payment and performance by
Debtor when due of all of Debtor's agreements,
representations, warranties and covenants, hereunder and
under the Loan Agreement (collectively, the "Debtor
Obligations"), and (ii) the continuing right of the Secured
Party in accordance with all of the terms of the Loan
Agreement to exercise all of the rights of the Secured Party
under the Loan Agreement (collectively, the "Secured Party's
Rights") including, without limitation, the rights of the
Secured Party to (a) exploit the Pictures pursuant to the
terms of the Distribution Agreement, (b) recoup all sums
paid, advanced or guaranteed by Debtor in connection with
the Pictures, including, without limitation, the Advance,
all to the extent provided in the Distribution Agreement,
(c) receive, retain and own all Gross Receipts or other sums
including the distribution fees derived from or in
connection with the exploitation of the Pictures subject to
the terms and conditions of the Distribution Agreement,
(d) exercise the Secured Party's right of access to and use
of all Physical Properties (as herein defined), and
C-3
<PAGE>
(e) enjoy the full exercise and quiet enjoyment of all
rights in connection with the Pictures provided for in the
Distribution Agreement.
(c) Collateral. The term "Collateral," as used
----------
herein shall mean all of Debtor's right, title and interest
of every kind and nature in and to the following items,
whether now owned or in existence or hereafter made,
acquired or created and all product and proceeds thereof:
(i) All of the Debtor's rights under the
Distribution Agreement and in all collateral with respect to
the foregoing including without limitation, distribution
rights in the Pictures granted pursuant to the Distribution
Agreement;
(ii) All proceeds and product of the rights
granted to Debtor under the Distribution Agreement,
including without limitation, all accounts, contract rights,
chattel paper, documents, general intangibles and
instruments (as defined under the Uniform Commercial Code of
the States of California and New York) and all money and
claims for money (whether or not such claims to money have
been earned by performance) derived from or arising out of
such rights;
(iii) All of Debtor's rights to receive any
sums of money under or in connection with the Distribution
Agreement;
(iv) The nonexclusive right to all common law
and statutory domestic and foreign copyrights, rights and
C-4
<PAGE>
interests in copyrights and renewals and extensions of
copyrights, in or relating to the Pictures (collectively,
the "Copyrights"), to the extent that the same are acquired
by Debtor pursuant to the Distribution Agreement;
(v) The nonexclusive right to all tangible
personal property and physical properties of every kind or
nature whatsoever of or directly relating to the Pictures to
the extent that the same are acquired by Debtor pursuant to
the Distribution Agreement (collectively, the "Physical
Properties");
(vi) The nonexclusive right to all literary,
dramatic, musical and other material created for the
Pictures or upon which the Pictures are based or to be
based, in whole or in part, or which are used in connection
with the Pictures to the extent the same are acquired
pursuant to the terms of the Distribution Agreement
(including without limitation, the screenplays and the
underlying materials upon which the screenplays are based)
and all common law and statutory domestic and foreign
copyrights, and rights and interests in copyrights and
renewals and extensions of copyrights, in and to said
literary, dramatic, musical and other written material (the
"Literary Properties");
(vii) The nonexclusive right to all general
intangibles and contract rights in or relating to all
agreements and understandings (whether or not evidenced in
writing) with third parties relating to the creation,
C-5
<PAGE>
production and acquisition of the Pictures to the extent the
same are acquired by Debtor pursuant to the terms of the
Distribution Agreement, including without limitation, all
agreements and understandings with third parties producing
the Pictures or furnishing services and/or rights relating
to the development, production, completion, delivery and/or
acquisition of the Pictures or to any of the Physical
Properties, Literary Properties or Copyrights, including,
without limitation, all agreements and understandings
relating to Debtor's acquisition of the Pictures from third
parties.
Notwithstanding the foregoing, Secured Party's security
interest in the Collateral described in
subparagraphs (iii) through (vii) above (the "Secondary
Collateral") is a nonexclusive (except as provided for in
subparagraph (iv) security interest and is limited to
Debtor's right, title and interest in and to such Collateral
solely to the extent provided in the terms and conditions of
the Distribution Agreement.
(d) Rights of Secured Party. With respect to the
-----------------------
security interests hereby granted to Secured Party and
granted to the Secured Party pursuant to the Copyright
Mortgages and Assignments, Secured Party and any of its
successors or assignees shall at all times be entitled to
exercise in respect of the Collateral all of the rights,
remedies, powers and privileges available to a secured party
under all applicable laws, including without limitation, the
C-6
<PAGE>
United States Copyright Act, the Uniform Commercial Code of
the States of California and New York in effect at the time
which shall be applicable for the purpose of establishing
the relative rights of Secured Party and of Debtor, and to
those procedures to be followed thereunder in the event this
subparagraph 1(d) shall become operative, including the
right to sell the Collateral or any portion thereof, and, in
addition thereto, to the rights and remedies provided for
herein and under the Loan Agreement and to such other rights
and remedies as may be provided by law or in equity.
(e) Exercise of Rights. Secured Party shall not
------------------
exercise any of its rights hereunder in any manner that
would interfere with the production, completion, delivery or
exploitation of the Pictures (so long as the exploitation of
the Pictures does not violate the Secured Party's rights).
Subject to the immediately preceding sentence, Secured Party
or any of its successors or assignees shall be entitled to
exercise any or all of the rights granted hereunder with
respect to the Collateral in the event Debtor (or any person
or entity acting on Debtor's behalf or in its place and
stead) (i) rejects or attempts to reject or wrongfully
terminates or wrongfully disaffirms the Distribution
Agreement, the Loan Agreement or this Security Agreement or
(ii) breaches or defaults, in any respect that would
substantially prevent, hinder, impair, infringe or delay
Secured Party's enjoyment of the Secured Party's Rights, in
the payment or performance of any of the Secured Obligations
C-7
<PAGE>
and Rights and fails to remedy such breach or default within
30 days after receipt of written notice thereof from Secured
Party if such breach or default is capable of being cured
within such time period. If the Debtor shall breach any of
its material obligations under the Loan Agreement, the
Distribution Agreement or this Security Agreement, the
Secured Party, after giving notice of its intention to do
so, may take any reasonable action which it may deem
necessary for the maintenance, preservation, and protection
of any of the Collateral or its security interest therein.
(f) Further Documents. Debtor hereby agrees to
-----------------
execute and deliver to Secured Party all such financing
statements or similar documentation for all jurisdictions
designated by Secured Party (collectively, the "Financing
Statements"), one or more Copyright Mortgages and
Assignments in form and substance reasonably satisfactory to
Secured Party, and such other documents, agreements or
instruments as Secured Party shall reasonably request and
are reasonably required to better perfect, protect,
evidence, renew and/or continue the security interest in the
Collateral granted hereunder and/or to effectuate the
purposes and intents of this Security Agreement
(collectively, the "Security Documents"), to file, register
and/or record the same under (i) the Uniform Commercial
Code, and all other similar applicable laws of the States of
California and New York and under the laws of any other
jurisdiction where such filing, registration and/or
C-8
<PAGE>
recordation may reasonably be required by Secured Party, and
(ii) the United States Copyright Act. If after the
occurrence and during the continuance of any of the events
specified in the second sentence of subparagraph 1(e) hereof
Debtor fails to execute and deliver to Secured Party any of
the Financing Statements, the Copyright Mortgages and
Assignments, or any other Security Documents on request of
Secured Party, Debtor hereby appoints Secured Party its
irrevocable attorney-in-fact to sign any such document for
Debtor, and agrees that such appointment constitutes a power
coupled with an interest and is irrevocable throughout the
Distribution Period of the Distribution Agreement, the term
of the Loan Agreement and this Security Agreement; provided,
however, that Secured Party shall be liable to Debtor and
Debtor's successors, licensees and assigns for any damages
resulting from inaccuracy or failure to conform to this
Security Agreement in any Financing Statement, Copyright
Mortgage and Assignment or other Security Document so signed
by Secured Party as Debtor's attorney-in-fact. Debtor
hereby authorizes the Secured Party 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 the Debtor where permitted by law.
A carbon, photographic or other reproduction of this
Security Agreement or any part thereof shall be sufficient
as a financing statement where permitted by law.
C-9
<PAGE>
(g) Term of Security Interest. The security
-------------------------
interest created hereunder and under the Copyright Mortgages
and Assignments shall commence as of the date of this
Security Agreement and shall terminate upon the expiration
of the Term of Secured Party's rights under the Loan
Agreement, at which time Secured Party, on Debtor's request
and without further consideration, shall execute and deliver
to Debtor termination statements releasing and terminating
the Financing Statements, the Copyright Mortgages and
Assignments, and the other Security Documents, all without
recourse upon or warranty by Secured Party and with filing
thereof at the sole cost and expense of Debtor.
(h) Priority of Security Interest. The security
-----------------------------
interest by Secured Party in and to the Collateral shall be
a first priority security interest.
(i) Continuing Security Interest. This Security
----------------------------
Agreement shall create a continuing security interest in the
Collateral and shall (a) be binding upon the Debtor, its
successors and assigns and (b) inure to the benefit of the
Secured Party and its successors, transferees and assigns.
2. DEBTOR'S WARRANTIES AND REPRESENTATIONS AND
-------------------------------------------
AGREEMENTS. Debtor confirms, warrants and represents to
----------
Secured Party as follows, which such confirmations,
representations and warranties shall be deemed to be
continuing until the termination of the Secured Party's
security interest hereunder: (a) Debtor has the right to
<PAGE>
enter into this Security Agreement and execute and deliver
to Secured Party the Financing Statements, the Copyright
Mortgage and Assignment, and the other Security Documents,
and (b) Debtor has not and will not grant or permit to exist
on all or any portion of the Collateral any lien, security
interest or encumbrance (other than the security interest
granted by Debtor to Secured Party hereunder), which does or
may in any way conflict or interfere with or have priority
over the security interest herein granted by Debtor to
Secured Party; provided however, that in no event may Debtor
grant or permit to exist on all or any portion of the
Collateral described in subparagraphs 1(c)(i) through (iii)
any lien, encumbrance or security interest, and (c) no
agreements, understandings or other arrangements have been
or will be made or entered into by Debtor which do or may in
any way conflict or interfere with the full, complete and
unfettered exercise by Secured Party of the Secured Party's
Rights or any other rights granted by Debtor to Secured
Party in this Security Agreement or any of the other
Security Documents or in the Loan Agreement. Debtor will
not sell, offer to sell, hypothecate or otherwise dispose of
any Collateral (including proceeds) subject hereto, or any
part thereof or interest therein, except subject to the
security interest granted to Secured Party hereunder.
C-11
<PAGE>
3. EVENTS OF DEFAULT. The occurrence of any one or
-----------------
more of the following events shall constitute a "Default"
hereunder.
(a) failure of Debtor to perform its obligations
under the Loan Agreement;
(b) any material default by Debtor under the Loan
Agreement or the Distribution Agreement;
(c) any person shall levy on, seize, or attach
the Collateral;
(d) any person, including without limitation,
Debtor interferes with Secured Party's quiet enjoyment of
Secured Party's rights as a secured party hereunder;
(e) bankruptcy of the Debtor.
4. GOVERNING LAW. This Security Agreement and the
-------------
other Security Documents shall be governed by the laws of
the State of New York applicable to agreements wholly
executed and performed therein, and without giving effect to
the principles of conflict or choice of laws thereof.
5. ANY LEGAL ACTION. All of the parties hereto
----------------
(a) agree that any legal suit, action or proceeding arising
out of or relating to this Security Agreement may be
instituted in a State or Federal court in the City of New
York, State of New York, (b) waive any objection which they
may have now or hereafter to the County of New York as the
venue of any such suit, action or proceeding, and
(c) irrevocably submit to the non-exclusive jurisdiction of
C-12
<PAGE>
the United States District Court for the Southern District
of New York, or any court of the State of New York located
in the City of New York in any such suit, action or
proceeding and any summons, order to show cause, writ,
judgment, decree, or other process with respect to any such
suit, action or proceeding may be delivered to Debtor
personally outside the State of New York, and when so
delivered, Debtor shall be subject to the jurisdiction of
such court, and amenable to the process so delivered as
though the same had been served within the State of New
York, but outside the county in which such suit, action or
proceeding is pending.
6. NOTICES. All notices or other documents which any
-------
party shall be required or shall desire to give to the other
hereunder shall be given in the manner provided for in the
Loan Agreement.
7. AMENDMENTS AND WAIVERS. No amendment or waiver of
----------------------
any provision of this Security Agreement nor consent to any
departure by the Debtor herefrom shall in any event be
effective unless the same shall be in writing and signed by
the Secured Party, and then such waiver or consent shall be
C-13
<PAGE>
effective only in the specific instance and for the specific
purpose for which given.
By signing in the spaces provided below, the
parties hereto have agreed to all of the terms and
conditions of this Security Agreement.
DEBTOR:
Orion Pictures Corporation
By:______________________________
Leonard White
President
SECURED PARTY:
METPRODUCTIONS, INC.
By:______________________________
Arnold L. Wadler
Senior Vice President
C-14
<PAGE>
State of California )
.SS:
County of Los Angeles )
On __________, 1994, before me, a Notary Public
and in and for said State, personally appeared Leonard White
personally known to me or provided on the basis of
satisfactory evidence to be the person who executed the
within instrument as the President of Orion Home
Entertainment Corporation, and acknowledged to me that such
corporation executed the within instrument to its powers to
do so.
______________________________
Notary Public
Orion Pictures Corporation
EXHIBIT 11 (page 1)
ORION PICTURES CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per-share amounts)
The following tables detail the calculation of the per-share amounts and
number of shares used in computing, Loss before extraordinary gains and Net
income (loss) per common share, on a primary and fully diluted basis.
<TABLE>
<CAPTION>
Fiscal Years Ended in February
1995 1994 1993
<S> <C> <C> <C>
Primary:
Loss before extraordinary gains $ (50,270) $ (125,196) $ (72,973)
Dividends on preferred and preference stock -- (19)
Pro-forma reduction in interest expense (net of
tax) resulting from the assumed exercise of
stock options and warrants and the resulting
assumed reduction of outstanding indebtedness (B)(C) -- --
(A)
------------ -------------
-------------
Loss before extraordinary gains, as adjusted $ (50,270) $ (125,196) $ (72,992)
============ ============= ============
Net income (loss) $ (50,270) $ (125,196) $ 250,240
Dividends on preferred and preference stock -- (19)
Pro-forma reduction in interest expense (net of
tax) resulting from the assumed exercise of
stock options and the resulting assumed reduction
of outstanding indebtedness (B)(C) -- -- (A)
------------ -------------- --------------
Net income (loss), as adjusted $ (50,270) $ (125,196) $ 250,221
============ ============ ===========
Weighted average number of shares outstanding,
reflects reverse stock split (E) 20,000 20,000 6,465
Equivalent shares applicable to stock
options and warrants outstanding (B)(C)(E) -- -- (A)
----------- ----------- -----------
Total common and common equivalent shares 20,000 20,000 6,465
========== ======== ========
Primary income (loss) per common share:
Loss before extraordinary gains $ (2.51) $ (6.26) $ (11.29)
========== ========== ==========
Net income (loss) $ (2.51) $ (6.26) $ 38.70
========== ========== ==========
</TABLE>
<PAGE>
Orion Pictures Corporation
EXHIBIT 11 (page 2)
ORION PICTURES CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per-share amounts)
<TABLE>
<CAPTION>
Fiscal Years Ended in February
1995 1994 1993
<S> <C> <C> <C>
Fully Diluted:
Loss before extraordinary gains $ (50,270) $ (125,196) $ (72,973)
Dividends on preferred and preference stock -- -- --
Pro-forma reduction in interest expense (net of
tax) resulting from the assumed exercise of
stock options and warrants and the resulting
assumed reduction of outstanding indebtedness (B) -- -- (A)
--------------- -------------- --------------
Loss before extraordinary gains, as adjusted $ (50,270) $ (125,196) $ (72,973)
============== ============ ===========
Net income (loss) $ (50,270) $ (125,196) $250,240
Dividends on preferred and preference stock -- -- --
Pro-forma reduction in interest expense (net of
tax) resulting from the assumed exercise of
stock options and the resulting assumed reduction
of outstanding indebtedness (B) -- -- (A)
--------------- -------------- --------------
Net income (loss), as adjusted $ (50,270) $ (125,196) $ (250,240
=============== ============ ============
Weighted average number of shares outstanding,
reflects reverse stock split (D) 20,000 20,000 6,465
Equivalent shares applicable to:
Stock options and warrants outstanding (B)(D) -- -- (A)
Series B Preferred Stock (C) -- -- 14
------------- ----------- -----------
Total common and common equivalent shares (E) 20,000 20,000 6,479
=========== =========== ===========
Fully diluted income (loss) per common share:
Loss before extraordinary gains $ (2.51) $ (6.26) $ (11.26)
=========== ========== ===========
Net income (loss) $ (2.51) $ (6.26) $ 38.62
=========== ========== ===========
</TABLE>
<TABLE>
<S> <C>
(A) Excluded from the computation due to antidilutive effect.
(B) All of the Company's stock options were cancelled effective November 5, 1992.
(C) All of the Company's outstanding shares of preferred stock were converted to 20,000 shares of the Company's
common stock on November 5, 1992.
(D) All of the Company's outstanding shares of old common stock were converted to 160,000 shares of the Company's
new common stock on November 5, 1992.
(E) Additional common shares assumed to be issued for the fully diluted computation for all periods is less than
3% of the weighted average common shares outstanding and, accordingly, fully diluted per-share amounts have
not been presented on the Consolidated Statements of Operations.
</TABLE>
Orion Pictures Corporation
Exhibit 21
ORION PICTURES CORPORATION
SUBSIDIARIES AND DIVISIONS
2/28/95
Orion Pictures Corporation - divisions: Orion Classics; Orion Pictures
International; Orion Television Entertainment (DE)
American International Pictures, Inc. (DE)
Mintaka Films B.V. (Netherlands)
Musicways, Inc. (CA)
Orion Home Entertainment Corporation - division: Orion Home
Video (DE)
Orion Music Publishing, Inc. (CA)
Orion Pictures Distribution Corporation (DE)
Buckminster Music Limited (England) (50%)
Donna Music Publications (CA)
F.P. Productions (CA)
Brighton Productions, Inc. (CA)
Buckminster Music Limited (England) (50%)
OPC Music Publishing, Inc. (CA)
Orion Pictures Distribution (Canada) Inc.
[Distribution De Films Orion (Canada) Inc.]
Orion Productions, Inc. (DE)
Orion TV Productions, Inc. (NY)
Unless otherwise indicated, all subsidiary ownership is 100%
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from the consolidated balance sheet and statement of operations
as of and for the year ended February 28, 1995 and is qualified
in its entirety by reference to such consolidated financial
statements.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-END> FEB-28-1995
<CASH> 26,190
<SECURITIES> 0
<RECEIVABLES> 59,710
<ALLOWANCES> 14,000
<INVENTORY> 249,674
<CURRENT-ASSETS> 0
<PP&E> 2,081
<DEPRECIATION> 442
<TOTAL-ASSETS> 351,588
<CURRENT-LIABILITIES> 0
<BONDS> 212,079
<COMMON> 5,000
0
0
<OTHER-SE> (13,467)
<TOTAL-LIABILITY-AND-EQUITY> 351,588
<SALES> 191,244
<TOTAL-REVENUES> 191,244
<CGS> 187,477
<TOTAL-COSTS> 209,522
<OTHER-EXPENSES> 1,610
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,082
<INCOME-PRETAX> (48,970)
<INCOME-TAX> 1,300
<INCOME-CONTINUING> (50,270)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (50,270)
<EPS-PRIMARY> (2.51)
<EPS-DILUTED> (2.51)
</TABLE>
