================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-K/A
Amendment No. 2
(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 December 31, 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 _____________
Commission File Number 1-5706
---------------------------
METROMEDIA INTERNATIONAL GROUP, INC.
(Exact name of registrant, as specified in its charter)
DELAWARE 58-0971455
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
945 East Paces Ferry Road, Suite 2210, Atlanta, Georgia 30326
(Address and zip code of principal executive offices)
(404) 261-6190
(Registrant's telephone number, including area code)
---------------------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
<S> <C>
Common Stock, $1.00 par value American Stock Exchange
Pacific Stock Exchange
9 1/2% Subordinated Debentures, due August 1, 1998 New York Stock Exchange
9 7/8% Senior Subordinated Debentures, due March 15, 1997 New York Stock Exchange
10% Subordinated Debentures, due October 1, 1999 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
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. [ ]
The aggregate market value of voting stock of the registrant held by
nonaffiliates of the registrant at April 22, 1996 computed by reference to the
last reported sale price of the Common Stock on the composite tape on such date
was $363,130,984.
The number of shares of Common Stock outstanding as of April 22, 1996 was
42,658,240.
Documents Incorporated by Reference
None
================================================================================
<PAGE>
PART I
Item 1. Business
Metromedia International Group, Inc. ("MIG" or the "Company") is a global
entertainment, media and communications company with continuing operations in
two business groups: the Entertainment Group, through Orion Pictures Corporation
("Orion"), which is engaged primarily in the development, production,
acquisition, exploitation and worldwide distribution in all media of motion
pictures, television programming and other filmed entertainment product; and the
Communications Group, through Metromedia International Telecommunications, Inc.
("MITI"), which owns interests in and participates along with local partners in
the management of joint ventures which operate wireless cable television
systems, paging systems, an international toll call service, a trunk mobile
radio service and radio stations in certain countries in Eastern Europe, the
former Soviet Republics and other emerging markets.
The Company also owns two non-strategic assets which, for accounting
purposes, have been classified as an asset held for disposition: Snapper, Inc.
("Snapper"), which is engaged in the manufacture and sale of lawn and garden
equipment and approximately 38% of the outstanding shares of Roadmaster
Industries, Inc., a New York Stock Exchange ("NYSE") listed company which is a
leading sporting goods manufacturer.
The Company was organized in 1929 under Pennsylvania law and reincorporated
in 1968 under Delaware law. On November 1, 1995, as a result of a series of
mergers discussed below, MIG changed its name from The Actava Group Inc. to
Metromedia International Group, Inc. MIG's principal executive offices are
located at 945 East Paces Ferry Road, Suite 2210, Atlanta Georgia 30326, and its
telephone number is (404) 261-6190.
Developments During Fiscal 1995
The Company's operations substantially changed during fiscal 1995. These
developments are described below.
On November 1, 1995, the Company merged (the "November 1 Mergers") with
Orion, MITI and MCEG Sterling Incorporated ("Sterling"), an independent film
production and distribution company. In connection with the November 1 Mergers,
Orion and MITI were merged with and into separate wholly-owned subsidiaries of
the Company, Sterling merged with and into the Company, Sterling's operating
assets were then contributed to Orion and the Company changed its name from The
Actava Group Inc. to Metromedia International Group, Inc. The November 1 Mergers
were the result of the Company's previously announced intention to maximize the
value of its financial resources by redeploying them into entertainment,
communications and media businesses, which the Company believes possess greater
growth potential than the businesses in which it had previously been engaged.
Upon consummation of the November 1 Mergers, all of the outstanding shares
of the common stock, par value $.25 per share, of Orion (the "Orion Common
Stock"), the common stock, par value $.001 per share, of MITI (the "MITI Common
Stock") and the common stock, par value $.001 per share, of Sterling (the
"Sterling Common Stock") were converted into shares of the common stock, par
value $1.00 per share, of the Company (the "Common Stock") pursuant to formulas
contained in the agreement relating to the November 1 Mergers. Pursuant to such
formulas, holders of Orion Common Stock received .57143 shares of Common Stock
for each share of Orion Common Stock (resulting in the issuance of 11,428,600
shares of Common
<PAGE>
2
Stock to the holders of Orion Common Stock), holders of MITI Common Stock
received 5.54937 shares of Common Stock for each share of MITI Common Stock
(resulting in the issuance of 9,523,817 shares of Common Stock to the holders of
MITI Common Stock) and holders of Sterling Common Stock received .04309 shares
of Common Stock for each share of Sterling Common Stock (resulting in the
issuance of 483,254 shares of Common Stock to the holders of Sterling Common
Stock). Simultaneously with the consummation of the November 1 Mergers and
pursuant to the terms of a Contribution Agreement dated as of November 1, 1995
(the "Contribution Agreement") among the Company and certain affiliates of the
Company's largest stockholder, Metromedia Company ("Metromedia") and two of its
affiliates contributed to the Company an aggregate of $37 million principal
amount of indebtedness of Orion, MITI and certain of their affiliates which were
owed to Metromedia's affiliates in exchange for an aggregate of 3,530,314 shares
of Common Stock.
Immediately prior to the consummation of the November 1 Mergers, there were
approximately 17,490,901 shares of Common Stock outstanding. In connection with
the November 1 Mergers and the transactions contemplated by the Contribution
Agreement, the Company issued an aggregate of approximately 24,965,985 shares of
Common Stock. Of such shares, Metromedia and its affiliates (collectively, the
"Metromedia Holders") received an aggregate of approximately 15,252,128 shares
of Common Stock (or approximately 35.9% of the issued and outstanding shares of
Common Stock).
A three person Office of the Chairman was created to manage the business
and affairs of the Company following the consummation of the November 1 Mergers.
The Office of the Chairman consists of the following persons: John W. Kluge, the
Chairman of the Board of Orion and MITI prior to the November 1 Mergers, as
Chairman of the Board of the Company; Stuart Subotnick, the Vice Chairman of
Orion and MITI prior to the November 1 Mergers, as Vice Chairman of the Company;
and John D. Phillips, the President and Chief Executive Officer of the Company
prior to the November 1 Mergers, as President and Chief Executive Officer of the
Company.
Also in connection with the November 1 Mergers, the Board of Directors of
the Company was divided into three classes. Pursuant to the terms of the merger
agreement relating to the November 1 Mergers, Orion appointed six of ten members
of the Company's Board of Directors and the Company appointed the remaining four
directors. The Directors appointed by Orion are John W. Kluge, Stuart Subotnick,
Silvia Kessel, Richard J. Sherwin, Arnold L. Wadler and Leonard White. The four
members of the Company's Board of Directors appointed by the Company, John D.
Phillips, John P. Imlay, Jr., Clark A. Johnson and Carl E. Sanders, were members
of the Board of Directors of the Company prior to the November 1 Mergers.
In connection with the November 1 Mergers, the Common Stock was delisted
from the New York Stock Exchange and is now listed on the American Stock
Exchange under the ticker symbol "MMG."
Narrative Description of Business Groups
The Entertainment Group
General. The Company's Entertainment Group (the "Entertainment Group"),
through Orion, is engaged primarily in the development, production, acquisition,
exploitation and worldwide distribution in all media of motion pictures,
television programming and other filmed
<PAGE>
3
entertainment product. The Entertainment Group distributes its product
theatrically and in ancillary markets such as home video and pay and free
television throughout the world. Orion also distributes product produced by
third parties and acquired by Orion and provides distribution services for third
parties. Orion's ability during the past three calendar years to produce or
acquire new product has been limited due to certain contractual restrictions
described below. As a result, Orion's operations during this period have been
generally limited to distributing certain completed but unreleased films and
exploiting its existing film and television library. Orion has an extensive film
library of over 1,000 titles, including Academy Award-winning films such as
Dances with Wolves, and Silence of the Lambs, action films such as the three
film RoboCop series and other recent films such as Blue Sky.
Background. On December 11 and 12, 1991 (the "Filing Date"), due to
financial pressure as a result of economically disappointing motion picture
releases during 1990 and 1991 as well as the costs of an expanding television
production division and increasing overhead and debt service costs, Orion and
its subsidiaries filed for protection under chapter 11 of the United States
Bankruptcy Code. Orion's Modified Third Amended Joint Consolidated Plan of
Reorganization (the "Plan") was confirmed on October 20, 1992 and became
effective on November 5, 1992. At the Filing Date, all new motion picture
production was halted, leaving Orion with only 12 largely completed but
unreleased motion pictures. Under certain agreements entered into in connection
with the Plan, Orion's ability to produce or invest in new theatrical product
was severely limited. Orion was permitted to invest in the production or
acquisition of new theatrical product only if, among other things, non-recourse
financing for such product could be obtained. Accordingly, acquisition of new
product was limited and Orion released five, four and three of the remaining
unreleased theatrical motion pictures in the domestic marketplace in each of its
fiscal years ended February 28, 1995, 1994 and 1993, respectively. During
calendar 1995, Orion did not release theatrically any motion pictures that were
fully or substantially financed by Orion. In connection with the November 1
Mergers, the restrictions on Orion's ability to produce and acquire new motion
picture product imposed by the agreements entered into in connection with the
Plan were eliminated.
Motion Picture Production and Theatrical Distribution. Freed from such
restrictions, the Entertainment Group has adopted what it believes is a
conservative theatrical production, acquisition and distribution strategy,
consisting primarily of producing or acquiring commercial or specialized films
with well-defined target audiences in which the Entertainment Group's portion of
the production cost will be generally limited to between $5 million and $10
million per picture consistent with the covenants included in Orion's existing
credit facility. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations." The Entertainment Group also intends to
minimize its exposure to the performance of certain films by financing a
significant portion of each film's budget by pre-licensing foreign distribution
rights.
MIG has recently announced two acquisitions aimed at augmenting the
Entertainment Group's production capabilities. The Company has signed a letter
of intent to acquire Motion Picture Corporation of America ("MPCA"), an
independent film production company, whose management has successfully employed
a low-budget strategy at MPCA, producing lower budget commercially successful
films such as Dumb and Dumber and Threesome. The Company has also entered into
an Agreement and Plan of Merger dated as of January 31, 1996 to acquire The
Samuel Goldwyn Company ("Goldwyn"), a leader in the production, distribution and
exhibition of specialized motion pictures and art films, which has released such
films as Much Ado About Nothing, The Madness of King George and Eat Drink Man
Woman. See "Recent Developments."
<PAGE>
4
The Entertainment Group has acquired certain rights to nine feature films
as specified below which as of February 29, 1996, it plans to release in the
domestic theatrical market during the year ended December 31, 1996:
<TABLE>
<CAPTION>
Title Director Cast Description
- ----- -------- ---- -----------
<S> <C> <C> <C>
Original Gangstas* Larry Cohen Jim Brown A contemporary action-
Fred Williamson adventure set in Gary, Indiana
Pam Grier with a soundtrack to include
Richard Roundtree music from a number of
Ron O'Neal popular rap groups.
Paul Winfield
Isabelle Sanford
Maybe...Maybe Sonke Til Schweiger A hilarious look at infidelity
Not** Wortmann Katja Reimann and mistaken sexual identity
Joachim Krol as an achingly handsome but
Rufus Beck skirt-chasing boyfriend gets
entangled in a web of
miscommunications and
misinterpreted situations.
Palookaville*** Alan Taylor William Forsythe Three young men embrace
Adam Trese crime as a temporary change
Vincent Gallo of lifestyle and the solution to
unemployment
Phat Beach** Doug Ellin Jermaine Hopkins An unprecedented hip hop
Brian Hooks beach comedy involving the
Claudia Kalcem comedic misadventures of
two friends during their
summer break.
The Substitute** Robert Mandel Tom Berenger In this action driven film, a
Ernie Hudson mercenary goes under cover
Diane Venora as a substitute teacher after his
Glenn Plummer girlfriend is brutally attacked
Marc Anthony by a gang of students. In an
effort to uncover her
attackers, he soon discovers a
city wide drug ring that has
infiltrated the school and put
the entire student body in
jeopardy and in a war with the
criminals.
</TABLE>
<PAGE>
5
<TABLE>
<CAPTION>
Title Director Cast Description
- ----- -------- ---- -----------
<S> <C> <C> <C>
The Arrival** David Twohy Charlie Sheen This sci-fi thriller revolves
Ron Silver around an unassuming
Lindsay Crouse scientist who becomes the
Teri Polo only thing that stands between
our civilization and certain
destruction when he investi-
gates an unusual shockwave
from outer space and
discovers a team of extra-
terrestrials poised to take over
the world.
Trees Lounge** Steve Buscemi Anthony LaPaglia This film revolves around
Chloe Savigny Tommy Basilio, who loses his
Mimi Rogers job and his girlfriend to his
Daniel Baldwin best friend. But he manages to
Carol Kane stumble across friendship,
inspiration, and a strange
kind of truth in the last place
he expected, the local bar.
Napoleon**** Mario Muffin/Napoleon In this live action adventure,
Andreacchio an adorable puppy gets lost in
the wild Australian outback.
Befriended by exotic animals,
Napoleon overcomes his fears
and discovers the magic of
nature.
I Shot Andy *** Mary Harron Stephen Dorff A riveting portrait of the
Martha Plimpton lesbian revolutionary who
Jared Harris almost killed Andy Warhol,
Michael Imperioli and a tribute to the true King
Coco MacPherson of Pop and the world
Lili Taylor surrounding him.
Lothair Bluteau
Anna Thompson
</TABLE>
- ----------
* Domestic rights in all media.
** Domestic theatrical distribution rights.
*** Worldwide rights in all media.
**** Domestic rights in all media and certain foreign rights in all media.
Home Video. Orion Home Video ("OHV") distributes the Entertainment Group's
new product in the home video market and exploits titles from its existing
library, including previously released rental titles, re-issued titles and
initially released titles, in the sell-through and premium home video market
sectors and through arrangements with mail-order and other selected
<PAGE>
6
licensees. OHV also acquires product from independent producers for distribution
on a fee basis with no investment other than recoupable distribution costs.
OHV's acquisition program contemplates output arrangements with producers and
the acquisition of existing catalogs, as well as film-by-film acquisitions. In
addition to distribution in the traditional videocassette sector, OHV intends to
aggressively pursue opportunities to distribute the Entertainment Group's
library in other emerging multimedia formats, including DVD (as described below)
(see "The United States Motion Picture Industry Overview--Emerging Technologies"
below). OHV acts as exclusive U.S. distributor for Streamline Pictures, a
leading supplier of the increasingly popular Japanese anime genre, and provides
exclusive distribution services for Major League Baseball home video product and
the Fox-Lorber catalogue of foreign language and specialty films.
Television. The Entertainment Group's television distribution activities
involve licensing its film and television library to both domestic pay
television services and the domestic free television market. Orion Television
Entertainment ("OTE") is currently selling various syndication packages to
independent television stations and the non-traditional networks nationwide.
Such syndication packages will be offered with "unpackaged" library titles, on a
market-by-market basis. OTE also plans to continue to explore opportunities to
produce original programming, including talk and game shows, for pay television,
basic cable, first-run syndication and the non-traditional networks.
Foreign Markets. Orion Pictures International ("OPI") distributes the
Entertainment Group's existing library in traditional media and established
markets outside of the United States and Canada, while actively pursuing new
areas of exploitation. The Entertainment Group has historically relied upon
subdistributors for the distribution of its product in the foreign theatrical
marketplace. OPI licenses its product in the foreign pay and free television and
home video markets directly to licensees for most major territories, and through
a network of sales representatives in other territories. OPI also explores
opportunities to acquire and distribute new product in overseas markets, adding
freshness and value to the library. Other strategies include the acquisition of
foreign language programming for foreign distribution in combination with the
Entertainment Group's other library product.
Competition and Seasonality. All aspects of the Entertainment Group's
operations are conducted in a highly competitive environment. To the extent that
the Entertainment Group seeks to distribute the films contained in its library
or acquire or produce product, the Entertainment Group competes 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 greater production capabilities and
significantly broader access to distribution and exhibition opportunities. By
reason of their resources, these competitors may have access to programming that
would not generally be available to the Entertainment Group and may also have
the ability to market programming more extensively than the Entertainment Group.
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 Entertainment
Group's competitors in the theatrical motion picture distribution business have
become affiliated with owners of chains of motion picture theaters. The success
of the Entertainment Group's product is also heavily dependent upon public
taste, which is both unpredictable and susceptible to change without warning.
<PAGE>
7
The United States Motion Picture Industry Overview. The United States motion
picture industry encompasses the production and theatrical exhibition of
feature-length motion pictures and the subsequent distribution of such pictures
in home video, television and other ancillary markets. The industry is dominated
by the major studios, including Universal Pictures, Warner Bros., Twentieth
Century Fox, Sony Pictures Entertainment (including Columbia Pictures and
Tri-Star Pictures), Paramount Pictures and The Walt Disney Company, which
historically have produced and distributed the majority of theatrical motion
pictures released annually in the United States. The major studios generally own
their production studios and have national or worldwide distribution
organizations. Major studios typically release films with production costs
ranging from $20,000,000 to $50,000,000 or more and provide a continual source
of motion pictures to the nation's theater exhibitors.
In recent years, "independent" motion picture production companies have
played a more important role in the production of motion pictures for the
worldwide feature film market. The independents do not own production studios
and have more limited distribution capabilities than the major studios, often
distributing their product through the "majors." Independents typically produce
fewer motion pictures at substantially lower average production costs than major
studios. Several of the former more prominent independents, including Miramax
and New Line, have been acquired by larger entertainment companies, giving them
access to greater resources. There are also a large number of smaller production
companies such as MPCA that produce theatrical motion pictures.
Motion Picture Production and Financing. The production of a motion picture
begins with the screenplay adaption of a popular novel or other literary work
acquired by the producer or the development of an original screenplay having its
genesis in a story line or scenario conceived of or acquired by the producer. In
the development phase, the producer typically seeks production financing and
tentative commitments from a director, the principal cast members and other
creative personnel. A proposed production schedule and budget also are prepared
during this phase.
Upon completing the screenplay and arranging financial commitments,
pre-production of the motion picture begins. In this phase, the producer engages
creative personnel to the extent not previously committed; finalizes the filming
schedule and production budget; obtains insurance and secures completion
guarantees; if necessary, establishes filming locations and secures any
necessary studio facilities and stages; and prepares for the start of actual
filming. Principal photography, the actual filming of the screenplay, may extend
from six to twelve weeks or more, depending upon such factors as budget,
location, weather and complications inherent in the screenplay.
Following completion of principal photography, the motion picture is
edited; optical, dialogue, music and any special effects are added, and voice,
effects, music sound tracks and picture are synchronized during post-production.
This results in the production of the negative from which the release prints of
the motion picture are made.
The cost of a theatrical motion picture produced by an independent
production company for limited distribution generally ranges from approximately
$4,000,000 to $10,000,000 as compared with an average of approximately
$30,000,000 for commercial films produced by major studios for wide release.
Production costs consist of acquiring or developing the screenplay, film studio
rental, cinematography, post-production costs and the compensation of creative
and other production personnel. Distribution expenses, which consist primarily
of the
<PAGE>
8
costs of advertising and release prints, are not included in direct production
costs and vary widely depending on the extent of the release and nature of the
promotional activities.
Independent and smaller production companies generally avoid incurring
substantial overhead costs by hiring creative and other production personnel and
retaining the other elements required for pre-production, principal photography
and post-production activities on a project-by-project basis. Unlike the major
studios, the independents and smaller production companies also typically
finance their production activities from discrete sources. Such sources include
bank loans, "pre-sales," co-productions, equity offerings and joint ventures.
Independents generally attempt to complete their financing of a motion picture
production prior to commencement of principal photography, at which point they
begin to incur substantial production costs which must be paid.
"Pre-sales" are used by independent film companies and smaller production
companies to finance all or a portion of the direct production costs of a motion
picture. Pre-sales consist of fees paid to the producer by third parties in
return for the right to exhibit the motion picture when completed in theaters or
to distribute it in home video, television, foreign or other ancillary markets.
Producers with distribution capabilities may retain the right to distribute the
completed motion picture either domestically or in one or more foreign markets.
Other producers may separately license theatrical, home video, television,
foreign and all other distribution rights among several licensees.
Both major studios and independent film companies often acquire motion
pictures for distribution through a customary industry arrangement known as a
"negative pickup," under which the studio or independent film company agrees to
acquire from an independent production company all rights to a film upon
completion of production. The independent production company normally finances
production of the motion picture pursuant to financing arrangements with banks
or other lenders in which the lender is granted a security interest in the film
and the independent production company's rights under its arrangement with the
studio or independent. When the studio or independent "picks up" the completed
motion picture, it assumes the production financ ing indebtedness incurred by
the production company in connection with the film. In addition, the independent
production company is paid a production fee and generally is granted a
participation in the net profits from distribution of the motion picture.
Motion Picture Distribution. Motion picture distribution encompasses the
distribution of motion pictures in theaters and in ancillary markets such as
home video, pay-per-view, pay television, broadcast television, foreign and
other markets. The distributor typically acquires rights from the producer to
distribute a motion picture in one or more markets. For its distribution rights,
the distributor typically agrees to advance the producer a certain minimum
royalty or guarantee, which is to be recouped by the distributor out of revenues
generated from the distribution of the motion picture and is generally
nonrefundable. The producer also is entitled to receive a royalty equal to an
agreed-upon percentage of all revenues received from distribution of the motion
picture in excess of revenues covered by the royalty advance.
Theatrical Distribution. The theatrical distribution of a motion picture
involves the manufacture of release prints, the promotion of the picture through
advertising and publicity campaigns and the licensing of the motion picture to
theatrical exhibitors. The size and success of the promotional advertising
campaign can materially affect the revenues realized from the theatrical release
of a motion picture. The costs incurred in connection with the distribution of a
motion picture can vary significantly, depending on the number of screens on
which the motion
<PAGE>
9
picture is to be exhibited and the ability to exhibit motion pictures during
peak exhibition seasons. Competition among distributors for theaters during such
peak seasons is great. Accordingly, the ability to exhibit motion pictures in
the most popular theaters in each area can affect theatrical revenues.
The distributor and theatrical exhibitor generally enter into a license
agreement providing for the exhibitor's payment to the distributor of a
percentage of the box office receipts for the exhibition period, in some cases
after deduction of the theater's overhead, or a flat negotiated weekly amount.
The distributor's percentage of box office receipts generally ranges from an
effective rate of 35% to over 50%, depending upon the success of the motion
picture at the box office and other factors. Distributors carefully monitor the
theaters which have licensed the picture to ensure that the exhibitor promptly
pays all amounts due the distributor. Some delays in collections are not
unusual.
Motion pictures may continue to play in theaters for up to six months
following their initial release. Concurrently with their release in the United
States, motion pictures generally are released in Canada and may also be
released in one or more other foreign markets. Typically, the motion picture
then becomes available for distribution in other markets as follows:
- --------------------------------------------------------------------------------
Months After Approximate
Market Initial Release Release Period
- --------------------------------------------------------------------------------
Domestic home video 4-6 months --
Domestic pay-per-view 6-9 months 3 months
Domestic pay television 10-18 months 12-21 months
Domestic network 30-36 months 18-36 months
Domestic syndication or basic cable 30-36 months 3-15 years
Foreign home video 6-12 months --
Foreign television 18-24 months 3-12 years
- --------------------------------------------------------------------------------
Home Video. Home video distribution consists of the promotion and sale of
videocassettes and videodiscs to local, regional and national video retailers
which rent or sell such products to consumers primarily for home viewing.
Pay-Per-View. Pay-per-view television allows cable television subscribers
to purchase individual programs, including recently released motion pictures and
live sporting, music or other events, on a "per use" basis. The subscriber fees
are typically divided among the program distributor, the pay-per-view operator
and the cable system operator.
Pay Television. Pay television allows cable television subscribers to view
HBO, Cinemax, Showtime, The Movie Channel, Encore and other pay television
network programming offered by cable system operators for a monthly subscription
fee. The pay television networks acquire a substantial portion of their
programming from motion picture distributors.
Broadcast and Basic Cable Television. Broadcast television allows viewers
to receive, without charge, programming broadcast over the air by affiliates of
the major networks (ABC, CBS, NBC and Fox), independent television stations and
cable and satellite networks and stations. In certain areas, viewers may receive
the same programming via cable transmission for which
<PAGE>
10
subscribers pay a basic cable television fee. Broadcasters or cable systems
operators pay fees to distributors for the right to air programming a specified
number of times.
Foreign Markets. In addition to their domestic distribution activities,
motion picture distributors generate revenues from distribution of motion
pictures in foreign theaters and in the foreign home video, pay and free
television and other foreign markets. There has been a dramatic increase in
recent years in the worldwide demand for filmed entertainment. This growth is
largely due to the privatization of television stations, introduction of direct
broadcast satellite services, growth of home video and increased cable
penetration.
Other Markets. Revenues also may be derived from the distribution of motion
pictures to airlines, schools, libraries, hospitals and the military, licensing
of rights to perform musical works and sound recordings embodied in a motion
picture, and rights to manufacture and distribute games, dolls, clothing and
similar commercial articles derived from characters or other elements of a
motion picture.
Emerging Technologies.
DBS. Direct Broadcast Satellite (DBS) technology also offers a new
transmission technology. As the major delivery system for premium television
services in Europe, particularly the U.K., DBS is expected to expand the pay
television market in the United States.
Video-On-Demand. An important advance in the last five years has been the
development of the video-on-demand technology through the creation of digital
video compression. Digital compression involves the conversion of the analog
television signal into digital form and the compression of more than one video
signal into one standard channel for delivery to customers. Compression
technology will be applied not only to cable but to satellite and over-the-air
broadcast transmission systems. This offers the opportunity to dramatically
expand the capacity of current transmission systems. Several telecommunications
companies are currently testing trial video-on-demand systems. These include
Bell Atlantic, Time Warner, Telecommunications, Inc. and Pacific Telesis.
DVD. Another new technology that has emerged is the video CD or "digital
variable disc." Just as compact discs have become the dominant medium for
prerecorded music, digital variable disc or "DVD" is expected to become a
widely-accepted format for home video programming.
The Communications Group
General. Through the Company's Communications Group (the "Communications
Group"), the Company owns interests in and participates along with local
business and governmental partners in the management of Joint Ventures which
operate a variety of communications services in certain countries in Eastern
Europe and certain of the former Soviet Republics. The Company's licenses
typically cover markets which have large populations and strong economic
potential but lack reliable and efficient communications services. The Company
also targets markets where systems can be constructed with relatively low
capital investments and where multiple communications services can be offered to
the population.
The Company owns interests in and participates in the management of Joint
Ventures which operate and/or are constructing: (i) 10 wireless cable television
systems with combined
<PAGE>
11
households of approximately 8.8 million; (ii) 8 paging systems with aggregate
target populations of approximately 55.9 million; (iii) an international toll
calling service in the Republic of Georgia which covers a population of
approximately 5.5 million; (iv) a Trunked Mobile Radio service in Romania with
an aggregate target population of approximately 2.1 million; and (v) 5 radio
stations in 7 cities reaching combined households of approximately 8.6 million
in Hungary, Russia and Latvia. The Communications Group recently entered into a
letter of intent to purchase 51% of a U.K. company that has ownership interests
in 9 companies providing Trunked Mobile Radio services in Europe. The Company is
also exploring a number of investment opportunities in wireless telephony
systems in Eastern Europe and the former Soviet Republics. The Company is also
pursuing licenses for similar services in other emerging markets, including the
Pacific Rim.
Markets. A summary of the Communications Group's markets and existing
projects, their status, the Company's direct or indirect ownership interest in
each such project, the year such projects became operational and the amounts of
capital loaned and contributed to such projects by the Company is detailed in
the chart which follows:
<TABLE>
<CAPTION>
MITI Direct Amount
or Indirect Amount Loaned Contributed
Ownership Year Household/ To Project to Project
Market and Projects Status Interest Operational Population(1) (in thousands)(2) (in thousands)(2)
------------------- ------ -------- ----------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Moscow, Russia
Wireless Cable Television Operational 50.0% 1992 3.5 million 8,881 1,093
FM Radio (2 Frequencies) Operational 51.0 1994(3) 3.5 million 1,838 823
2. Tbilisi, Georgia
Wireless Cable Television Operational 49.0 1993 .5 million 3,520 779
International Toll Calling Operational 30.0 1994 5.5 million -- 2,556
(throughout the Republic of
Georgia) (4)
Paging Operational 45.0 1994 5.5 million(5) 475 250
3. Riga, Latvia
Wireless Cable Television Operational 50.0 1992 .4 million 8,184 819
Paging (Nationwide) Operational 50.0 1995(6) 2.8 million 1,268 250
FM Radio Operational 55.0 1995(7) .4 million 35 140
4. Tashkent, Uzbekistan
Wireless Cable Television Operational 50.0 1993 1.2 million 3,360(8) 580(8)
Paging Operational 50.0 1994 15.3 million(5)
Wireless Local Loop Telephony License pending, 50.0 2.1 million
under
construction
5. Estonia
Paging Operational 39.1 1993 1.5 million 2,535 396
6. Bucharest, Romania
Wireless Cable Television Operational 99.0 1996 .9 million 786 682
Paging Operational 54.1 1993 12.0 million(5) 2,324 490
Trunked Mobile Radio Operational 54.1 1995 2.1 million 448 --
7. Kishinev, Moldova
Wireless Cable Television Operational 50.0 1995 .3 million 1,346 400
8. Almaty, Kazakhstan
Wireless Cable Television Operational 50.0 1995 .8 million 1,016 222
Paging Operational 50.0 1995 12.5 million(5) 245 2
</TABLE>
<PAGE>
12
<TABLE>
<CAPTION>
MITI Direct Amount
or Indirect Amount Loaned Contributed
Ownership Year Household/ To Project to Project
Market and Projects Status Interest Operational Population(1) (in thousands)(2) (in thousands)(2)
------------------- ------ -------- ----------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
9. St. Petersburg, Russia
AM Radio Operational 50.0 1995(9) .9 million -- --
FM Radio Operational 50.0 1995(9) .9 million 429 133
Paging Operational 40.0 1995(10) 3.5 million -- 527
10. Nizhny Novgorod, Russia
Wireless Cable Television License pending, 50.0 .7 million 75 180
under
Paging Operational 45.0 1994 2.8 million 52 330
11. Minsk, Republic of Belarus
Wireless Cable Television Under 50.0 .3 million 518 400
Construction
12. Budapest, Siofok, and Khebegy,
Hungary (11)
AM Radio Operational 100.0 1994 3.5 million(12) 948 8,107
FM Radio (2 Frequencies) Operational 100.0 1994
13. Sochi, Russia
FM Radio Operational 51.0 1995 .3 million 85 185
14. Vilnius, Lithuania
Wireless Cable Television Under 55.0 .2 million -- 81
Construction
</TABLE>
(1) Covered population is provided for paging, telephony and Trunked Mobile
Radio systems and covered households for wireless cable television and
radio systems.
(2) Represents amounts loaned and contributed as of December 31, 1995.
(3) Purchased equity of existing operational company in 1994; the company was
formed in 1991.
(4) Provides international toll calling services between Georgia and the rest
of the world and is the only Intelsat designated representative in Georgia
to provide such services.
(5) Indicates population MITI intends to cover by the end of 1996. In each of
the foregoing markets, MITI covers the capital city and is currently
expanding the services of such operations to cover additional cities.
(6) Purchased equity of existing company in 1995; the company was formed in
1994.
(7) Purchased equity of existing operational company in 1995; the company was
formed in 1993.
(8) Reflects amounts loaned and contributed to all projects in Tashkent,
Uzbekistan.
(9) Purchased equity of existing operational company in 1995; the company was
formed in 1993.
(10) Purchased equity of existing company in 1995; the company was formed in
1994.
(11) Purchased equity of existing operational company in 1994; the company was
formed in 1989.
(12) Total household coverage of AM and FM radio.
The markets which the Company targets for its services typically (i) have
large popula tions; (ii) have strong economic potential; (iii) are usually the
capital city of a country, republic or province; and (iv) are easily accessible
to the Communications Group's central offices. The Company believes that most of
its markets have a concentration of educated people who desire quality
entertainment, sports and news as well as reliable and efficient communications
services. As principal cities of their respective countries, republics or
provinces, these markets are, in many cases, home to a significant number of
foreign diplomats, businessmen and advisors who the Company anticipates will
often become premium service customers.
<PAGE>
13
The Company believes that the vast majority of the political and economic
leaders of these markets recognize the importance of communications as a means
to modernizing their societies. In the Communications Group's markets, the
breadth of television programming is somewhat limited and there exists a demand
for quality entertainment and news programming. Additionally, the antiquated
telephone systems in many of these markets do not have the capacity to
adequately serve residents. The Company believes that its systems can provide a
solution to these problems because (i) the Company's wireless cable television
and AM and FM broadcast services will provide a wide selection of quality
entertainment, sports broadcasting, educational programming and international
news at an affordable rate to both local and foreign residents; (ii) the
Company's wireless telephony services will be a comparatively low-cost means of
quickly providing intra-country communications as well as telephone access to
the rest of the world using international satellite links; and (iii) the
Company's alphanumeric and digital display paging services will be a dependable
and efficient means to communicate one-way without the need for a recipient to
access a telephone network. The Company is not aware of any significant
governmental restrictions with respect to broadcasting time or program content
in its existing cable television and radio broadcasting markets which may have a
material adverse effect on the Company and its operations in these markets.
In most cities where the Company provides or expects to provide service, a
substantial percentage of the population (approximately 90% in Moscow) lives in
large apartment buildings. This lowers the cost of installation and eases
penetration of wireless cable television and wireless telephony services into a
city, because a single microwave receiving location can bring service to a large
number of people. The Company currently is licensed to provide wireless cable
television to markets which have in the aggregate approximately 8.8 million
households, and paging services in markets with a population totaling
approximately 55.9 million. The Company believes that the cost of constructing a
coaxial cable television system covering the same number of households as are
covered by each of the Company's systems would be significantly more expensive
than the costs incurred by the Company in constructing a wireless system.
The Company has obtained political risk insurance from OPIC for its
operating cable television systems in Moscow, Riga, Tbilisi and Tashkent, and
may endeavor to obtain OPIC insurance for additional systems which are eligible
for such insurance. OPIC is a United States governmental agency which provides
to United States investors insurance against expropriation, political violence
and loss of business income in more than 130 developing nations. The Company
currently has expropriation and political violence insurance coverage with OPIC
in the amount of (i) $2,800,000 with respect to its Moscow cable television
system; (ii) $2,200,000 with respect to its Riga cable television system; (iii)
$1,600,000 with respect to its Tbilisi cable television system; and (iv)
$2,000,000 with respect to its Tashkent cable television system. The Company
currently has loss of business income insurance with OPIC in the amount of (i)
$1,500,000 with respect to its Moscow cable television system; (ii) $1,000,000
with respect to its Riga cable television system; and (iii) $550,000 with
respect to its Tbilisi cable television system. The Company is also currently
eligible to purchase additional expropriation and political violence insurance
and loss of business income insurance from OPIC with respect to these systems.
There can be no assurance that any insurance obtained by the Company from OPIC
will adequately compensate the Company for any losses it may incur or that the
Company will elect to obtain or be able to obtain OPIC insurance for any of its
additional systems.
Joint Ventures. After deciding to obtain an interest in a particular
communication business, the Company generally enters into discussions with the
appropriate Ministry of Communications or local parties which have interests in
communications properties in a particular
<PAGE>
14
market. If the negotiations are successful, a joint venture agreement is entered
into and is registered, and the right to use frequency licenses are contributed
to the Joint Venture by the Company's local partner or are allocated by the
appropriate governmental authority to the Joint Venture. In the case of the
Company's radio station operations, the Company has, in many cases, directly
purchased companies with an operating radio station or an ownership interest in
a Joint Venture which operates a radio station.
Generally, the Company owns approximately 50% of the equity in a Joint
Venture with the balance of such equity being owned by a local entity, often a
government-owned enterprise. In 1995, the Russian Federation legislature
proposed, but did not enact, legislation which would limit the interest which a
foreign person is permitted to own in entities holding broadcasting licenses. If
legislation is enacted in Russia or any of the Company's other markets limiting
foreign ownership of broadcasting licenses and the Company is required to reduce
its interests in any of the ventures in which it owns an interest, it is unclear
how such reduction would be effected.
Each Joint Venture's day-to-day activities are managed by a local
management team selected by its board of directors or its shareholders. The
operating objectives, business plans and capital expenditures of a Joint Venture
are approved by the Joint Venture's board of directors, or in certain cases, by
its shareholders. In most cases, an equal number of directors or managers of the
Joint Venture are selected by the Company and its local partner. In other cases,
a differing number of directors or managers of the Joint Venture may be selected
by the Company on the basis of the percentage ownership interest of the Company
in the Joint Venture.
In many cases, the credit agreement pursuant to which the Company loans
funds to a Joint Venture provides the Company with the right to appoint the
general manager of the Joint Venture and to approve unilaterally the annual
business plan of the venture. These rights continue so long as amounts are
outstanding under the credit agreement. In other cases, such rights may also
exist by reason of the Company's percentage ownership interest in the joint
venture or under the terms of the Joint Venture's governing instruments.
The Company's Joint Ventures are limited liability entities which are
permitted to enter into contracts, acquire property and assume and undertake
obligations in their own names. Under the joint venture agreements, each of the
Company and the local Joint Venture partner is obligated to make initial capital
contributions to the Joint Venture. In general, a local joint venture partner
does not have the resources to make cash contributions to the Joint Venture. In
such cases, the Company has established or plans to establish an agreement with
the Joint Venture whereby, in addition to cash contributions by the Company,
each of the Company and the local partner makes in-kind contributions (usually
communications equipment in the case of the Company and frequencies, space on
transmitting towers and office space in the case of the local partner), and the
Joint Venture signs a credit agreement with the Company pursuant to which the
Company loans the venture certain funds. Typically, such credit agreements
provide for interest payments to the Company at the Company's current cost of
borrowing in the United States and for payment of principal and interest from
90% of the Joint Venture's available cash flow prior to any pro rata
distributions to the Company and the local partner. After the full repayment of
the loan owed by the Joint Venture to the Company, the distributions from the
Joint Venture to the Company and the local partner are made on a pro rata basis
in accordance with their respective ownership interests.
<PAGE>
15
In addition to loaning funds to the Joint Ventures, the Company often
provides certain services to each of the Joint Ventures. The Company currently
charges certain Joint Ventures for services provided by MITI.
Under existing legislation in certain of the Company's markets,
distributions from a Joint Venture to its partners will be subject to taxation.
The laws in the Company's markets vary markedly with respect to the tax
treatment of distributions to joint venture partners and such laws have also
recently been revised significantly in many of the Company's markets. There can
be no assurance that such laws will not continue to undergo major changes in the
future which could have a significant negative impact on the Company and its
operations.
Marketing. The Company targets its wireless cable television service toward
foreign national households, embassies, foreign commercial establishments,
international and local hotels, local households and local commercial
establishments. Paging services are targeted toward people who spend a
significant amount of time outside of offices, have a need for mobility and/or
are business people without ready access to telephones. Paging market segments
include the local police, the military, foreign and local business people and
embassy personnel.
Radio station programming is targeted toward 25 to 55 year-old consumers,
who are believed by management of the Company to be the most affluent in the
emerging societies of Eastern Europe and the former Soviet Republics. Each
station's format is intended to appeal to the particular listening interests of
this consumer group in its market. This is intended to enable the commercial
sales departments of each joint venture to present to advertisers the most
desirable market for their products and services, thereby heightening the value
of the station's commercial advertising time. Advertising on these stations is
sold to local and international advertisers.
Development of Communications Systems
Wireless Cable Television. Wireless cable television is a technology
experiencing rapid growth worldwide. In the United States, wireless cable
television, also referred to as MMDS (multichannel, multi-point distribution
service), is gaining acceptance as a competitor to coaxial cable service. In
addition, the service has low installation and maintenance costs relative to
coaxial cable services.
Each of the Company's wireless cable television systems is expected to
operate in a similar manner. Various programs, transmitted to satellite
transponders, will be received by the joint venture's satellite dishes located
in a central facility. The signal will then be transmitted to a video switching
system located in the joint venture's facilities, generally near the city's main
transmission tower. Other programs, such as movies, will be combined into a
predetermined set of channels and fed to solid state, self-diagnostic
transmitters and antennae located on the transmission tower. Encrypted
multichannel signals will then be broadcast as far as 50 kilometers in all
directions.
The specialized compact receiving antenna systems, installed on building
rooftops as part of the system, will receive the multichannel signals
transmitted by the transmission tower antennae and convert and route the signals
to a set-top converter and a television receiver via a coaxial cabling system
within the building. The set-top converter descrambles the signal and is also
used as a channel selector to augment televisions having a limited number of
channels.
<PAGE>
16
The Company currently offers English, French, German and Russian
programming, with plans to expand into other languages as demand increases. Some
of the Company's channels are dubbed and others are subtitled into the local
language. Generally, the Company's "basic" service provides programming of local
off-air channels and an additional five to six channels with a varied mixture of
distant off-air channels, European or American sports, music, international news
and general entertainment. The Company's "premium" service generally includes
the channels which make up its "basic" service as well as an additional number
of satellite channels and a movie channel that offers recent and classic movies
featuring such actors as Robert De Niro, Candice Bergen, Charles Bronson and
Sean Connery.
The Company's programming options currently include news channels such as
BBC World, CNN International, Sky News and Euronews, music, sports and
entertainment channels such as BBC Prime, MTV Europe, Eurosport, TNT/Cartoon
Network, NBC Super Channel and Discovery Channel Europe and movie channels.
The Company currently offers "Pay Per View" movies on its Baltcom cable
television system which operates in Riga, Latvia and is planning in the future
to add such service to its program lineups in certain of its other markets. The
subscriber pays for "Pay Per View" services in advance, and the intelligent
decoders that the Company uses automatically deduct the purchase of a particular
service from the amount paid in advance.
Paging. The Company's paging systems represent a moderately priced service
which is complementary to telephony. Alphanumeric and digital display paging
systems are useful in Eastern European countries, the former Soviet Republics
and other emerging markets for sending information one-way without the need for
a recipient to access a telephone network, which in many of these markets are
often overloaded or unavailable.
The Company offers service with three types of pagers: (i) tone only, which
upon encoded signaling produces several different tones depending on the code
transmitted; (ii) digital display, which emits a variety of tones and permits
the display of up to 16 digits; and (iii) alphanumeric, which emits a variety of
tones and displays as many as 63 characters. Subscribers may also purchase
additional services, such as paging priority, group calls and other options.
As an adjunct to paging services, the joint ventures operate 24-hour
service bureaus to receive calls and record and transmit messages. In addition,
automatic paging messages are accepted from personal computers, telex machines
and cellular telephones.
AM and FM Radio. Programming in each of the Company's AM and FM markets is
designed to appeal to the particular interests of a specific demographic group
in such markets. Although the Company's radio programming formats are constantly
changing, programming generally consists of popular music from the United
States, Western Europe, and the local area. News is delivered by local
announcers in the language appropriate to the region, and announcements and
commercials are locally produced. By developing a strong listenership base
comprised of a specific demographic group in each of its markets, the Company
believes it will be able to attract advertisers seeking to reach these
listeners. The Company believes that the technical programming and marketing
expertise that it provides to its joint ventures enhances the performance of the
joint ventures' radio stations.
<PAGE>
17
International Toll Calling. The Company owns approximately 30% of Telecom
Georgia. Telecom Georgia handles all international calls inbound to and outbound
from the Republic of Georgia to the rest of the world. Telecom Georgia is
currently making interconnect arrangements with several international long
distance carriers such as Sprint and Telespazio of Italy. For every
international call made to the Republic of Georgia, a payment will be due to
Telecom Georgia by the interconnect carrier and for every call made from the
Republic of Georgia to another country, Telecom Georgia will bill its
subscribers and pay a destination fee to the interconnect carrier.
Trunked Mobile Radio. The Company's Romanian joint venture provides Trunked
Mobile Radio ("TMR") services in certain areas in Romania. The Company also
recently signed a letter of intent to purchase a 51% interest in Protocall
Ventures, Ltd., a U.K. company with ownership interests in 9 Trunked Mobile
Radio systems operating in Portugal, Spain, Germany and Belgium. TMR systems are
primarily designed to provide mobile voice communications among members of user
groups and interconnection to the public switched telephone network. TMR systems
are commonly used by taxi companies, construction teams, security services and
other groups with need for significant internal communications.
Wireless Telephony. The Company is currently exploring a number of
investment opportunities in wireless telephony systems and has installed test
systems in a number of countries in Eastern Europe, the former Soviet Republics,
including Uzbekistan and Georgia, and the emerging markets in the Pacific Rim.
The Company believes that its proposed wireless telephony systems are a time and
cost effective means of improving the communications infrastructure in these
markets. The current telephone systems in these markets are antiquated and
overloaded, and consumers in these markets typically must wait several years to
obtain telephone service.
The Company's proposed fixed wireless local loop telephony offers the
current telephone service provider a rapid and cost effective method to expand
their service base. The system eliminates the need to build additional fixed
wire line infrastructure by utilizing a microwave connection directly to the
subscriber.
Competition
Wireless Cable. Most of the Company's current cable television competitors
in its markets are undercapitalized, small, local companies that are providing
limited programming to their subscribers. The Company does not, however, have or
expect to have exclusive franchises with respect to its cable television
operations and may therefore face more significant competition in the future
from highly capitalized entities seeking to provide services similar to the
Company's in its markets. The Company also encounters competition in some
markets from unlicensed competitors which may have lower operating expenses and
may be able to provide cable television service at lower prices than the
Company. The Company currently competes in all of its markets with over-the-air
broadcast television stations. The Company is also aware that equipment is being
manufactured for the purpose of unlawfully receiving and decoding encrypted
signals transmitted by wireless cable television ventures. The Company believes
that it has thus far only experienced unlawful receipt of its signal on a
limited basis with respect to certain of its wireless cable television services.
In addition, another possible source of competition for the Company are
videotape cassettes. The Company's wireless cable also competes with individual
satellite dishes.
<PAGE>
18
Paging. In some of the Company's paging markets, the Company has
experienced and can expect to continue to experience competition from existing
small, local, paging operators who have limited areas of coverage and as well as
competition by, in some cases, paging operators established by Western European
and U.S. investors with substantial experience in paging. The Company also faces
competition from a segment of radio paging operations utilizing FM Subcarrier
Frequency transmissions. The local phone systems are also considered to be a
significant competitor to the Company's paging operations. The Company does not
have or expect to have exclusive franchises with respect to its paging
operations and may therefore face more significant competition in the future
from highly capitalized entities seeking to provide services similar to the
Company's in its markets.
Wireless Telephony. While the existing wireline telephone systems in
Eastern Europe and the former Soviet Republics are often antiquated, the fact
that these systems are already well-established and operated by governmental
authorities means that they are a source of competition for the Company's
proposed wireless telephony operations. In addition, one-way paging service may
be a competitive alternative which is adequate for those who do not need a
two-way service, or it may be a service that reduces wireless telephony usage
among wireless telephony subscribers. The Company does not have or expect to
have exclusive franchises with respect to its wireless telephony operations and
may therefore face more significant competition in the future from highly
capitalized entities seeking to provide services similar to or competitive with
the Company's in its markets. In certain markets, cellular telephone operators
exist and represent a competitive alternative to the Company's proposed wireless
telephony. A cellular telephone can be operated in the same manner as a wireless
loop telephone in that either type of service can simulate the conventional
telephone service by providing local and international calling from a fixed
position in its service area. Both services are connected directly to a
telephony switch operated by the local telephone company and therefore can
initiate calls to or receive calls from anywhere in the world currently served
by the international telephone network. Cellular telephony and wireless loop
telephony eliminate the need for trenching and laying of wires for telephone
services and thus deploy telephone service quickly and cost effectively.
Wireless loop technology utilizes radio frequencies, instead of copper or fiber
optic cable, to transmit between a central telephone and a subscriber's
building. Cellular telephony enables a subscriber to move from one place in a
city to another while using the service while wireless loop telephony is
intended to provide fixed telephone services which can be deployed as rapidly as
cellular telephony and at a significantly lower cost.
FM and AM Radio. In each of the Company's existing markets, there are
either a number of stations in operation already or plans for competitive
stations to be in service shortly. As additional stations are constructed and
commence operations, the Company expects to face significantly increased
competition for listeners and advertising revenues from parties with
programming, engineering and marketing expertise comparable to the Company's.
Other media businesses, including broadcast television, cable television,
newspapers, magazines and billboard advertising also compete with the Company's
radio stations for advertising revenues.
Snapper and Roadmaster
The Company currently engages in two non-strategic businesses. The Company
is involved in the lawn and garden equipment industry through its Snapper
subsidiary which does business under the name "Snapper Power Equipment Company."
In addition, the Company is indirectly engaged in the sporting good business
through its ownership interest in Roadmaster.
<PAGE>
19
Snapper. Snapper manufactures Snapper(R) brand power lawnmowers, lawn
tractors, garden tillers, snow throwers and related parts and accessories, and
distributes blowers, string trimmers and edgers. The lawnmowers include rear
engine riding mowers, front engine riding mowers or lawn tractors, and
self-propelled and push-type walk-behind mowers. Snapper also manufactures a
line of commercial lawn and turf equipment and a Blackhawk(TM) line of mowers
and markets a fertilizer line under the Snapper(R) brand.
On February 29, 1996, Snapper sold its European subsidiaries to an employee
of such subsidiaries. The purchase price consisted of the payment of a
promissory note of one of Snapper's European subsidiaries in the amount of
$8,621,027, which represents a portion of the intercompany indebtedness
($10,703,718 at December 31, 1995) owed to Snapper by its European subsidiaries.
Principal payments under the promissory note shall be made as follows: (i)
$3,000,000 on May 31, 1996; (ii) $2,524,310 on July 31, 1996; (iii) $2,500,000
on September 30, 1996 and (iv) the remainder on December 31, 1996. The
promissory note is secured by a standby letter of credit.
For accounting purposes, Snapper has been classified as an asset held for
disposition. The Company has adopted a plan to dispose of Snapper during 1996
and is actively exploring a sale of Snapper. Although the Company has received
several proposals regarding a sale of Snapper, it has not reached an agreement
in principle or entered into a definitive agreement providing for the
disposition of Snapper. No assurances can be given that the Company in the
future will engage in such a transaction or effect such a plan.
Investment in Roadmaster Industries, Inc. In December 1994, the Company
acquired 19,169,000 shares of Roadmaster common stock, or approximately 38% of
the outstanding Roadmaster common stock, in exchange for all of the issued and
outstanding capital stock of four of its wholly-owned subsidiaries (the
"Exchange Transaction"). Roadmaster, through its operating subsidiaries, is one
of the largest manufacturers of bicycles and a leading manufacturer of fitness
equipment and toy products in the United States. Roadmaster's common stock is
listed on the New York Stock Exchange. As of December 31, 1995, the closing
price per share of Roadmaster common stock was $2.375 and the quoted market
value of the Company's investment in Roadmaster was $45,526,375. As disclosed in
Amendment No. 1 to its Schedule 13D relating to Roadmaster, filed with the SEC
on March 1, 1996, the Company intends to dispose of its investment in Roadmaster
during 1996.
In connection with the Exchange Transaction, the Company, Roadmaster and
certain officers of Roadmaster entered into a Shareholders Agreement (the
"Shareholders Agreement") pursuant to which, among other things, the Company
obtained the right to designate four individuals to serve on Roadmaster's
nine-member Board of Directors (the "MIG Designated Directors"), subject to
certain reductions.
In addition, the Shareholders Agreement generally grants Roadmaster a right
of first refusal with respect to any proposed sale by the Company of any shares
of Roadmaster common stock received by the Company in the Exchange Transaction
for as long as the MIG Designated Directors have been nominated and elected to
the Board of Directors of Roadmaster. Such right of first refusal will not,
however, apply to any proposed sale, transfer or assignment of such shares to
any persons who would, after consummation of such transaction, own less than 10%
of the outstanding shares of Roadmaster common stock or to any sale of such
shares pursuant to a registration statement filed under the Securities Act,
provided the Company has used its reasonable best efforts not to make any sale
pursuant to such registration statement to any single
<PAGE>
20
purchaser or "Acquiring Person" who would own 10% or more of the outstanding
shares of Roadmaster common stock after the consummation of such transaction.
"Acquiring Person" generally is defined in the Shareholders Agreement to mean
any person or group which together with all affiliates is the beneficial owner
of 5% or more of the outstanding shares of Roadmaster common stock.
Also in connection with the Exchange Transaction, the Company and
Roadmaster entered into a Registration Rights Agreement (the "Registration
Rights Agreement") under which Roadmaster agreed to register such shares
("Registrable Stock") at the request of the Company or its affiliates or any
transferee who acquires at least 1,000,000 shares of the Roadmaster common stock
issued to the Company in the Exchange Transaction. Under the Registration Rights
Agreement, registration may be required at any time during a ten-year period
beginning as of the closing date of the Exchange Transaction (the "Registration
Period") by the holders of at least 50% of the Registrable Stock if a
"long-form" registration statement (i.e., a registration statement on Form S-1,
S-2 or other similar form) is requested or by the holders of Registrable Stock
with a value of at least $500,000 if a "short-form "registration statement
(i.e., a registration statement on Form S-3 or other similar form) is requested.
Roadmaster is required to pay all expenses incurred (other than the expenses of
counsel, if any, for the holders of Registrable Stock, the expenses of
underwriter's counsel, and underwriting fees) for any two registrations
requested by the holders of Registrable Stock during the Registration Period.
Roadmaster will become obligated to pay the expenses of up to two additional
registrations if Roadmaster is not eligible to use a short-form registration
statement to register the Registrable Stock at any time during the Registration
Period. All other registrations will be at the expense of the holders of the
Registrable Stock. Roadmaster will have the right at least once during each
twelve-month period to defer the filing of a demand registration statement for a
period of up to 90 days after request for registration by the holders of the
requisite number of shares of Registrable Stock. In connection with entering
into the MIG Credit Facility (as defined below), MIG requested that Roadmaster
register its shares of Roadmaster common stock.
Environmental Protection
Snapper's manufacturing plant is subject to federal, state and local
environmental laws and regulations. Compliance with such laws and regulations
has not, and is not expected to, materially affect Snapper's competitive
position. Snapper's capital expenditures for environmental control facilities,
its incremental operating costs in connection therewith and Snapper's
environmental compliance costs were not material in 1995 and are not expected to
be material in future years.
The Company has agreed to indemnify a former subsidiary of the Company for
certain obligations, liabilities and costs incurred by the subsidiary arising
out of environmental conditions existing on or prior to the date on which the
subsidiary was sold by the Company. The Company sold the subsidiary in 1987.
Since that time, the Company has been involved in various environmental matters
involving property owned and operated by the subsidiary, including clean-up
efforts at landfill sites and the remediation of groundwater contamination. The
costs incurred by the Company with respect to these matters have not been
material during any year through and including the fiscal year ended December
31, 1995. As of December 31, 1995, the Company had a remaining reserve of
approximately $1.3 million to cover its obligations to its former subsidiary.
During 1995, the Company was notified by certain potentially responsible parties
at a superfund site in Michigan that the former subsidiary may also be a
potentially
<PAGE>
21
responsible party at the superfund site. The former subsidiary's liability, if
any, has not been determined but the Company believes that such liability will
not be material.
The Company, through a wholly-owned subsidiary, owns approximately 17 acres
of real property located in Opelika, Alabama (the "Opelika Property"). The
Opelika Property was formerly owned by Diversified Products Corporation ("DP"),
a former subsidiary of the Company, and was transferred to a wholly-owned
subsidiary of the Company in connection with the Exchange Transaction. DP
previously used the Opelika Property as a storage area for stockpiling cement,
sand, and mill scale materials needed for or resulting from the manufacture of
exercise weights. In June 1994, DP discontinued the manufacture of exercise
weights and no longer needed to use the Opelika Property as a storage area. In
connection with the Exchange Transaction, Roadmaster and the Company agreed that
the Company, through a wholly-owned subsidiary, would acquire the Opelika
Property, together with any related permits, licenses, and other authorizations
under federal, state and local laws governing pollution or protection of the
environment. In connection with the closing of the Exchange Transaction, the
Company and Roadmaster entered into an Environmental Indemnity Agreement (the
"Indemnity Agreement") under which the Company agreed to indemnify Roadmaster
for costs and liabilities resulting from the presence on or migration of
regulated materials from the Opelika Property. The Company's obligations under
the Indemnity Agreement with respect to the Opelika Property are not limited.
The Indemnity Agreement does not cover environmental liabilities relating to any
property now or previously owned by DP except for the Opelika Property.
On January 22, 1996, the Alabama Department of Environmental Management
("ADEM") wrote a letter to the Company stating that the Opelika Property
contains an "unauthorized dump" in violation of Alabama environmental
regulations. The letter from ADEM requires the Company to present for ADEM's
approval a written environmental remediation plan for the Opelika Property. The
Company has retained an environmental consulting firm to develop an
environmental remediation plan for the Opelika Property. The consulting firm is
currently conducting soil samples and has performed other tests on the Opelika
Property. Based upon the preliminary results of these tests, the Company
believes that the reserves of approximately $1.8 million previously established
by the Company for the Opelika Property will be adequate to cover the cost of
the remediation plan that is currently being developed.
Employees
As of February 29, 1996, the Company had approximately 289 regular
employees, of whom less than 1% were members of labor unions.
Certain of the Entertainment Group'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.
Recent Developments
At the time the November 1 Mergers were consummated, the Company disclosed
that one of the benefits of such mergers was that they would enhance the
Company's ability to make strategic acquisitions of other companies whose
businesses and/or assets complement the Company's entertainment, media and
communications assets. As noted above, the Company has entered into a merger
agreement to acquire Goldwyn and a letter of intent to acquire MPCA. In
<PAGE>
22
connection with the proposed acquisition of Goldwyn, the Company intends to
refinance substan tially all of the indebtedness of Goldwyn. In addition, the
Company has filed a registration state ment on Form S-3, offering to sell
approximately $203 million of Common Stock, the proceeds of which will be used
to refinance the MIG Credit Facility and for working capital purposes.
Merger Agreement with The Samuel Goldwyn Company
On January 31, 1996, the Company and Goldwyn entered into an Agreement and
Plan of Merger (the "Goldwyn Merger Agreement") pursuant to which Goldwyn will
merge with a newly-formed, wholly-owned subsidiary of the Company (the "Goldwyn
Merger") and, in connection therewith, will be re-named "Goldwyn Entertainment
Company."
Goldwyn is a diversified independent entertainment company engaged in the
production and worldwide distribution of motion pictures and television
programming and in theatrical exhibition. Goldwyn's Film Division is a producer
and leading distributor of specialized motion pictures and art films, which are
substantially less expensive to produce and distribute than films produced by
major studios for wide release. Specialized films also are characterized by
underlying literary and artistic elements intended to appeal primarily to
sophisticated audiences. Certain specialized motion pictures, such as the recent
independently produced films, The Remains of the Day, In the Name of the Father
and The Piano have "crossover" commercial potential as well, that is, artistic
and creative elements, such as an exceptional cast, critically acclaimed
performances or a timely or compelling storyline, which appeal to a broader
audience. Specialized films released by Goldwyn in recent years include the
Academy Award-winning The Madness of King George, the crossover commercial
success Much Ado About Nothing, and Academy Award-nominated films Eat, Drink,
Man, Woman; The Wedding Banquet, Longtime Companion and Henry V.
Goldwyn's Television Division (the "Television Division") produces original
pro gramming for the first-run syndication market and distributes feature films
and other television programming worldwide. The Television Division produces and
syndicates the athletic competition series American Gladiators, which is
currently in its sixth season. American Gladiators is syndicated in over 90% of
the United States television markets and over 40 foreign markets. In the fall of
1995, the Television Division introduced a remake of its original television
series Flipper for broadcast in the 1995-1996 season. In addition, the
Television Division syndicates movie packages from Goldwyn's library of over 850
feature films.
Goldwyn believes that its Samuel Goldwyn Theatre Group (the "Theatre
Group"), with 140 screens in 52 theaters, is the largest exhibitor of
specialized motion pictures and art films in the United States. The operation of
the Theatre Group allows Goldwyn to participate in revenues from the exhibition
of films distributed by Goldwyn as well as films produced and distributed by
others. The Theatre Group fulfills a key element of Goldwyn's strategy by
broadening Goldwyn's presence in the market for specialized motion pictures and
art films and providing a source of relatively stable revenues and cash flow to
Goldwyn.
The Goldwyn Merger Agreement provides that upon consummation of the Goldwyn
Merger, Goldwyn stockholders will receive $5.00 worth of Common Stock for each
share of Goldwyn common stock, provided that the average closing price of the
Common Stock over the 20 consecutive trading days ending five days prior to the
meeting of the Company's stockholders held to vote upon the Goldwyn Merger is
between $12.50 and $16.50. If the average closing price of Common Stock over
such period is less than $12.50 it will be deemed to be $12.50 and
<PAGE>
23
Goldwyn stockholders will receive .4 shares of Common Stock for each share of
Goldwyn common stock, and if the average closing price of the Common Stock over
such period is greater than $16.50, it will be deemed to be $16.50 and Goldwyn
stockholders will receive .3030 shares of Common Stock for each share of Goldwyn
common stock.
Consummation of the Goldwyn Merger is subject to various conditions,
including, but not limited to: (i) the receipt of approval of the stockholders
of each of the Company and Goldwyn (though under certain circumstances the
Company may unilaterally waive the condition of approval of its stockholders);
(ii) the receipt of certain opinions of counsel with respect to certain legal
matters and as to the qualification of the Goldwyn Merger as a reorganization
within the meaning of Section 368(a) of the Code; (iii) that since December 31,
1995, no change or event shall have occurred which has had or could reasonably
be expected to have a material adverse effect with respect to the Company or
Goldwyn; (iv) the receipt of certain fairness opinions by the Board of Directors
of each of the Company and Goldwyn; (v) that the Samuel Goldwyn Family Trust
(the "Goldwyn Family Trust"), of which Samuel Goldwyn, Jr., Chairman and Chief
Executive Officer of Goldwyn, is trustee, and the surviving corporation of the
Goldwyn Merger shall have entered into a distribution agreement pursuant to
which such corporation will acquire distribution rights to the Samuel Goldwyn
Classics Library for a term which extends until the year 2020; (vi) that Samuel
Goldwyn, Jr., Chairman and Chief Executive Officer of Goldwyn, and Meyer
Gottlieb, President of Goldwyn, shall each have entered into employment
agreements with the surviving corporation of the Goldwyn Merger on terms
satisfactory to the parties; (vii) that Goldwyn's indebtedness shall have been
refinanced or repaid in full or extended beyond the effective time of the
Goldwyn Merger; (viii) that Orion shall have provided to Goldwyn up to $5.5
million of interim financing as an advance for certain distribution rights in
six feature films; (ix) that the surviving corporation of the Goldwyn Merger and
Mr. Goldwyn shall have entered into an agreement pursuant to which such
corporation will acquire a license to use the trademark "Samuel Goldwyn" in
perpetuity royalty-free with regard to existing product and a license to use the
name "Goldwyn" in perpetuity royalty-free in connection with its film and
television business; (x) that an Option Agreement among Goldwyn, Mr. Goldwyn and
the Goldwyn Family Trust shall be amended and restated to clarify that the
option granted to Goldwyn under the existing agreement, which option entitles
Goldwyn to "put" shares of Goldwyn common stock to the Goldwyn Family Trust
under certain circumstances, may be exercised utilizing the Common Stock instead
of Goldwyn common stock; and (xi) that the shares of Common Stock to be issued
in the Goldwyn Merger shall have been authorized for listing on the AMEX or any
other national securities exchange or automated quotation system approved by the
Company and Goldwyn, in each case, subject to official notice of issuance.
The Goldwyn Merger Agreement may be terminated at any time prior to the
effective time of the Goldwyn Merger, whether before or after approval thereof
by the stockholders of MIG and/or Goldwyn: (i) by the mutual written consent of
the Company and Goldwyn, (ii) unilaterally, by the Board of Directors of the
Company or Goldwyn if the Goldwyn Merger has not been consummated on or before
September 30, 1996, (iii) by the non-breaching party in case of certain material
breaches by the other party or (iv) by the Board of Directors of the Company or
Goldwyn if a court of competent jurisdiction or any other governmental entity
shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the consummation of the Goldwyn
Merger and such order, decree, ruling or other action shall have become final
and non-appealable. The Goldwyn Merger Agreement may also be terminated by the
Company or Goldwyn if the Goldwyn Board of Directors recommends a competing
offer or otherwise modifies or changes, in a manner adverse to the Company, its
recommendation that its stockholders approve the Goldwyn Merger Agreement.
<PAGE>
24
Upon any termination resulting from circumstances contemplated by the preceding
sentence and under certain other circumstances, the Goldwyn Merger Agreement
provides that Goldwyn will pay the Company a termination fee of $3 million and
reimburse the Company for certain of its expenses.
Pursuant to the terms of a voting agreement entered into simultaneously
with the execution of the Goldwyn Merger Agreement, the Samuel Goldwyn, Jr.
Family Trust, beneficial owner of approximately 64% of the outstanding common
stock of Goldwyn, has agreed to vote its shares in favor of the Goldwyn Merger.
Accordingly, the vote of the Goldwyn Family Trust in accordance with the Voting
Agreement will be sufficient to approve the Goldwyn Merger Agreement without any
action on the part of any other stockholders of Goldwyn.
MPCA Acquisition
On November 17, 1995, the Company entered into a letter of intent to
acquire MPCA and its affiliated companies for $32.5 million in Common Stock and
cash in repayment of stockholder loans to MPCA. MPCA is an independent film
production company which focuses on producing and acquiring commercially
marketable films featuring popular actors at substantially less than average
industry cost. MPCA is headed by Bradley Krevoy and Steven Stabler, who have
produced low budget, profitable movies like Threesome, released in 1993, which
cost $3.5 million to produce and grossed a reported total of $60 million. A more
recent success produced by Krevoy and Stabler was the film Dumb and Dumber,
which cost $16 million to produce and grossed a reported total of approximately
$250 million.
Consummation of the proposed MPCA acquisition is subject to the execution
of definitive documentation, approval of the transaction by the Board of
Directors of the Company, satisfactory completion by the Company of its legal
and financial due diligence with respect to MPCA, the execution by Messrs.
Krevoy and Stabler of employment agreements with the Company, the execution of
certain ancillary agreements and receipt of all requisite regulatory approvals,
including the termination or expiration of the requisite waiting period under
the HartScott-Rodino Antitrust Improvements Act of 1976, as amended. Following
the consummation of the MPCA acquisition, it is anticipated that MPCA will merge
into a wholly-owned subsidiary of the Company and that Krevoy and Stabler will
join the Entertainment Group's management team.
Merger Agreement with Alliance
On December 20, 1995, the Company and Alliance Entertainment Corp.
("Alliance") entered into an Agreement and Plan of Merger (the "Alliance Merger
Agreement") pursuant to which a newly-formed, wholly-owned subsidiary of the
Company was to merge with and into Alliance. Alliance is the largest
full-service distributor of pre-recorded music and music related products in the
United States and is also actively engaged in the exploitation of proprietary
rights with respect to recorded music, video and video CDs. On April 29, 1996,
the Company filed a Current Report on Form 8-K disclosing that it had entered
into a Termination and Release Agreement which mutually terminated the Alliance
Merger Agreement, due to changing conditions.
<PAGE>
25
Segment and Geographic Data
Business segment data and information regarding the Company's foreign
revenues by geographic area are included in Notes 7 and 12 of the "Notes to
Consolidated Financial Statements" included in Item 8 hereof.
Item 2. Properties
The following table contains a list of the Company's principal properties.
Number
----------------
Description Owned Leased Location
- ----------- ----- ------ --------
Orion:
Office space -- 1 Los Angeles, California
Sales office -- 1 New York, New York
Sales office -- 1 Dallas, Texas
MITI:
Executive offices 1 Stamford, Connecticut
Office space -- 1 Moscow, Russia
Office space -- 1 Vienna, Austria
General Corporate:
Office space -- 1 Atlanta, Georgia
The Company's management believes that the facilities listed above are generally
adequate and satisfactory for their present usage and are generally well
utilized.
Item 3. Legal Proceedings
Fuqua Industries, Inc. Shareholder Litigation
Between February 25, 1991 and March 4, 1991, three lawsuits were filed
against the Company (formerly named Fuqua Industries, Inc.) in the Delaware
Chancery Court. On May 1, 1991, these three lawsuits were consolidated by the
Delaware Chancery Court in In re Fuqua Industries, Inc. Shareholders Litigation,
Civil Action No. 11974. The named defendants are certain current and former
members of the Company's Board of Directors and certain former members of the
Board of Directors of Intermark, Inc. ("Intermark"). Intermark is a predecessor
to Triton Group Ltd., which formerly owned approximately 25% of the outstanding
shares of the Company's Common Stock. The Company was named as a nominal
defendant in this lawsuit. The action was brought derivatively in the right of
and on behalf of the Company and purportedly was filed as a class action lawsuit
on behalf of all holders of the Company's Common Stock other than the
defendants. The complaint alleges, among other things, a long-standing pattern
and practice by the defendants of misusing and abusing their power as directors
and insiders of the Company by manipulating the affairs of the Company to the
detriment of the Company's past and present stockholders. The complaint seeks
(i) monetary damages from the director defendants, including a joint and several
judgment for $15.7 million for alleged improper profits obtained by Mr. J.B.
Fuqua in connection with the sale of his shares in the Company to Intermark;
(ii) injunctive relief against the Company, Intermark and its former directors,
including a prohibi-
<PAGE>
26
tion against approving or entering into any business combination with Intermark
without specified approval; and (iii) costs of suit and attorneys' fees. On
December 28, 1995, plaintiffs filed a consolidated second amended derivative and
class action complaint, purporting to assert additional facts in support of
their claim regarding an alleged plan, but deleting their prior request for
injunctive relief. On January 31, 1996, all defendants moved to dismiss the
second amended complaint and filed a brief in support of that motion. The motion
to dismiss is still pending.
In accordance with Section 145 of the General Corporation Law of the State
of Delaware, pursuant to the Company's Restated Certificate of Incorporation,
the Company has agreed to indemnify its officers and directors against, among
other things, any and all judgments, fines, penalties, amounts paid in
settlements and expenses paid or incurred by virtue of the fact that such
officer or director was acting in such capacity to the extent not prohibited by
law.
Litigation Relating to the November 1 Mergers
Three stockholder suits relating to the November 1 Mergers were filed in
the Delaware Chancery Court prior to the consummation of such mergers. Set forth
below is a brief description of the status of such litigations.
Jerry Krim v. John W. Kluge, Silvia Kessel, Joel R. Packer, Michael I.
Sovern, Raymond L. Steele, Stuart Subotnick, Arnold L. Wadler, Stephen
Wertheimer, Leonard White and Orion Pictures Corporation (Delaware Chancery
Court, C.A. No. 13721); complaint filed September 2, 1994. Orion and each of its
directors were named as defendants in this purported class action lawsuit, which
alleged that Orion's Board of Directors failed to use the required care and
diligence in considering the November 1 Mergers and sought to enjoin the
consummation of such mergers. The lawsuit further alleged that as a result of
the actions of Orion's directors, Orion's stockholders would not receive the
fair value of Orion's assets and business in exchange for their Orion Common
Stock in the November 1 Mergers.
Harry Lewis v. John W. Kluge, Leonard White, Stuart Subotnick, Silvia
Kessel, Joel R. Packer, Michael I. Sovern, Raymond L. Steele, Arnold L. Wadler,
Stephen Wertheimer, The Actava Group, Inc. and Orion Pictures Corp. (Delaware
Chancery Court, C.A. No. 14234); complaint filed April 17, 1995. Orion, each of
its directors and Actava were named in this purported class action lawsuit which
was filed after the execution of the initial merger agreement relating to the
November 1 Mergers. The complaint contained similar allegations and sought
similar relief to the Krim case described above.
On January 22, 1996, the parties to these two lawsuits executed a
Memorandum of Understanding embodying a tentative settlement agreement. In the
tentative settlement agreement, the plaintiffs accept the amendments to the
transaction set forth in the September 27, 1995 amended and restated merger
agreement relating to the November 1 Mergers as full settlement of all claims
that were asserted or could have been asserted in such litigations. Counsel for
the plaintiffs are now conducting confirmatory discovery. The Company believes
that a stipulation will be entered into with the plaintiffs during 1996.
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); complaint filed September 23, 1994.
<PAGE>
27
This class action lawsuit was filed by stockholders of the Company (then known
as The Actava Group Inc.) against the Company and its directors, and against
each of Orion, MITI and Sterling, the other parties to the November 1 Mergers.
The complaint alleges that the terms of the November 1 Mergers constitute an
overpayment by the Company for the assets of Orion and, accordingly, would
result in a waste of the Company's assets. The complaint further alleges that
Orion, MITI and Sterling each knowingly aided, abetted and materially assisted
the Company's directors in breach of their fiduciary duties to the Company's
stockholders. On November 23, 1994, the Company and its directors filed a motion
to dismiss the complaint. The plaintiff never responded to the motion to
dismiss. On February 22, 1996, however, the plaintiff filed a status report with
the Court of Chancery in Delaware indicating that the case is moot but that the
plaintiff intends to pursue an application for fees and expenses. An application
for fees and expenses was filed in April 1996. The Company believes such
application to be without merit.
Item 4. Submission of Matters to a Vote of Security Holders
A special meeting of stockholders of the Company was held on November 1,
1995 for the purpose of enabling stockholders to consider and vote on the
Amended and Restated Agreement and Plan of Merger relating to the November 1
Mergers and the transactions contemplated thereby. At such meeting, a majority
of the Company's stockholders voted to approve such mergers and certain
amendments to the Company's Restated Certificate of Incorporation and By-Laws
effected by virtue of the approval of such merger agreement, including
amendments to the Company's Restated Certificate of Incorporation increasing the
number of authorized number of shares of Common Stock, dividing the Company's
Board of Directors into three classes, and renaming the Company "Metromedia
International Group, Inc.," and amendments to the Company's By-laws prohibiting
stockholder action by written consent, limiting the right to call special
meetings of the Company's stockholders to the Chairman or Vice Chairman of the
Board of Directors and authorizing the Board of Directors to issue preferred
stock in one or more classes or series without any action on the part of
stockholders. The following is a summary of the voting results with respect to
the Amended and Restated Merger Agreement from the November 1, 1995 special
meeting:
For Against Abstain
--- ------- -------
10,911,937 297,685 95,385
No other matters were submitted to a vote of the Company's stockholders, through
the solicitation of proxies or otherwise, during the fourth quarter of the
fiscal year ended December 31, 1995.
Executive Officers of the Company
Each of the executive officers of the Company (other than Messrs. Phillips
and Chmar) have served in their respective capacities since the consummation of
the November 1 Mergers. Each executive officer shall, except as otherwise
provided in the Company's By-Laws, hold office until his or her successor shall
have been chosen and qualify.
Position
Name Age Office Held Since
- ---- --- ------ ----------
John W. Kluge........ 81 Chairman November 1995
Stuart Subotnick..... 54 Vice Chairman November 1995
<PAGE>
28
Position
Name Age Office Held Since
- ---- --- ------ ----------
John D. Phillips..... 53 President and Chief Executive April 1994
Officer
Silvia Kessel........ 45 Senior Vice President, Chief November 1995
Financial Officer and Treasurer
Arnold L. Wadler..... 52 Senior Vice President, General November 1995
Counsel and Secretary
W. Tod Chmar......... 42 Senior Vice President June 1994
Robert A. Maresca..... 61 Senior Vice President (Chief November 1995
Accounting Officer)
Mr. Kluge has served as Chairman of the Board of Directors of the Company
since the consummation of the November 1 Mergers and as Chairman of the Board of
Orion since 1992. In addition, Mr. Kluge has served as Chairman and President of
Metromedia and its predecessor-in-interest, Metromedia, Inc. for over five
years. Mr. Kluge is also a director of The Bear Stearns Companies, Inc.,
WorldCom, Inc. (formerly LDDS Communications, Inc.), Occidental Petroleum
Corporation and Conair Corporation. Mr. Kluge is Chairman of the Company's
Executive Committee.
Mr. Subotnick has served as Vice Chairman of the Board of Directors of the
Company since the consummation of the November 1 Mergers and as Vice Chairman of
the Board of Orion since November 1992. In addition, Mr. Subotnick has served as
Executive Vice President of Metromedia and its predecessor-in-interest,
Metromedia, Inc., for over five years. Mr. Subotnick is also a director of
Carnival Cruise Lines, Inc. and WorldCom, Inc. Mr. Subotnick is Chairman of the
Audit Committee and a member of the Executive and Nominating Committees of the
Company.
Mr. Phillips has served as President and Chief Executive Officer of the
Company since April 19, 1994 and was elected to the Board of Directors of MIG
and to the Executive Committee on the same date. Mr. Phillips served as Chief
Executive Officer of Resurgens Communications Group, Inc. from May 1989 until
Resurgens was merged with Metromedia Communications Corporation and WorldCom,
Inc. in September 1993. Mr. Phillips also serves as a director of Restor
Industries, Inc. and Roadmaster Industries, Inc.
Ms. Kessel has served as Senior Vice President, Chief Financial Officer and
Treasurer of MIG since the consummation of the November 1 Mergers, as Executive
Vice President of Orion since January 1993, Senior Vice President of Metromedia
since 1994 and President of Kluge & Company since January 1994. Prior to that
time, Ms. Kessel served as Senior Vice President of Orion from June 1991 to
November 1992 and Managing Director of Kluge & Company (and its predecessor)
from April 1990 to January 1994. Ms. Kessel also serves as a director of
WorldCom, Inc. Ms. Kessel is a member of the Nominating Committee of the
Company.
Mr. Wadler has served as Senior Vice President, General Counsel and
Secretary of the Company since the consummation of the November 1 Mergers, as a
Director of Orion since 1991 and as Senior Vice President, Secretary and General
Counsel of Metromedia and its predecessor-in-interest, Metromedia, Inc., for
over five years. Mr. Wadler is Chairman of the Nominating Committee of the
Company.
<PAGE>
29
Mr. Chmar was elected to the position of Senior Vice President of the
Company on June 10, 1994. Mr. Chmar served as a partner in the law firm of Long,
Aldridge & Norman from January 1985 until September 1993.
Mr. Maresca has served as a Senior Vice President of the Company since
November 1, 1995. Mr. Maresca has served as a Senior Vice President--Finance of
Metromedia for the prior five years.
<PAGE>
30
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.
Since November 2, 1995, the Common Stock has been listed and traded on the
American and the Pacific Stock Exchanges under the symbol "MMG." Prior to
November 2, 1995, the Common Stock was listed and traded on both the New York
and the Pacific Stock Exchanges under the symbol "ACT." The following table sets
forth the quarterly high and low closing sales prices per share for the Common
Stock according to the New York Stock Exchange Composite Tape for the period
from January 1, 1994 through November 1, 1995 and the quarterly high and low
closing sales prices per share for Common Stock as reported by the American
Stock Exchange from November 2, 1995 through the present.
Market Price of Common Stock
----------------------------------------------
1995 1994
------------------- ---------------------
Quarters Ended High Low High Low
- -------------- ------- ------- ------- ------
March 31....................... $11 $ $ 9 1/4 $5 7/8
8 3/4
June 30........................ 13 3/8 8 5/8 9 3/8 5 3/4
September 30................... 19 1/8 13 1/4 13 3/4 8 1/4
December 31.................... 18 7/8 13 3/4 10 3/8 8 3/8
Holders of Common Stock are entitled to such dividends as may be declared
by the Board of Directors and paid out of funds legally available for the
payment of dividends. On March 2, 1994, the Company announced that its Board of
Directors had suspended the dividends on Common Stock. The Company intends to
retain earnings to finance the development and expansion of its businesses and
does not anticipate paying cash dividends in the foreseeable future. The
decision of the Board of Directors as to whether or not to pay cash dividends in
the future will depend upon a number of factors, including the Company's future
earnings, capital requirements, financial condition, and the existence or
absence of any contractual limitations on the payment of dividends. The Company
is currently a party to a credit agreement with Chemical Bank which restricts
the payment of dividends. The Company's ability to pay dividends is further
limited because, as a result of the November 1 Mergers, the Company operates as
a holding company, conducting its operations solely through its subsidiaries.
Certain of the Company's subsidiaries' existing credit arrangements contain, and
it is expected that their future arrangements will similarly contain,
substantial restrictions on dividend payments to the Company by such
subsidiaries. See Item 7--"Management's Discussion and Analysis of Financial
Condition and Results of Operations."
As of February 27, 1996, there were approximately 7,873 record holders of
Common Stock. The last reported sales price for the Common Stock on such date
was $13.75 per share as reported by the American Stock Exchange.
<PAGE>
31
Item 6. Selected Financial Data
SELECTED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
====================================================================================================================================
Year Ended Years Ended February 28/29
December 31, -------------------------------------------------------------
1995 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues $ 138,871 $ 194,789 $ 175,713 $ 222,318 $ 491,117
Equity in losses of Joint Ventures (7,981) (2,257) (777) -- --
Loss from continuing operations before
extraordinary item (87,024) (69,411) (132,530) (72,973) (280,832)
Loss from discontinued operations (293,570) -- -- -- (31,239)
Loss before extraordinary item (380,594) (69,411) (132,530) (72,973) (312,071)
Net Profit (Loss) (412,976) (69,411) (132,530) 250,240 (312,071)
Loss from continuing operations before
extraordinary item per common share (3.54) (3.43) (7.71) (19.75) (3,052.52)
Loss before extraordinary item per
common share (15.51) (3.43) (7.71) (19.75) (3,392.08)
Net profit (loss) per common share (16.83) (3.43) (7.71) 67.74 (3,392.08)
Common and common equivalent shares
entering into computation of per-share
amounts 24,541 20,246 17,188 3,694 92
Dividends per common share -- -- -- -- --
BALANCE SHEET DATA
Total Assets 599,638 391,870 520,651 704,356 856,950
Notes and subordinated debt 304,643 237,027 284,500 325,158 521,968
====================================================================================================================================
</TABLE>
See accompanying notes to Consolidated Financial Statements.
<PAGE>
32
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes thereto and the "Business"
section included as Item 1 herein.
General
On November 1, 1995, Orion, MITI, the Company and Sterling consummated the
November 1 Mergers. In connection with the November 1 Mergers, the Company
changed its name from "The Actava Group Inc." ("Actava") to "Metromedia
International Group, Inc."
For accounting purposes only, Orion and MITI have been deemed to be the
joint acquirors of Actava and Sterling. The acquisition of Actava and Sterling
has been accounted for as a reverse acquisition. As a result of the reverse
acquisition, the historical financial statements of the Company for periods
prior to the November 1 Mergers are the combined financial statements of Orion
and MITI, rather than Actava's.
The operations of Actava and Sterling have been included in the
accompanying consolidated financial statements from November 1, 1995, the date
of acquisition. During December 1995, the Company adopted a formal plan to
dispose of Snapper. In addition, the Company's investment in Roadmaster has been
deemed to be a non-strategic asset. The Company intends to dispose of its
investment in Roadmaster during 1996. Snapper and Roadmaster are included in the
consolidated financial statements of the Company as assets held for sale.
The Company, in the ordinary course of its business, evaluates new
opportunities and strategies for enhancing stockholder value. As discussed
above, the Company has entered into definitive agreement to acquire Goldwyn and
has signed a letter of intent to acquire MPCA. See "Item 1. Business--Recent
Developments." The acquisition of Goldwyn will provide the Entertainment Group
(as defined below) with a valuable library of over 850 film and television
titles, including numerous Hollywood classics and more critically acclaimed
recent films. Goldwyn also owns a leading specialized theatre circuit of 52
theatres with 140 screens. The acquisition of MPCA will enhance the
Entertainment Group's ability to produce and acquire new film product. The
acquisitions of Goldwyn and MPCA are important steps in the Company's plan to
enhance its role as a leading global entertainment, media and communications
company.
The consummation of each of the Goldwyn Merger and the MPCA Acquisition is
subject to various conditions described above in "Item 1. Business--Recent
Developments." In addition, the Company intends to pursue a strategy of making
selective acquisitions of attractive entertainment and communications assets
that complement its existing business groups. In particular, the Company is
interested in expanding its library of proprietary motion picture rights and in
expanding the network through which it distributes various entertainment and
communication products and services.
The business activities of the Company consist of two business segments:
(i) the Entertainment Group, which includes the development, production,
acquisition, exploitation and worldwide distribution in all media of motion
pictures, television programming and other filmed entertainment product (the
"Entertainment Group"), and (ii) the Communications Group, which
<PAGE>
33
includes wireless cable television, paging services, radio broadcasting, and
various types of telephone services (the "Communications Group").
The Entertainment Group
The Company operates its entertainment operations through Orion. Until
November 1, 1995, Orion operated under the terms of the Plan, which severely
limited Orion's ability to finance and produce additional theatrical motion
pictures. See Notes 2 and 3 to the "Notes to the Consolidated Financial
Statements" included in Item 8. Therefore, Orion's primary activity prior to the
November 1 Mergers was the ongoing distribution of its library of theatrical
motion pictures and television programming. Orion believes the lack of a
continuing flow of newly produced theatrical product while operating under the
Plan adversely affected its results of operations.
Theatrical motion pictures are produced initially for exhibition in
theatres. 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.
The Communications Group
The Company operates its communications operations through MITI and its
subsidiaries, is the owner of various interests in Joint Ventures that are
currently in operation or planning to commence operations in certain republics
of the former Soviet Union and in certain other Eastern European countries.
During 1995, the Company began to pursue opportunities to extend its
communications businesses into emerging markets in the Pacific Rim.
The Joint Ventures currently offer wireless cable television, radio paging
systems, radio broadcasting, trunked mobile radio services and various types of
telephone services. Joint Ventures are principally entered into with
governmental agencies or ministries under the existing laws of the respective
countries.
The consolidated financial statements include the accounts and results of
operations of MITI, its majority owned and controlled Joint Ventures, CNM Paging
and Radio Juventas, and their subsidiaries. Investments in other companies and
Joint Ventures which are not majority owned, or in which the Company does not
control, but exercises significant influence, have been accounted for using the
equity method.
The following table sets forth the operating results and financial
condition of the Company's filmed entertainment and communications segments.
Financial information summarizing the results of operations of Snapper, which is
classified as an asset held for sale, is presented in Note 2 of the "Notes to
the Consolidated Financial Statements."
<PAGE>
34
METROMEDIA INTERNATIONAL GROUP
Segment Information
Management's Discussion & Analysis Table
December 31, 1995
Calendar Year Fiscal Year Fiscal Year
1995 1995 1994
-------- -------- --------
(Note 1)
Revenues
Entertainment 133,812 191,244 175,662
Communications 5,158 3,545 51
Other (99) -- --
-------- -------- --------
Total 138,871 194,789 175,713
Cost of Rentals and Operating
Expenses
Entertainment (132,950) (187,477) (243,030)
Communications 188 221 34
-------- -------- --------
Total (132,762) (187,256) (242,996)
Selling, General &
Administrative
Entertainment (22,695) (21,278) (20,931)
Communication (26,422) (18,892) (6,011)
Other (912) (221) (34)
-------- -------- --------
Total (50,029) (40,391) (26,976)
Management Fees (742) (175) (75)
Depreciation & Amortization
Entertainment (694) (767) (708)
Communication (2,101) (1,149) (174)
Other -- -- --
-------- -------- --------
Total (2,795) (1,916) (882)
Operating Loss
Entertainment (22,602) (18,278) (89,007)
Communications (23,880) (16,671) (6,209)
Other (975) -- --
-------- -------- --------
Total (47,457) (34,949) (95,216)
Interest Expense
Entertainment (27,179) (31,280) (33,067)
Communications (3,727) (1,109) (348)
Other (2,208) -- --
-------- -------- --------
Total (33,114) (32,389) (33,415)
Interest Income
Entertainment 1,069 2,198 771
Communications 2,506 896 --
-------- -------- --------
Total 3,575 3,094 771
Chapter 11 Reorganization Items (1,280) (1,610) (1,793)
Provision for Income Taxes (767) (1,300) (2,100)
Equity in losses of Joint Ventures (7,981) (2,257) (777)
Discontinued Operations (293,570) -- --
Early Extinguishment of Debt (32,382) -- --
-------- -------- --------
Net Loss (412,976) (69,411) (132,530)
======== ======== ========
<PAGE>
35
The Entertainment Group--Results of Operations
Calendar Year Ended December 31, 1995 Compared to Fiscal Year Ended February 28,
1995
Revenues
Total revenues for the calendar year ended December 31, 1995 ("calendar
1995") were $133,812,000, a decrease of $57,432,000 or 30% from the fiscal year
ended February 28, 1995 ("fiscal 1995").
Theatrical revenues for calendar 1995 were $4,710,000, a decrease of
$4,259,000 or 47% from the previous year. While operating under the Plan,
Orion's ability to produce or acquire additional theatrical product was limited.
This lack of product has negatively impacted theatrical revenues and will
continue to do so until Orion produces or acquires significant new product for
theatrical distribution.
Domestic home video revenues for calendar 1995 were $39,982,000, a decrease
of $11,923,000 or 23% from the previous year. The decrease in domestic home
video revenue was due primarily to Orion's reduced theatrical release schedule
in calendar 1995. Orion had available only one of its theatrical releases for
sale to the domestic home video rental market in calendar 1995 compared to six
such titles in fiscal 1995. Orion's reduced theatrical release schedule in both
calendar 1995 and fiscal 1995 have had and will continue to have an adverse
effect on home video annual revenues until new product is available for
distribution.
Home video subdistribution revenues for calendar 1995 were $3,935,000, a
decrease of $2,814,000 or 42% from fiscal 1995. These revenues are primarily
generated in the foreign marketplace through a subdistribution agreement with
Sony Pictures Entertainment, Inc. ("Sony"). All 23 pictures covered by this
agreement have been released theatrically. Orion's reduced theatrical release
schedule in calendar 1995 and fiscal 1995 has negatively impacted home video
subdistribution revenues and will continue to do so in the future until Orion
produces or acquires significant new product for theatrical distribution.
Pay television revenues were $31,567,000 in calendar 1995, a decrease of
$29,333,000 or 48% from the previous year. The decrease in pay television
revenues was due to the availability of six titles during calendar 1995 in the
pay cable market compared to eleven titles during fiscal 1995. Orion's reduced
theatrical release schedule in calendar 1995 and fiscal 1995 will continue to
have an adverse effect on future pay television revenues.
Free television revenues for calendar 1995 were $53,618,000, a decrease of
$9,103,000 or 15% from the previous year. In both the domestic and international
marketplaces, Orion derives significant revenue from the licensing of free
television rights. Major international contracts in calendar 1995 that
contributed to revenues were with TV de Catalunya for rights in Spain, RTL Plus
for rights in Germany and Principal Network for rights in Italy. In fiscal 1995,
the most significant licensees were TV de Catalunya, Principal Network and
Mitsubishi for rights in Japan. Orion's reduced theatrical release schedule
while operating under the Plan has had and will continue to have an adverse
effect on free television revenues.
<PAGE>
36
Selling, General & Administrative Expenses
Selling, general and administrative expenses increased $1,417,000 to
$22,695,000 during calendar 1995 from $21,278,000 during fiscal 1995.
Operating Loss
Operating loss increased $4,324,000 in calendar 1995 to ($22,602,000) from
an operating loss of ($18,278,000) in fiscal 1995. The most significant
contributions to Orion's fiscal 1995 operating results, which was absent in
calendar 1995, came from the recognition of significant domestic pay television
license fees pursuant to a settlement of certain litigation with Orion's pay
television licensee, Showtime Networks, Inc. (the "Showtime Settlement"). The
calendar 1995 and fiscal 1995 results were adversely affected by writedowns to
estimated net realizable value of the carrying amounts on certain film product
totaling approximately $13,400,000 for calendar 1995 compared to writedowns for
fiscal 1995 totaling approximately $17,100,000. In addition, approximately
two-thirds of Orion's film inventories are stated at estimated realizable value
and do not generate gross profit upon recognition of revenues.
Interest Expense
Interest expense decreased by $4,101,000 or 13% to $27,179,000 for calendar
1995, primarily due to a decrease in the average amount of debt outstanding. The
average interest rates on average debt outstanding of $189,349,000 and
$233,376,000 in calendar 1995 and fiscal 1995 were 12.3% and 10.9%,
respectively.
Extraordinary Loss
The extraordinary loss on early extinguishment of debt in calendar 1995
resulted from the repayment and termination of substantially all of Orion's
indebtedness outstanding prior to the November 1 Mergers (the "Plan Debt"),
which indebtedness was refinanced with the proceeds of the Orion Credit Facility
(as defined below) and with an interest bearing promissory note from MIG,
together with the charge off of the unamortized discount associated with such
obligations.
Fiscal Year Ended February 28, 1995 Compared to Fiscal Year Ended February 28,
1994
Revenues
Total revenues for fiscal 1995 were $191,244,000, an increase of
$15,582,000 or 9% from the fiscal year ended February 28, 1994 ("fiscal 1994").
Theatrical revenues for fiscal 1995 were $8,969,000, a decrease of
$24,350,000 or 73% from the previous year. The decrease was due to the poor
performance of the five theatrical feature films released in the domestic
marketplace in fiscal 1995. While operating under the Plan, the Company's
ability to produce or acquire additional theatrical product was limited.
Therefore, the Company released in the domestic theatrical marketplace only
those pictures that were fully or substantially financed by the Company prior to
the Filing Date. This lack of product has negatively impacted theatrical
revenues and will continue to do so until the Company produces or acquires new
product for theatrical distribution.
<PAGE>
37
Domestic home video revenues for fiscal 1995 were $51,905,000, an increase
of $14,487,000 or 39% over the previous year. The increase in domestic home
video revenue was due primarily to the availability of six of the Company's
theatrical releases in the domestic home video rental market in fiscal 1995
compared to only three releases in fiscal 1994. The Company's reduced theatrical
release schedule in fiscal 1995 and fiscal 1994 is likely to have an adverse
effect on future home video annual revenues.
Home video subdistribution revenues for fiscal 1995 were $6,749,000, a
decrease of $5,496,000 or 45% from the previous year. These revenues were
primarily generated in the foreign marketplace through a subdistribution
agreement with Sony. All 23 pictures covered by this agreement have been
released theatrically. The Company's reduced theatrical release schedule in
fiscal 1995 and 1994 have begun to have and will continue to have an adverse
effect on future home video subdistribution revenues.
Pay television revenues were $60,900,000 in fiscal 1995, an increase of
$58,570,000 from the previous year due to the availability of eleven titles in
the pay cable market pursuant to the Showtime Settlement during fiscal 1995. Pay
television revenues for fiscal 1995 included approximately $46,000,000 from the
recognition of revenues relating to these eleven titles, including license fees
on seven titles that had been deferred from prior years. Revenues expected to be
recognized in future periods for the last five released titles under the
Showtime Settlement approximate $13,500,000.
Free television revenues for fiscal 1995 were $62,721,000, a decrease of
$27,629,000 or 31% from the previous year. The decrease was primarily due to
significant license fees from major networks in the United States that were
recognized in fiscal 1994 upon the availability of Dances With Wolves and
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 until new product is
produced or acquired.
In both the domestic and international marketplaces the Company derives
significant revenues from the licensing of free television rights. Major
international 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, Principal Network and TRL Plus for rights in Germany.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $21,278,000 during fiscal
1995, an increase of $347,000 from fiscal 1994.
Operating Loss
Operating loss decreased $70,729,000 in fiscal 1995 to ($18,278,000) from
an operating loss of ($89,007,000) in fiscal 1994. The most significant
contributions to the Company's fiscal 1995 operating results came from the
recognition of significant domestic pay television license fees pursuant to the
Showtime Settlement. The Company's fiscal 1995 and fiscal 1994 results were both
adversely affected by writedowns to estimated net realizable value of the
carrying amounts on certain film product. Such writedowns totaled approximately
$17,100,000 for fiscal 1995 compared to approximately $94,600,000 for fiscal
1994. For fiscal 1994, the writedowns included an aggregate $76,000,000
attributed to reduced license fees as a result of the Showtime
<PAGE>
38
Settlement, disappointing results of four pictures released that year, and
additional provisions on the five then unreleased pictures. In addition,
approximately two-thirds of the Company's film inventories are stated at
estimated realizable value and do not generate gross profit upon recognition of
revenues.
Interest Expense
Interest expense fell by $1,787,000 or 5% to $31,280,000 for fiscal 1995,
primarily due to a decrease in the average amount of debt outstanding, though
this decrease was partially offset by increased interest rates. The average
interest rate increased to 10.9% in fiscal 1995 from 9.4% in fiscal 1994 on
average debt outstanding of $233,376,000 and $279,506,000 in fiscal 1995 and
1994, respectively.
The Communications Group--Results of Operations
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 and to
Year Ended December 31, 1993
Separate comparisons of the results of operations of the Communications
segment (i) for the year ended December 31, 1995 compared to the year ended
December 31, 1994 and (ii) for the year ended December 31, 1994 compared to the
year ended December 31, 1993 are not included as MITI's results of operations
during the year ended December 31, 1993 were not material.
Revenues
Revenues increased to $5,158,000 in 1995 from $3,545,000 in 1994 and
$51,000 in 1993. This growth in revenue from 1994 to 1995 resulted primarily
from an increase in radio operations in Hungary and paging operations in
Romania. However, in 1995 the Company changed its policy of consolidating these
operations by recording the related accounts and results of operations based on
a three month lag. As a result, the December 31, 1995 Consolidated Balance Sheet
includes the accounts for these operations at September 30, 1995 as compared to
the December 31, 1994 balances included in 1994, and the 1995 Statement of
Operations reflects nine months of these operations as compared to twelve months
for 1994. Had the Company applied this method from October 1, 1994, revenues
would have increased over the revenues reported but the net effect on the
results of operations would not have been material. Future years will reflect
twelve months of operations based upon a September 30th year end for operations
that are consolidated.
The increase in revenues from 1993 to 1994 was generated primarily from the
acquisition of MITI's radio operations in Hungary and the commencement of
operations of radio paging services in Romania in 1994. Revenue from radio
operations during 1995 was $3,878,000 as compared to $2,862,000 in 1994. Radio
paging services during 1995 generated revenues amounting to $690,000 as compared
to $266,000 in 1994. MITI did not generate significant revenue during 1993 since
none of the Joint Ventures or subsidiaries which are consolidated had then
commenced operations.
<PAGE>
39
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $7,530,000 or 40%
in fiscal 1995 as compared to fiscal 1994 and by $12,881,000 or 214% in fiscal
1994 as compared to fiscal 1993. The increases relate principally to the hiring
of additional staff and expenses associated with the increase in the number of
Joint Ventures and the need for MITI to support and assist the operations of the
Joint Ventures. During 1995, MITI completed the staffing of its Vienna office
and opened an office in Hong Kong. During 1994, MITI completed the staffing of
its Moscow office and opened its Vienna office. Furthermore, the commencement of
radio paging services in Romania and the acquisition of radio station operations
in Hungary accounted for $3,800,000 of the 1994 increase. In addition, included
in selling, general and administrative expenses for 1994 is $3,600,000 of
non-cash compensation expense relating to the granting of stock options to
MITI's Chief Executive Officer.
Interest Income
In 1994, MITI began to charge interest to the Joint Ventures for credit
facilities granted by MITI. The interest was charged at rates ranging from the
prime rate to the prime rate plus four percent. As a result of increasing
advances to the Joint Ventures for their operating and investing cash
requirements, interest income earned under credit lines increased to $2,506,000
for 1995 as compared to $896,000 for 1994. No interest was charged to the Joint
Ventures in 1993.
Interest Expense
Interest expense increased to $3,727,000 in 1995 from $1,109,000 in 1994
and $348,000 in 1993, largely due to increased borrowings from affiliates and
others in order to finance the operations and investment activities of MITI
during these periods. The average interest rates on average debt outstanding of
$36,002,000, $11,846,000 and $9,043,000 in 1995, 1994 and 1993 were 9.9%, 9.4%
and 3.6%, respectively.
Equity in Losses of Affiliated Joint Ventures
MITI accounts for the majority of its Joint Ventures under the equity
method of accounting since it generally does not exercise control of these
ventures. Under the equity method of accounting, MITI reflects the cost of its
investments, adjusted for its share of the income or losses of the Joint
Ventures, on its balance sheet and reflects only its proportionate share of
income or losses of the Joint Ventures in its statement of operations.
Additionally, MITI changed its policy of accounting for the Joint Ventures in
1994 by recording the results of operations based on a three month lag. As a
result, the 1994 Consolidated Statement of Operations reflects nine months of
operations for the Joint Ventures compared to twelve months for 1993. The 1995
statement of operations for the Joint Ventures includes a full twelve months of
activity based on a September 30 reporting period, as will all future years.
MITI recognized equity in losses of its Joint Ventures of approximately
$7,981,000 in 1995, $2,257,000 in 1994 and $777,000 for 1993. Equity in the
losses of the Joint Ventures are generally reflected according to the level of
ownership of the Joint Venture by MITI until such Joint Venture's contributed
capital has been fully depleted. Subsequently, MITI recognizes the full amount
of losses generated by the Joint Venture since MITI is generally the sole
funding source of the Joint Ventures.
<PAGE>
40
The increase in losses of the Joint Ventures of $5,724,000 from 1994 to
1995 is primarily attributable to losses of $4,047,000 incurred as part of the
expansion of its cable TV operations, and the opening of a radio station in
Moscow which resulted in a loss of $1,289,000. As of September 30, 1995 there
were six cable TV Joint Ventures in operation as compared to four in the prior
year. MITI's cable TV Joint Ventures in Moscow and Riga were responsible for
$2,075,000 and $1,303,000, respectively, of this increased loss. These losses
were due to one-time writedowns of older equipment and additional expenses
incurred for programming and marketing related to expanding the services
provided and ultimately increasing the number of subscribers. All other cable TV
operations, including two new ventures and the expansion of two others that were
in their second year of operations, increased losses by $669,000. The increased
loss experienced by the radio station in Moscow was attributable to a
substantial revision in its programming format and the establishment of sales
and related support staff needed to effectively compete in the Moscow market.
Losses from MITI's other operations, including five paging entities, three
of which were started up in 1995, and one telephony operation, increased by
$388,000 in 1995.
The increase in losses of its Joint Ventures of $1,480,000 from 1993 to
1994 was principally due to increased losses from cable TV operations of
$1,086,000 and of $394,000 from all other operations. The cable TV losses were
primarily attributable to $884,000 in additional losses in Moscow, and $202,000
as a result of the first full year of operations of two other Joint Ventures.
The remainder of $394,000 from all other entities is related to the first year
of operations for new entities, including the start up of one paging entity, one
telephony operation and the Moscow radio station.
As a result of the start up nature of many of the Joint Ventures,
additional losses are expected.
The losses recorded for 1995 represent MITI's equity in the losses of the
Joint Ventures for the twelve months ended September 30, 1995. On January 1,
1994, MITI changed its policy of accounting for the Joint Ventures by recording
its equity in their losses based upon a three month lag. Accordingly, results of
operations for the year ended December 31, 1995 reflect equity in losses of the
joint ventures for the period from October 1, 1994 to September 30, 1995.
Results of operations for the year ended December 31, 1994 reflect equity in
losses of the Joint Ventures for the period from January 1, 1994 to September
30, 1994. Had MITI applied this method from October 1, 1993, the effect on
reported operating results for the year ended December 31, 1994 would not have
been material.
Foreign Currency
MITI presently has limited foreign currency exposure as virtually all
revenues are billed and collected in United States dollars or an equivalent
local currency amount adjusted on a monthly basis for currency fluctuation.
MITI's Joint Ventures are generally permitted to maintain US dollar accounts to
service their dollar denominated credit lines, thereby significantly reducing
foreign currency exposure. As MITI and its Joint Ventures grow and become more
dependent on transactions based in local currencies, MITI expects its foreign
currency risk and exposure to increase. MITI currently does not hedge against
foreign currency exchange rate risks.
<PAGE>
41
The Company Consolidated--Results of Operations
Calendar Year Ended December 31, 1995 Compared to Fiscal Year Ended February 28,
1995
During calendar 1995, the Company reported a loss from continuing
operations of $87,024,000, a loss from discontinued operations of $293,570,000
and a loss on extinguishment of debt of $32,382,000, resulting in a net loss of
$412,976,000. This compares to a net loss of $69,411,000 for fiscal 1995, all of
which came from continuing operations. The loss from continuing operations
increased by $17,613,000 from calendar 1995 as compared to fiscal 1995,
primarily a result of an increase in MITI's operating loss in calendar 1995. See
"Communications Group--Results of Operations." The fiscal 1994 net loss of
$132,530,000 was from continuing operations.
The effect of the acquistions of Actava and Sterling on Calendar 1995
results of operations was to increase revenues by $198,000, increase selling,
general, and administrative expenses by $1,551,000, and increase interest
expense by $2,208,000.
The calendar 1995 loss from discontinued operations represents the
writedown of the portion of the purchase price of the Company allocated to
Snapper on November 1, 1995 to its net realizable value.
The extraordinary loss on early extinguishment of debt in calendar 1995 was
due to the repayment and termination of the Plan Debt, which was refinanced with
funds provided under the Orion Credit Facility and a noninterest bearing
promissory note from the Company, and to the charge-off of the unamortized
discount associated with such obligations.
Liquidity and Capital Resources
The Company
The Company is a holding company and, accordingly, does not generate cash
flows. Orion, the Company's filmed entertainment subsidiary, is restricted under
covenants contained in the Orion Credit Agreement from making dividend payments
or advances to the Company. As discussed above, MITI is dependent on the Company
for significant capital infusions to fund its operations, as well as its
commitments to make capital contributions and loans to its Joint Ventures. The
Company anticipates that MITI's funding requirements for 1996 will be
approximately $40.0 million based in part on the anticipated funding needs of
the Joint Ventures. Future capital requirements of MITI will depend on the
ability of MITI's Joint Ventures to generate positive cash flows.
The Company is obligated to make principal and interest payments under its
own various debt agreements (see Note 8 to "Notes to the Consolidated Financial
Statements"), in addition to funding its working capital needs, which consist
principally of corporate overhead and payments on self insurance claims (see
Note 1 to the "Notes to the Consolidated Financial Statements").
The Company is currently a party to a $35 million credit agreement with
Chemical (the "MIG Credit Facility"). The Company is required to repay all
amounts outstanding on October 30, 1996. At December 31, 1995, approximately
$28.8 million was outstanding under the MIG Credit Facility. Under the terms of
the MIG Credit Facility, the Company may borrow
<PAGE>
42
up to $35 million as long as all outstanding loans do not exceed 65% of the
market value of its holdings of Roadmaster common stock. Based upon the current
market price of Roadmaster, the Company may not borrow any additional amounts
under the MIG Credit Facility. The MIG Credit Facility is secured by all of the
stock of Roadmaster owned by the Company and a subordinated lien on the assets
of Snapper. The loan is guaranteed by MITI.
The Company's 9 7/8% Senior Subordinated Debentures due 1997 require it to
make annual sinking fund payments in March of each year of $3,000,000 (which the
Company may increase to $6,000,000). At December 31, 1995, $18 million remained
outstanding under the 9 7/8% Senior Subordinated Debentures.
The Company's 9 1/2% Subordinated Debentures are due in 1998 and
approximately $59 million remained outstanding at December 31, 1995. These
debentures do not require annual principal payments.
The Company's $75 million face value 6 1/2% Convertible Subordinated
Debentures are due in 2002. The debentures are convertible into common stock at
a conversion price of $41 5/8 per share at the holder's option and do not
require annual principal payments.
Interest on the Company's outstanding indebtedness approximates $14 million
for 1996. The average debt outstanding and average interest rate on such debt
for the two months of operations of MIG included in calendar 1995 was
$176,529,000 and 7.5%, respectively.
In the short term, the Company intends to satisfy its current obligations
and commitments with available cash on hand and the proceeds from the sale of
certain assets. At December 31, 1995, the Company had approximately $21.8
million of available cash on hand. During December 1995, the Company adopted a
formal plan to dispose of Snapper. At December 31, 1995 the carrying value of
Snapper was $79.2 million. The Snapper carrying value represents the Company's
estimated proceeds from the sale of Snapper and repayment of intercompany loans,
through the anticipated date of sale. Management believes that Snapper will be
disposed of by November 1996. In addition, the Company anticipates disposing of
its investment in Roadmaster during 1996. The carrying value of the Company's
investment in Roadmaster at December 31, 1995 was $47.5 million.
Management believes that its available cash on hand, proceeds from the
disposition of Snapper and its investment in Roadmaster, borrowings under the
MITI Bridge Loan and collections of intercompany receivables from Snapper will
provide sufficient funds for the Company to meet its obligations, including
MITI's funding requirements, in the short term. However, no assurances can be
given that the Company will be able to dispose of such assets in a timely
fashion and on favorable terms. Any delay in the sale of assets or reductions in
the proceeds anticipated to be received upon this disposition of assets may
result in the Company's inability to satisfy its obligations during the year
ended December 31, 1996. Delays in funding the Company's MITI capital
requirements may have a materially adverse impact on the results of operations
of MITI's Joint Ventures.
In connection with the consummation of the Goldwyn Merger, the Company
intends to refinance the MIG Credit Facility, the Orion Term Loan, the Orion
Revolver and existing Goldwyn Debt. The Company intends to use the proceeds of
an equity offer and a new Entertainment Group credit facility (the
"Entertainment Group Credit Facility") to repay substantially all of such
indebtedness and to provide itself and MITI with liquidity to finance its
<PAGE>
43
existing commitments and current business strategies. In addition to the
refinancing, management believes that its long term liquidity needs will be
satisfied through a combination of (i) the Company's successful implementation
and execution of its growth strategy to become a global entertainment, media and
communications company, (ii) MITI's Joint Ventures achieving positive operating
results and cash flows through revenue and subscriber growth and control of
operating expenses, and (iii) Orion's ability to continue to generate positive
cash flows sufficient to meet its planned film production release schedule and
service the new Entertainment Group Credit Facility. There can be no assurance
that the Company will be successful in consummating the equity offering and
refinancing its indebtedness or that such refinancing can be accomplished on
favorable terms. In the event the Company is unable to successfully complete
such a refinancing, the Company, in addition to disposing of Snapper and its
investment in Roadmaster, may be required to (i) attempt to obtain additional
financing through public or private sale of debt or equity securities of the
Company or one of its subsidiaries, (ii) otherwise restructure its
capitalization or (iii) seek a waiver or waivers under one or more of its
subsidiaries' credit facilities to permit the payment of dividends to the
Company.
The Company believes that it will report significant operating losses for
the fiscal year ended December 31, 1996. In addition, because its Communications
Group is in the early stages of development, the Company expects this group to
generate significant net losses as it continues to build out and market its
services. Accordingly, the Company expects to generate consolidated net losses
for the foreseeable future.
Calendar Year Ended December 31, 1995 Compared to Fiscal Year Ended February 28,
1995
Cash Flows from Operating Activities
Cash provided by operating activities decreased $54.6 million or 71% from
fiscal 1995 to calendar 1995.
The calendar 1995 net loss of $413.0 million includes a loss on
discontinued operations of $293.6 million and a loss on early extinguishment of
debt of $32.4 million. The calendar 1995 net loss, exclusive of the losses on
discontinued operations and extraordinary items was $87.0 million compared to a
$69.4 million net loss in fiscal 1995.
Losses from operations include significant non-cash items of depreciation,
amortization and equity in loss of joint ventures. Non-cash items decreased $46
million or 28% from $161.6 million in fiscal 1995 to $115.6 million in calendar
1995. The decrease in non-cash items principally relates to amortization of film
costs. Net changes in assets and liabilities decreased cash flows from
operations in calendar 1995 and fiscal 1995 by $6.3 million and $15.2 million,
respectively. After adjusting net losses for discontinued operations,
extraordinary items, non-cash items and net changes in assets and liabilities,
the Company's cash flow from operating activities was $22.3 million and $76.9
million in calendar 1995 and fiscal 1995, respectively.
As discussed below, the decrease in cash flows in calendar 1995 generally
resulted from the reduction in revenues caused by Orion's reduced release
schedule and increases in selling, general and administrative expenses at MITI
and Orion. Net interest expense remained relatively constant from fiscal 1995 to
calendar 1995. The Orion reduced release schedule, which is the result of the
restrictions imposed upon Orion while operating under the Plan, has negatively
impacted and will continue to negatively impact cash provided from operations.
<PAGE>
44
Cash Flows from Investing Activities
Cash flows from investing activities increased $131.2 million from a use of
funds in fiscal 1995 of $49.9 million to cash provided in calendar 1995 of $81.3
million.
The principal reasons for this increase in cash from investing activities
was the collection of notes receivable from Metromedia Company of $45.3 million
and net cash acquired in the November 1 Mergers of $72.1 million net of advances
to Snapper of $4.2 million in calendar 1995.
Investments in film inventories decreased $18.1 million or 79% from $22.8
million in fiscal 1995 to $4.7 million in calendar 1995. Such decrease reflects
the releasing costs of the last five pictures fully or substantially financed by
Orion in fiscal 1995 compared to minimal investments in films since the removal
of the restrictions of the Plan in connection with the November 1 Mergers for
calendar 1995.
Investments in MITI joint ventures increased $4.8 million or 29% from $16.4
million in fiscal 1995 to $21.2 million in calendar 1995. The increase
represents an increase in the number of MITI joint ventures as well as
additional funding of existing ventures. In addition, fiscal 1995 included net
cash paid for East News Channel Trading and Service, Kft ("East News Channel
Trading") of $7.0 million.
Cash Flows from Financing Activities
Cash used in financing activities increased $48.3 million or 131% from
$36.9 million in fiscal 1995 to $85.2 million in calendar 1995.
As more fully described below, the increase in cash used in financing
activities principally resulted from the repayment of approximately $210 million
of Plan debt of Orion in connection with the November 1 Mergers. Orion repaid
its outstanding plan debt with $135 million of proceeds from the Orion Term Loan
and amounts advanced from the Company.
The remaining payments on notes and subordinated debt in calendar 1995 and
the fiscal 1995 payments principally represent Orion's repayments of Plan debt
under the requirements of the Plan.
In addition to the Orion Term Loan, proceeds from issuance of long-term
debt in calendar 1995 includes the Company and Orion borrowings under revolving
credit agreements of $28.8 million and $11.9 million respectively. Proceeds from
issuance of long term debt in fiscal 1995 represent MITI and Orion borrowings
from Metromedia Company.
Proceeds from issuance of stock decreased $15.4 million from $17.7 million
in fiscal 1995 to $2.3 million in calendar 1995.
Fiscal 1995 Ended February 28, 1995 Compared to Fiscal Year Ended February 28,
1994
Cash Flows from Operating Activities
Cash provided by operating activities decreased $6 million or 7% from
fiscal 1994 to fiscal 1995.
<PAGE>
45
Net loss decreased from $132.5 million in fiscal 1994 to $69.4 million in
fiscal 1995. After adjusting net losses for non-cash items of $161.6 million and
$218.8 million and changes in assets and liabilities that decreased cash flows
of $15.2 million and $3.4 million, cash flows from operating activities were
$76.9 million and $82.9 million in fiscal 1995 and fiscal 1994, respectively.
Operating cash flows decreased in fiscal 1995 principally due to an
increase in selling, general and administrative expenses at MITI as the Company
continued to expand its communications segment. Operating cash flows at Orion
were essentially the same for fiscal 1995 and fiscal 1994, reflecting comparable
activity from year to year. The decrease in operating losses at the filmed
entertainment segment in fiscal 1995 resulted from significant non-cash
adjustments to film inventory in fiscal 1994.
Cash Flows from Investing Activities
Cash flows used in investing activities decreased $21.3 million or 30% from
$71.2 million in fiscal 1994 to $49.9 million in fiscal 1995.
The decrease in cash used in investing activities resulted from the
decrease in investments in film inventories of $44.6 million offset by increases
in investments in joint ventures of $11.7 million and cash acquisitions of
subsidiaries of $6.0 million.
Cash Flows from Financing Activities
Cash used in financing activities decreased $15.5 million or 30% from $52.4
million in fiscal 1994 to $36.9 million in fiscal 1995.
The decrease in cash used in financing activities resulted from an increase
in proceeds from the issuance of long-term debt of $35.6 million and an increase
in proceeds from issuance of stock of $10.1 million offset by an increase in
payments on notes and subordinated debt of $30.3 million from fiscal 1994 to
fiscal 1995.
The repayments of debt in fiscal 1995 and 1994 represent Orion repayments
of Plan debt under the requirements of the Plan. Proceeds from issuance of long
term debt principally represent borrowings from Metromedia in fiscal 1995 and
1994.
The Entertainment Group
The financing, production and distribution of motion pictures requires the
expenditure of significant amounts of capital. Prior to the consummation of the
November 1 Mergers, Orion's ability to produce or acquire new theatrical product
was severely limited by the agreements entered into in connection with the Plan.
At the Filing Date, all new motion picture production was halted, leaving Orion
with only 12 largely completed but unreleased motion pictures. Accordingly,
Orion released five, four and three theatrical motion pictures in the domestic
marketplace in fiscal 1995, 1994, and 1993, respectively. In calendar 1995,
there were no theatrical releases that were fully or substantially financed by
Orion. This reduced release schedule has had and will continue to have an
adverse impact on results of operations for the immediately foreseeable future.
Furthermore, as described in Note 5 to the "Notes to the Consolidated Financial
Statements" included in Item 8, approximately two-thirds of Orion's film
inventories at December 31, 1995 are stated at amounts approximating their
estimated net
<PAGE>
46
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 by Orion for financial reporting purposes for the
foreseeable future.
In connection with the consummation of the November 1 Mergers, the
restrictions imposed by the agreements entered into in connection with the Plan
on Orion's ability to produce and acquire new motion picture product were
eliminated. As a result, Orion has begun the process of producing, acquiring and
financing theatrical films consistent with the covenants set forth in the
Existing Orion Credit Agreement (as defined below). The principal sources of
funds for Orion's motion picture production, acquisition and distribution
activities will be cash generated from operations, proceeds from the presale of
subdistribution and exhibition rights, primarily in foreign markets, and
borrowings under the Orion Revolver (as defined below). Orion's operating plan
involves the production or acquisition and release of lower budget films, the
distribution of films for third parties and the continued distribution of its
film library. Orion generally plans to release approximately 8 to 10 films per
year, including two or three films to be produced by Orion or in conjunction
with others.
The cost of producing a theatrical film varies depending on the type of
film produced, casting of stars or established actors, and many other factors.
The industry-wide trend over recent years has been an increase in the average
cost of producing and releasing films. The revenues derived from the production
and distribution of a motion picture depend primarily upon its acceptance by the
public, which cannot be predicted and does not necessarily bear a direct
correlation to the production or distribution costs incurred. The Company will
attempt to reduce the risks inherent in its motion picture production activities
by closely monitoring the production and distribution costs of individual films
and limiting Orion's investment in any single film.
On November 1, 1995, in connection with the consummation of the November 1
Mergers, Orion received contributions of approximately $19.4 million of new
assets from the Company. Orion also issued a non interest bearing promissory
note of approximately $72.9 million to the Company. The proceeds from the
promissory note as well as the Orion Term Loan (as defined below) were used
directly or indirectly to repay and terminate the Plan Debt.
On November 1, 1995, Orion entered into a credit agreement (the "Existing
Orion Credit Agreement") with a syndicate of lenders led by Chemical Bank, as
agent ("Chemical"). The Existing Orion Credit Agreement consists of a $135
million term loan (the "Orion Term Loan") with quarterly payments of $6.75
million commencing March 1996 and a maturity date of December 31, 2000; and a
$50 million revolver (the "Orion Revolver") with a final maturity of December
31, 2000. The amount outstanding under the Orion Term Loan as of February 19,
1996 was $106.8 million. The amount available under the Orion Revolver as of
February 19, 1996 was $27.7 million (of which $4 million is reserved for an
outstanding letter of credit). Interest is charged on the Orion Term Loan at the
agent bank's prime rate plus 2% or at 3% above the LIBOR rate, at Orion's
option; and for the Orion Revolver at the agent bank's prime rate plus 1/2% or
at 1-1/2% above the LIBOR rate, also at Orion's option. At December 31, 1995,
the effective interest rates on the Orion Term Loan and the Orion Revolver were
8.9% and 7.3%, respectively. Indebtedness under the Existing Orion Credit
Agreement is secured by all of Orion's assets, including the common stock of
Orion and its subsidiaries. In addition to the quarterly amortization schedule,
the Existing Orion Credit Agreement provides that in the event that the ratio of
the value of the eligible accounts receivable in Orion's borrowing base to the
<PAGE>
47
amount outstanding under the Orion Term Loan (the "Borrowing Base Ratio") does
not exceed a designated threshold, all cash received by Orion must be used to
prepay principal and interest on the Orion Term Loan until such Borrowing Base
Ratio exceeds such designated threshold. All prepayments may be applied against
scheduled quarterly repayments.
As a result of prepayments, Orion has satisfied its scheduled amortization
payments through December 31, 1996. To the extent the Borrowing Base Ratio
exceeds the threshold set forth in the Existing Orion Credit Agreement, and is
not needed to amortize the Orion Term Loan, Orion may use any excess cash to pay
its operating expenses, including the costs of acquiring new film product or new
production. The Borrowing Base Ratio currently exceeds the designated threshold.
In addition, Orion has established a system of lockbox accounts and collection
accounts to maintain Chemical's security interest in the cash proceeds of
Orion's accounts receivable. Amounts outstanding under the Orion Revolver are
guaranteed jointly and severally by Metromedia and by John W. Kluge.
The Existing Orion Credit Agreement also contains customary covenants,
including limitations on the incurrence of additional indebtedness and
guarantees, the creation of new liens and on the number of films Orion may
produce, restrictions on the development costs and budgets for such films,
limitations on the aggregate amount of unrecouped print and advertising costs
Orion may incur, limitations on the amount of Orion's leases, capital and
overhead expenses, prohibitions on the declaration of dividends or distributions
by Orion to the Company, limitations on the merger or consolidation of Orion or
the sale by Orion of any substantial portion of its assets or stock and
restrictions on Orion's line of business, other than activities relating to the
production and distribution of entertainment product. The Existing Orion Credit
Agreement also contains several financial covenants, including the requirement
that Orion maintain the ratio of Orion's Free Cash Flow (as defined in the
Existing Orion Credit Agreement) to its cumulative investment in film product
above certain specified levels at the end of each fiscal quarter, and that
Orion's cumulative investment in film product not exceed Free Cash Flow by more
than $50,000,000. In addition, the Existing Orion Credit Agreement contains a
covenant which would be triggered if the amount of Orion's net losses exceeds
certain levels for each fiscal year beginning with the fiscal year ended
December 31, 1996.
The Orion Revolver contains the following events of default: nonpayment of
principal or interest on the facility, the occurrence of a "change of control"
(as defined below) and an assertion by the guarantors of such facility that the
guarantee of such facility is unenforceable. The Orion Term Loan also contains a
number of customary events of default, including the non-payment of principal or
interest, the occurrence of a "change of control" of the Company (defined to
include a reduction in the stock ownership of the Metromedia Holders below 25%
of the outstanding Common Stock or if a third party controls more Common Stock
than the Metromedia Holders or if a third party is entitled to designate a
majority of the members of the Company's Board of Directors), the termination of
employment of Orion's chief executive officer, head of production or other
specified officers and the objection to such person's replacement by the
required lenders within a designated period, the violation of covenants, falsity
of representations and warranties in any material respect, certain cross-default
and cross-acceleration provisions, and bankruptcy or insolvency of Orion or the
Company.
Management believes that the Orion Revolver together with cash generated
from operations will provide Orion with sufficient resources to finance
anticipated levels of production and distribution activities and to meet debt
obligations as they become due during calendar 1996.
<PAGE>
48
The Communications Group
MITI has invested significantly (through capital contributions, loans and
management assistance and training) in its Joint Ventures. MITI has also
incurred significant expenses in identifying, negotiating and pursuing new
wireless telecommunications opportunities in emerging markets. MITI and
primarily all of its Joint Ventures are experiencing continuing losses and
negative operating cash flow since the businesses are in the development and
start-up phase of operations.
The wireless cable television, paging, fixed wireless loop telephony, and
international toll calling businesses can be capital intensive. MITI generally
provides the primary source of funding for its Joint Ventures, both for working
capital and capital expenditures. MITI's Joint Venture agreements generally
provide for an initial contribution of assets and/or cash by the Joint Venture
partners, and for the provision of a line of credit from MITI to the Joint
Venture. Under a typical arrangement, MITI's joint venture partner contributes
the necessary licenses or permits under which the Joint Venture will conduct its
business, studio or office space, transmitting tower rights and other equipment.
MITI's contribution is generally cash and equipment, but may consist of other
specific assets as required by the joint venture agreement.
MITI's credit agreements with the Joint Ventures are intended to provide
the Joint Ventures with sufficient funds for operations and equipment purchases.
The credit agreements generally provide for interest to be accrued at MITI's
current cost of borrowing in the United States and for payment of principal and
interest from 90% of the Joint Venture's available cash flow, as defined in the
credit agreement, prior to any distributions of dividends to MITI or its
partners. The credit agreements also often give MITI the right to appoint the
general director of the Joint Venture and the right to approve the annual
business plan of the Joint Venture. Advances under the credit agreements are
made to the Joint Ventures in the form of cash or equipment purchases. Cash
advances are used for working capital purposes or as direct payment of expenses
or expenditures. If advances are in the form of equipment purchases, the Joint
Venture is charged under its line of credit, at the cost of the equipment plus
cost of shipping. As of December 31, 1995, and December 31, 1994, MITI was
committed to provide funding under the various credit lines in an aggregate
amount of approximately $46,825,000 and $43,000,000, respectively, of which
$16,883,000 and $24,044,000 remains unfunded, respectively. MITI's funding
commitments under a credit agreement are contingent upon its approval of the
Joint Venture's business plan and the attainment of certain benchmarks set forth
in such business plans. MITI reviews the actual results compared to the approved
business plan on a periodic basis. If the review indicates a material variance
from the approved business plan, MITI may terminate or revise its commitment to
fund the Joint Venture under its credit agreement.
MITI's consolidated and unconsolidated Joint Ventures' ability to generate
positive operating results is dependent upon the ability to attract subscribers
to their systems, their ability to control operating expenses and the sale of
commercial advertising time. Management's current plans with respect to the
Joint Ventures are to increase subscribers and advertisers and thereby their
operating revenues by developing a broader band of programming packages for
wireless cable and radio broadcasting and offering additional services and
options for paging and telephony services. By offering the large local
populations of the countries in which the Joint Ventures operate desired
services at attractive prices, management believes that the Joint Ventures can
increase their subscriber and advertiser bases and generate positive operating
cash flow, reducing their dependence on MITI for funding of working capital.
Additionally, advances in wireless subscriber equipment technology are expected
to reduce capital requirements per subscriber.
<PAGE>
49
Further initiatives to develop and establish profitable operations include
reducing operating costs as a percentage of revenue and developing management
information systems and automated customer care and service systems.
MITI's investments in the Joint Ventures are not expected to become
profitable or generate significant cash flow in the near future. Even if the
Joint Ventures do become profitable and generate sufficient cash flows in the
future, there can be no assurances that the Joint Ventures will pay dividends or
return capital and pay advances under credit agreements at any time.
The ability of MITI and its consolidated and unconsolidated Joint Ventures
to establish profitable operations is also subject to political, economic and
social risks inherent in doing business in emerging markets such as Eastern
Europe, the former Soviet Republics and the Pacific Rim. These include matters
arising out of government policies, economic conditions, imposition of, or
changes to, taxes or other similar charges by governmental bodies, foreign
exchange fluctuations and controls, civil disturbances, deprivation or
unenforceability of contractual rights, and taking of property without fair
compensation.
Prior to the November 1 Mergers, MITI had relied on certain shareholders
for capital, in the form of both debt and equity, to fund its operating and
capital requirements. During 1995 and 1994, MITI's primary sources of funds were
from the issuance of notes payable and from equity contributions.
During 1995, MITI received equity contributions of approximately
$62,000,000 from MIG, including cash and notes payable to a Metromedia affiliate
that were converted into equity of MIG at the time of the November 1 Mergers.
During 1994, MITI received equity contributions of approximately
$24,200,000. Approximately $22,800,000 of this amount was a result of common
stock issued to certain related parties, affiliates and others in a private
offering. As part of this issuance, $6,500,000 of notes payable were converted
to common stock. The remaining $1,400,000 of equity contributions was the result
of the issuance of common stock to an affiliate. During 1994, MITI received
financing of $20,105,000 through the issuance of notes payable.
Proceeds of MITI's borrowings and equity issuance were used, in part, to
purchase and provide equipment to its Joint Ventures under credit lines, to fund
initial equity contributions to its Joint Ventures and for MITI's operating
activities. Cash utilized by operating activities during the twelve months ended
December 31, 1995 and 1994 was primarily for selling, general and administrative
expenses.
Cash used for investing activities in 1994 includes $7,033,000 paid to
complete MITI's acquisition of East News Channel Trading, in addition to the
approximately $1,055,000 paid in 1993. The remaining funds invested in Joint
Ventures during 1995 and 1994 were capital contributions required by the
respective joint venture agreements and to provide equipment and working capital
under lines of credit. These capital requirements amounted to approximately
$21,165,000 and $16,409,000 for 1995 and 1994, respectively. Capital
expenditures in 1995 and 1994 were primarily the result of expanding MITI's
operations and establishing offices in Moscow, Russia; Vienna, Austria;
Budapest, Hungary and Hong Kong.
MITI's capital commitments for calendar year 1995 were comprised of four
primary categories: (i) subscriber equipment, (ii) working capital advances,
(iii) expansion of existing
<PAGE>
50
facilities and (iv) new construction. Most of MITI's Joint Ventures, once
operational, require subscriber equipment and working capital infusions for a
significant period until funds generated by operations are sufficient to cover
operating expenses and capital expenditure requirements. In some cases, the
Joint Venture and MITI agree to expand the existing facilities to increase or
enhance existing services. In those cases, when the Joint Venture cannot provide
these funds from operations, MITI provides the funding. During the construction
phase of the Joint Venture, MITI normally provides the funds required to build
out the project.
During 1995, MITI expended $13,515,000 for capital expenditures on behalf
of its Joint Ventures, including $9,501,000 for cable TV, $2,058,000 for paging,
$38,000 for radio and $1,917,000 for all others. MITI also provided $2,446,000
of initial capital contributions to its Joint Ventures, consisting of $53,000
for cable TV, $630,000 for paging operations, $432,000 for radio, $893,000 for
telephony and $438,000 for all other. In addition, MITI supported certain Joint
Ventures with working capital funds against the Joint Venture's credit lines
totaling $2,504,000, of which $798,000 was for cable TV operations, $303,000 for
paging, $1,396,000 for radio operations and $7,000 for all other.
During 1996, MITI will continue to fund its Joint Ventures in a similar
manner. MITI anticipates funding $20,786,000 in capital requirements for its
Joint Ventures, consisting of $14,732,000 for cable TV, $4,846,000 for paging
Joint Ventures, $883,000 for telephony and $325,000 for radio. In addition, MITI
anticipates approximately $2,293,000 in working capital funding requirements for
Joint Ventures, consisting of $836,000 for cable TV, $598,000 for paging,
$323,000 for telephony and $536,000 for radio. In addition to the foregoing,
MITI anticipates that it will require approximately an additional $18,000,000 in
financing to fund its corporate operations during 1996.
MITI continues to seek out and enter into arrangements whereby it can offer
communications services through joint venture arrangements. Additional Joint
Ventures are being planned in countries in which MITI currently has investments,
as well as in emerging markets in the Pacific Rim. In December 1995, MITI and
Protocall Ventures Ltd. ("Protocall") executed a letter of intent together with
a loan agreement. The letter of intent calls for MITI to loan up to $1,500,000
to Protocall and to purchase 51% of Protocall for $2,600,000. As of December 31,
$915,000 had been loaned to Protocall against the $1,500,000 loan. Upon closing
of the purchase agreement, any principal and accrued interest outstanding under
the loan will be offset against the purchase price otherwise payable to
Protocall. The parties have until [March 31, 1996] to negotiate, execute and
close a definitive purchase agreement and shareholders agreement. If the parties
are unable to reach a definitive agreement, the terms of the loan call for an
annual interest rate of the Chemical prime rate plus 2% and the repayment of the
loan on December 12, 1996.
MITI requires significant capital to fund its operations and to make
capital contributions and loans to its Joint Ventures. MITI relies on the
Company to provide the financing for these activities. In addition, Metromedia
has made available to MITI up to $15 million of revolving credit in order to
satisfy its commitments and working capital requirements pursuant to a Bridge
Loan Agreement dated as of February 29, 1996 (the "MITI Bridge Loan"). MITI may
use the proceeds of loans under such agreement for general corporate and working
capital purposes. As of March 1, 1996 MITI had not borrowed any monies under the
MITI Bridge Loan Agreement. Interest is payable on all loans made pursuant to
the MITI Bridge Loan Agreement at a rate equal to Chemical's prime rate plus 2%.
All loans thereunder are due and payable on the earlier to occur of (i) the
consummation of the refinancing of substantially all of the Company's
indebtedness in connection with the Goldwyn Merger and (ii) January 15, 1997.
The Company
<PAGE>
51
believes that as more of MITI's Joint Ventures commence operations and reduce
their dependence on MITI for funding, MITI will be able to finance its own
operations and commitments from its operating cash flow and MITI will be able to
attract its own financing from third parties. There can, however, be no
assurance that additional capital in the form of debt or equity will be
available to MITI at all or on terms and conditions that are acceptable to the
Company.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. Certain statements in this
Form 10-K, including numerous statements in this Section, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company,
or industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: general economic
and business conditions, which will, among other things, impact demand for the
Company's products and services; industry capacity, which tends to increase
during strong years of the business cycle; changes in public taste, industry
trends and demographic changes, which may influence the exhibition of films in
certain areas; competition from other entertainment and communications
companies, which may affect the Company's ability to generate revenues;
political, social and economic conditions and laws, rules and regulations,
particularly in Eastern Europe and the former Soviet Republics and other
emerging markets which may affect the Communications Group's results of
operations; timely completion of construction projects for new systems for the
Joint Ventures in which the Communications Group has invested, which may impact
the costs of such projects; developing legal structures in Eastern Europe and
the former Soviet Republics and other emerging markets which may affect the
Communications Group's results of operations; cooperation of local partners for
the Company's communications investments in Eastern Europe; exchange rate
fluctuations; license renewals for the Communications Group's investments in
Eastern Europe; the loss of any significant customers (especially in the
Communications Group's business); changes in business strategy or development
plans, which may, among other things, prolong the time it takes to achieve the
performance results included herein; the significant indebtedness of the
Company, including the Company's ability to service its indebtedness and to
comply with certain restrictive covenants; quality of management; availability
of qualified personnel; changes in, or the failure to comply with, government
regulations; and other factors referenced in this Form 10-K, as amended.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required under this item
are included in Item 14 of this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The information required under this item is included in the Company's
Current Report on Form 8-K dated November 1, 1995.
<PAGE>
52
PART III
Item 10. Directors and Executive Officers of the Registrant
Certain information concerning the executive officers of the Company is set
forth in Part I.
MEMBERS OF THE BOARD OF DIRECTORS
The following is a brief description of the business experience for at
least the past five years of current members of the Board of Directors of the
Company:
<TABLE>
<CAPTION>
Name, Principal Occupation For Past Five Years and Certain Class of Director
Directorships Age Directors Since
------------- --- --------- -----
<S> <C> <C> <C>
John P. Imlay, Jr. 59 Class I 1993
Served since 1990 as Chairman of Dun & Bradstreet Software
Services, Inc., an application software company located in Atlanta,
Georgia. Mr. Imlay is the former Chairman of Management Science
America, a mainframe applications software company.
Management Science America was acquired by Dun & Bradstreet
Software Services, Inc. in 1990. Mr. Imlay is also a director of the
Atlanta Falcons, a National Football League team, and The Gartner
Group. Mr. Imlay is a member of the Audit Committee and the
Compensation Committee.
John W. Kluge 81 Class I 1995
Chairman of the Board of Directors of the Company since
November 1, 1995. Chairman of the Board and a director of Orion
Pictures Corporation since 1992. Chairman and President of
Metromedia and its predecessor-in-interest, Metromedia, Inc. for
over five years. Director of The Bear Stearns Companies, Inc.,
WorldCom, Inc., Conair Corporation and Occidental Petroleum
Corporation. Mr. Kluge is Chairman of the Executive Committee.
Stuart Subotnick 54 Class I 1995
Vice Chairman of the Board of Directors of the Company since
November 1, 1995. Vice Chairman of the Board and a director of
Orion Pictures Corporation since 1992. Executive Vice President of
Metromedia and its predecessor-in-interest, Metromedia, Inc., for
over five years. Director of Carnival Cruise Lines, Inc. and
WorldCom, Inc. Mr. Subotnick is Chairman of the Audit
Committee and a member of the Executive and Nominating
Committees.
</TABLE>
<PAGE>
53
<TABLE>
<CAPTION>
Name, Principal Occupation For Past Five Years and Certain Class of Director
Directorships Age Directors Since
------------- --- --------- -----
<S> <C> <C> <C>
John D. Phillips 53 Class II 1994
President and Chief Executive Officer of the Company since
April 19, 1994. Elected to the Board of Directors of the Company
and to the Executive Committee on the same date. Mr. Phillips
served as Chief Executive Officer of Resurgens Communications
Group, Inc. from May 1989 until Resurgens was merged with
Metromedia Communications Corporation and LDDS
Communications, Inc. (now known as WorldCom, Inc.) in
September 1993. He is a director of Restor Industries, Inc. and
Roadmaster Industries, Inc. ("Roadmaster")
Richard J. Sherwin 52 Class II 1995
Co-President of MITI. Mr. Sherwin has served as a President and
director of MITI and its predecessor companies since October 1990.
Prior to that, Mr. Sherwin served as the Chief Operating Officer of
Graphic Scanning Corp., a paging and wireless telecommunications
company.
Leonard White 56 Class II 1992
President and Chief Executive Officer of Orion. Mr. White has
served in this capacity from March 1992 through November 1, 1995.
Interim President and Chief Executive Officer of Orion from March
1992 until November 1992. Chairman of the Board and Chief Executive
Officer of Orion Home Entertainment Corporation, a subsidiary of
Orion ("OHEC"), from March 1991 until March 1992. President and
Chief Operating Officer of Orion Home Video division of OHEC from
March 1987 until March 1991.
Clark A. Johnson 64 Class III 1990
Director of the Company since April 27, 1990. He has served as
chairman and Chief Executive Officer of Pier One Imports, Inc., a
specialty retailer of decorative home furnishings, since August
1988. Mr. Johnson is a director of Albertson's, Inc., Anacomp,
Inc., Heritage Media Corporation, InterTAN, Inc. and Pier One
Imports, Inc. Mr. Johnson is a member of the Compensation and
Audit Committees.
Silvia Kessel 45 Class III 1995
Senior Vice President, Chief Financial Officer and Treasurer of the
Company since the November 1, 1995. Executive Vice President and a
director of Orion Pictures Corporation since January 1993. Senior
Vice President of Orion from June 1991 to November 1992. Senior
Vice President of Metromedia since January 1994. President of Kluge
& Company from January 1994. Managing Director of Kluge & Company
(and its predecessor) from April 1990 to January 1994. Director of
WorldCom, Inc. Ms. Kessel is a member of the Nominating Committee.
</TABLE>
<PAGE>
54
<TABLE>
<CAPTION>
Name, Principal Occupation For Past Five Years and Certain Class of Director
Directorships Age Directors Since
------------- --- --------- -----
<S> <C> <C> <C>
Carl E. Sanders 70 Class III 1967
Engaged in the private practice of law as Chairman of Troutman
Sanders, a law firm located in Atlanta, Georgia. Director of the
Company since 1967, except for a one-year period from April 1970 to
April 1971. Former Governor of the State of Georgia and a director
of Carmike Cinemas, Inc., Norrell Corporation, Healthdyne, Inc.,
and Roadmaster Industries, Inc. Mr. Sanders is Chairman of the
Compensation Committee.
Arnold L. Wadler 52 Class III 1995
Senior Vice President, General Counsel and Secretary of the Company
since November 1, 1995. Senior Vice President, Secretary and
General Counsel of Metromedia and its predecessorin-interest,
Metromedia, Inc., for over five years. Director of Orion Pictures
Corporation since 1992. Mr. Wadler is Chairman of the Nominating
Committee.
</TABLE>
On the Filing Date, Orion and certain of Orion's subsidiaries filed
voluntary bankruptcy petitions under Chapter 11 of the United States Bankruptcy
Code. The United States Bankruptcy Court for the Southern District of New York
confirmed the Plan on October 10, 1992 and the Plan was consummated on November
5, 1992. Each of Silvia Kessel and Leonard White, current directors of the
Company, served as Executive Officers of Orion on the Filing Date.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES AND EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who beneficially own more than 10% of the
outstanding Common Stock, to file with the Securities and Exchange Commission
(the "Commission") and the American Stock Exchange initial reports of ownership
and reports of changes in ownership of the Common Stock. Such officers,
directors and greater than 10% beneficial owners are required by the regulations
of the Commission to furnish the Company with copies of all reports that they
file under Section 16(a). To the Company's knowledge, based solely on a review
of the copies of such reports furnished to the Company and written
representations that no other reports were required, all Section 16(a) filing
requirements applicable to the Company's officers, directors and greater than
10% beneficial owners were complied with by such persons during the fiscal year
ended December 31, 1995.
Item 11. Executive Compensation
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth information on
compensation awarded to, earned by or paid to the Chief Executive Officer and
the four other most highly compensated executive officers during the fiscal
years ended December 31, 1995, December 31,
<PAGE>
55
1994 and December 31, 1993 for services rendered in all capacities to the
Company and its subsidiaries. In addition, the Summary Compensation Table sets
forth similar information for such periods with respect to Frederick B.
Beilstein, III and Walter M. Grant, who would have been among the Company's four
most highly compensated executive officers during 1995 but for the fact that
such persons were not serving as executive officers of the Company at the end of
1995. The persons listed in the table below are referred to as the "Named
Executive Officers."
Summary Compensation
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Awards
------------------------------------ ----------------
Other
Annual Number of Securities All Other
Compensa- Underlying ompensation
Name and Principal Position Year Salary($) Bonus($) tion($)(1) Stock Options(#) ($)(2)
--------------------------- ---- --------- -------- ---------- ---------------- ------
<S> <C> <C> <C> <C> <C> <C>
John D. Phillips 1995 $624,984 $750,000 -- -0- $ 15,096
President and 1994(3) $438,289 $438,289 -- 300,000 $ 13,336
Chief Executive Officer ..... 1993(3) -- -- -- -- --
Frederick B. Beilstein, III(4) 1995 $274,992 $137,500 -- -0- $ 4,480
Former Senior Vice President, 1994 $274,992 $165,000 -- 95,000 $ 4,435
Treasurer and Chief
Financial Officer ......... 1993 $269,783 $ 41,250 -- 19,100 $ 4,390
Walter M. Grant(5) 1995 $237,500 $118,750 -- -0- $ 9,757
Former Senior Vice President, 1994 $237,500 $142,500 -- 95,000 $ 12,623
General Counsel and
Secretary ................... 1993(6) $110,048 $ 16,875 -- 20,000 $ 44,645
W. Tod Chmar 1995 $235,000 $235,000 -- -0- $ 4,095
Senior Vice President ....... 1994(3) $164,801 $ 98,881 -- 70,000 6,866
1993(3) -- -- -- -- --
</TABLE>
- ----------
(1) The Company provides perquisites and other personal benefits to the
executive officers of the Company. The value of the perquisites and
benefits provided to each Named Executive Officer during 1993, 1994 and
1995 did not exceed the lesser of $50,000 or 10% of such officer's salary
plus annual bonus.
(2) The amounts in this column include (i) premiums paid by the Company on
behalf of its executive officers under life insurance policies providing
death benefits to the designated beneficiaries of the executive officers,
including premium payments of (A) $4,200 in each of 1993, 1994 and 1995 on
behalf of Mr. Beilstein, (B) $1,312 in 1993 and $5,080 in 1994 on behalf of
Mr. Grant, and (C) $2,159 in 1994 and $3,945 in 1995 on behalf of Mr.
Chmar; (ii) a payment of $13,336 made by the Company to Mr. Phillips in
1994 and payments of $15,096 and $5,080 made by the Company to Mr. Phillips
and Mr. Grant, respectively, in 1995 in lieu of their participation in the
life insurance programs maintained by the Company for its executive
officers; (iii) matching contributions made by the Company under its
Employee Stock Purchase Plan totaling $3,333 in 1993 for the benefit of Mr.
Grant, $5,000 and $4,582 in 1994 for the benefit of Messrs. Grant and
Chmar, respectively, and $2,083 in 1995 for the benefit of Mr. Grant; (iv)
matching contributions of $2,310 made by the Company in each of 1994 and
1995 for the benefit of Mr. Grant under a 401(k) savings plan sponsored by
a subsidiary of the Company; and (v) a relocation allowance of $40,000
provided by the Company to Mr. Grant in 1993. Under the Company's group
universal life insurance program, each of the Company's executive officers
is entitled to own $500,000 of universal life insurance on which the
Company pays the premiums. In addition to the universal life insurance
program, the Company also made premium payments for term life insurance
policies of (i) $190 in 1993, $235 in 1994 and $280 in 1995 on behalf of
Mr. Beilstein; (ii) $233 in 1994 and $284 in 1995 on behalf of Mr. Grant;
and (iii) $125 in 1994 and $150 in 1995 on behalf of Mr. Chmar.
(3) The amounts shown for 1994 reflect less than a full year of compensation
for Messrs. Phillips and Chmar, both of whom were employed by the Company
on April 19, 1994.
(4) Mr. Beilstein served as Senior Vice President, Treasurer and Chief
Financial Officer of the Company from May 31, 1991 until November 1, 1995.
Following November 1, 1995, Mr. Beilstein remained as an employee of the
Company until January 21, 1996. The amounts shown in the table for 1995
reflect all compensation paid to or accrued for Mr. Beilstein during 1995.
<PAGE>
56
Mr. Beilstein served as a consultant to the Company from January 22, 1996
through March 3, 1996 pursuant to the terms of a Post-Employment Consulting
Agreement between the Company and Mr. Beilstein. See "--Certain Agreements
Regarding Employment--Post-Employment Consulting Agreements with Walter M.
Grant and Frederick B. Beilstein."
(5) Mr. Grant served as Senior Vice President, General Counsel and Secretary of
the Company from July 6, 1993 until the consummation of the November 1
Mergers. Following November 1, 1995, Mr. Grant has remained as an employee
of the Company in order to assist in transition activities relating to the
November 1 Mergers. The amounts shown in the table for 1995 reflect all
compensation paid to or accrued for Mr. Grant during 1995. It is
contemplated that Mr Grant will remain as an employee of the Company until
June 15, 1996, after which he will serve as a consultant to the Company
pursuant to the terms of a Post-Employment Consulting Agreement between the
Company and Mr. Grant. See "--Certain Agreements Regarding
Employment--Post-Employment Consulting Agreements with Walter M. Grant and
Frederick B. Beilstein."
(6) The amounts shown for 1993 reflect less than a full year of compensation
for Mr. Grant, who was employed by the Company on July 6, 1993.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The Company did not grant any stock options or limited stock appreciation
rights ("SARs") to any of the Named Executive Officers during the fiscal year
ended December 31, 1995. The following table sets forth information concerning
the exercise of options or SARs by the Named Executive Officers during the last
fiscal year and the number of unexercised options and SARs held by such officers
as of the end of the 1995 fiscal year.
FY End Value--$14.00
AGGREGATED OPTION AND SAR EXERCISES IN 1995 AND FISCAL
YEAR-END OPTION AND SAR VALUES
<TABLE>
<CAPTION>
Number of Securities
Value Realized Underlying Unexercised Value of Unexercised in
Shares ($)(Market price Options/SARs at Fiscal the Money Options/SARs
acquired on at exercise less Year End(#) at Fiscal Year End($)
Name exercise(#) exercise price) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John D. Phillips........... -0- -0- 300,000 -0- $2,287,500 -0-
Frederick B. Beilstien, III 47,000 $417,000 49,825 52,275 $ 33,425 $272,445
Walter M. Grant............ 46,000 $409,430 16,500 52,500 $ 88,914 $296,876
W. Tod Chmar............... -0- -0- 36,542 36,542 $ 185,938 $185,938
</TABLE>
Pension Plans
The Company maintains a qualified defined benefit pension plan and a
nonqualified supplemental pension plan for the benefit of eligible participants,
including certain of the Company's executive officers. The Company's
nonqualified supplemental pension plan provides benefits that would otherwise be
denied participants by reason of certain code limitations on qualified plan
benefits and provides certain other supplemental pension benefits to certain of
the Company's executive officers and highly compensated employees. On December
13, 1995, the Board of Directors of the Company amended the pension plan and the
supplemental pension plan to cease benefit accruals after December 31, 1995.
Accordingly, the only benefits that will be payable under these plans are those
benefits that had accrued as of December 31, 1995.
<PAGE>
57
A participant's compensation covered by the Company's pension plan and
supplemental pension plan is his or her average annual compensation for the five
consecutive calendar plan years during the last ten years of the participant's
career for which such average is the highest or, in the case of a participant
who has been employed for less than five full calendar years, the period of his
or her employment with the Company and its subsidiaries ("covered
compensation"). A participant's covered compensation generally means the total
taxable compensation required to be reported on the participant's Form W-2 for
income tax purposes, except that this amount (excluding bonuses) is annualized
for periods covering less than a full calendar year. Generally, a participant
earns retirement benefits at the rate of 2% of his covered compensation for the
first 20 years of service and 1% for each additional 20 years of service.
Participants become vested in their retirement benefits after completing at
least five years of servicing or attaining age 50 or upon retirement after age
62 with at least one year of service. The estimated years of service for each
Named Executive Officer as of December 31, 1995 was as follows: Mr. Phillips:
1-2/3 years; Mr. Beilstein: 4-1/2 years; Mr. Grant - 2 1/2 Years; and Mr. Chmar:
1-2/3 years. Based on these provisions and the number of years of service
completed, the annual vested retirement benefits as of December 31, 1995 were
$42,015 for Mr. Phillips and $24,189 for Mr. Grant. These benefits are based on
a straight line annuity beginning at age 62. Mr. Beilstein and Mr. Chmar did not
have a vested retirement benefit as of December 31, 1995, the date as of which
the Company ceased benefit accruals under its pension plans. Accordingly,
neither Mr. Beilstein nor Mr. Chmar is entitled to receive pension benefits
under such plans upon retirement. A participant's covered compensation for
purposes of the pension plan differs from compensation reported in the Summary
Compensation Table (the "Table") in that (i) covered compensation includes
certain taxable employee benefits not required to be reported in the Table and
(ii) covered compensation includes all compensation received by the executive
during the year (regardless of when it was earned), whereas the Table includes
only compensation earned during the year.
COMPENSATION OF DIRECTORS
During 1995, each director of the Company who was not employed by the
Company (the "Non-Employee Directors") received a $2,000 monthly retainer plus a
separate attendance fee for each meeting of the Board of Directors or committee
of the Board of Directors in which such director participated. During 1995, the
attendance fees were $1,200 for each meeting of the Board of Directors attended
by a Non-Employee Director in person and $500 for each meeting of the Board of
Directors in which a Non-Employee Director participated by conference telephone
call. Members of committees of the Board of Directors are paid $500 for each
meeting attended.
Prior to December 13, 1995, Non-Employee Directors were entitled to receive
options to purchase shares of the Company's Common Stock under the Company's
1991 Non-Employee Director Stock Option Plan (as amended, the "Director Plan").
Under the Director Plan, each Non-Employee Director who was a director of the
Company on August 3, 1992 was granted an option to purchase 10,000 shares of the
Company's Common Stock at an exercise price of $11.875, the closing price of the
Common Stock on the trading day immediately preceding the date of grant. Options
granted to these Non-Employee Directors became fully vested as to all 10,000
shares upon approval of certain amendments to the Director Plan at the Company's
1993 Annual Meeting of Stockholders.
The Director Plan further provided that each person who became a
Non-Employee Director of the Company after August 3, 1992 would receive an
option to purchase 10,000 shares of the Company's Common Stock on the day such
director is elected as a director, at an exercise
<PAGE>
58
price equal to the closing price of the Common Stock on the trading day
preceding such director's election. Options granted to these Non-Employee
Directors became fully vested and exercisable as to all 10,000 shares on March
31 in the year after the date the Non-Employee Director was elected, provided
the Company had net income for the year in which the Non-Employee Director was
elected or earnings equal to or better than budgeted results for such year.
All options granted under the Director Plan had a term of ten years. The
Director Plan had originally been scheduled to terminate on June 27, 2001.
However, at a meeting of the Board of Directors held on December 13, 1995, the
Board of Directors terminated the Director Plan. Options outstanding as of
December 13, 1995 are unaffected by the termination of the Director Plan.
In addition to establishing a stock option plan for its Non-Employee
Directors, the Company implemented, during the first quarter of 1992, a group
medical plan for its NonEmployee Directors (the "Non-Employee Director Medical
Plan") which provided medical coverage at group premium rates to active
Non-Employee Directors electing such coverage and to any Non-Employee Director
who retired from the Board of Directors after attaining age 65 and who either
participated in the plan for the entire period that the individual served as a
director since March 1, 1992 or participated in the plan for the three
consecutive years immediately prior to the individual's retirement as a
director. The medical plan paid for 100% of a Non-Employee Director's single
coverage premium and between 25% and 50% of the dependent coverage premium. At
the meeting of the Board of Directors of the Company held on December 13, 1995,
the Company's Board of Directors terminated the Non-Employee Director Medical
Plan.
CERTAIN AGREEMENTS REGARDING EMPLOYMENT
Phillips Employment Agreement
Mr. Phillips and the Company are parties to an employment agreement dated
as of April 19, 1994, as amended on November 1, 1995 (the "Phillips Employment
Agreement"), under which the Company has agreed to employ Mr. Phillips as its
President and Chief Executive Officer reporting directly to the Vice Chairman of
the Company. The Phillips Employment Agreement provides that Mr. Phillips will
be entitled to receive a base salary at an annual rate of $625,000 per year. Mr.
Phillips also is entitled to participate in the Company's Senior Officer Bonus
Plan and to receive other benefits provided by the Company to its senior
corporate officers. Both the Company and Mr. Phillips have the right to
terminate the Phillips Employment Agreement at any time. If the Company
terminates the Phillips Employment Agreement without cause (as defined in the
Phillips Employment Agreement) or by request for resignation by the Chairman of
Vice Chairman of the Company or if Mr. Phillips terminates the Phillips
Employment Agreement for good reason (as defined in the Phillips Employment
Agreement), the Company will be required to continue to pay Mr. Phillips' base
salary and other benefits and to provide Mr. Phillips with an office and a
secretary designated by the Company for one year following such termination. If
the Company terminates the Phillips Employment Agreement with cause or if Mr.
Phillips terminates the Phillips Employment Agreement, Mr. Phillips will be
entitled to receive his base salary and other benefits only through the date of
termination.
In connection with his employment, Mr. Phillips also received from the
Company an option (the "Phillips Option") to purchase 300,000 shares of Common
Stock at a price of $6.375 per share. The Phillips Option may be exercised at
any time until the Phillips Option terminates on April 18, 2001. Mr. Phillips
has the right to transfer the Phillips Option in whole or in part
<PAGE>
59
at any time. The Company has entered into a Registration Rights Agreement with
Mr. Phillips pursuant to which the Company has agreed to register with the
Commission any shares purchased upon the exercise of the Option.
Post-Employment Agreements with Walter M. Grant and Frederick B. Beilstein
The Company has entered into Post-Employment Consulting Agreements (the
"PostEmployment Agreements") with two former officers, Frederick B. Beilstein,
III, former Senior Vice President and Chief Financial Officer, and Walter M.
Grant, former Senior Vice President and General Counsel. The Post-Employment
Agreements provide that if an executive's employment with the Company is
terminated by the Company (other than for cause) or if the executive's
employment is terminated by the executive for "good reason," then the Company
will retain the executive as a consultant for a period of two years following
the date of termination of his employment. An executive may terminate his
employment for "good reason" in the event of (i) a reduction in his base salary
or benefits other than an across-the-board reduction involving similarly
situated employees; (ii) the relocation of his full-time office to a location
greater than 50 miles from the Company's current corporate office; or (iii) a
reduction in his corporate title. The Post-Employment Agreements provide that
the Company, in exchange for the executive's post-employment consulting
services, will pay a monthly consulting fee to the executive in an amount equal
to the executive's monthly base salary at the time of the termination of his
employment. The Post-Employment Agreements also provide for the continuation of
certain medical and other employee benefits during the two-year consulting
period. In connection with its approval of the November 1 Mergers, the Board of
Directors of the Company agreed that Mr. Beilstein and Mr. Grant would each be
permitted to terminate his employment with the Company and receive the payments
and other benefits due under his Post-Employment Agreement if he did not wish to
remain with the Company following the consummation of the November 1 Mergers.
The Company's Board of Directors has agreed that Mr. Grant can terminate
his employment with the Company at any time on or before June 15, 1996 and
thereafter receive the payments and other benefits due under his Post-Employment
Agreement. The maximum amount payable to Mr. Grant under his Post-Employment
Agreement (including the Company's share of the medical and other benefits to
which Mr. Grant will be entitled) is $485,851. This amount, however, will be
reduced in the event that Mr. Grant has "earned income" (as defined in his
Post-Employment Agreement) during his two year consulting period. The minimum
amount payable to Mr. Grant under his Post-Employment Agreement is $237,500.
Mr. Beilstein's employment with the Company was terminated on January 21,
1996, and his consulting period under his Post-Employment Agreement began on
that date. Mr. Beilstein's Post-Employment Agreement was terminated on March 3,
1996 when Mr. Beilstein accepted employment with another company. The amount
paid by the Company to Mr. Beilstein to satisfy the Company's obligation to Mr.
Beilstein under his Post-Employment Agreement totaled $291,263.44.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to September 15, 1995, the Compensation Committee consisted of John
E. Aderhold, John P. Imlay, Jr., J.M. Darden, III and Richard Nevins. On
September 15, 1995,
<PAGE>
60
Clark A. Johnson replaced J.M. Darden, III. After October 1995, the Compensation
Committee consisted of John P. Imlay, Jr., Clark A. Johnson and Carl E. Sanders.
Mr. Sanders is Chairman of Troutman Sanders, a law firm which provided
legal services to the Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of April 22, 1996, certain information
regarding each person (including any "group" as that term is used in Section
13(d)(3) of the Exchange Act) known (based solely upon filings with the
Commission prior to such date pursuant to Sections 13(d) or 13(g) of the
Exchange Act) to own beneficially (as such term is defined in Rule 13d-3 under
the Exchange Act) more than 5% of the outstanding Common Stock. In accordance
with the rules promulgated by the Commission, such ownership includes shares
currently owned as well as shares which the named person has the right to
acquire beneficial ownership of within 60 days, including, but not limited to,
shares which the named person has the right to acquire through the exercise of
any option, warrant or right, or through the conversion of a security.
Accordingly, more than one person may be deemed to be a beneficial owner of the
same securities.
<TABLE>
<CAPTION>
Percentage of
Number of Shares of Outstanding
Common Stock Common
Name and Address of Beneficial Owner Beneficially Owned(1) Stock
- ------------------------------------ --------------------- -----
<S> <C> <C>
John W. Kluge, Stuart Subotnick and
Metromedia .............................................. 15,252,128(2) 35.8%
One Meadowlands Plaza
E. Rutherford, NJ 07073
Mellon Bank Corporation, Mellon Bank, N.A.,
Franklin Portfolio Associates Trust, Mellon Capital
Management Corporation and The Dreyfus Corporation......... 2,130,000(3) 5.22%
c/o Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, PA 15258
</TABLE>
- ----------
(1) Unless otherwise indicated by footnote, the named individuals have sole
voting and investment power with respect to the shares of Common Stock
beneficially owned.
(2) Metromedia is owned and controlled by John W. Kluge and Stuart Subotnick,
each of whom is a director of the Company. The amount set forth in the
table above includes 2,605,448 and 231,225 shares of Common Stock owned
directly by a trust affiliated with Mr. Kluge and by Mr. Subotnick,
respectively; the balance is owned by Mr. Kluge and Mr. Subotnick
beneficially through Metromedia and Met Telcell, Inc. ("Met Telcell"), a
corporation owned and controlled by Messrs. Kluge and Subotnick.
<PAGE>
61
(3) Based on Schedule 13G dated January 22, 1996 in which Mellon Bank
Corporation reported that its subsidiaries, Mellon Bank, N.A., Franklin
Portfolio Associates Trust, Mellon Capital Management Corporation and The
Dreyfus Corporation, had sole voting power with respect to 2,130,000 shares
of Common Stock and sole dispositive power with respect to 241,000 shares
of Common Stock.
Securities Beneficially Owned by Directors and Executive Officers
The following table sets forth beneficial ownership of Common Stock as of
April 22, 1996 with respect to (i) each director of the Company, (ii) each
executive officer named in the Summary Compensation Table under "Executive
Compensation" and (iii) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Percentage
Name of Beneficial Owner Beneficially of Common
- ------------------------ Owned(1)(10) Stock
------------ -----
<S> <C> <C>
Frederick B. Beilstein, III................................ -- *
W. Tod Chmar............................................... 735,542(2)(6)(7) 1.7%
Walter M. Grant............................................ 45,832(2)(6) *
John P. Imlay, Jr.......................................... 10,000 *
Clark A. Johnson........................................... 18,000(2) *
John W. Kluge.............................................. 15,020,903(3) 35.2%
Silvia Kessel.............................................. 3,085 *
John D. Phillips........................................... 1,000,000(4) 2.3%
Carl E. Sanders............................................ 22,097(2)(8) *
Richard J. Sherwin......................................... 912,605(11) 2.1%
Stuart Subotnick........................................... 12,646,680(5) 29.7%
Arnold L. Wadler........................................... 15,416 *
Leonard White.............................................. -- *
All Directors and Executive Officers as a group
(13 persons)............................................... 17,289,605(9) 39.5%
---------- ----
</TABLE>
- ----------
* Holdings do not exceed one percent of the total outstanding shares of
Common Stock.
(1) Unless otherwise indicated by footnote, the named individuals have sole
voting and investment power with respect to the shares of Common Stock
beneficially owned.
(2) Includes shares subject to purchase within the next 60 days under the
Company's 1989 Stock Option Plan and under the Company's 1991 Non-Employee
Director Stock Option Plan.
(3) Represents 12,415,455 shares beneficially owned through Metromedia and Met
Telcell and 2,605,448 shares of Common Stock owned directly by a trust
affiliated with Mr. Kluge.
(4) Includes 1,000 shares owned by Mr. Phillips directly, 699,000 shares owned
by Renaissance Partners, a Georgia general partnership in which Mr.
Phillips is a general partner, and 300,000
<PAGE>
62
shares subject to purchase by Mr. Phillips within the next 60 days pursuant
to the exercise of a stock option. Mr. Phillips disclaims beneficial
ownership of the shares owned by Renaissance Partners except to the extent
of his interest in Renaissance Partners.
(5) Represents 12,415,455 shares beneficially owned through Metromedia and Met
Telcell and 231,225 shares owned directly by Mr. Subotnick.
(6) Includes shares allocated to the Named Executive Officer's account under
the Employees Stock Purchase Plan as of the date hereof.
(7) Includes 699,000 shares owned by Renaissance Partners, a Georgia general
partnership in which a corporation owned by Mr. Chmar serves as general
partner. Mr. Chmar disclaims beneficial ownership of the shares owned by
Renaissance Partners except to extent of his interest in Renaissance
Partners.
(8) Includes 600 shares subject to purchase by Mr. Sanders within the next 60
days pursuant to the conversion of the $25,000 face amount (less than 1%)
of the Company's 6 1/2% Convertible Subordinated Debentures due 2002
beneficially owned by Mr. Sanders, which are convertible into Common Stock
at a conversion price of $415/8 per share.
(9) The number of shares shown for directors and executive officers as a group
includes an aggregate of 1,103,884 shares which are subject to purchase
within 60 days of the date hereof pursuant to stock options and other
convertible securities.
(10) Does not include options issued under the Metromedia International Group,
Inc. 1996 Incentive Stock Plan as such options are not presently
exercisable and will not become exercisable within 60 days of the date
hereof.
(11) Includes options to purchase 657,916 shares of Common Stock exercisable
within 60 days of the date hereof.
Item 13. Certain Relationships and Related Transactions
RELATIONSHIP WITH METROMEDIA COMPANY
The Company is a party to a number of agreements and arrangements with
Metromedia and its affiliates, the material terms of which are summarized below.
HISTORICAL RELATIONSHIP
As described above, Metromedia and its affiliates are collectively the
largest single stockholder of the Company and currently own approximately 35.8%
of the issued and outstanding shares of Common Stock. Prior to the November 1
Mergers, Metromedia and its affiliates were the principal stockholders of Orion
and MITI, two of the parties to the November 1 Mergers.
In addition, prior to the November 1 Mergers, Orion, MITI and Sterling were
party to a number of material contracts and other arrangements with Metromedia
and certain affiliates of Metromedia pursuant to which Metromedia and certain of
its affiliates made loans or provided financing to, or paid obligations on
behalf of, each of Orion, MITI and Sterling (collectively, the "Metromedia
Obligations"). A condition to the consummation of the November 1 Mergers was
<PAGE>
63
that the Metromedia Obligations be refinanced, repaid or converted into equity
of the Company in the manner provided in the agreements relating to the November
1 Mergers.
A portion of the Metromedia Obligations ($20,400,000 owed by Orion,
$34,076,000 owed by MITI and $524,000 owed by Sterling) was financed by
Metromedia through borrowings under a $55 million credit agreement between the
Company (then known as "The Actava Group Inc.") and Metromedia (the
"Actava-Metromedia Credit Agreement"). On November 1, 1995, Orion, MITI and
Sterling each repaid such amounts to Metromedia Company and Metromedia Company
repaid the amounts owed by it to the Company under the Actava-Metromedia Credit
Agreement ($55 million). Because on November 1, 1995, Orion, Sterling and MITI
had been merged with the Company, there was no net addition to the assets of the
Company as a result of these transactions.
In addition, prior to the November 1 Mergers, Metromedia and John W. Kluge,
the Chairman and Chief Executive Officer of Metromedia, had guaranteed (the
"Orion Guarantee") certain amounts owed by Orion under its then existing credit
facility and certain amounts owed to Sony by Orion. Metromedia and Mr. Kluge
were majority stockholders of Orion and issued guarantees in 1991 as part of the
Plan. As consideration for the guarantees and the contribution to Orion by
Metromedia and Mr. Kluge of $15 million in cash and certain rights in a film,
Metromedia and Mr. Kluge received a total of 10,020,000 shares of Orion common
stock. Pursuant to the Orion Guarantee, Metromedia made payments on behalf of
Orion to the banks and to Sony in the amount of $59,592,446 during 1994 and
1995. Under a Reimbursement Agreement between Orion and Metromedia, Orion was
required to reimburse Metromedia in full for all payments made pursuant to the
Orion Guarantee by Metromedia on Orion's behalf. Accordingly, at the effective
time of the November 1 Mergers, Orion repaid Metromedia $63,296,514 pursuant to
the Reimbursement Agreement. Of the payments made by Metromedia on behalf of
Orion and repaid by Orion to Metromedia pursuant to the Reimbursement Agreement,
$20,400,000 was financed by borrowings by Metromedia under the ActavaMetromedia
Credit Agreement described above.
Prior to the November 1 Mergers, Metromedia, through an affiliate, provided
Orion and its affiliates with non-recourse financing (which was not financed by
Metromedia pursuant to the Actava-Metromedia Credit Agreement) to acquire
certain theatrical and home video product (the "MetProductions Indebtedness").
Pursuant to a Contribution Agreement entered into in connection with the
November 1 Mergers, all of the MetProductions Indebtedness ($10,426,552 at
November 1, 1995, including accrued interest) was converted into 993,005 shares
of Common Stock at the effective time of the November 1 Mergers. In addition,
Metromedia, through its affiliates, provided MITI and its affiliates with
certain loans (which were not financed by Metromedia pursuant to the
Actava-Metromedia Credit Agreement) to fund MITI's operations and repay certain
of its indebtedness (the "MITI Indebtedness"). Pursuant to the Contribution
Agreement, all of the MITI Indebtedness ($26,641,744 at November 1, 1995,
including accrued interest) was converted into 2,537,309 shares of Common Stock
at the effective time of the November 1 Mergers.
ONGOING RELATIONSHIP WITH THE COMPANY
Orion Credit Facility. On November 1, 1995, Orion entered into the Existing
Orion Credit Agreement with Chemical under which Chemical agreed to provide
Orion with a five-year secured credit facility in an aggregate amount of $185
million, consisting of the Orion Term Loan and the Orion Revolver to finance
Orion's development, production, acquisition and worldwide
<PAGE>
64
distribution and exploitation of motion pictures, video product and
made-for-television product. In order to induce Chemical to provide the
revolving credit facility, John W. Kluge and Metromedia agreed to guarantee the
due and punctual payment of all funds due under the revolving credit loan
portion of such credit facility, including all related costs and attorneys'
fees. As of December 31, 1995, the amount owed by Orion under the Orion Revolver
was $12 million, plus $9 million reserved for outstanding letters of credit.
In addition, Metromedia guaranteed the payment by Orion to Chemical of
certain fees payable in connection with the execution of the commitment letter
with Chemical for the Existing Orion Credit Facility. All such fees were paid by
Orion on January 2, 1996. Furthermore, Metromedia guaranteed the payment of
certain third party accounts receivable owed to Orion so that the entire face
amount of such accounts could be included in the borrowing base for the Existing
Orion Credit Facility. Neither Mr. Kluge nor Metromedia received any
consideration for guaranteeing Orion's obligations under this credit facility.
Their guarantees were, however, a condition to Chemical's agreeing to provide
the Orion Revolver.
MIG Credit Facility. Mr. Kluge has guaranteed the payment by the Company of
the difference between the amount outstanding under the MIG Credit Facility
(which fluctuates from time to time) and the maximum available amount permitted
to be outstanding under such credit facility, which is based on a percentage of
the market value of the shares of Roadmaster held by the Company.
MITI Bridge Loan Agreement. Metromedia has made available to MITI up to $15
million of revolving credit in order to satisfy its commitments and working
capital requirements pursuant to the MITI Bridge Loan. MITI may use the proceeds
of loans under such agreement for general corporate and working capital
purposes. As of March 1, 1996, MITI had not borrowed any monies under the MITI
Bridge Loan.
Management Agreement. The Company is a party to a management agreement with
Metromedia dated November 1, 1995 (the "Management Agreement"), pursuant to
which Metromedia provides the Company with management services, including legal,
insurance, payroll and financial accounting systems and cash management, tax and
benefit plans. The Management Agreement terminates on October 31, 1996, and is
automatically renewed for successive one year terms unless either party
terminates upon 60 days prior written notice. The management fee under the
Management Agreement is $1.5 million per year, payable monthly at a rate of
$125,000 per month. The Company is also obligated to reimburse Metromedia all
its out-of-pocket costs and expenses incurred and advances paid by Metromedia in
connection with the Management Agreement. Pursuant to the Management Agreement,
the Company has agreed to indemnify and hold Metromedia harmless from and
against any and all damages, liabilities, losses, claims, actions, suits,
proceedings, fees, costs or expenses (including reasonable attorneys' fees and
other costs and expenses incident to any suit, proceeding or investigation of
any kind) imposed on, incurred by or asserted against Metromedia in connection
with the Management Agreement. In fiscal 1995, Metromedia received no money for
its out-of-pocket costs and expenses or interest on advances extended by it to
the Company pursuant to the Management Agreement.
Trademark License Agreement. The Company is a party to a license agreement
with Metromedia (the "Metromedia License Agreement"), pursuant to which
Metromedia has granted the Company a non-exclusive, non-transferable,
non-assignable right and license, without the right to grant sublicenses, to use
the trade name, trademark and corporate name "Metromedia"
<PAGE>
65
in the United States and with respect to MITI, worldwide, royalty-free for a
term of 10 years. The Metromedia License Agreement can be terminated by
Metromedia upon one month's prior written notice in the event that (i)
Metromedia or its affiliates own less than 20% of the Common Stock; (ii) a
Change in Control of the Company (as defined below) occurs; or (iii) any of the
stock or all or substantially all of the assets of any of the subsidiaries of
the Company are sold or transferred, in which case, the Metromedia License
Agreement shall terminate with respect to such subsidiary. A Change in Control
of the Company is defined as (a) a transaction in which a person or "group"
(within the meaning of Section 13(d)(3) of the Exchange Act) not in existence at
the time of the execution of the Metromedia License Agreement becomes the
beneficial owner of stock entitling such person or group to exercise 50% or more
of the combined voting power of all classes of stock of the Company; (b) a
change in the composition of the Company's Board of Directors whereby a majority
of the members thereof are not directors serving on the board at the time of the
Metromedia License Agreement or any person succeeding such director who was
recommended or elected by such directors; (c) a reorganization, merger or
consolidation whereby following consummation thereof, Metromedia would hold less
than 20% of the combined voting power of all classes of the Company's stock; (d)
a sale or other disposition of all or substantially all of the assets of the
Company; or (e) any transaction the result of which would be that the Common
Stock would not be required to be registered under the Exchange Act and the
holders of Common Stock would not receive common stock of the survivor to the
transaction which is required to be registered under the Exchange Act.
In addition, Metromedia has reserved the right to terminate the Metromedia
License Agreement in its entirety immediately upon written notice to the Company
if, in Metromedia's sole judgment, the Company's continued use of "Metromedia"
as a trade name would jeopardize or be detrimental to the good will and
reputation of Metromedia.
Pursuant to the Metromedia License Agreement, the Company has agreed to
indemnify and hold harmless Metromedia against any and all losses, claims,
suits, actions, proceedings, investigations, judgments, deficiencies, damages,
settlements, liabilities and reasonable legal (and other expenses related
thereto) arising in connection with the Metromedia License Agreement.
The Company believes that the terms of each of the transactions described
above were no less favorable to the Company then could have been obtained from
non-affiliated parties.
Image Output Agreement. Mr. Kluge beneficially owns more than 10% of the
common stock of Image Investors Co., a Delaware corporation. Image Investors
owns approximately 40% of the common stock of Image Entertainment, Inc.
("Image"). OHEC was a party to an output license agreement with Image which
terminated on December 31, 1992 pursuant to which OHEC granted to Image the
rights to manufacture, market and sell on laserdiscs for private in-home use
certain feature length programs released by Orion on videocassette for a period
of three years from the date of first release by Image on laserdisc in
consideration of a royalty payment payable with respect to each program. For the
year ended December 31, 1995, Image paid to Orion approximately $719,310 under
the agreement. Orion, OHEC and Image have recently entered into a new output
agreement.
WorldCom. Orion is a customer of WorldCom (formerly known as LDDS
Metromedia Communications), which provides long distance telephone services to
Orion. Mr. Kluge, the Chairman of the Company, is Chairman of the Board of
WorldCom; Mr. Subotnick, the Vice Chairman of the Board of the Company, is a
Director of WorldCom; and Silvia Kessel, a Senior
<PAGE>
66
Vice President and Director of the Company serves on WorldCom's Board of
Directors. For the fiscal year ended December 31, 1995, Orion paid $164,583 to
WorldCom.
Miscellaneous. Orion reimbursed Metromedia $95,000 for the services of
Silvia Kessel during 1995, a Senior Vice President of Metromedia who also serves
as Executive Vice President of Orion.
Mr. Phillips is the sole stockholder of JDP Aircraft II, Inc., a Georgia
corporation ("JDP Aircraft"). On October 21, 1994, the Company and JDP Aircraft
entered into a lease agreement under which JDP Aircraft provides the Company
with the use of a Citation Jet owned by JDP Aircraft. The lease agreement can be
terminated by either party by giving 30 days' notice to the other party. The
Company paid $298,367 to JDP Aircraft under the lease agreement for services
provided during 1995.
On April 19, 1994, Mr. Phillips was elected President and Chief Executive
Officer of the Company. He was elected to the Board of Directors of the Company
on the same date. At the same time, Renaissance Partners in which Mr. Phillips
serves as a general partner, purchased 700,000 shares of Common Stock from the
Company for $4,462,500, representing a price of $6.375 per share. This price
represents the last sale price of the Common Stock on the New York Stock
Exchange (on which the Common Stock was traded prior to the November 1 Mergers)
on April 11, 1994, the date before the Company announced that it had received an
investment proposal from Mr. Phillips. The Company has entered into a
Registration Rights Agreement with Renaissance Partners pursuant to which the
Company agreed to register with the Commission the 700,000 shares of Common
Stock purchased by Renaissance Partners. Such shares were registered with the
Commission in November 1995.
<PAGE>
67
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 part of this Annual Report on Form 10-K, as
amended.
(a)(3) Exhibits
The exhibits listed in the accompanying Exhibit Index are filed as part of
this Annual Report on Form 10-K, as amended.
(b) Current Reports on Form 8-K
4 Current Reports on Form 8-K were filed during the fourth quarter of 1995:
(i) On November 1, 1995, a Form 8-K was filed to report the
consummation of the November 1 Mergers involving the Company (formerly
known as The Actava Group Inc.), Metromedia International
Telecommunications, Inc., MCEG Sterling Incorporated, Orion Pictures
Corporation, OPC Merger Corp. and MITI Merger Corp., and the hiring of KPMG
Peat Marwick LLP as the Company's independent certified public accountants
for 1995.
(ii) On November 28, 1995, a Form 8-K was filed to report the
execution of a letter of intent by and among the Company, Motion Picture
Corporation of America, Bradley R. Krevoy and Steven Stabler.
(iii) On November 30, 1995, a Form 8-K was filed to report the
execution of a letter of intent by and among the Company and Alliance
Entertainment Corp.
(iv) On December 20, 1995, a Form 8-K was filed to report the
execution of an Agreement and Plan of Merger, dated December 20, 1995, by
and among the Company, Alliance Merger Corp. and Alliance Entertainment
Corp.
<PAGE>
68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
METROMEDIA INTERNATIONAL GROUP, INC.
By: /s/ SILVIA KESSEL
------------------------------
Silvia Kessel
Senior Vice President
Dated: May 29, 1996
<PAGE>
69
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits Incorporated Herein by Reference
-----------------------------------------------
Document with Which
Exhibit Was Previously Designation of Such
Filed with Exhibit in That
Description of Exhibits Commission Document
----------------------- ---------------------- -------------------
<C> <C> <C> <C>
2.1 Stock Purchase Agreement by and among JCJ, Current Report on Exhibit 2(a)
Inc., Eastman Kodak Company and The Actava Form 8-K filed on
Group Inc. dated August 12, 1994. Also filed August 25, 1994
as exhibits thereto are: Exhibit A - Promissory
Note; Exhibit B - Seller Release; and Exhibit C
- Noncompetition Agreement. The following is
a list of omitted schedules (or similar
attachments) which The Actava Group Inc. as
registrant agrees to furnish supplementally to
the Commission upon request: Exhibit D -
Certificate of Incorporation of Qualex Inc.;
Exhibit E - By-Laws of Qualex Inc.; Exhibit F
- Buyer Release; Schedule 1- Shares Owned by
Seller; Schedule 2.02 - Capitalization of Qualex
Inc.; and Schedule 2.06 - Agreements between
The Actava Group Inc. and Qualex Inc.
2.2 Agreement and Plan of Reorganization dated as Quarterly Report on Exhibit 2
of July 20, 1994 by and among, The Actava Form 10-Q for the
Group Inc., Diversified Products Corporation, three months ended
Hutch Sports USA Inc., Nelson/Weather-Rite, June 30, 1994
Inc., Willow Hosiery Company, Inc. and
Roadmaster Industries, Inc.
2.3 Amended and Restated Agreement and Plan of Current Report on Form Exhibit 99(a)
Merger dated as of September 27, 1995 by and 8-K for event occurring
among The Actava Group Inc., Orion Pictures on September 27, 1995
Corporation, MCEG Sterling Incorporated,
Metromedia International Telecommunications,
Inc., OPG Merger Corp. and MITI Merger
Corp. and exhibits thereto. The Registrant
agrees to furnish copies of the schedules
supplementally to the Commission on request.
2.4 Agreement and Plan of Merger dated as of Current Report on Form Exhibit 99.1
December 20, 1995 by and among Metromedia 8-K dated
International Group, Inc., Alliance December 20, 1995
Entertainment Corp. and Alliance Merger Corp.
and exhibits thereto. The Registrant agrees to
furnish copies of the schedules supplementally
to the Commission on request.
</TABLE>
<PAGE>
70
<TABLE>
<CAPTION>
Exhibits Incorporated Herein by Reference
-----------------------------------------------
Document with Which
Exhibit Was Previously Designation of Such
Filed with Exhibit in That
Description of Exhibits Commission Document
----------------------- ---------------------- -------------------
<C> <C> <C> <C>
2.5 Agreement and Plan of Merger dated as of Current Report on Form Exhibit 99.1
January 31, 1996 by and among Metromedia 8-K dated January 31,
International Group, Inc., The Samuel Goldwyn 1996
Company and SGC Merger Corp. and exhibits
thereto. The registrant agrees to furnish copies
of the schedules to the Commission upon
request.
2.6 Termination and Release Agreement dated Current Report on Form Exhibit 99.2
April 29, 1996 by and among the Registrant, 8-K dated April 29,
Alliance Entertainment Corp. and Alliance 1996
Merger Corp.
3.1 Restated Certificate of Incorporation of Registration Statement Exhibit 3(a)
Metromedia International Group, Inc. on Form S-3
(Registration No.
33-63853)
3.2 Restated By-laws of Metromedia International Registration Statement Exhibit 3(b)
Group, Inc. on Form S-3
(Registration No.
33-6353)
4.1 Indenture dated as of August 1, 1973, with Application of Exhibit T3C
respect to 9 1/2% Subordinated Debentures due Form T-3 for
August 1, 1998, between The Actava Group Qualification of
Inc. and Chemical Bank, as Trustee. Indenture under the
Trust Indenture Act of
1939 (File No. 22-7615)
4.2 Agreement among The Actava Group, Inc., Registration Statement Exhibit 4(d)(ii)
Chemical Bank and Manufacturers Hanover on Form S-14
Trust Company, dated as of September 26, (Registration
1980, with respect to successor trusteeship of No. 2-81094)
the 9 1/2% Subordinated Debentures due
August 1, 1998.
4.3 Instrument of registration, appointment and Annual Report on Exhibit 4(d)(iii)
acceptance dated as of June 9, 1986 among The Form 10-K for the year
Actava Group Inc., Manufacturers Hanover ended December 31,
Trust Company and Irving Trust Company, 1986
with respect to successor trusteeship of the
9 1/2% Subordinated Debentures due August 1,
1998.
</TABLE>
<PAGE>
71
<TABLE>
<CAPTION>
Exhibits Incorporated Herein by Reference
-----------------------------------------------
Document with Which
Exhibit Was Previously Designation of Such
Filed with Exhibit in That
Description of Exhibits Commission Document
----------------------- ---------------------- -------------------
<C> <C> <C> <C>
4.4 Indenture dated as of March 15, 1977, with Registration Statement Exhibit 2(d)
respect to 97/8% Senior Subordinated on Form S-7
Debentures due March 15, 1997, between The (Registration
Actava Group Inc. and The Chase Manhattan No. 2-58317)
Bank, N.A., as Trustee.
4.5 Agreement among The Actava Group Inc., The Registration Statement Exhibit 4(e)(ii)
Chase Manhattan Bank, N.A. and United States on Form S-14
Trust Company of New York, dated as of (Registration
June 14, 1982, with respect to successor No. 2-281094)
trusteeship of the 97/8% Senior Subordinated
Debentures due March 15, 1997.
4.6 Indenture between National Industries, Inc. and Post-Effective Exhibit T3C
First National City Bank, dated October 1, Amendment No. 1 to
1974, with respect to the 10% Subordinated Application on
Debentures, due October 1, 1999. Form T-3 for
Qualification of
Indenture Under The
Trust Indenture Act of
1939 (File No. 22-8076)
4.7 Agreement among National Industries, Inc., The Registration Statement Exhibit 4(f)(ii)
Actava Group Inc., Citibank, N.A., and on Form
S-14 Marine Midland Bank, dated as of
(Registration December 20, 1977, with respect
to successor No. 2-81094) trusteeship of the
10% Subordinated Debentures due October 1,
1999.
4.8 First Supplemental Indenture among The Registration Statement Exhibit 2(q)
Actava Group Inc., National Industries, Inc. on Form S-7
and Marine Midland Bank, dated January 3, (Registration
1978, supplemental to the Indenture dated No. 2-60566)
October 1, 1974 between National and First
National City Bank for the 10% Subordinated
Debentures due October 1, 1999.
4.9 Indenture dated as of August 1, 1987 with Annual Report on Exhibit 4(i)
respect to 6 1/2% Convertible Subordinated Form 10-K for the year
Debentures due August 4, 2002, between The ended December 31,
Actava Group Inc. and Chemical Bank, as 1987
Trustee.
10.1 1982 Stock Option Plan of The Actava Group Proxy Statement dated Exhibit A
Inc. March 31, 1982
</TABLE>
<PAGE>
72
<TABLE>
<CAPTION>
Exhibits Incorporated Herein by Reference
-----------------------------------------------
Document with Which
Exhibit Was Previously Designation of Such
Filed with Exhibit in That
Description of Exhibits Commission Document
----------------------- ---------------------- -------------------
<C> <C> <C> <C>
10.2 1989 Stock Option Plan of The Actava Group Proxy Statement dated Exhibit A
Inc. March 31, 1989
10.3 1969 Restricted Stock Plan of The Actava Annual Report on Exhibit 10(a)(iii)
Group Inc. Form 10-K for the year
ended December 31,
1990
10.4 1991 Non-Employee Director Stock Option Annual Report on Exhibit 10(a)(iv)
Plan. Form 10-K for the year
ended December 31,
1991
10.5 Amendment to 1991 Non-Employee Director Annual Report on Exhibit 10(a)(v)
Stock Option Plan. Form 10-K for the year
ended December 31,
1992
10.6 Snapper Power Equipment Profit Sharing Plan. Annual Report on Exhibit 10(c)
Form 10-K for the year
ended December 31,
1987
10.7 Retirement Plan executed November 1, 1990, Annual Report on Exhibit 10(h)(i)
as amended effective January 1, 1989. Form 10-K for the year
ended December 31,
1990
10.8 Supplemental Retirement Plan of The Actava Annual Report on Exhibit 10(j)
Group Inc. Form 10-K for the year
ended December 31,
1983
10.9 Supplemental Executive Medical Annual Report on Exhibit 10(h)(iii)
Reimbursement Plan. Form 10-K for the year
ended December 31,
1990
10.10 Amendment to Supplemental Retirement Plan of Annual Report on Exhibit 10(h)(iv)
The Actava Group Inc., effective April 1, Form 10-K for the year
1992. ended December 31,
1991
</TABLE>
<PAGE>
73
<TABLE>
<CAPTION>
Exhibits Incorporated Herein by Reference
-----------------------------------------------
Document with Which
Exhibit Was Previously Designation of Such
Filed with Exhibit in That
Description of Exhibits Commission Document
----------------------- ---------------------- -------------------
<C> <C> <C> <C>
10.11 1992 Officer and Director Stock Purchase Plan. Annual Report on Exhibit 10(l)
Form 10-K for the year
ended December 31,
1991
10.12 Form of Restricted Purchase Agreement Annual Report on Exhibit 10(n)
between certain officers of The Actava Group Form 10-K for the year
Inc. and The Actava Group Inc. ended December 31,
1991
10.13 Agreement between The Actava Group Inc. and Annual Report on Exhibit 10(q)
J.B. Fuqua regarding sale by Actava of rights Form 10-K for the year
in the name "Actava." ended December 31,
1992
10.14 Form of Indemnification Agreement between Annual Report on Exhibit 10(u)
Actava and certain of its directors and executive Form 10-K for the year
officers. ended December 31,
1993
10.15 Employment Agreement between The Actava Current Report on Exhibit 99(a)
Group Inc. and John D. Phillips dated April 19, Form 8-K dated
1994. April 19, 1994
10.16* First Amendment to Employment Agreement Annual Report on Form
dated November 1, 1995 between Metromedia 10-K for the year ended
International Group and John D. Phillips. December 31, 1995.
10.17 Option Agreement between The Actava Group Current Report on Exhibit 99(b)
Inc. and John D. Phillips dated April 19, 1994. Form 8-K dated
April 19, 1994
10.18 Registration Rights Agreement among The Current Report on Exhibit 99(c)
Actava Group Inc., Renaissance Partners and Form 8-K dated
John D. Phillips dated April 19, 1994. April 19, 1994
10.19 Shareholders Agreement dated as of Annual Report on Exhibit 10(r)(i)
December 6, 1994 among The Actava Group Form 10-K for the year
Inc., Roadmaster, Henry Fong and Edward ended December 31,
Shake. 1994
10.20 Registration Rights Agreement dated as of Annual Report on Exhibit 10(r)(ii)
December 6, 1994 between The Actava Group Form 10-K for the year
Inc. and Roadmaster. ended December 31,
1994
</TABLE>
<PAGE>
74
<TABLE>
<CAPTION>
Exhibits Incorporated Herein by Reference
-----------------------------------------------
Document with Which
Exhibit Was Previously Designation of Such
Filed with Exhibit in That
Description of Exhibits Commission Document
----------------------- ---------------------- -------------------
<C> <C> <C> <C>
10.21 Environmental Indemnity Agreement dated as Annual Report on Exhibit 10(r)(iii)
of December 6, 1994 between The Actava Form 10-K for the year
Group Inc. and Roadmaster. ended December 31,
1994
10.22 Lease Agreement dated October 21, 1994 Annual Report on Exhibit 10(s)
between JDP Aircraft II, Inc. and The Actava Form 10-K for the year
Group Inc. ended December 31,
1994
10.23 Lease Agreement dated as of October 4, 1995 Quarterly Report on Exhibit 10
between JDP Aircraft II, Inc. and The Actava Form 10-Q for the
Group Inc. quarter ended
September 30, 1995
10.24 Finance and Security Agreement dated as of Annual Report on Exhibit 4(g)(i)
October 23, 1992 with respect to a revolving Form 10-K for the year
credit facility of up to $100 million, between ended December 31,
The Actava Group Inc. and ITT Commercial 1994
Finance Corp.
10.25 Amendment dated as of September 27, 1993 to Annual Report on Exhibit 4(g)(ii)
Finance and Security Agreement dated as of Form 10-K for the year
October 23, 1992 with respect to a revolving ended December 31,
credit facility of up to $100 million between 1994
The Actava Group Inc. and ITT Commercial
Finance Corp.
10.26 Amendment dated as of March 29, 1994 to Annual Report on Exhibit 4(g)(iii)
Finance and Security Agreement dated as of Form 10-K for the year
October 23, 1992, as amended, with respect to ended December 31,
a revolving credit facility of up to $100 million 1994
between The Actava Group Inc. and ITT
Commercial Finance Corp.
10.27 Amendment dated as of April 15, 1994 to Annual Report on Exhibit 4(g)(iv)
Finance and Security Agreement dated as of Form 10-K for the year
October 23, 1992, as amended, with respect to ended December 31,
a revolving credit facility of up to $100 million 1994
between The Actava Group Inc. and ITT
Commercial Finance Corp.
</TABLE>
<PAGE>
75
<TABLE>
<CAPTION>
Exhibits Incorporated Herein by Reference
-----------------------------------------------
Document with Which
Exhibit Was Previously Designation of Such
Filed with Exhibit in That
Description of Exhibits Commission Document
----------------------- ---------------------- -------------------
<C> <C> <C> <C>
10.28 Amendment dated as of September 23, 1994 to Annual Report on Exhibit 4(g)(v)
Finance and Security Agreement dated as of Form 10-K for the year
October 23, 1992, as amended, with respect to ended December 31,
a revolving credit facility of up to $100 million 1994
between The Actava Group Inc. and ITT
Commercial Finance Corp.
10.29 Amendment dated as of March 3, 1995 to Quarterly Report on Exhibit 4
Finance and Security Agreement, dated as of Form 10-Q for the
October 23, 1992, as amended, with respect to quarter ended June 30,
a revolving credit facility of up to $100 million, 1995
between The Actava Group Inc. and ITT
Commercial Finance Corp.
10.30 Amendment dated as of November 1, 1995, to Registration Statement Exhibit 10(a)(vii)
Finance Security Agreement dated as of October on Form S-3
23, 1992, as amended, with respect to
(Registration No.33-63853) a revolving credit
facility of up to $45 million, between Snapper,
Inc. and Deutsche Financial Services Corporation
(formerly ITT Commercial Finance Corp.).
10.31 Letter Agreement dated October 12, 1995 Registration Statement Exhibit 4(d)(i)
between Triton Group Ltd. and The Actava on Form S-3
Group Inc. (Registration No.
33-63401)
10.33 Registration Rights Agreement dated as of Current Report on Form Exhibit 99(b)
September 27, 1995 among The Actava Group 8-K dated
Inc. and the Metromedia Holders named September 27, 1995
therein.
10.34 Contribution Agreement dated as of Registration Statement Exhibit 10(f)
November 1, 1995 among Met International, on Form S-3
Inc., MetProductions, Inc. and The Actava (Registration No.
Group Inc. 33-63853)
10.35 Credit, Security and Guaranty Agreement dated Registration Statement Exhibit 10(g)
as of November 1, 1995 among Orion Pictures on Form S-3
Corporation, the Corporation Guarantors (Registration No.
referred to therein, the Lenders referred to 33-63853)
therein and Chemical Bank.
</TABLE>
<PAGE>
76
<TABLE>
<CAPTION>
Exhibits Incorporated Herein by Reference
-----------------------------------------------
Document with Which
Exhibit Was Previously Designation of Such
Filed with Exhibit in That
Description of Exhibits Commission Document
----------------------- ---------------------- -------------------
<C> <C> <C> <C>
10.36 Credit Agreement dated as of November 1, Registration Statement Exhibit 10(h)
1995 between Metromedia International Group, on Form S-3
Inc. and Chemical Bank. (Registration No.
33-63853)
10.37* Management Agreement dated November 1,
1995 between Metromedia Company and
Metromedia International Group, Inc.
10.38* The Metromedia International Group, Inc. 1996
Incentive Stock Plan.
10.39* License Agreement dated November 1, 1995
between Metromedia Company and Metromedia
International Group, Inc.
10.40* MITI Bridge Loan Agreement, dated
February 29, 1996, among Metromedia
Company and MITI relating to a $15 million
bridge loan from Metromedia Company to
MITI.
11* Statement of computation of earnings per share.
16 Letter from Ernst & Young to the Securities Current Report on Exhibit 99.1
and Exchange Commission. Form 8-K dated
November 1, 1995
21* List of subsidiaries of Metromedia International
Group, Inc.
23.1* Consent of KPMG Peat Marwick LLP
regarding Metromedia International Group, Inc.
27* Financial Data Schedule
</TABLE>
- -----------------------
*Filed herewith.
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors................................................................ F-1
Consolidated Statements of Operations for the years ended December 31, 1995,
February 28, 1995 and February 28, 1994.............................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and February 28, 1995 .................... F-3
Consolidated Statements of Cash Flows for the years ended December 31, 1995,
February 28, 1995 and February 28, 1994.............................................. F-4
Consolidated Statements of Common Stock, Paid-in Surplus and Accumulated
Deficit for the years ended December 31, 1995, February 28, 1995 and
February 28, 1994.................................................................... F-5
Notes to Consolidated Financial Statements.................................................... F-6
Consolidated Financial Statement Schedules
I. Condensed Financial Information of Registrant.................................... S-1
II. Valuation and Qualifying Accounts................................................ S-5
</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.
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Metromedia International Group, Inc.:
We have audited the accompanying consolidated financial statements of Metromedia
International Group, Inc. and subsidiaries listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedules as listed in the accompanying
index. These consolidated financial statements and the consol idated financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and the financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also incudes
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 Metromedia
International Group, Inc. and its subsidiaries as of December 31, 1995 and
February 28, 1995, and the results of their operations and their cash flows for
the year ended December 31, 1995 and for each of the years in the two year
period ended February 28, 1995, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
New York, New York
February 29, 1996, except
as to Note 15, which is
as of April 29, 1996
F-1
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
Consolidated Statements of Operations
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------
December 31, February 28, February 28,
1995 1995 1994
------------ ------------ ------------
(Note 1)
<S> <C> <C> <C>
Revenues $ 138,871 $ 194,789 $ 175,713
Costs and expenses:
Cost of rentals and operating expenses 132,762 187,256 242,996
Selling, general and administrative 50,029 40,391 26,976
Management fee 742 175 75
Depreciation and amortization 2,795 1,916 882
--------- --------- ---------
Operating loss (47,457) (34,949) (95,216)
Interest expense, including amortization of debt
discount of $10,436 at December 31, 1995,
$12,153 at February 28, 1995, and $12,314 at
February 28, 1994 33,114 32,389 33,415
Interest income 3,575 3,094 771
--------- --------- ---------
Interest expense, net 29,539 29,295 32,644
Chapter 11 reorganization items 1,280 1,610 1,793
--------- --------- ---------
Loss before provision for income taxes,
equity in losses of joint ventures, discontinued
operations, and extraordinary item (78,276) (65,854) (129,653)
Provision for income taxes 767 1,300 2,100
Equity in losses of Joint Ventures 7,981 2,257 777
--------- --------- ---------
Loss from continuing operations and
before extraordinary item (87,024) (69,411) (132,530)
Discontinued operations:
Loss on disposal (293,570) -- --
--------- --------- ---------
Loss before extraordinary item (380,594) (69,411) (132,530)
Extraordinary item:
Early extinguishment of debt, net of tax (32,382) -- --
--------- --------- ---------
Net loss $(412,976) $ (69,411) $(132,530)
========= ========= =========
Loss per common share:
Primary:
Continuing Operations $ (3.54) $ (3.43) $ (7.71)
========= ========= =========
Discontinued Operation $ (11.97) $ -- $ --
========= ========= =========
Extraordinary Item $ (1.32) $ -- $ --
========= ========= =========
Net loss $ (16.83) $ (3.43) $ (7.71)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
Consolidated Balance Sheets
(in thousands except share amounts)
<TABLE>
<CAPTION>
December 31, February 28,
1995 1995
--------- ---------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 26,889 $ 27,422
Short-term investments 5,366 --
Accounts receivable, net:
Film, net of allowance for doubtful accounts of $11,600 and
$14,000 at December 31, 1995 and February 28, 1995,
respectively 27,306 35,402
Other, net of allowance for doubtful accounts of $313 and 2,146 1,073
$223 at December 31, 1995 and February 28, 1995,
respectively
Film inventories 59,430 69,867
Other assets 6,314 4,763
--------- ---------
Total current assets 127,451 138,527
Investments in and advances to joint ventures 36,934 24,311
Asset held for sale - Roadmaster Industries, Inc. 47,455 --
Asset held for sale - Snapper Inc. 79,200 --
Property, plant and equipment, net of accumulated depreciation 6,021 4,577
Film inventories 137,233 179,807
Long term film accounts receivable 31,308 24,308
Intangible assets, net of accumulated amortization 119,485 9,697
Other assets 14,551 10,643
--------- ---------
Total assets $ 599,638 $ 391,870
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable $ 4,695 $ 3,633
Accrued expenses 96,696 36,385
Participation and residuals 19,143 21,902
Current portion of long-term debt 40,597 96,177
Due to Metromedia Company -- 37,738
Deferred revenues 15,097 36,026
--------- ---------
Total current liabilities 176,228 231,861
Long-term debt 264,046 103,112
Participations and residuals 28,465 24,025
Deferred revenues 47,249 32,461
Other long-term liabilities 395 201
--------- ---------
Total liabilities 516,383 391,660
--------- ---------
Commitments and contingencies
Stockholders' equity
Preferred Stock, authorized 70,000,000 shares, none issued Common Stock,
$1.00 par value, authorized 110,000,000
shares -- --
issued and outstanding 42,613,738 shares at December 31,
1995 42,614 20,935
Paid-in surplus 728,747 289,413
Accumulated deficit (688,106) (310,138)
--------- ---------
Total stockholders' equity 83,255 210
--------- ---------
Total liabilities and stockholders' equity $ 599,638 $ 391,870
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------------
December 31, February 28, February 28,
1995 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Operations:
Net loss $(412,976) $ (69,411) $(132,530)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Loss on discontinued operations 293,570 -- --
Equity in losses of joint ventures 7,981 2,257 777
Amortization of film costs 91,466 140,318 199,219
Amortization of bank guarantee 2,956 4,951 5,625
Amortization of debt discounts 10,436 12,153 12,314
Depreciation and amortization 2,795 1,916 882
Loss on early extinguishment of debt 32,382 -- --
Decrease in accounts receivable 15,114 21,575 15,647
Decrease in accounts payable and accrued
expenses (4,723) (3,160) (6,579)
Accruals of participation and residuals 18,464 25,628 17,392
Payments of participation and residuals (20,737) (32,353) (27,306)
Decrease in deferred revenues (12,269) (30,041) (2,476)
Other operating activities, net (2,125) 3,112 (47)
--------- --------- ---------
Cash provided by operations 22,334 76,945 82,918
--------- --------- ---------
Investing activities:
Proceeds from Metromedia Company notes
receivable 45,320 -- --
Investments in and advances to Joint Ventures (21,165) (16,409) (4,715)
Advances to Snapper (4,230) -- --
Investment in film inventories (4,684) (22,840) (67,481)
Cash paid for East News Channel Trading and
Services, Kft -- (7,033) (1,055)
Cash acquired, net in Merger 72,068 -- --
Additions to property, plant and equipment (3,699) (4,808) (2,208)
Other investing activities, net (2,291) 1,233 4,263
--------- --------- ---------
Cash provided by (used in) investment
activities 81,319 (49,857) (71,196)
--------- --------- ---------
Financing Activities:
Proceeds from issuance of long-term debt 176,938 40,278 4,732
Proceeds from issuance of stock 2,282 17,690 7,604
Payments on notes and subordinated debt (264,856) (95,037) (64,711)
Other financing activities, net 399 184 --
--------- --------- ---------
Cash used in financing activities (85,237) (36,885) (52,375)
--------- --------- ---------
Net increase (decrease) in cash 18,416 (9,797) (40,653)
Effect of change in fiscal year (13,583) -- --
Cash and cash equivalents at beginning of year 27,422 37,219 77,872
--------- --------- ---------
Cash and cash equivalents at end of year $ 32,255 $ 27,422 $ 37,219
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
Consolidated Statements of Common Stock,
Paid-in Surplus and Accumulated Deficit
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Three Years Ended December 31, 1995
------------------------------------------------------------------------------------
Common Stock
---------------------------
Number of Paid-in Accumulated
Shares Amount Surplus Deficit Total
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balances, February 28, 1993 17,188,408 $ 17,189 $ 265,156 $ (108,197) $ 174,148
Net Loss -- -- -- (132,530) (132,530)
---------- ---------- ---------- ---------- ----------
Balances, February 28, 1994 17,188,408 17,189 265,156 (240,727) 41,618
Shares issued 3,746,490 3,746 24,257 -- 28,003
Net Loss -- -- -- (69,411) (69,411)
---------- ---------- ---------- ---------- ----------
Balances, February 28, 1995 20,934,898 20,935 289,413 (310,138) 210
Shares issued to acquire
Actava and Sterling 17,974,155 17,974 316,791 -- 334,765
Shares issued -
MetProductions and
Met International 3,530,314 3,530 33,538 -- 37,068
Valuation of Actava and
MITI options in Mergers -- -- 25,677 -- 25,677
Revaluation of MITI minority
interest -- -- 60,923 23,608 84,531
Adjustment for change in
fiscal year -- -- -- 11,400 11,400
Common stock issued -
other 174,371 175 2,405 -- 2,580
Net Loss -- -- -- (412,976) (412,976)
---------- ---------- ---------- ---------- ----------
Balances, December 31, 1995 42,613,738 $ 42,614 $ 728,747 $ (688,106) $ 83,255
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
- --------------------------------------------------------------------------------
Notes to Consolidated
Financial Statements
- --------------------------------------------------------------------------------
1. Basis of Presentation, Liquidity and Summary
of Significant Accounting Policies
- --------------------------------------------------------------------------------
Basis of Presentation (see Note 2)
The accompanying consolidated financial statements include the accounts of
Metromedia International Group, Inc. ("MIG" or the "Company") and its wholly-
owned subsidiaries, Orion Pictures Corporation ("Orion") and Metromedia
International Telecommunications, Inc. ("MITI"). MITI was formed in August 1994
as part of a corporate reorganization and common control merger of International
Telcell, Inc. and Metromedia International, Inc. Snapper, Inc. ("Snapper"), also
a wholly-owned subsidiary, is included in the accompanying consolidated
financial statements as a discontinued operation and asset held for sale. All
significant intercompany transactions and accounts have been eliminated.
Investments in other companies and Joint Ventures ("Joint Ventures") which are
not majority owned, or in which the Company does not control but exercises
significant influence are accounted for using the equity method. The Company
reflects its net investments in Joint Ventures under the caption "Investments in
and advances to Joint Ventures". Generally, under the equity method of
accounting, original investments are recorded at cost and adjusted by the
Company's share of undistributed earnings or losses of the investee company.
Equity in the losses of the Joint Ventures are recognized according to the
percentage ownership in each Joint Venture until the Company's Joint Venture
partner's contributed capital has been fully depleted. Subsequently, the Company
recognizes the full amount of losses generated by the Joint Venture if it is the
principal funding source for the Joint Ventures.
During the year ended February 28, 1995 ("fiscal 1995"), the Company changed its
policy of accounting for the Joint Ventures by recording its equity in their
earnings and losses based upon a three-month lag from MITI's calendar year end
(December 31) which resulted in a five-month lag from fiscal year end. As a
result, the December 31, 1995 Consolidated Statement of Operations reflects
twelve months of operations through September 30, 1995 for the Joint Ventures,
the February 28, 1995 Consolidated Statement of Operations reflects nine months
of operations through September 30, 1994 for the Joint Ventures, and the
February 28, 1994 Consolidated Statement of Operations reflects twelve months of
operations through December 31, 1993 for the Joint Ventures. The effect of this
change in accounting policy in fiscal 1995 is not material to the consolidated
financial statements.
During the year ended December 31, 1995 ("calendar 1995"), the Company changed
its policy of consolidating two indirectly owned subsidiaries by recording the
related assets and liabilities and results of operations based on a three-month
lag. As a result, the December 31, 1995 balance sheet includes the accounts of
these subsidiaries at September 30, 1995, and the calendar 1995 Statement of
Operations reflects the results of operations of these subsidiaries for the nine
months ended September 30, 1995. Had the Company applied this method from
October 1, 1994, the effect on reported December 31, 1995 results would not have
been material. Future years will reflect twelve months of activity based upon a
September 30 fiscal year end for these subsidiaries.
Liquidity
MIG is a holding company and, accordingly, does not generate cash flows.
Orion, the Company's filmed entertainment subsidiary, is restricted under
covenants contained in the Orion Credit Agreement from making dividend payments
F-6
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
or advances to MIG. MITI, the Company's communications subsidiary, is dependent
on MIG for significant capital infusions to fund its operations, as well as its
commitments to make capital contributions and loans to its Joint Ventures. MIG
anticipates that MITI's funding requirements for 1996 will be approximately
$40.0 million based in part on the anticipated funding needs of the Joint
Ventures. Future capital requirements of MITI will depend on the ability of
MITI's Joint Ventures to generate positive cash flows.
MIG is obligated to make principal and interest payments under its own
various debt agreements (see note 8), in addition to funding its working capital
needs, which consist principally of corporate overhead and payments on self
insurance claims (see note 1).
In the short term, MIG intends to satisfy its current obligations and
commitments with available cash on hand and the proceeds from the sale of
certain assets. At December 31, 1995, MIG had approximately $21.8 million of
available cash on hand. During December 1995, the Company adopted a formal plan
to dispose of Snapper. At December 31, 1995 the carrying value of Snapper was
approximately $79 million. The Snapper carrying value represents the Company's
estimated proceeds from the sale of Snapper and the repayment of intercompany
loans, through the anticipated date of sale. Management believes that Snapper
will be disposed of by November 1996. In addition, the Company anticipates
disposing of its investment in Roadmaster during 1996. The carrying value of the
Company's investment in Roadmaster at December 31, 1995 was $47.5 million.
Management believes that its available cash on hand, proceeds from the
disposition of Snapper and its investment in Roadmaster, borrowings under the
MITI Bridge Loan and collections of intercompany receivables from Snapper will
provide sufficient funds for the Company to meet its obligations, including
MITI's funding requirements, in the short term. However, no assurances can be
given that the Company will be able to dispose of such assets in a timely
fashion and on favorable terms. Any delay in the sale of assets or reductions in
the proceeds anticipated to be received upon this disposition of assets may
result in the Company's inability to satisfy its obligations during the year
ended December 31, 1996. Delays in funding the Company's MITI capital
requirements may have a materially adverse impact on the results of operations
of MITI's Joint Ventures.
In connection with the consummation of the Goldwyn Merger, the Company
intends to refinance the MIG Credit Facility, the Orion Term Loan, the Orion
Revolver and existing Goldwyn Debt. The Company intends to use the proceeds of
an equity offer and a new Entertainment Group credit facility (the
"Entertainment Group Credit Facility") to repay substantially all of such
indebtedness and to provide itself and MITI with liquidity to finance its
existing commitments and current business strategies. In addition to the
refinancing, management believes that its long term liquidity needs will be
satisfied through a combination of (i) the Company's successful implementation
and execution of its growth strategy to become a global entertainment, media and
communications company, (ii) MITI's Joint Ventures achieving positive operating
results and cash flows through revenue and subscriber growth and control of
operating expenses, and (iii) Orion's ability to continue to generate positive
cash flows sufficient to meet its planned film production release schedule and
service the Entertainment Group Credit Facility. There can be no assurance that
the Company will be successful in consummating the equity offering and
refinancing its indebtedness or that such refinancing can be accomplished on
favorable terms. In the event the Company is unable to successfully complete
such a refinancing, the Company, in addition to disposing of Snapper and its
investment in Roadmaster, may be required to (i) attempt to obtain additional
financing through public or private sale of debt or equity securities of the
Company or one of its subsidiaries, (ii) otherwise restructure its
capitalization or (iii) seek a waiver or waivers under one or more of its
subsidiaries' credit facilities to permit the payment of dividends to the
Company.
F-7
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
Different Fiscal Year Ends
The Company reports on the basis of a December 31 year end. In connection with
the mergers discussed in Note 2, Orion and MITI, for accounting purposes only,
were deemed to be the joint acquirors of the Actava Group Inc. ("Actava") in a
reverse acquisition. As a result, the historical financial statements of the
Company for periods prior to the merger are the combined financial statements of
Orion and MITI. Orion historically reported on the basis of a February 28 year
end.
The consolidated financial statements for the twelve months ended December 31,
1995 include two months for Orion (January and February 1995) that were included
in the February 28, 1995 consolidated financial statements. The revenues and net
loss for the two month duplicate period are $22.5 and $11.4 million,
respectively. The December 31, 1995 accumulated deficit has been adjusted to
eliminate the duplication of the January and February 1995 net losses. The
consolidated financial statements for the years ended February 28, 1995 and
February 28, 1994 ("fiscal 1994"), contain certain reclassifications to conform
to the presentation for the year ended December 31, 1995 ("calendar 1995").
Summary of Significant Accounting Policies
Investments
The Company invests in various debt and equity securities. In May 1993, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," which requires certain debt securities to be reported at amortized
cost, certain debt and equity securities to be reported at market with current
recognition of unrealized gains and losses, and certain debt and equity
securities to be reported at market with unrealized gains and losses as a
separate component of shareholders' equity.
Management determines the appropriate classification of investments as
held-tomaturity or available-for-sale at the time of purchase and reevaluates
such designation as of each balance sheet date. The Company has classified all
investments as available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized gains and losses, net of tax, reported in
shareholders' equity. The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in investment income. Realized gains and losses,
and declines in value judged to be other-than-temporary on available-for-sale
securities, are included in investment income. The cost of securities sold is
based on the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in investment income.
F-8
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
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 of
Orion. 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 film product to networks, basic and
pay cable companies and 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 exhibition by the licensee.
The Company's and its Joint Ventures' cable, paging and telephony operations
recognize revenues in the period the service is provided. Installation fees are
recognized as revenues upon subscriber hook-up to the extent installation costs
are incurred. Installation fees in excess of installation costs are deferred and
recognized over the length of the related individual contract. The Company's and
its Joint Ventures' radio operations recognize advertising revenue when
commercials are broadcast.
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.
F-9
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
Property Plant and Equipment
Property, plant and equipment, net consists of the following (in thousands):
December 31, February 28,
1995 1995
------------ ------------
Office furniture and equipment $ 7,855 $ 5,338
Automobile 133 95
Leasehold improvements 419 173
------- -------
8,407 5,606
Less: Accumulated depreciation and
amortization (2,386) (1,029)
------- -------
$ 6,021 $ 4,577
======== =======
Property, plant and equipment are recorded at cost and are depreciated over
their expected useful lives. Generally, depreciation is provided on the
straight-line method for financial reporting purposes. Leasehold improvements
are amortized using the straight-line method over the life of the improvements
or the life of the lease, whichever is shorter.
Intangible Assets
Intangible assets are stated at historical cost, net of accumulated
amortization. Intangibles such as broadcasting licenses and frequency rights are
amortized over periods of 20-25 years. Goodwill has been recognized for the
excess of the purchase price over the value of the identifiable net assets
acquired. Such amount is amortized over 25 years using the straight-line method.
Until the Merger Date (see Note 2), a guarantee of Orion's bank borrowings was
stated at its estimated fair value at the Effective Date (see Note 3), less
accumulated amortization. Amortization of the guarantee was being calculated
utilizing the effective interest method over certain related cash flows
estimated in the Plan.
Management continuously monitors and evaluates the realizability of recorded
intangibles to determine whether their carrying values have been impaired. In
evaluating the value and future benefits of the intangible assets, their
carrying value would be reduced by the excess, if any, of their carrying value
over management's best estimate of undiscounted future cash flows over the
remaining amortization period. The Company believes that the carrying value of
recorded intangibles is not impaired.
Earnings Per Share of Common Stock
Primary earnings per share are computed by dividing net income (loss) by the
weighted average number of common and common equivalent shares outstanding
during the year. Common equivalent shares include shares issuable upon the
assumed exercise of stock options using the treasury stock method when dilutive.
Computations of common equivalent shares are based upon average prices during
each period.
Fully diluted earnings per share are computed using such average shares adjusted
for any additional shares which would result from using end-of-year prices in
the above computations, plus the additional shares that would result from the
conversion of the 6-1/2% Convertible Subordinated Debentures (see Note 8). Net
income (loss) is adjusted by interest (net of income taxes) on the 6-1/2%
Convertible Subordinated Debentures. The computation of fully diluted earnings
per share is used only when it results in an earnings per share number which is
lower than primary earnings per share.
F-10
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
The loss per share amounts for fiscal 1995 and fiscal 1994 represent combined
Orion and MITI common shares converted at the exchange ratios used in the Merger
(see Note 2).
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 ("SFAS 107"), "Disclosures
about Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on
settlements using present value or other valuation techniques. These techniques
are significantly affected by the assumptions used, including discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instruments. SFAS 107
excludes certain financial instruments and all non-financial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value to the Company.
The following methods and assumptions were used in estimating the fair value
disclosures for financial instruments:
Cash and Cash Equivalents, Receivables, Notes Receivable and Accounts
Payable
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, current receivables, notes receivable and accounts
payable approximate fair values. 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
values.
Short-term Investments
For short-term investments, fair values are based on quoted market prices.
If a quoted market price is not available, fair value is estimated using
quoted market prices for similar securities or dealer quotes. See Note 4
for fair values on investment securities.
Long-term Debt
For long-term and subordinated debt, fair values are based on quoted market
prices, if available. If the debt is not traded, fair value is estimated
based on the present value of expected cash flows. See Note 8 for fair
values of long-term debt.
Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("SFAS 109"). SFAS 109 requires
the use of the liability method of accounting for deferred taxes. Under the
liability method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
rates expected to be in effect when those assets and liabilities are recovered
or settled. Under SFAS 109, the effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the
enactment date.
F-11
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
Barter Transactions
The Company trades commercial air time for goods and services used principally
for promotional, sales and other business activities. An asset and a liability
are recorded at the fair market value of the goods or services received. Barter
revenue is recorded and the liability is relieved when commercials are
broadcast, and barter expense is recorded and the assets are relieved when the
goods or services are received or used.
Foreign Currency Translation
The statutory accounts of the Company's consolidated foreign subsidiaries and
Joint Ventures are maintained in accordance with local accounting regulations
and are stated in local currencies. Local statements are translated into U.S.
generally accepted accounting principles and U.S. dollars in accordance with
Statement of Financial Accounting Standards No. 52 ("SFAS 52"), "Accounting for
Foreign Currency Translation".
Under SFAS 52, foreign currency assets and liabilities are generally translated
using the exchange rates in effect at the balance sheet date. Results of
operations are generally translated using the average exchange rates prevailing
throughout the year. The effects of exchange rate fluctuations on translating
foreign currency assets and liabilities into U.S. dollars are accumulated as
part of the foreign currency translation adjustment in shareholders' equity. The
cumulative effect of translation, $600,000 at December 31, 1995, is immaterial
to the consolidated financial statements and consequently is not reflected as a
separate component of stockholders' equity. Gains and losses from foreign
currency transactions are included in net income in the period in which they
occur.
Under SFAS 52, the financial statements of foreign entities in highly
inflationary economies are remeasured, in all cases using the U.S. dollar as the
functional currency. U.S. dollar transactions are shown at their historical
value. Monetary assets and liabilities denominated in local currencies are
translated into U.S. dollars at the prevailing period-end exchange rate. All
other assets and liabilities are translated at historical exchange rates.
Results of operations have been translated using the monthly average exchange
rates. Translation differences resulting from the use of these different rates
are included in the accompanying consolidated statements of operations. Such
differences, $54,000, $69,000, and $12,000 for calendar 1995, fiscal 1995, and
fiscal 1994, respectively, were immaterial to the Company's results of
operations for each of the periods presented.
Accrued Expenses
Accrued expenses consists of the following (in thousands):
December 31, February 28,
1995 1995
------------ ------------
Accrued salaries and wages $ 9,627 $10,850
Accrued taxes 11,000 --
Accrued interest 9,822 3,104
Self-insurance claims payable 31,549 --
Other 34,698 22,431
------- -------
$96,696 $36,385
======= =======
F-12
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
Self-Insurance
The Company is self-insured for workers' compensation, health, automobile,
product and general liability costs of certain discontinued businesses. The
self-insurance claim liability is determined based on claims filed and an
estimate of claims incurred but not yet reported. The Company is not
self-insured in connection with any continuing operations.
Cash and Cash Equivalents
Cash equivalents consists of highly liquid instruments with maturities of three
months or less at the time of purchase. Included in cash at December 31, 1995,
is approximately $10 million of restricted cash which represents amounts
required to be held in the Company's captive insurance company (the "Captive").
The Company expects to liquidate the Captive during 1996 and free up the cash
held by the Captive for general corporate purposes.
Supplemental Disclosure of Cash Flow Information
Supplemental disclosure of cash flow information (in thousands):
Calendar Fiscal Fiscal
1995 1995 1994
-------- ------ ------
Cash paid during the year for:
Interest $ 12,270 $ 13,108 $ 14,907
======== ======== ========
Taxes $ 996 $ 1,804 $ 2,934
======== ======== ========
Supplemental schedule of non-cash investing and financing activities (in
thousands):
Calendar Fiscal Fiscal
1995 1995 1994
-------- ------ ------
Acquisition of business:
Fair value of assets acquired $290,456 $ -- $ --
Fair value of liabilities assumed 239,109 -- --
-------- -------- --------
Net value $ 51,347 $ -- $ --
======== ======== ========
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
- --------------------------------------------------------------------------------
2. The Mergers
- --------------------------------------------------------------------------------
On November 1, 1995, (the "Merger Date") Orion, MITI, the Company and MCEG
Sterling Incorporated ("Sterling"), consummated the mergers contemplated by the
Amended and Restated Agreement and Plan of Merger (the "Merger Agreement") dated
as of September 27, 1995 among Orion, the Company, MITI and Sterling. The Merger
F-13
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
Agreement provided for, among other things, the simultaneous mergers of each of
Orion and MITI with and into the Company's recently-formed subsidiaries, OPC
Mergerco and MITI Mergerco, and the merger of Sterling with and into the Company
(the "Mergers"). In connection with the Mergers, the Company changed its name
from The Actava Group Inc. to Metromedia International Group, Inc.
Upon consummation of the Mergers, all of the outstanding shares of the common
stock, par value $.25 per share of Orion (the "Orion Common Stock"), the common
stock, par value $.001 per share, of MITI (the "MITI Common Stock") and the
common stock, par value $.001 per share, of Sterling (the "Sterling Common
Stock") were exchanged for shares of the Company's common stock, par value $1.00
per share, pursuant to exchange ratios contained in the Merger Agreement.
Pursuant to such ratios, holders of Orion Common Stock received .57143 shares of
the Company's common stock for each share of Orion Common Stock (resulting in
the issuance of 11,428,600 shares of common stock to the holders of Orion Common
Stock), holders of MITI Common Stock received 5.54937 shares of the Company's
common stock for each share of MITI Common Stock (resulting in the issuance of
9,523,817 shares of the Company's common stock to the holders of MITI Common
Stock) and holders of Sterling Common Stock received .04309 shares of the
Company's common stock for each share of Sterling Common Stock (resulting in the
issuance of 483,254 shares of the Company's common stock to the holders of
Sterling Common Stock).
In addition, pursuant to the terms of a contribution agreement dated as of
November 1, 1995 among the Company and two affiliates of Metromedia Company
("Metromedia"), MetProductions, Inc. ("MetProductions") and Met International,
Inc. ("Met International"), MetProductions and Met International contributed to
the Company an aggregate of $37,068,303 of interests in a partnership and
principal amount of indebtedness of Orion and its affiliate, and indebtedness of
an affiliate of MITI, owed to MetProductions and Met International respectively,
in exchange for an aggregate of 3,530,314 shares of the Company's common stock.
Immediately prior to the consummation of the Mergers, there were 17,490,901
shares of the Company's common stock outstanding. As a result of the
consummation of the Mergers and the transactions contemplated by the
contribution agreement, the Company issued an aggregate of 24,965,985 shares of
common stock. Following consummation of the Mergers and the transactions
contemplated by the contribution agreement, Metromedia Company (an affiliate of
the Company) and its affiliates (the "Metromedia Holders") collectively received
an aggregate of 15,252,128 shares of common stock (or 35.9% of the issued and
outstanding shares of common stock).
Due to the existence of Metromedia Holders' common control of Orion and MITI
prior to consummation of the Mergers, their combination pursuant to the Mergers
was accounted for as a combination of entities under common control. Orion was
deemed to be the acquiror in the common control Merger. As a result, the
combination of Orion and MITI was effected utilizing historical costs for the
ownership interests of the Metromedia Holders in MITI. The remaining ownership
interests of MITI, were accounted for in accordance with the purchase method of
accounting based on the fair value of such ownership interests, as determined by
the value of the shares received by the holders of such interests at the
effective time of the Mergers.
For accounting purposes only, Orion and MITI have been deemed to be the joint
acquirors of Actava and Sterling. The acquisition of Actava and Sterling has
been accounted for as a reverse acquisition. As a result of the reverse
acquisition, the historical financial statements of the Company for periods
prior to the Mergers are those of Orion and MITI, rather than Actava. The
operations of Actava and Sterling have been included in the accompanying
consolidated financial statements from November 1, 1995, the date of
acquisition. During December 1995, the Company adopted a formal plan to dispose
of Snapper, a wholly-owned subsidiary of Actava. In addition, the Company's
investment in Roadmaster
F-14
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
was deemed to be a non-strategic asset and the Company plans to dispose of its
investment during 1996. (see Note 4B. below).
Snapper is included in the accompanying consolidated balance sheet in an amount
equal to the sum of the estimated cash flows from the operations of Snapper from
November 1, 1995 to October 15, 1996, the expected date of sale (the "Holding
Period") plus the anticipated proceeds from the sale of Snapper. At December 31,
1995, such estimated cash flows and proceeds from sale are expected to amount to
$79.2 million. The earnings and losses of Snapper during the Holding Period will
be excluded from the results of operations of the Company. The excess of the
allocated purchase price to Snapper in the Actava acquisition over the estimated
cash flows from the operations and sale of Snapper in the amount of $294 million
has been reflected in the accompanying consolidated statement of operations as a
loss on disposal of a discontinued operation. No income tax benefits were
recognized in connection with this loss on disposal because of the Company's
losses from continuing operations and net operating loss carryforwards.
The results of Snapper for the period November 1, 1995 through December 31,
1995, which are excluded from the accompanying consolidated statement of
operations, are as follows (in thousands):
Net Sales $ 14,385
Operating expenses 34,646
--------
Operating loss (20,261)
Interest expense (1,213)
Other expenses (259)
---------
Loss before taxes (21,733)
Income taxes --
---------
Net loss $(21,733)
=========
Included in operating expenses above is a loss of approximately $5.7 million
related to the sale of Snapper's European division.
The Company has advanced $4.2 million to Snapper during the period from November
1, 1995 to December 31, 1995 and has not received any repayments of cash.
Accordingly, $4.2 million has been added to the carrying value of Snapper at
November 1, 1995.
The purchase price of Actava, Sterling and MITI minority interests, exclusive of
transaction costs, amounted to $438.9 million at November 1, 1995 as follows (in
thousands):
Actava shares outstanding 17,491
Common stock to MITI minority shareholders 4,211
Common stock to Sterling stockholders 483
--------
Number of shares issued to acquire
Actava, MITI minority and Sterling 22,185
Merger Date stock price 18.625
--------
Value of stock $413,207
Value of Actava options 8,780
Value of MITI options 16,897
--------
Total purchase price $438,884
========
The excess purchase price over the net fair value of assets acquired amounted to
$404 million at November 1, 1995 before writeoff of Snapper goodwill of $294
million.
F-15
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
The following unaudited proforma consolidated results of operations illustrate
the effect of the Mergers, the deconsolidation of Snapper and the associated
refinancing of Orion's indebtedness (see Note 8) and assumes that the
transactions occurred at the beginning of each of the periods presented (in
thousands):
Calendar Fiscal
1995 1995
-------- ------
Revenues $ 145,150 $ 203,232
Loss from continuing
operations and before
loss on early
extinguishment of debt
and extraordinary item (89,946) (88,717)
Loss per share (2.11) (2.18)
Orion, MITI and Sterling were parties to a number of material contracts and
other arrangements under which Metromedia Company and certain of its affiliates
had, among other things, made loans or provided financing to, or paid
obligations on behalf of, each of Orion, MITI and Sterling. On November 1, 1995
such indebtedness, financing and other obligations of Orion, MITI and Sterling
to Metromedia and its affiliates were refinanced, repaid or converted into
equity of MIG.
Certain of the amounts owed by Orion ($20.4 million), MITI ($34.1 million) and
Sterling ($524,000) to Metromedia were financed by Metromedia through borrowings
under a $55 million credit agreement between the Company and Metromedia (the
"Actava-Metromedia Credit Agreement"). Orion, MITI and Sterling repaid such
amounts to Metromedia, and Metromedia repaid the Company the amounts owed by
Metromedia to the Company under the Actava-Metromedia Credit Agreement. In
addition, certain amounts owed by Orion to Metromedia under the Reimbursement
Agreement (see Note 8) were repaid on November 1, 1995.
- --------------------------------------------------------------------------------
3. Chapter 11 Reorganization Costs
- --------------------------------------------------------------------------------
On December 11 and 12, 1991, Orion Pictures Corporation and substantially all of
its subsidiaries filed petitions for relief under chapter 11 of Title 11 of the
United States Code in the United States Bankruptcy Court for the Southern
District of New York (the "Court"). In this regard, the Court confirmed the
"Debtors' Joint Consolidated Plan of Reorganization" (the "Plan") on October 20,
1992, which became effective on November 5, 1992 (the "Effective Date").
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code", issued by the American Institute of Certified Public
Accountants 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 calendar 1995, fiscal 1995 and 1994 are comprised primarily of legal fees
incurred during those periods.
F-16
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
- --------------------------------------------------------------------------------
4. Investments
- --------------------------------------------------------------------------------
A. Short-Term Investments
All of the Company's short-term investments are classified as available-for-sale
and are summarized as follows (in thousands):
Available-for-Sale Securities
--------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
U.S. securities $ 5,319 $ 47 $ -- $ 5,366
The net adjustment to unrealized holding gains on available-for-sale securities
is immaterial in 1995.
The amortized cost and estimated fair value of debt and marketable equity
securities at December 31, 1995, are shown below (in thousands), by contractual
maturity. Expected maturities will differ from contractual maturities because
the issuers of the securities may have the right to prepay obligations without
prepayment penalties.
Estimated
Amortized Fair
Available-for-Sale Cost Value
--------- --------
Due in one year or less $ 2,001 $ 2,008
Due after one year through three years 2,008 2,034
Due after three years 1,310 1,324
------ ------
Total $ 5,319 $ 5,366
====== ======
All available-for-sale securities are classified as current since they are
available for use in the Company's current operations.
B. Roadmaster Industries, Inc.
On December 6, 1994, Actava transferred ownership of its four sporting goods
subsidiaries to Roadmaster Industries, Inc. ("Roadmaster") in exchange for
19,169,000 shares of Roadmaster's Common Stock. The Company intends to dispose
of its Roadmaster stock during 1996. The equity in earnings and losses of
Roadmaster will be excluded from the Company's results of operations through the
date of sale. As of November 1, 1995, the Company's investment in Roadmaster was
adjusted to the anticipated proceeds from its sale under the purchase method of
accounting and included in the accompanying consolidated balance sheet as an
asset held for sale.
As of December 31, 1995, the Company owned 38% of the issued and outstanding
shares of Roadmaster Common Stock based on approximately 48,600,000 shares of
Roadmaster Common Stock outstanding. Summarized financial information for
Roadmaster is shown below (in thousands):
F-17
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
Nine Months Ended Year Ended
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
Net sales $ 523,480 $ 455,661
Gross profit 68,111 66,790
Net income (loss) (9,259) 5,000
Current assets 391,003 358,169
Non-current assets 188,954 158,478
Current liabilities 250,673 181,778
Non-current liabilities 233,062 231,772
Minority interest - -
Redeemable common stock 2,000 2,000
Total shareholders' equity 94,222 101,097
- --------------------------------------------------------------------------------
5. Film Accounts Receivable and Deferred Revenues
- --------------------------------------------------------------------------------
Film 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. Film accounts receivable
is stated net of an allowance for doubtful accounts of $11.6 million at December
31, 1995 and of $14.0 million at February 28, 1995.
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 $157.0 million at December 31, 1995.
Included in this amount is $62.0 million of license fees for which the revenue
and the related accounts receivable will be recorded only when the Company
produces or acquires new products.
Deferred revenues consist principally of advance payments received on pay cable,
home video and other television contracts for which the films are not yet
available for broadcast or exploitation.
- --------------------------------------------------------------------------------
6. Film Inventories
- --------------------------------------------------------------------------------
The following is an analysis of film inventories (in thousands):
December 31, February 28,
1995 1995
------------ ------------
Current:
Theatrical films released, less amortization $ 53,813 $ 67,051
Television programs released, less amortization 5,617 2,816
--------- ---------
59,430 69,867
--------- ---------
Non current:
Theatrical films released, less amortization 132,870 173,279
Television programs released, less amortization 4,363 6,528
--------- ---------
137,233 179,807
--------- ---------
$ 196,663 $ 249,674
========= =========
F-18
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
Orion had in prior years made substantial writeoffs to its released and
unreleased product. As a result, approximately two-thirds of the film
inventories 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 Orion's quasi-reorganization (February 28, 1982), when the
Company's inventories were restated to reflect their then current market value,
the Company has amortized 94% of the gross cost of its film inventories,
including those produced or acquired subsequent to the quasi-reorganization.
Approximately 98% of such gross film inventory costs will have been amortized by
December 31, 1998. As of December 31, 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 year end.
- --------------------------------------------------------------------------------
7. Investments in and Advances to Joint Ventures
- --------------------------------------------------------------------------------
MITI has recorded its investments in Joint Ventures at cost, net of its share of
losses. Advances to the Joint Ventures under line of credit agreements are
reflected based on amounts recoverable under the credit agreements, plus accrued
interest.
Advances are made to Joint Ventures in the form of cash for working capital
purposes and capital expenditures, or in the form of equipment purchased or
payment of expenses on behalf of the Joint Venture. Interest rates charged to
the Joint Ventures range from prime rate to prime rate plus 4%. The credit
agreements generally provide for the payment of principal and interest from 90%
of the Joint Ventures' available cash flow, as defined, prior to any substantial
distributions of dividends to the Joint Venture partners. As of December 31,
1995, MITI has entered into credit agreements with its Joint Ventures to provide
up to $46.8 million in funding, of which $16.9 million remains available. MITI
funding commitments are contingent on its approval of the Joint Ventures'
business plans.
F-19
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
As of December 31, 1995 and 1994, MITI's investments in and advances to Joint
Ventures were as follows (in thousands):
<TABLE>
<CAPTION>
Investments in and
Advances to Year
Joint Ventures Ownership Venture Date Operations
Name 1995 1994 % Formed Commenced
---- ---- ---- - ------ ---------
<S> <C> <C> <C> <C> <C>
Kosmos TV, Moscow, Russia $ 4,317 $ 5,822 50% 1991 May, 1992
Baltcom TV, Riga Latvia 6,983 4,741 50% 1991 June, 1992
Ayety TV, Tbilisi, Georgia 3,630 1,935 49% 1991 September, 1993
Kamalak, Tashkent, Uzbekistan 3,731 1,535 50% 1992 September, 1993
Baltcom Paging, Tallin, Estonia 2,585 1,829 39% 1992 December, 1993
SAC-Radio 7, Moscow, Russia 1,174 1,256 51% 1991 January, 1994
Sun TV, Kishinev, Moldova 1,613 690 50% 1993 October, 1994
Raduga Paging, Nizhny Novgorod 364 450 45% 1993 October, 1994
Alma-TV, Almaty, Kazakhstan 1,318 774 50% 1994 June, 1995
Telecom Georgia, Tbilisi, Georgia 2,078 1,485 30% 1994 September, 1994
Raduga TV, Nizhny Novgorod 254 222 50% 1994 Pre-Operational
Baltcom Plus, Riga, Latvia 1,412 331 50% 1994 April, 1995
Minsk Cable, Minsk, Belarus 918 733 50% 1993 Pre-Operational
Tbilisi Paging, Tbilisi, Georgia 619 342 45% 1993 November, 1994
St. Petersburg Paging,
St. Petersburg, Russia 527 - 40% 1994 October, 1995
Other 5,411 2,166
------ -----
$ 36,934 $24,311
======== =======
</TABLE>
The ability of MITI and its Joint Ventures to establish profitable operations is
subject to (among other things) special political, economic and social risks
inherent in doing business in Eastern Europe and the former Soviet Republics.
These include matters arising out of government policies, economic conditions,
imposition of or changes to taxes or other similar charges by governmental
bodies, foreign exchange fluctuations and controls, civil disturbances,
deprivation or unenforceability of contractual rights, and taking of property
without fair compensation.
MITI has obtained political risk insurance policies from the Overseas Private
Investment Corporation ("OPIC") for certain of its Joint Ventures. The policies
cover loss of investment and losses due to business interruption caused by
political violence or expropriation.
F-20
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
Summarized combined financial information of Joint Ventures accounted for under
the equity method, that have commenced operations as of the dates indicated
above is as follows (in thousands):
Combined Balance Sheets
<TABLE>
<CAPTION>
September 30, September 30, December 31,
1995 1994 1993
------------- ------------ ------------
Assets
<S> <C> <C> <C>
Current assets $ 6,937 $ 1,588 $ 841
Investments in wireless systems and equipment, net 31,349 17,040 10,758
Other assets 2,940 895 28
------- ------- -------
Total Assets $ 41,226 $ 19,523 $ 11,627
======= ======= =======
Liabilities and Joint Ventures' Equity (Deficit)
Current liabilities $ 10,954 $ 2,637 $ 1,022
Amount payable under MITI credit facility 33,699 11,327 6,635
Other long-term liabilities - 1,513 74
------- ------- -------
Total Liabilities 44,653 15,477 7,731
------- ------- -------
Joint Ventures' Equity (Deficit) (3,427) 4,046 3,896
------- ------- -------
Total Liabilities and Joint Ventures'
Equity (Deficit) $ 41,226 $ 19,523 $ 11,627
======= ======= =======
</TABLE>
Combined Statements of Operations
<TABLE>
<CAPTION>
Nine months
Year ended ended Year ended
September 30, September 30, December 31,
1995 1994 1993
------------ ------------- -----------
<S> <C> <C> <C>
Revenues $ 19,344 $ 3,280 $ 1,452
------- ------- -------
Expenses:
Cost of service 9,993 2,026 969
Selling, general and administrative 11,746 2,411 973
Depreciation and amortization 3,917 1,684 911
Other - 203 67
------- ------- -------
Total Expenses 25,656 6,324 2,920
------- ------- -------
Operating Loss (6,312) (3,044) (1,468)
Interest Expense (1,960) (632) (64)
Other Income (Expense) (1,920) 47 2
Foreign Currency Translation Gain (Loss) (203) 15 (91)
------- ------- -------
Net Loss $(10,395) $ (3,614) $ (1,621)
======== ======== ========
</TABLE>
Financial information for Joint Ventures which are not yet operational as of
September 30, 1995 is not included in the above summary. MITI's investment in
and advances to those Joint Ventures at December 31, 1995, 1994 and 1993
amounted to approximately $7.1 million, $5.7 million and $89,000, respectively.
The Company and its consolidated and unconsolidated Joint Ventures operate four
types of services in their communications segment: wireless cable television,
paging, radio broadcasting and telephony.
F-21
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
The following tables represent summary financial information for consolidated
subsidiaries and Joint Ventures, unconsolidated equity method joint ventures and
combined consolidated and unconsolidated subsidiaries and joint ventures by type
of service for all operations in the Company's Communications segment (excluding
MITI's headquarter's operations - see Note 12), as of and for the years ended
December 31, 1995, February 28, 1995 and February 28, 1994 (in thousands):
<TABLE>
<CAPTION>
Wireless Radio
Calendar 1995 Cable TV Paging Broadcasting Telephony Total
------------- -------- ------ ------------ --------- -----
<S> <C> <C> <C> <C> <C>
Consolidated Subsidiaries and
Joint Ventures
Revenues $ -- $ 690 $ 3,879 $ -- $ 4,569
Depreciation and amortization -- 132 366 -- 498
Operating income (loss) before taxes -- (23) (237) -- (260)
Assets -- 2,398 7,999 -- 10,397
Capital expenditures -- 40 172 -- 212
======== ======== ======== ======== ========
Unconsolidated Equity Joint Ventures
Revenues $ 8,809 $ 2,427 $ 918 $ 7,190 $ 19,344
Depreciation and amortization 3,071 345 36 465 3,917
Operating income (loss) before taxes (4,152) (613) (1,255) (292) (6,312)
Assets 22,727 3,495 247 14,757 41,226
Capital expenditures 9,727 1,933 46 9,740 21,446
======== ======== ======== ======== ========
Net investment in Joint Ventures $ 21,592 $ 4,980 $ 1,174 $ 2,078 $ 29,824
MITI equity in losses of
unconsolidated investees (5,885) (403) (1,388) (305) (7,981)
======== ======== ======== ======== ========
Combined
Revenues $ 8,809 $ 3,117 $ 4,797 $ 7,190 $ 23,913
Depreciation and amortization 3,071 477 402 465 4,415
Operating income (loss) before taxes (4,152) (636) (1,492) (292) (6,572)
Assets 22,727 5,893 8,246 14,757 51,623
Capital expenditures 9,727 1,973 218 9,740 21,658
======== ======== ======== ======== ========
</TABLE>
F-22
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
<TABLE>
<CAPTION>
Wireless Radio
Fiscal 1995 Cable TV Paging Broadcasting Telephony Total
- ----------- -------- ------ ------------ --------- -----
<S> <C> <C> <C> <C> <C>
Consolidated Subsidiaries and
Joint Ventures
Revenues $ 416 $ 266 $ 2,863 $ -- $ 3,545
Depreciation and amortization 320 101 214 -- 635
Operating income (loss) before taxes (359) (331) (795) -- (1,485)
Assets 704 1,956 10,135 -- 12,795
Capital expenditures -- 49 97 -- 146
======== ======== ======== ======== ========
Unconsolidated Equity Joint Ventures
Revenues $ 2,672 $ 180 $ 373 $ 55 $ 3,280
Depreciation and amortization 1,655 -- 20 9 1,684
Operating income (loss) before taxes (2,026) (425) (15) (578) (3,044)
Assets 15,090 1,030 856 2,547 19,523
Capital expenditures 5,072 766 8 2,487 8,333
======== ======== ======== ======== ========
Net investment in Joint Ventures $ 14,033 $ 1,829 $ 1,256 $ 1,485 $ 18,603
MITI equity in losses of
unconsolidated investees (1,838) (147) (99) (173) (2,257)
======== ======== ======== ======== ========
Combined
Revenues $ 3,088 $ 446 $ 3,236 $ 55 $ 6,825
Depreciation and amortization 1,975 101 234 9 2,319
Operating income (loss) before taxes (2,385) (756) (810) (578) (4,529)
Assets 15,794 2,986 10,991 2,547 32,318
Capital expenditures 5,072 815 105 2,487 8,479
======== ======== ======== ======== ========
</TABLE>
Doc#:DS3:162525.5 22-101
F-23
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
<TABLE>
<CAPTION>
Wireless Radio
Fiscal 1994 Cable TV Paging Broadcasting Telephony Total
- ----------- -------- ------ ------------ --------- -----
<S> <C> <C> <C> <C> <C>
Consolidated Subsidiaries and
Joint Ventures
Revenues $ 51 $ -- $ -- $ -- $ 51
Depreciation and amortization 110 -- -- -- 110
Operating income (loss) before taxes (303) (55) -- -- (358)
Assets 256 1,069 -- -- 1,325
Capital expenditures -- 34 -- -- 34
======== ======== ======= ==== =======
Unconsolidated Equity Joint Ventures
Revenues $ 1,452 $ -- $ -- $ -- $ 1,452
Depreciation and amortization 909 2 -- -- 911
Operating income (loss) before taxes (1,400) (68) -- -- (1,468)
Assets 10,520 1,107 -- -- 11,627
Capital expenditures 3,411 764 -- -- 4,175
======== ======== ======= ==== =======
Net investment in Joint Ventures $ 7,123 $ 1,445 $ 1,055 $ -- $ 9,623
MITI equity in losses of
unconsolidated investees (752) (25) -- -- (777)
======== ======== ======= ==== ========
Combined
Revenues $ 1,503 $ -- $ -- -- $ 1,503
Depreciation and amortization 1,019 2 -- -- 1,021
Operating income (loss) before taxes (1,703) (123) -- -- (1,826)
Assets 10,776 2,176 -- -- 12,952
Capital expenditures 3,411 798 -- -- 4,209
======== ======== ======= ==== ========
</TABLE>
More than 90% of the Company's assets are located in, and substantially all of
the Company's operations are derived from, Republics in the Commonwealth of
Independent States or Eastern Europe.
F-24
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
- --------------------------------------------------------------------------------
8. Long-term Debt
- --------------------------------------------------------------------------------
Long-term debt at December 31, 1995 and February 28, 1995 consisted of the
following (in thousands):
December 31, February 28,
1995 1995
------------ ------------
MIG (excluding Orion and MITI)
MIG Credit Facility $ 28,754 $ --
6 1/2% Convertible Debentures due 2002, net of
unamortized discount of $17,994 57,006 --
9 1/2% Debentures due 1998, net of unamortized
discount of $140 59,344 --
9 7/8% Senior Debentures due 1997, net of
unamortized premium of $217 18,217 --
10% Debentures due 1999 6,075 --
Other long-term debt:
Secured 6.25% due 1998 1,020 --
-------- --------
170,416 --
-------- --------
Orion
Notes payable to banks under Credit, Security
& Guaranty Agreements 123,700 --
Notes payable to banks under the Third
Restated Credit Agreement -- 58,619
Obligation to Metromedia Company
under Reimbursement Agreement -- 19,544
Talent Notes due 1999, net of unamortized discount
of $8,488 -- 26,057
Creditor Notes due 1999, net of unamortized discount
of $21,745 -- 40,630
Non-interest bearing payment obligation to Sony,
net of unamortized discount of $1,191 -- 16,756
Other guarantees and contracts payable, net of
unamortized discounts of $2,402 and $2,943 9,939 8,124
10% Subordinated Debentures due 2001,
net of unamortized discount of $8,097 -- 42,349
-------- --------
133,639 212,079
-------- --------
MITI
Hungarian Foreign Trade Bank 588 1,057
Other -- 168
Demand Notes payable -- 5,529
Notes payable to Metromedia Company -- 18,194
-------- --------
588 24,948
-------- --------
Less: current portion - Metromedia Company -- 37,738
- Other 40,597 96,177
-------- --------
Long-term debt, net of current portion $264,046 $103,112
======== ========
F-25
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
Aggregate annual repayments of long-term debt over the next five years and
thereafter are as follows (in thousands):
1996 $ 40,597
1997 44,548
1998 88,714
1999 31,923
2000 39,453
Thereafter 77,325
MIG (excluding Orion and MITI)
On November 1, 1995, the Company entered into a $35 million revolving credit
agreement ("MIG Credit Facility") with Chemical Bank. On December 31, 1995, the
Company had utilized $28.8 million. At the borrower's option, the MIG Credit
Facility bears interest at a rate of LIBOR plus 2%, or Chemical Bank's
alternative base rate plus 1%. The MIG Credit Facility terminates October 30,
1996.
Under terms of the MIG Credit Facility, the aggregate amount of all outstanding
loans cannot exceed 65% of the market value of Roadmaster stock (see Note 4).
Borrowings under the MIG Credit Facility are secured by all of the stock of
Roadmaster owned by the Company, and a subordinated lien of the assets of
Snapper, Inc. The loan is guaranteed by MITI. It is assumed that the carrying
value of the MIG Credit Facility approximates its fair value because of its
floating interest rate feature.
In 1987 the Company issued $75.0 million of 6 1/2% Convertible Subordinated
Debentures due in 2002 in the Euro-dollar market. The Debentures are convertible
into common stock at a conversion price of $41-5/8 per share. At the Company's
option, the Debentures may be redeemed at 100% plus accrued interest until
maturity.
The 9 7/8% Senior Subordinated Debentures are redeemable at the option of the
Company, in whole or in part, at 100% of the principal amount plus accrued
interest. Mandatory sinking fund payments of $3.0 million (which the Company may
increase to $6.0 million annually) began in 1982 and are intended to retire, at
par plus accrued interest, 75% of the issue prior to maturity.
At the option of the Company, the 10% Subordinated Debentures are redeemable, in
whole or in part, at the principal amount plus accrued interest. Sinking fund
payments of 10% of the outstanding principal amount commenced in 1989, however,
the Company receives credit for Debentures redeemed or otherwise acquired in
excess of sinking fund payments.
The carrying value of the Company's long-term and subordinated debt, including
the current portion at December 31, 1995, approximates fair value. The estimate
is based on a discounted cash flow analysis using current incremental borrowing
rates for similar types of agreements and quoted market prices for issues which
are traded.
F-26
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
Orion Debt
On November 1, 1995 Orion entered into a credit agreement with Chemical Bank, as
agent, and a syndicate of lenders (the "Orion Credit Agreement") The Orion
Credit Agreement consists of a $135 million term loan ("Orion Term Loan") with
quarterly repayments of $6.75 million commencing March 1996 with a final payment
due December 31, 2000; and a $50 million revolver ("Orion Revolver") with a
final maturity of December 31, 2000. The amount available under the Orion
Revolver as of December 31, 1995 was $38 million (of which $9 million is
reserved for an outstanding letter of credit).
Interest is charged on the Orion Term Loan at the agent bank's prime rate plus
2% or at 3% above the LIBOR rate, at Orion's option; and for the Orion Revolver
at the agent bank's prime rate plus 1/2% or at 1-1/2% above the LIBOR rate, also
at Orion's option. At December 31, 1995, the effective interest rates for the
Orion Term Loan and the Orion Revolver were 8.9% and 7.3%, respectively.
Indebtedness under the Orion Credit Agreement is secured by all of Orion's
assets, including the common stock of Orion and its subsidiaries. In addition to
the quarterly amortization schedule, the Orion Credit Agreement provides that in
the event that the ratio of the value of the eligible accounts receivable in
Orion's borrowing base to the amount outstanding under the Orion Term Loan (the
"Borrowing Base Ratio") does not exceed a designated threshold, all cash
received by Orion must be used to prepay principal and interest on the Orion
Term Loan until such Borrowing Base Ratio exceeds such designated threshold. All
prepayments may be applied against scheduled quarterly repayments.
As a result of prepayments, Orion has satisfied its scheduled amortization
payments through December 31, 1996. To the extent the Borrowing Base Ratio
exceeds the threshold set forth in the Orion Credit Agreement, and is not needed
to amortize the Orion Term Loan, Orion may use excess cash to pay its operating
expenses, including the costs of acquiring new film product or new production.
The Borrowing Base Ratio currently exceeds the designated threshold. In
addition, Orion has established a system of lockbox accounts and collection
accounts to maintain Chemical's security interest in the cash proceeds of
Orion's accounts receivable. Amounts outstanding under the Orion Revolver are
guaranteed jointly and severally by Metromedia and by John W. Kluge.
The Orion Credit Agreement also contains customary covenants, including
limitations on the incurrence of additional indebtedness and guarantees, the
creation of new liens and on the number of films Orion may produce, restrictions
on the development costs and budgets for such films, limitations on the
aggregate amount of unrecouped print and advertising costs Orion may incur,
limitations on the amount of Orion's leases, capital and overhead expenses,
prohibitions on the declaration of dividends or distributions by Orion to MIG,
limitations on the merger or consolidation of Orion or the sale by Orion of any
substantial portion of its assets or stock and restrictions on Orion's line of
business, other than activities relating to the production and distribution of
entertainment product. The Orion Credit Agreement also contains several
financial covenants, including the requirement that Orion maintain the ratio of
Orion's Free Cash Flow (as defined in the Orion Credit Agreement) to its
cumulative investment in film product above certain specified levels at the end
of each fiscal quarter, and that Orion's cumulative investment in film product
not exceed Free Cash Flow by more than $50,000,000. In addition, the Orion
Credit Agreement contains a covenant which would be triggered if the amount of
Orion's net losses exceeds certain levels for each fiscal year beginning with
the fiscal year ended December 31, 1996 or in the event of a change in control
of MIG.
It is assumed that the carrying value of Orion's bank debt approximates its face
value because it is a floating rate instrument.
F-27
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
As a result of the Plan (see Note 3), Orion had certain obligations outstanding,
including: Notes payable to the banks under the Third Restated Credit Agreement,
obligations to Metromedia and its affiliate under a Reimbursement Agreement,
Talent Notes, Creditor Notes, obligations to Sony Entertainment Inc. ("Sony")
and 10% Subordinated Debentures ("Plan Debt"). Notwithstanding mandatory minimum
payments and maturity dates, while operating under the Plan, and to the extent
Orion generated positive net cash flow, interest and principal payments were
made to the individual obligations included in Plan Debt based upon certain
formulas. At August 31, 1995 Orion had not generated sufficient net cash flow to
satisfy certain mandatory minimum payments and an event of default could have
been asserted by the Trustees or holders of certain obligations of the Plan
Debt. However, at the Merger Date (see Note 2), proceeds from the Orion Term
Loan, as well as amounts advanced from MIG under a subordinated promissory note,
were used directly or indirectly to repay and terminate all outstanding Plan
Debt obligations ($210.7 million) and to pay certain transaction costs. To
record the repayment and termination of the Plan Debt, Orion removed certain
unamortized discounts associated with such obligations from its accounts and
recognized an extraordinary loss of $32.4 million on the extinguishment of debt.
MITI Debt
A loan from a Hungarian Foreign Trade Bank is due on September 14, 1997 and is
repayable in three annual installments with an interest rate of 34.5%. The loan
is a Hungarian Forint based loan and is secured by a letter of credit issued by
Metromedia International, Inc. in the amount of $1.2 million.
On November 1, 1995, MIG issued 2,537,309 shares of common stock in repayment of
$26.6 million of MITI notes payable.
Included in interest expense for calendar 1995 and fiscal 1995 are $3.8 million
and $430,000, respectively, of interest on amounts due to Metromedia Company, an
affiliate of MIG. No such amounts were included in fiscal 1994 interest expense.
- --------------------------------------------------------------------------------
9. Stockholders' Equity
- --------------------------------------------------------------------------------
Preferred Stock
There are 70,000,000 shares of Preferred Stock authorized, none of which were
outstanding or designated as to a particular series at December 31, 1995.
Common Stock
There are 110,000,000 authorized shares of Common Stock, $1 par value. At
December 31, 1995, February 28, 1995 and February 28, 1994 there were
42,613,738, 20,934,898 and 17,188,408 shares issued and outstanding,
respectively.
After giving effect to the Merger, the Company has reserved the shares of Common
Stock listed below for possible future issuance:
December 31,
1995
------------
Stock options 2,014,258
6 1/2% Convertible Subordinated Debentures (see Note 8) 1,801,802
Restricted stock plan 132,800
---------
3,948,860
=========
F-28
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
Stock Plans
The Company's stock option plans provide for the issuance of incentive stock
options and nonqualified stock options. Incentive stock options may be issued at
a per share price not less than the market value at the date of grant.
Nonqualified options may be issued generally at prices and on terms determined
in the case of each stock option.
Following the Merger (see Note 2), options granted pursuant to the MITI stock
option plan and the Actava stock option plans, became exercisable for stock of
MIG in accordance with the respective exchange ratios.
After giving effect to the Merger, the following table reflects changes in the
stock options issued under these plans:
Shares Average
Subject to Option Price
Option Per Share
---------- ------------
Incentive Stock Options
Balance at December 31, 1993 --
-------
Options granted --
Options exercised --
Options canceled --
-------
Balance at December 31, 1994 --
-------
Transfer of Actava options in Merger 203,000 $ 8.00 - $12.00
Options granted --
Options exercised (19,000) $ 8.00 - $ 9.00
Options canceled --
Balance at December 31, 1995 184,000 $ 8.00 - $ 9.00
=======
Options exercisable at end of year 78,000 $ 8.00 - $12.00
=======
Nonqualified Stock Options
Balance at December 31, 1993 --
Options granted 283,000 $ 5.41
Options exercised --
Options canceled --
-------
Balance at December 31, 1994 283,000 $ 5.41
-------
Transfer of Actava options in Merger 234,000 $ 8.00 - $14.50
Options granted 366,000 $ 5.41
Options exercised (74,000) $ 8.00 - $14.50
Options canceled (89,000) $ 5.41
Balance at December 31, 1995 720,000 $ 5.41 - $14.50
=======
Options exercisable at end of year 178,000 $ 5.41 - $14.50
=======
There were 153,000 shares under the stock option plans at December 31, 1995
which were available for the granting of additional stock options.
F-29
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
During 1994, an officer of MITI was granted an option, not pursuant to any plan,
to purchase 657,908 shares of common stock (the "MITI Options") at a purchase
price of $1.08 per share. The MITI Options expire on September 30, 2004, or
earlier if the officer's employment is terminated. Included in 1994 expenses is
$3.6 million of compensation expense in connection with these options.
Prior to the Merger, an officer of Actava was granted an option, not pursuant to
any plan, to purchase 300,000 shares of common stock (the "Actava Options") at a
purchase price of $6.375 per share. The Actava Options expire on April 18, 2001.
On December 13, 1995, the Board of Directors of the Company terminated the
Actava 1991 Non-Employee Director Stock Option Plan. The Company had previously
reserved 150,000 shares for issuance upon the exercise of options granted under
this plan and had granted 20,000 options thereunder. Also on January 31, 1996,
the Board of Directors adopted the 1996 Incentive Stock Option Plan, subject to
shareholder approval. Assuming adoption of the 1996 Incentive Stock Option Plan
by shareholders, it is the intention of the Board of Directors not to grant any
additional options under the MITI and Actava stock option plans.
No shares have been granted under the Company's restricted stock plan during
1995 and 102,800 shares of common stock remain available under this plan.
- --------------------------------------------------------------------------------
10. Income Taxes
- --------------------------------------------------------------------------------
The provision for income taxes for calendar 1995, fiscal 1995 and 1994, all of
which is current, consists of the following (in thousands):
Calendar Fiscal Fiscal
1995 1995 1994
------- ------- -------
Federal $ -- $ -- $ --
State and local 167 100 100
Foreign 600 1,200 2,000
------- ------- -------
Current 767 1,300 2,100
Deferred -- -- --
------- ------- -------
Total $ 767 $ 1,300 $ 2,100
======= ======= =======
Such provision has been allocated to continuing operations before extraordinary
items, discontinued operations and extraordinary items as follows (in
thousands):
Calendar Fiscal Fiscal
1995 1995 1994
------- ------- -------
Operations before extraordinary items $ 767 $ 1,300 $ 2,100
Discontinued operations -- -- --
Extraordinary items -- -- --
------- ------- -------
$ 767 $ 1,300 $ 2,100
======= ======= =======
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.
The Company had pre-tax losses from foreign operations of $3.4 million, $9.5
million and $100,000 in calendar 1995, fiscal 1995 and fiscal 1994,
respectively.
F-30
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
Pre-tax losses from domestic operations were $74.9 million, $56.4 million and
$129.6 million in calendar 1995, fiscal 1995 and fiscal 1994, respectively.
State and local income tax expense in calendar 1995, fiscal 1995 and 1994
includes an estimate for franchise and other state tax levies required in
jurisdictions which do not permit the utilization of the Company's calendar
1995, fiscal 1995 and 1994 operating losses to mitigate such taxes. Foreign tax
expense in calendar 1995, fiscal 1995 and 1994 reflects estimates of withholding
and remittance taxes. Cash utilized for the payment of income taxes during
calendar 1995, fiscal 1995 and 1994 was $1.0 million, $1.8 million and $2.9
million, respectively.
The temporary differences and carryforwards which give rise to deferred tax
assets and (liabilities) for calendar 1995 and fiscal 1995 are as follows (in
thousands):
December 31, February 28,
1995 1995
---- ----
Net Operating loss carryforward $ 241,877 $ 177,846
Deferred income 22,196 24,245
Investment credit carryforward 28,000 28,000
Allowance for doubtful accounts 4,395 5,346
Capital loss carryforward 3,850 --
Film costs (1,832) (15,077)
Shares payable 15,670 14,986
Reserves for self-insurance 10,970 --
State tax accruals 3,811 --
Investment in equity investee 22,146 --
Purchase of safe harbor lease investment (9,115) --
Minimum tax credit (ATM) carryforward 8,805 --
Other reserves 6,331 6,958
Other 3,843 (1,285)
--------- ---------
Subtotal before valuation allowance 360,947 241,019
Valuation allowance (360,947) (241,019)
--------- ---------
Deferred taxes $ -- $ --
========= =========
The net change in the total valuation allowance for calendar 1995, fiscal 1995
and fiscal 1994 was an increase of $119.9 million, $51.3 million and $3.4
million, respectively.
F-31
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
The Company's provision for income taxes for calendar 1995, fiscal 1995 and
1994, 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):
Calendar Fiscal Fiscal
1995 1995 1994
---- ---- ----
Provision (benefit) based upon
federal statutory rate of 35% $(132,138) $ (23,839) $ (43,084)
State taxes, net of federal benefit 109 65 65
Foreign taxes in excess
of federal credit 600 1,200 2,000
Non-deductible direct expenses of
chapter 11 filing 448 214 596
Current year operating loss
not benefitted 26,943 22,832 42,201
Equity in losses of
Joint Ventures 2,778 790 272
Extraordinary loss on early
extinguishment of debt (11,344) -- --
Reduction of extraordinary loss
not benefitted 11,344 -- --
Discontinued operations, not
tax benefitted 101,999 -- --
Other, net 28 38 50
--------- --------- ---------
Provision for income taxes $ 767 $ 1,300 $ 2,100
========= ========= =========
At December 31, 1995, the Company had available net operating loss
carryforwards, capital loss carryforwards, unused alternative tax credits and
unused investment tax credits of approximately $631 million, $11 million, $9
million and $28 million, respectively, which can reduce future federal income
taxes. If not utilized, these carryforwards and credits will begin to expire in
1996. The alternative tax credit may be carried forward indefinitely, to offset
regular tax in certain circumstances.
The use by the Company of any net operating loss carryforwards reported or which
will be reported by Orion, Actava, MITI and Sterling and the subsidiaries
included in their respective affiliated groups of corporations which filed
consolidated Federal income tax returns with Orion, Actava, MITI and Sterling as
the parent corporations (such Orion, Actava, MITI and Sterling affiliated groups
hereinafter being referred to as the "Orion Group," the "Actava Group," the
"MITI Group" and the "Sterling Group," respectively, and individually as a
"Former Group" and collectively as the "Former Groups") for taxable years ending
on or before November 1, 1995 (such Pre-November 1, 1995 net operating loss
carryforwards hereinafter referred to collectively as the "Pre-November 1
Losses") will be subject to certain limitations as a result of the Mergers.
Under Section 382 of the Internal Revenue Code, annual limitations will
generally apply to the use of the Pre-November 1 Losses of the Former Groups by
the Company. The amount of the annual limitation with respect to a Former Group
will depend upon the application of certain principles contained in Section 382
of the Internal Revenue Code relating to the valuation of such Former Group
immediately prior to the November 1 Mergers and an interest factor published by
the Internal Revenue Service on a monthly basis. Based on the market price of
the Company's stock at the effective time of the Mergers, the exchange ratios
with respect to the shares of Orion, MITI and Sterling, and the published
interest factor of 5.75 percent (applicable to transactions that occurred in
November 1995), the annual limitations on the use of the Pre-November 1 Losses
of the Orion Group, Actava Group, the MITI Group and the Sterling Group,
respectively, by the MIG Group
F-32
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
would currently be approximately $11.9 million, $18.3 million, $10.0 million and
$510,000 per year, respectively. To the extent Pre-November 1 Losses equal to
the annual limitation with respect to any of the Former Groups are not used in
any year, the unused amount would generally be available to be carried forward
and used to increase the limitation with respect to such Former Group in the
succeeding year.
The use of Pre-November 1 Losses of the Orion Group, the MITI Group and the
Sterling Group will also be separately limited by the income and gains
recognized by the corporations that were members of each of the Orion Group, the
MITI Group and the Sterling Group, respectively, including corporations such as
the Company (in the case of Sterling) that are successors by merger to any of
such members. Under proposed Treasury regulations, such Pre-November 1 Losses of
any such former members of any such Former Group, or successors thereof, would
be usable on an aggregate basis to the extent of the income and gains of such
former members of such Former Group, or successors thereof on an aggregate
basis.
As a result of the Merger, the Company succeeded to approximately $92.2 million
of Pre-November 1 Losses of the Actava Group. SFAS 109 requires assets acquired
and liabilities assumed to be recorded at their "gross" fair value. Differences
between the assigned values and tax bases of assets acquired and liabilities
assumed in purchase business combinations are temporary differences under the
provisions of SFAS 109. However, since all of the Actava intangibles have been
eliminated, when the Pre-November 1 Losses are utilized they will reduce income
tax expense.
- --------------------------------------------------------------------------------
11. Employee Benefit Plans
- --------------------------------------------------------------------------------
Actava had a noncontributory defined benefit plan which is "qualified" under
Federal tax law and covered substantially all Actava's employees. In addition,
Actava had a "nonqualified" supplemental retirement plan which provided for the
payment of benefits to certain employees in excess of those payable by the
qualified plans. Following the Mergers (see Note 2), the Company froze the
Actava noncontributory defined benefit plan and "nonqualified" supplemental
retirement plan effective as of December 31, 1995. Employees will no longer
accumulate benefits under these plans.
In connection with the Merger, the projected benefit obligation and fair value
of plan assets were remeasured considering the Company's freezing of the plan.
The excess of the projected benefit obligations over the fair value of plan
assets in the amount of $4.9 million was recorded in the allocation of purchase
price. The recognition of the net pension liability in the allocation of the
purchase price eliminated any previously existing unrecognized gain or loss,
prior service cost, and transition asset or obligation related to the acquired
enterprise's pension plan.
Some of the Company's subsidiaries also have defined contribution plans which
provide for discretionary annual contributions covering substantially all of
their employees. Effective January 1, 1993, MITI established a 401(k) Salary
Deferral Plan ("401(k) Plan") on behalf of its employees. Under the 401(k) Plan
participating employees can defer receipt of up to 15% of their compensation,
subject to certain limitations. MITI has the discretion to match amounts
contributed by the employee up to 3% of their compensation. The Company
contributed $60,000 for the year ended December 31, 1995.
F-33
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
Orion has a 401(k) defined contribution retirement and savings plan covering all
eligible employees who prior to March 1 or September 1, have completed 1,000
hours of service, as defined in the plan. Participants may make pretax
contributions to the plan of up to 15% of their compensation, as defined,
subject to certain limitations as prescribed by the Internal Revenue Code. Orion
matches 50% of amounts contributed up to $500 per participant per plan year.
Orion may make discretionary contributions on an annual basis to the plan. The
exact amount of discretionary contributions is decided each year by the Board of
Directors. There have been no discretionary contributions since the inception of
the plan. Total employer contribution expense for calendar 1995, fiscal 1995 and
fiscal 1994 was approximately $64,000 each year.
- --------------------------------------------------------------------------------
12. Business Segment Data
- --------------------------------------------------------------------------------
The business activities of the Company constitute two business segments, (i)
filmed entertainment, which includes the financing and production of theatrical
motion pictures as well as the distribution of theatrical motion pictures and
television programming, and (ii) communications, which includes wireless cable
television, paging services, radio broadcasting, and telephony.
Filmed Entertainment
The Company operates its filmed entertainment operations through Orion. Until
the Merger Date (see Note 2), Orion operated under the terms of the Plan (see
Note 3) which severely limited Orion's ability to finance and produce additional
theatrical motion pictures. Therefore, Orion's primary activity prior to the
Merger was the ongoing distribution of its present library of theatrical motion
pictures and television programming. Orion believes the lack of a continuing
flow of newly produced theatrical product while operating under the Plan
adversely affected the marketability of its library.
Theatrical motion pictures are produced initially for exhibition in theaters.
Initial theatrical release generally occurs in the United States and Canada.
Foreign theatrical exhibition generally begins within the first year after
initial release. Home video distribution in all territories usually begins six
to twelve months after theatrical release in that territory, with pay television
exploitation beginning generally six months after initial home video release.
Exhibition of the Company's product on network and on other free television
outlets begins generally three to five years from the initial theatrical release
date in each territory.
F-34
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
Communications
The Company, through MITI and subsidiaries, owns various interests in Joint
Ventures that are currently in operation or planning to commence operations in
certain republics of the Commonwealth of Independent States ("CIS") (formerly
the Union of Soviet Socialist Republics) and other Eastern European countries.
During 1995, the Company began to pursue opportunities to extend its
communications businesses into other emerging markets in the Pacific Rim.
The Joint Ventures currently offer wireless cable television, radio paging
systems, radio broadcasting, trunked mobile radio services and various types of
telephone services. Joint Ventures are principally entered into with
governmental agencies or ministries under the existing laws of the respective
countries.
The Joint Venture agreements generally provide for the initial contribution of
assets or cash, and for the creation of a line of credit agreement to be entered
into between the Joint Venture and MITI. Under a typical arrangement, MITI's
venture partner contributes the necessary license or permits under which the
Joint Venture will conduct its business, studio or office space, transmitting
tower rights and other equipment. MITI's contribution is generally cash and
equipment but may consist of other specific assets as required by the Joint
Venture agreement. The line of credit agreement generally specifies a commitment
amount, interest rates and repayment terms.
The consolidated financial statements include the accounts and results of
operations of MITI and its majority owned and controlled Joint Venture, CNM
Paging, and its subsidiaries. Investments in other companies and Joint Ventures
which are not majority owned, or in which the Company does not control but
exercises significant influence are accounted for using the equity method (see
Notes 1 and 7).
F-35
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
BUSINESS SEGMENT DATA
(in thousands)
Calendar Fiscal Fiscal
1995 1995 1995
--------- --------- ---------
Filmed Entertainment:
Net revenues $ 133,812 $ 191,244 $ 175,662
Direct operating costs (155,720) (208,755) (263,961)
Depreciation and amortization (694) (767) (708)
--------- --------- ---------
Loss from operations (22,602) (18,278) (89,007)
========= ========= =========
Assets at year end 283,093 351,588 508,014
Capital expenditures 1,151 1,198 (785)
========= ========= =========
Communications:
Net revenues 5,158 3,545 51
Direct operating costs (26,937) (19,067) (6,086)
Depreciation and amortization (2,101) (1,149) (174)
--------- --------- ---------
Loss from operations (23,880) (16,671) (6,209)
========= ========= =========
Equity in losses of Joint Ventures 7,981 2,257 777
========= ========= =========
Assets at year end 161,089 40,282 12,637
Capital expenditures 2,548 3,610 (1,423)
========= ========= =========
Headquarters and Eliminations:
Net revenues (99) -- --
Direct operating costs (876) -- --
Depreciation and amortization -- -- --
--------- --------- ---------
Income from operations (975) -- --
========= ========= =========
Assets at year end including
discounted operations and
eliminations 155,456 -- --
========= ========= =========
Consolidated - Continuing Operations:
Net revenues 138,871 194,789 175,713
Direct operating costs (183,533) (227,822) (270,047)
Depreciation and amortization (2,795) (1,916) (882)
--------- --------- ---------
Loss from operations (47,457) (34,949) (95,216)
========= ========= =========
Equity in losses of joint ventures 7,981 2,257 777
========= ========= =========
Assets at year end 599,638 391,870 520,651
Capital expenditures $ 3,699 $ 4,808 $ 2,208
========= ========= =========
Management fees of $100,000 charged to operations are eliminated from the
business segment data.
F-36
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
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
Orion's export sales from continuing operations by major geographic area for
each of the last three fiscal years (in thousands):
Calendar Fiscal Fiscal
1995 1995 1994
---- ---- ----
Canada $ 4,150 $ 3,862 $ 1,562
Europe 32,126 36,532 62,107
Mexico and South America 2,454 4,586 5,782
Asia and Australia 8,841 13,820 23,876
------- ------- -------
$47,571 $58,800 $93,327
======= ======= =======
Revenues, operating losses and assets of MITI's foreign operations are disclosed
in Note 7.
Showtime Networks, Inc. ("Showtime") and Lifetime Television ("Lifetime") have
been significant customers of the Company. During calendar 1995 and fiscal 1995,
the Company recorded approximately $15.4 million and $45.5 million,
respectively, of revenues under its pay cable agreement with Showtime, and
during calendar 1995, fiscal 1995 and fiscal 1994, the Company recorded
approximately $15.0 million, $12.5 million and $15.1 million of revenues,
respectively, under its basic cable agreement with Lifetime.
- --------------------------------------------------------------------------------
13. Commitments and Contingent Liabilities
- --------------------------------------------------------------------------------
Commitments
The Company is obligated under various operating leases. Total rent expense
amounted to $2.6 million, $2.3 million, and $2.2 million, in calendar 1995,
fiscal 1995 and fiscal 1994, respectively.
Minimum rental commitments under noncancellable operating leases are set forth
in the following table (in thousands):
Year Amount
---- ------
1996 $1,911
1997 954
1998 832
1999 519
2000 252
Thereafter 526
------
Total minimum rental commitments $4,994
======
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 December 31, 1995 under such contracts is approximately
$8.1 million.
F-37
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
In addition, the Company and certain of its subsidiaries have postemployment
contracts with various officers. The Company's remaining aggregate commitment at
December 31, 1995 under such contracts is approximately $1.1 million.
Acquisition Commitments
During December 1995, MITI, Protocall Ventures Ltd. ("Protocall"), and the
shareholders of Protocall, executed a letter of intent together with a loan
agreement relating to the purchase of Protocall.
The letter of intent states that pending the consummation of purchase, MITI will
loan up to $1.5 million to Protocall and negotiate definitive documentation
relating to the purchase of 51% of Protocall for $2.6 million. Principal and
accrued interest under the loan will be applied to the purchase price at the
time the transactions contemplated by the purchase agreement are consummated,
which is expected to be on or before March 31, 1996.
The letter of intent provides that the shareholders of Protocall have the right
to purchase $250,000 of MIG's common stock during the five year period after
closing of the purchase agreement and further provides the right to purchase an
additional $250,000 of MIG's common stock one year after closing if Protocall
achieves certain budgeted objectives. The purchase price will be the trading
price of MIG stock at the time of the closing of the purchase agreement.
However, the entire purchase price for all the shares will be forgiven and, as
such, these amounts will be considered part of the acquisition cost.
The agreements also provide that MITI will arrange for or make direct loans to
Protocall relating to existing joint venture commitments of up to $3.4 million,
plus any additional amounts agreed to by the parties.
In connection with MITI's activities directed at entering into Joint Venture
agreements in the Pacific Rim, MITI's 90% subsidiary, Metromedia Asia Limited
("MAL") has entered into certain agreements with Communications Technology
International, Inc., ("CTI"), which owns 7% of the equity of MAL. Under these
agreements, MAL has agreed, to loan up to $2.5 million to CTI, and permit CTI to
purchase up to an additional 7% of the equity of MAL, provided that CTI is
successful in obtaining rights to operate certain services, as defined, and MAL
is provided with the right to participate in the operation of such services. MAL
has also agreed to loan a portion of the funds required to purchase the equity
interests in MAL to CTI.
Contingencies
The Company is contingently liable under various guarantees of debt totaling
approximately $1.6 million. The debt is primarily Industrial Revenue Bonds which
were issued to finance manufacturing facilities and equipment of certain of the
Company's former subsidiaries which were disposed of prior to 1995. The Bonds
are secured by the facilities and equipment. In addition, upon the sale of the
subsidiaries, the Company received lending institution guarantees or bank
letters of credit to support the Company's contingent obligations. There are no
material defaults on the debt agreements.
The Company is contingently liable under various real estate leases of certain
of its former subsidiaries which were sold prior to 1995. The total future
payments under these leases, including real estate taxes, is estimated to be
approximately $2.4 million. The leased properties generally have financially
sound subleases.
F-38
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
In 1995, the Russian Federation legislature proposed legislation that would
limit to 35%, the interest which a foreign person is permitted to own in
entities holding broadcast licenses. While such proposed legislation was not
enacted, it is possible that such legislation could be reintroduced and enacted
in Russia. Further, even if enacted, such law may be challenged on
constitutional grounds and may be inconsistent with Russian Federation treaty
obligations. In addition, it is unclear how Russian Federation regulators would
interpret and apply the law to existing license holders. However, if the
legislature passes a law restricting foreign ownership of broadcast license
holding entities and such a law is found to be constitutional and fails to
contain a grandfathering clause to protect existing companies, it could require
MITI to reduce its ownership interests in its Russian Joint Ventures. It is
unclear how such reductions would be effected.
The Republic of Latvia passed legislation in September, 1995 which purports to
limit to 20% the interest which a foreign person is permitted to own in entities
engaged in certain communications businesses such as radio, cable television and
other systems of broadcasting. This legislation will require MITI to reduce to
20% its existing ownership interest in joint ventures which operate a wireless
cable television system and an FM radio station in Riga, Latvia.
Metromedia International, Inc., a subsidiary of MITI, is contingently liable for
an outstanding letter of credit amounting to $1.2 million.
Litigation
Fuqua Industries, Inc. Shareholder Litigation
Between February 25, 1991 and March 4, 1991, three lawsuits were filed against
the Company (formerly named Fuqua Industries, Inc.) in the Delaware Chancery
Court. On May 1, 1991, these three lawsuits were consolidated by the Delaware
Chancery Court in In re Fuqua Industries, Inc. Shareholders Litigation, Civil
Action No. 11974. The named defendants are certain current and former members of
the Company's Board of Directors and certain former members of the Board of
Directors of Intermark, Inc. ("Intermark"). Intermark is a predecessor to Triton
Group Ltd., which formerly owned approximately 25% of the outstanding shares of
the Company's Common Stock. The Company was named as a nominal defendant in this
lawsuit. The action was brought derivatively on behalf of the Company and
purportedly was filed as a class action lawsuit on behalf of all holders of the
Company's Common Stock, other than the defendants. The complaint alleges, among
other things, a long-standing pattern and practice by the defendants of misusing
and abusing their power as directors and insiders of the Company by manipulating
the affairs of the Company to the detriment of the Company's past and present
stockholders. The complaint seeks (i) monetary damages from the director
defendants, including a joint and several judgment for $15.7 million for alleged
improper profits obtained by Mr. J.B. Fuqua in connection with the sale of his
shares in the Company to Intermark; (ii) injunctive relief against the Company,
Intermark and its former directors, including a prohibition against approving or
entering into any business combination with Intermark without specified
approval; and (iii) costs of suit and attorneys' fees. On December 28, 1995,
plaintiffs filed a consolidated second amended derivative and class action
complaint, purporting to assert additional facts in support of their claim
regarding an alleged plan, but deleting their prior request for injunctive
relief. On January 31, 1996, all defendants moved to dismiss the second amended
complaint and filed a brief in support of that motion. The motion to dismiss is
still pending.
In accordance with Section 145 of the General Corporation Law of the State of
Delaware, pursuant to the Company's Restated Certificate of Incorporation, the
Company has agreed to indemnify its officers and directors against, among other
things, any and all judgments, fines, penalties, amounts paid in settlements and
expenses paid or incurred by virtue of the fact that such officer or director
was acting in such capacity to the extent not prohibited by law.
F-39
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
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. Based upon management's review of the underlying facts and
circumstances and consultation with counsel, management believes such matters
will not result in significant additional liabilities which would have a
material adverse effect upon the consolidated financial position or results of
operations of the Company.
Environmental Protection
Snapper's manufacturing plant is subject to federal, state and local
environmental laws and regulations. Compliance with such laws and regulations
has not, and is not expected to, materially affect Snapper's competitive
position. Snapper's capital expenditures for environmental control facilities,
its incremental operating costs in connection therewith and Snapper's
environmental compliance costs were not material in 1995 and are not expected to
be material in future years.
The Company has agreed to indemnify the purchaser of a former subsidiary of the
Company for certain obligations, liabilities and costs incurred by such
subsidiary arising out of environmental conditions existing on or prior to the
date on which the subsidiary was sold by the Company. The Company sold the
subsidiary in 1987. Since that time, the Company has been involved in various
environmental matters involving property owned and operated by the subsidiary,
including clean-up efforts at landfill sites and the remediation of groundwater
contamination. The costs incurred by the Company with respect to these matters
have not been material during any year through and including the fiscal year
ended December 31, 1995. As of December 31, 1995, the Company had a remaining
reserve of approximately $1.3 million to cover its obligations to its former
subsidiary.
During 1995, the Company was notified by certain potentially responsible parties
at a superfund site in Michigan that the former subsidiary may be a potentially
responsible party at such site. The former subsidiary's liability, if any, has
not been determined but the Company believes that such liability will not be
material.
The Company, through a wholly-owned subsidiary, owns approximately 17 acres of
real property located in Opelika, Alabama (the "Opelika Property"). The Opelika
Property was formerly owned by Diversified Products Corporation, a former
subsidiary of the Company ("DP"), and was transferred to a wholly owned
subsidiary of the Company in connection with the Exchange Transaction. DP
previously used the Opelika Property as a storage area for stockpiling cement,
sand, and mill scale materials needed for or resulting from the manufacture of
exercise weights. In June 1994, DP discontinued the manufacture of exercise
weights and no longer needed to use the Opelika Property as a storage area. In
connection with the Exchange Transaction, Roadmaster and the Company agreed that
the Company, through a wholly-owned subsidiary, would acquire the Opelika
Property, together with any related permits, licenses, and other authorizations
under federal, state and local laws governing pollution or protection of the
environment. In connection with the closing of the Exchange Transaction, the
Company and Roadmaster entered into an Environmental Indemnity Agreement (the
"Indemnity Agreement") under which the Company agreed to indemnify Roadmaster
for costs and liabilities resulting from the presence on or migration of
regulated materials from the Opelika Property. The Company's obligations under
the Indemnity Agreement with respect to the Opelika Property are not limited.
The Indemnity Agreement does not cover environmental liabilities relating to any
property now or previously owned by DP except for the Opelika Property.
On January 22, 1996, the Alabama Department of Environmental Management ("ADEM")
wrote a letter to the Company stating that the Opelika Property contains an
"unauthorized dump" in violation of Alabama environmental regulations. The
letter from ADEM requires the Company to present for ADEM's approval a written
environmental remediation plan for the Opelika Property. The Company has
retained an environmental consulting firm to develop an environmental
remediation plan for the Opelika Property. The consulting firm is currently
conducting soil samples and
F-40
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
has performed other tests on the Opelika Property. Based upon the preliminary
results of these tests, the Company believes that the reserves of approximately
$1.8 million previously established by the Company for the Opelika Property will
be adequate to cover the cost of the remediation plan that is currently being
developed.
- --------------------------------------------------------------------------------
14. Selected Quarterly Financial Data (unaudited)
- --------------------------------------------------------------------------------
Selected financial information for the quarterly periods in calendar 1995 and
fiscal 1995 is presented below (in thousands, except per-share amounts):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
First Quarter of Second Quarter of
- -----------------------------------------------------------------------------------------------------------------------
Calendar Fiscal Calendar Fiscal
1995 1995 1995 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 37,678 $ 84,345 (b) $ 40,755 $ 30,394
Operating loss (10,692)(a) (6,750) (7,460) (11,079)(c)
Interest expense, net 8,119 7,137 7,353 7,123
Equity interest in losses of Joint Ventures (588) -- (1,633) (362)
Net loss (20,366) (14,453) (16,714) (19,087)
- -----------------------------------------------------------------------------------------------------------------------
Loss per common share:
Primary:
Net loss $ (.97) $ (.79) $ (.80) $ (.92)
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Third Quarter of Fourth Quarter of
- -----------------------------------------------------------------------------------------------------------------------
Calendar Fiscal Calendar Fiscal
1995 1995 1995 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 35,468 $ 45,187 $ 24,970 $ 34,863
Operating loss (6,762) (3,939) (22,543)(d) (13,181)(e)
Interest expense, net 7,574 6,374 6,493 8,661
Equity interest in losses of Joint Ventures (1,568) (777) (4,192) (1,118)
Net loss before discontinued
operations and extraordinary item (16,146) (11,425) (33,798) (24,446)
Loss on disposal of discontinued operations -- -- (293,570)(f) --
Loss on early extinguishment of debt -- -- (32,382)(g) --
Net loss (16,146) (11,425) (359,750) (24,446)
- -----------------------------------------------------------------------------------------------------------------------
Loss per common share:
Primary:
Continuing operations $ (.77) $ (.55) $ (.96) $ (1.17)
Discontinued operations $ -- $ -- $ (8.30) $ --
Extraordinary item $ -- $ -- $ (.92) $ --
Net loss $ (.77) $ (.55) $ (10.18) $ (1.17)
=======================================================================================================================
</TABLE>
(a) Operating loss for the first of calendar 1995 includes $5.4 million of
writedowns to previously released film product.
(b) As more fully described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" significant revenues ($40.0
million) were recognized in conjunction with the Showtime Settlement in the
first quarter of fiscal 1995.
(c) Operating loss for the second quarter of fiscal 1995 includes writedowns to
estimated net realizable value of an aggregate of $2.6 million of
writedowns of theatrical product unreleased at that time and $5.3 million
of writedowns to previously released product.
F-41
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
(d) Operating loss for the fourth quarter of calendar 1995 includes writedowns
to estimated realizable value of $3.0 million for unreleased theatrical
product and $4.8 million for writedowns to previously released product.
(e) Operating loss for the fourth quarter of fiscal 1995 includes $8.1 million
of writedowns to previously released product.
(f) As more fully discussed in Note 2, the excess of the allocated purchase
price attributed to Snapper in the Actava acquisition, over the estimated
cash flows from the operations and the anticipated sale of Snapper,
amounted to $293.6 million.
(g) As more fully discussed in Note 8, Orion removed certain unamortized
discounts associated with such obligations from the accounts and recognized
an extraordinary loss of $32.4 million on the extinguishment of debt.
The quarterly financial data presented above differs from amounts previously
reported in Orion's 10 Q's due to the restatement of historical financial
statements to account for the common control merger with MITI (see Note 2). In
addition, Orion's previously filed fiscal 1996 quarters have been restated and
presented on a calendar year basis in calendar 1995.
- --------------------------------------------------------------------------------
15. Subsequent Developments
- --------------------------------------------------------------------------------
Subsequent to year-end, the Company entered into an Agreement and Plan of Merger
to acquire The Samuel Goldwyn Company ("Goldwyn") and entered into a letter of
intent to acquire Motion Picture Corporation of America ("MPCA"). In addition,
the Company has entered into an Agreement and Plan of Merger to acquire Alliance
Entertainment Company ("Alliance"). In connection with the proposed acquisition
of Alliance and Goldwyn, the Company intends to refinance substantially all of
its indebtedness and that of its subsidiaries, as well as substantially all of
the indebtedness of Alliance and Goldwyn.
On December 20, 1995, the Company and Alliance entered into an Agreement and
Plan of Merger (the "Alliance Merger Agreement") pursuant to which a
newly-formed, wholly-owned subsidiary of the Company was to merge with and into
Alliance. On April 29, 1996, the Company and Alliance entered into a Termination
and Release Agreement terminating the Alliance Merger Agreement.
On January 31, 1996, the Company and Goldwyn entered into an Agreement and Plan
of Merger (the "Goldwyn Merger Agreement") pursuant to which Goldwyn will merge
with a newly-formed, wholly-owned subsidiary of the Company (the "Goldwyn
Merger") and, in connection therewith, will be re-named "Goldwyn Entertainment
Company."
The Goldwyn Merger Agreement provides that upon consummation of the Goldwyn
Merger, Goldwyn stockholders will receive $5.00 worth of Common Stock for each
share of Goldwyn common stock, provided that the average closing price of the
Common Stock over the 20 consecutive trading days ending five days prior to the
meeting of the Company's stockholders held to vote upon the Goldwyn Merger is
between $12.50 and $16.50. If the average closing price of Common Stock over
such period is less than $12.50 it will be deemed to be $12.50 and Goldwyn
stockholders will receive .4 shares of Common Stock for each share of Goldwyn
common stock, and if the average closing price of the Common Stock over such
period is greater than $16.50, it will be deemed to be $16.50 and Goldwyn
stockholders will receive .3030 shares of Common Stock for each share of Goldwyn
common stock.
F-42
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
METROMEDIA INTERNATIONAL GROUP, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
METROMEDIA INTERNATIONAL GROUP, INC.
Statement of Operations
(Registrant only in thousands, except per share amounts)
Period Ended
December 31,
1995
---------
Revenues $ --
Cost and expenses:
Selling, general and administrative 1,109
---------
Operating loss (1,109)
Interest expense, net 2,208
Equity in losses of subsidiaries 83,707
---------
Loss from continuing operations (87,024)
before extraordinary item
Discontinued Operations - loss on disposal (293,570)
Equity in extraordinary item - early extinguishment of debt (32,382)
---------
Net Loss $(412,976)
=========
Loss per common share:
Primary:
Continuing Operations:
Discontinued Operation $ (3.54)
=========
Extraordinary Item $ (11.97)
=========
Net Loss $ (1.32)
=========
$ (16.83)
=========
The accompanying notes are an integral part of the condensed financial
information. See Notes to Condensed Financial Information on page S-4.
S-1
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
METROMEDIA INTERNATIONAL GROUP, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - continued
METROMEDIA INTERNATIONAL GROUP, INC.
Balance Sheet
(Registrant only in thousands)
December 31,
1995
---------
Current Assets:
Cash and cash equivalents $ 21,848
Other assets 3,010
---------
Total current assets 24,858
Investment in Roadmaster Industries, Inc. 47,455
Investment in Snapper, Inc. 79,200
Investment in subsidiaries 81,565
Intercompany accounts 86,102
Other assets 2,566
---------
Total assets $ 321,746
=========
Current Liabilities:
Accounts payable $ 943
Accrued expenses 66,750
Current portion of long term debt 32,682
---------
Total current liabilities 100,375
Long term debt 137,734
Other long term liabilities 382
---------
Total liabilities 238,491
Stockholders' equity
Common stock 42,614
Paid-in surplus 728,747
Accumulated deficit (688,106)
---------
Total stockholders' equity 83,255
---------
Total liabilities and stockholder equity $ 321,746
=========
The accompanying notes are an integral part of the condensed financial
information. See Notes to Condensed Financial Information on page S-4.
S-2
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
METROMEDIA INTERNATIONAL GROUP, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - continued
METROMEDIA INTERNATIONAL GROUP, INC.
Statement of Cash Flows
(Registrant only in thousands)
Period Ended
December 31,
1995
---------
Net loss $(412,976)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Loss on discontinued operations 293,570
Equity in losses of investees 116,089
Amortization of debt discounts and costs 434
(Increase) decrease in prepaid expenses (5,567)
(Increase) decrease in other current assets 5,434
(Increase) decrease in other assets 1,769
---------
Cash provided by (used in) operations (1,247)
---------
Investment activities:
Proceeds from notes receivable 45,320
Investment in subsidiaries (4,230)
Cash acquired, net in merger 72,068
---------
Cash provided by (used in) investment activities 113,158
---------
Financing Activities:
Proceeds from revolving term loan 28,754
Payments on notes and subordinated debt (48,222)
Proceeds from issuance of stock 2,282
Due from subsidiary (72,877)
---------
Cash provided by (used in) financing activities (90,063)
---------
Net increase (decrease) in cash: 21,848
Cash and cash equivalents at beginning of year --
---------
Cash and cash equivalents at end of year $ 21,848
=========
The accompanying notes are an integral part of the condensed financial
information. See Notes to Condensed Financial Information on page S-4.
S-3
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
NOTES TO CONDENSED FINANCIAL INFORMATION
(A) Prior to the merger discussed in Note 2 to the Consolidated Financial
Statements, there was no parent company. The accompanying parent company
only financial statements reflect the operations of MIG from November 1,
1995 to December 31, 1995 and the equity in losses of subsidiaries for the
year ended December 31, 1995. The Calendar 1995, Fiscal 1995 and 1994
amounts shown in the historical consolidated financial statements represent
the combined financial statements of Orion and MITI prior to the merger and
formation of MIG.
(B) Principal repayments of the Registrant's borrowings under debt agreements
and other debt outstanding at December 31, 1995 are expected to be required
no earlier than as follows:
Actava
------
FY 1996 32,682
FY 1997 15,887
FY 1998 60,336
FY 1999 4,428
FY 2000 -
After FY 2000 75,000
For additional information regarding the Registrant's borrowings under debt
agreements and other debt, see Note 8 to the Consolidated Financial Statements.
S-4
<PAGE>
================================================================================
Metromedia International Group, Inc.
================================================================================
SCHEDULE II
METROMEDIA INTERNATIONAL GROUP, INC.
Combined Financial Statement Schedules Valuation and Qualifying Accounts
December 31, 1995
(in thousands)
<TABLE>
<CAPTION>
Balance at Charged Balance at
Beginning to Costs Other Deductions/ End
of Period and Expenses Charges Write-offs of Period
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Allowances for doubtful
accounts, etc. (deducted
from current receivables):
Year ended December 31, 1995 $ 14,223 $ 90 $ -- $ (2,400) $ 11,913
======== ======== =========== ======== ========
Year ended February 28, 1995 $ 14,800 $ 2,064 $ 159 $ (2,800) $ 14,223
======== ======== =========== ======== ========
Year ended February 28, 1994 $ 26,000 $ 900 $ -- $(12,100) $ 14,800
======== ======== =========== ======== ========
</TABLE>
S-5
================================================================================
Metromedia International Group, Inc.
================================================================================
EXHIBIT 11
METROMEDIA INTERNATIONAL GROUP, INC.
Computation of Earnings Per Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------------------------
December 31, 1995 February 28, 1995 February 28, 1994
--------------------------------------------------------------
<S> <C> <C> <C>
Loss Per Share - Primary
Loss from continuing operations and
before extraordinary item $ (87,024) $ (69,411) $(132,530)
Loss on disposal (293, 570) -- --
Loss on early extinguishment of debt (32,382) -- --
----------- --------- ---------
Net loss available for Common Stock and
Common Stock equivalents $ (412,976) $ (69,411) $(132,530)
=========== ========= =========
Common Stock and Common Stock
Equivalents (A)
Weighted average common shares
outstanding during the period 24,541 20,246 17,188
=========== ========= =========
Loss Per Share - Primary
Continuing Operations $ (3.54) $ (3.43) $ (7.71)
Discontinued Operations (11.97) -- --
Extraordinary Item (1.32) -- --
----------- --------- ---------
Net Loss $ (16.83) $ (3.43) $ (7.71)
=========== ========= =========
</TABLE>
Loss Per Share - Assuming Full Dilution (B)
(A) Common stock equivalents are not included in primary loss per share in
Calendar 1995, Fiscal 1995 and Fiscal 1994 because they would be
anti-dilutive.
(B) Fully diluted loss per share is not used in Calendar 1995, Fiscal 1995 and
Fiscal 1994 because it is less than primary loss per share.
