AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 1996
REGISTRATION NO. 333-03353
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 3 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
METROMEDIA INTERNATIONAL GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 58-0971455
(State of Incorporation) (I.R.S. Employer Identification No.)
</TABLE>
-------------------
945 EAST PACES FERRY ROAD
SUITE 2210
ATLANTA, GEORGIA 30326
(404) 261-6190
(Address and telephone number of registrant's principal executive offices)
-------------------
ARNOLD L. WADLER
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
METROMEDIA INTERNATIONAL GROUP, INC.
C/O METROMEDIA COMPANY
ONE MEADOWLANDS PLAZA
EAST RUTHERFORD, NEW JERSEY 07073
(201) 531-8000
(Name, address and telephone number of agent for service)
-------------------
COPIES TO:
<TABLE>
<S> <C>
JAMES M. DUBIN, ESQ. JEFFREY H. COHEN, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON NICHOLAS P. SAGGESE, ESQ.
1285 AVENUE OF THE AMERICAS SKADDEN, ARPS, SLATE, MEAGHER & FLOM
NEW YORK, NEW YORK 10019-6064 300 SOUTH GRAND AVENUE, 34TH FLOOR
LOS ANGELES, CALIFORNIA 90071
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable following the effectiveness of this Registration
Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement is being filed with respect to the offering by
Metromedia International Group, Inc., a Delaware corporation of 15,000,000
shares of its common stock, $1.00 par value (the "Common Stock") (assuming no
exercise of the U.S. Underwriters' over-allotment option), in an underwritten
public offering.
The Registration Statement contains two separate prospectuses. The first
prospectus relates to a public offering in the U.S. and Canada of an aggregate
of 12,000,000 shares of Common Stock (the "U.S. Offering"). The second
prospectus relates to a concurrent offering outside the U.S. and Canada of an
aggregate of 3,000,000 shares of Common Stock (the "International Offering").
The prospectuses for the U.S. Offering and the International Offering will be
identical except for alternate front and back cover pages for the International
Offering, which alternate pages appear immediately after the prospectus for the
U.S. Offering.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 27, 1996
PROSPECTUS
, 1996
15,000,000 SHARES
METROMEDIA INTERNATIONAL GROUP, INC.
COMMON STOCK
All of the shares of Common Stock, par value $1.00 per share (the "Common
Stock"), offered hereby are being sold by Metromedia International Group, Inc.
(the "Company" or "MIG").
The Company is offering 15,000,000 shares (assuming no exercise of the
Underwriters' overallotment option) of its Common Stock in the Offering (as
defined below). Of the 15,000,000 shares of Common Stock being offered by the
Company, 12,000,000 shares are being offered for sale in the United States and
Canada by the U.S. Underwriters (the "U.S. Offering") and 3,000,000 shares are
being offered for sale outside the United States and Canada in a concurrent
offering by the International Managers (the "International Offering" and,
together with the U.S. Offering, the "Offering"), subject to transfers between
the U.S. Underwriters and the International Managers. See "Underwriting." The
Company intends to consummate the Offering simultaneously with the consummation
of the proposed acquisition (the "Goldwyn Acquisition") of The Samuel Goldwyn
Company ("Goldwyn"), which acquisition is contingent upon certain conditions,
including the refinancing of certain of Goldwyn's indebtedness. See "The
Acquisitions."
The Company's Common Stock is traded on the American Stock Exchange ("AMEX")
under the symbol "MMG." The closing price of the Company's Common Stock as
reported on the AMEX on June 24, 1996 was $14 1/4 per share.
SEE "RISK FACTORS" STARTING ON P. 10 FOR A DISCUSSION OF CERTAIN INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share........................................ $ $ $
Total(3)......................................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the U.S. Underwriters and the
International Managers (collectively, the "Underwriters") against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the U.S. Underwriters a 30-day option to purchase
up to 2,250,000 additional shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions and Proceeds to
the Company will be $ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to various prior conditions, including the rights of
the Underwriters to reject any order in whole or in part. It is expected that
delivery of the shares will be made in New York, New York on or about
, 1996.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
FURMAN SELZ
SCHRODER WERTHEIM & CO.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this prospectus. All
references to "$" or "dollars" are to U.S. dollars. Unless otherwise indicated,
the information in this prospectus assumes the consummation of the Goldwyn
Acquisition in accordance with the assumptions described herein, including
exercise of the Goldwyn Put (as defined herein), the MPCA Acquisition (as
defined herein), the Offering and the Entertainment Group Credit Facility (as
defined herein) and does not assume the exercise of the Underwriters'
over-allotment option. Unless the context otherwise requires, the terms "MIG"
and the "Company" refer to Metromedia International Group, Inc. and its wholly
owned subsidiaries. Special Note: Certain statements set forth below under this
caption constitute "forward-looking statements" within the meaning of the Reform
Act. See "Special Note Regarding Forward-Looking Statements" on page 86 for
additional factors relating to such statements.
THE COMPANY
MIG is a global entertainment, media and communications company engaged in a
combination of businesses which the Company believes are well positioned to
capitalize on the convergence of entertainment, media and communications
businesses worldwide. MIG is engaged in two businesses: (i) the production and
distribution in all media of motion pictures, television programming and other
filmed entertainment product and the exploitation of its library of over 2,000
film and television titles, through its Entertainment Group (the "Entertainment
Group") and (ii) the development and operation of communications businesses,
including wireless cable television services, radio stations, paging systems, an
international toll calling service and trunked mobile radio services, in Eastern
Europe, the former Soviet Republics and other emerging markets, through its
Communications Group (the "Communications Group").
Through these individual operating businesses, MIG has established a
significant presence in many aspects of the rapidly evolving entertainment,
media and communications industries. Each of these businesses currently operates
on a stand-alone basis, pursuing distinct business plans designed to capitalize
on the growth opportunities within their individual industries. In addition, as
these industries continue to converge worldwide, MIG expects to be able to
capitalize on synergies resulting from its position as a diversified company
with significant operations in the development and distribution of
entertainment, media and communications services. The acquisition of Goldwyn is
an important step in MIG's plan to continue to build a leading global
entertainment, media and communications company. See "The Acquisitions."
Pro forma for the Offering and the Acquisitions (as defined herein), John W.
Kluge and Stuart Subotnick, the general partners of Metromedia Company, will
collectively remain the Company's largest stockholders, and will beneficially
own approximately 24.1% of the outstanding shares of the Common Stock.
THE ENTERTAINMENT GROUP
Through the Entertainment Group, MIG is engaged in the development,
production, acquisition, exploitation and worldwide distribution in all media of
motion pictures, video products and made-for-television products. MIG also holds
a valuable library of over 2,000 film and television 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 classic motion pictures such as
Wuthering Heights, The Pride of the Yankees, Guys and Dolls and The Best Years
of Our Lives. This library provides MIG with a stable stream of revenues and
cash flow to support its various production operations. MIG has adopted a
conservative theatrical production, acquisition and distribution strategy
consisting primarily of commercial and specialized films, with well-defined
target audiences and with MIG's portion of the production cost generally ranging
from $5.0 million to $10.0 million per picture. The Entertainment Group's
management has significant experience in the production of motion picture and
television entertainment of this type and was responsible for producing the
recent box-office success Dumb and
3
<PAGE>
Dumber and the Academy Award-winning The Madness of King George. MIG also owns
what management believes is the leading specialty theatre circuit with 52 motion
picture theatres with a total of 140 screens located in the United States.
The Company intends to further enhance the value of the Entertainment
Group's assets by pursuing the following strategies:
. Exploiting the Existing Library: MIG expects its library to generate
significant cash flow due to existing, long-term distribution contracts
and from further exploitation of its film and television library in
traditional domestic and international media, such as free and pay
television and home video. MIG expects to benefit from the emergence of
new technologies such as digital compression, video-on-demand,
direct-to-home-broadcasting and digital variable disc (video compact
discs or "DVD"), which are expected to increase the worldwide demand
for programming. MIG is also marketing its film and television library
in new international markets in which the multi-channel television
industry has recently emerged or is in the early stages of development.
In addition, as MIG expands its production business, it expects the
cash flows from and value of its existing library to increase as it
will be able to market new films together with its existing library.
. Motion Picture Production: MIG has adopted a conservative theatrical
production, acquisition and distribution strategy which it believes
will generate more stable cash flows than the approach of the major
motion picture studios. MIG intends to produce or acquire and release
10 to 14 theatrical features per year, consisting primarily of
commercial and specialized films with a well-defined target audience
and marketing campaign and with MIG's portion of the production cost
generally ranging from $5.0 million to $10.0 million per picture. MIG
also expects to spend between $4.0 million and $8.0 million in domestic
print and advertising costs for each film it produces or acquires. This
production strategy has been used by and is based on the prior success
of Motion Picture Corporation of America ("MPCA"), including the
performance of its commercially successful films such as Dumb and
Dumber and Threesome. MIG also plans to continue to be a leader in the
production, acquisition and distribution of specialized motion pictures
and art films, including those films management believes may have
crossover commercial potential. This strategy has been followed by
Goldwyn and is based on its success with films such as Much Ado About
Nothing, The Madness of King George, Eat Drink Man Woman and Angels and
Insects. In order to expand its production capabilities and reduce its
exposure to the performance of any particular film, MIG intends to
finance a significant portion of each film's budget by pre-licensing
foreign distribution rights.
. Motion Picture Exhibition: MIG believes it is the largest exhibitor of
specialized motion pictures and art films in the United States. The
Company's theatre circuit currently consists of 52 theatres with a
total of 140 screens. MIG's strategy is to: (i) expand in existing and
new major markets through internal growth and acquisitions, (ii)
upgrade and multiplex existing locations where there is demand for
additional screens and (iii) continue to reduce operating and overhead
costs as a percentage of revenue.
THE COMMUNICATIONS GROUP
Through the Communications Group, MIG intends to capitalize on the demand,
which developed in the late 1980s and early 1990s, for modern communications
systems in Eastern Europe and other emerging markets. MIG 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. MIG's joint ventures 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.
4
<PAGE>
MIG 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 target households of approximately 9.0 million; (ii) 8 paging
systems with combined target populations of approximately 79.5 million; (iii) an
international toll calling service in the Republic of Georgia covering a
population of approximately 5.5 million; (iv) 4 trunked mobile radio systems
with a combined target population of approximately 88.0 million; and (v) 5 radio
stations in 7 cities reaching combined target households of approximately 8.6
million in Hungary, Russia and Latvia. MIG is also pursuing licenses for similar
services in other emerging markets, including the Pacific Rim, where the
economies are expanding.
MIG believes that the performance of its existing joint ventures has
demonstrated that there is significant demand for its services in developing
regions in its target markets. Many of the joint ventures are in the early
stages of constructing and/or marketing their services, and MIG expects to
significantly increase its subscriber and customer bases as these businesses
mature. In addition, as one of the first entrants into these markets, MIG
believes that it has developed a reputation for providing quality service and
has formed important relationships with local entities. As a result, MIG
believes it is well positioned to capitalize on opportunities to provide
additional communications services in its markets as licenses are awarded.
MIG's strategy is to grow its subscriber and customer bases, as well as its
revenues and cash flows. Key elements of the strategy include:
. Completing Build Out and Marketing in Existing License Areas: MIG is
currently aggressively marketing its services in areas where
construction of its systems has been completed and is also continuing
the build out in recently acquired license areas. Because many of the
Company's operations are in their early stages of development, MIG
expects these businesses to grow rapidly as construction and marketing
are accelerated.
. Providing Additional Services in Existing License Areas: MIG is
pursuing opportunities to provide additional communications services in
certain regions in which it currently operates. This will enable MIG to
more efficiently utilize its existing infrastructure and to capitalize
on marketing opportunities by bundling its services. MIG expects to
benefit from its knowledge and experience with local governments, laws
and customs in pursuing such opportunities.
. Obtaining New Licenses in Attractive Markets: MIG is pursuing new
licenses to provide its services in several attractive markets in
Eastern Europe, the Pacific Rim and other emerging markets. In
evaluating a new market, MIG assesses, among other factors, the (i)
potential demand for its services and the availability of competitive
services; (ii) strength of local partners; and (iii) political, social
and economic environment.
GROWTH STRATEGY
MIG intends to pursue a strategy of making selective acquisitions of
attractive entertainment, media 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, media and communications
products and services.
5
<PAGE>
THE ACQUISITIONS
THE SAMUEL GOLDWYN COMPANY
On January 31, 1996, the Company and Goldwyn entered into an Agreement and
Plan of Merger (as amended, the "Goldwyn Merger Agreement") providing for the
Goldwyn Acquisition, pursuant to which a newly-formed, wholly-owned subsidiary
of the Company ("SGC Mergerco") will merge with and into Goldwyn. The
acquisition of Goldwyn will expand the Entertainment Group by adding a valuable
library of over 850 film and television titles, including numerous Hollywood
classics and more recent critically acclaimed films, and what MIG believes is
the leading specialized theatre circuit in the United States with 140 screens.
The Goldwyn Merger Agreement provides that upon consummation of the Goldwyn
Acquisition, Goldwyn's stockholders (the "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 (the "Meeting") of the
Goldwyn Stockholders held to vote upon the Goldwyn Acquisition (the "Average
Closing Price") is between $12.50 and $16.50. If the Average Closing Price over
such period is less than $12.50 such Average Closing Price 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 over such period
is greater than $16.50, such Average Closing Price will be deemed to be $16.50
and Goldwyn Stockholders will receive .3030 shares of Common Stock for each
share of Goldwyn common stock. Assuming the Goldwyn Acquisition and the exercise
of the Goldwyn Put (as defined herein) occurred on May 28, 1996 and an Average
Closing Price of $13.12, the Company would have issued approximately .3811
shares of Common Stock for each share of Goldwyn common stock and would have
issued an aggregate of 3,568,990 shares of Common Stock to the Goldwyn
Stockholders. Consummation of the Goldwyn Acquisition is subject to certain
conditions. See "The Acquisitions."
It is contemplated that the Goldwyn Acquisition and the Offering will be
consummated simultaneously. The date and time when the Goldwyn Acquisition is
consummated is referred to herein as the "Effective Time."
MOTION PICTURE CORPORATION OF AMERICA
On May 17, 1996, the Company and MPCA entered into an Agreement and Plan of
Merger (the "MPCA Merger Agreement") to acquire MPCA (the "MPCA Acquisition"
and, together with the Goldwyn Acquisition, the "Acquisitions"). 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 the film Dumb and Dumber,
which cost a reported $16 million to produce and grossed a reported total of
approximately $250 million, and Threesome, which cost a reported $3.5 million to
produce and grossed a reported total of $60 million. The acquisition price for
the MPCA Acquisition is approximately $27.5 million of Common Stock
(approximately 2,135,922 shares assuming a closing price of $12 7/8 as reported
by the AMEX on May 28, 1996), up to $5.0 million of cash and the assumption of
certain indebtedness (approximately $10.0 million at March 31, 1996). The
stockholders of MPCA will receive certain demand and "piggyback" registration
rights with respect to the shares of Common Stock to be issued in the MPCA
Acquisition. Consummation of the MPCA Acquisition remains subject to certain
conditions. See "The Acquisitions." Messrs. Krevoy and Stabler will be employed
by the Entertainment Group following consummation of the MPCA Acquisition.
6
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock Offered.................. 15,000,000 shares
Pro Forma Common Shares
Outstanding(1)........................ 63,340,312 shares
American Stock Exchange Symbol........ MMG
Use of Proceeds....................... The Company will use the estimated net proceeds of the
Offering of approximately $206.0 million (assuming a June
24, 1996 closing price of $14 1/4) to repay approximately
$29 million of the Company's existing bank debt(2) and
provide MIG with approximately $177.0 million of
additional cash to finance the build-out of the
Communications Group's systems in Eastern Europe and other
emerging markets and for general corporate purposes,
including the working capital needs of MIG and its
subsidiaries and for potential future acquisitions.
In addition, concurrently with the consummation of the
Offering, the Entertainment Group will repay approximately
$215.0 million of indebtedness of Orion, Goldwyn and MPCA
with borrowings under the Entertainment Group Credit
Facility (as defined herein). Following such borrowings,
the Entertainment Group will have approximately $85.0
million available under the Entertainment Group Credit
Facility to finance the Entertainment Group's production,
acquisition and distribution of entertainment product and
for its general corporate purposes. See "Use of Proceeds."
</TABLE>
- ------------
(1) As of May 28, 1996. Assumes consummation of the (i) Offering, (ii) the
Goldwyn Acquisition as of such date and an Average Closing Price of $13.12,
including exercise of the Goldwyn Put (as defined herein), and (iii) the
MPCA Acquisition, but does not include 3,698,129 shares of Common Stock
issuable upon the exercise or conversion of options, warrants or convertible
securities exercisable for or convertible into shares of Common Stock.
(2) As of March 31, 1996.
THE ENTERTAINMENT GROUP CREDIT FACILITY
Concurrently with the Offering, MIG's Entertainment Group will enter into a
$300.0 million secured credit facility (the "Entertainment Group Credit
Facility") consisting of a $200.0 million five-year term loan and a $100.0
million revolving credit facility secured by substantially all of the
Entertainment Group's assets including its film and television library and the
stock of its operating companies, to refinance the indebtedness of MIG's Orion
Pictures Corporation ("Orion") subsidiary and Goldwyn's existing indebtedness,
to finance the production, acquisition and distribution of entertainment product
and for its general corporate purposes. See "Description of Certain
Indebtedness--Entertainment Group Credit Facility."
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables present selected historical financial data of MIG and
Goldwyn, which are derived from the audited financial statements of MIG and
Goldwyn and from the unaudited historical financial data for the three month
periods of MIG ended March 31, 1996 and 1995, and selected unaudited pro forma
financial data after giving effect to the consummation of the Offering, the
Goldwyn Acquisition and the Entertainment Group Credit Facility as if they had
occurred at the beginning of the periods presented and without giving effect to
the consummation of the MPCA Acquisition. The unaudited financial data is
derived from MIG's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996, which is incorporated by reference herein. In the opinion of management of
the Company, the unaudited financial data reflects all adjustments consisting of
normal recurring adjustments, necessary to present fairly the financial data for
such periods. The results for the three month period ended March 31, 1996 and
1995 of MIG are not necessarily indicative of results to be expected for the
full year.
The pro forma data is not necessarily indicative of the results of
operations or the financial condition that would have been reported if the
Offering, the Goldwyn Acquisition and the Entertainment Group Credit Facility
had occurred during those periods, or as of those dates, or that may be reported
in the future. The pro forma combined per share data gives effect to the
exchange of each share of Goldwyn common stock for approximately .3811 shares of
Common Stock (assuming an Average Closing Price of $13.12).
This data is qualified by reference to and should be read in conjunction
with (i) the consolidated financial statements and the related notes thereto of
the Company and "Management's Discussion and Analysis of Financial Condition"
relating to the Company incorporated by reference and included elsewhere in this
prospectus and (ii) the consolidated financial statements and related notes
thereto of Goldwyn and the unaudited pro forma financial information and the
related notes thereto included elsewhere in this prospectus. (In thousands,
except per share data)
MIG--HISTORICAL
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED YEARS ENDED FEBRUARY 28/29,
------------------- DECEMBER 31, ---------------------------------------------
1996 1995 1995(1) 1995 1994 1993 1992
-------- -------- ------------ -------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $ 30,808 $ 37,678 $138,871 $194,789 $ 175,713 $222,318 $ 491,117
Equity in losses of joint
ventures.................... 1,783 588 (7,981) (2,257) (777) -- --
Loss from continuing
operations before
extraordinary item.......... (19,141) (20,366) (87,024) (69,411) (132,530) (72,973) (280,832)
Per common share:
Primary.................... $ (0.45) $ (0.97) $ (3.54) $ (3.43) $ (7.71) $ (19.75) $ (3,052.52)
</TABLE>
GOLDWYN--HISTORICAL
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues........................................... $107,784 $ 91,348 $108,791 $107,820 $ 61,260
Net income (loss) before extraordinary item........ (32,869) (20,083) 1,486 1,063 (3,383)
Net income (loss) per share before extraordinary
item............................................... $ (3.78) $ (2.37) $ 0.20 $ 0.18 $ (0.62)
</TABLE>
PRO FORMA--COMBINED
<TABLE>
<CAPTION>
PRO FORMA--COMBINED
-----------------------------------------
THREE MONTHS YEAR ENDED
ENDED MARCH 31, 1996 DECEMBER 31, 1995
-------------------- -----------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenues................................................ $ 66,301 $ 252,934
Loss from continuing operations......................... (27,075) (120,608)
Per common share:
Primary................................................ $ (0.44) $ (1.97)
Dividends per common share.............................. -- --
</TABLE>
- ------------
(1) 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 million
and $11.4 million, respectively.
8
<PAGE>
OTHER INFORMATION
The Company also owns two non-strategic assets: its Snapper Power Equipment
Company subsidiary ("Snapper") and its investment in Roadmaster Industries, Inc.
("Roadmaster"). Snapper manufactures and sells lawn and garden equipment.
Roadmaster, a NYSE-listed company, is a leading sporting goods manufacturer of
which MIG owns approximately 38% of the outstanding shares. For accounting
purposes, Snapper and the Company's investment in Roadmaster have been
classified as assets held for disposition. The Company is actively exploring a
sale of Snapper. As the Company has disclosed in Amendment No. 1 to its Schedule
13D relating to Roadmaster filed with the Commission on March 1, 1996, the
Company intends to dispose of its investment in Roadmaster during 1996.
In addition, on December 20, 1995, the Company entered into an Agreement and
Plan of Merger (the "Alliance Merger Agreement") to acquire Alliance
Entertainment Corp. ("Alliance"), the largest full service distributor of
pre-recorded music and music-related products in the United States. As disclosed
in the Company's Current Report on Form 8-K dated April 29, 1996, the Boards of
Directors of the Company and Alliance mutually agreed that, due to changing
conditions, the proposed acquisition of Alliance by MIG would not be in the best
interests of their respective stockholders and, accordingly, agreed to terminate
the Alliance Merger Agreement on April 29, 1996.
The Company was organized in 1929 under Pennsylvania law and reincorporated
in 1968 under Delaware law. On November 1, 1995, as a result of the mergers of
Orion and Metromedia International Telecommunications, Inc. ("MITI") with and
into wholly-owned subsidiaries of the Company and the merger of MCEG Sterling
Incorporated ("Sterling") with and into the Company (the "November 1 Mergers"),
the Company changed its name from The Actava Group Inc. to Metromedia
International Group, Inc. The Company's principal executive offices are located
at 945 East Paces Ferry Road, Suite 2210, Atlanta, Georgia 30326, telephone:
(404) 261-6190.
RECENT NEWS STORY
On June 24, 1996, The Wall Street Journal published an article attributing
to an unidentified "underwriter" of the Company certain projections regarding
the Company's anticipated financial performance during 1996 and 1997. The
Company has been informed by each of the Representatives that such
Representative did not provide such information to The Wall Street Journal. The
Company did not supply such information to The Wall Street Journal and does not
include its projected financial information in its public disclosures. The
Company believes that the projections included in The Wall Street Journal
article are not appropriate indicators of the Company's results of operations
and that the Company's actual operating results will differ materially from such
projections. As a result, investors are urged not to rely on such projections in
making an investment decision.
Neither the Company nor any of the Underwriters have confirmed, endorsed or
adopted any projections or forecasts with respect to the Company's future
results for distribution to prospective purchasers in connection with the
Offering. To the extent any comments made in the foregoing article not included
herein are inconsistent with, or conflict with, the information contained in
this Prospectus or relate to information not contained in this Prospectus, they
are neither attributable to, nor adopted by, nor used by the Company and the
Underwriters in any manner and they are disclaimed by the Company and the
Underwriters.
9
<PAGE>
RISK FACTORS
Stockholders should consider carefully the following risk factors, in
addition to the other information set forth herein, before purchasing the shares
of Common Stock offered hereby. Special Note: Certain statements set forth below
under this caption constitute "forward-looking statements" within the meaning of
the Reform Act. See "Special Note Regarding Forward-Looking Statements" on page
86 for additional factors relating to such statements.
MIG AND GOLDWYN HAVE EACH INCURRED OPERATING LOSSES
For the fiscal year ended December 31, 1995 and the quarter ended March 31,
1996, MIG reported a net loss from continuing operations of approximately $(87.0
million) and $(19.1 million), respectively, and a net loss of $(413.0 million)
and $(19.1 million), respectively. In addition, for the fiscal years ended March
31, 1996 and 1995, Goldwyn reported a net loss of $(32.9 million) and $(20.1
million), respectively. In addition to reporting operating losses, Goldwyn's
existing bank credit facility matures on June 28, 1996. Goldwyn has disclosed
that it will not have the liquidity to repay the outstanding indebtedness under
such facility when it becomes due. As a result, Goldwyn's independent
accountants' report on the consolidated financial statements for the year ended
March 31, 1996 states that this condition raises substantial doubt about
Goldwyn's ability to continue as a going concern. It is a condition to the
consummation of the Goldwyn Acquisition that such bank debt be refinanced,
repaid or extended.
NO ASSURANCE OF PROFITABILITY OF MIG
MIG believes that it will report significant losses for the fiscal year
ended December 31, 1996. In addition, because MIG's Communications Group is in
the early stages of development, MIG expects this group to continue to generate
significant losses as it continues to build out and market its services.
Accordingly, MIG expects to generate consolidated losses for the foreseeable
future.
LEVERAGE, HOLDING COMPANY STRUCTURE AND DEBT SERVICE PAYMENTS OF MIG
MIG and certain of its subsidiaries are highly leveraged companies. Assuming
consummation of the Offering, the Goldwyn Acquisition and the Entertainment
Group Credit Facility and the uses of proceeds described in "Use of Proceeds" as
if they had occurred at March 31, 1996, MIG would have had a pro forma
consolidated debt to net tangible equity ratio of 3.6 times.
In addition, following consummation of the Offering, the Goldwyn Acquisition
and the Entertainment Group Credit Facility, MIG will continue to operate as a
holding company that conducts operations solely through its subsidiaries. As a
result, MIG will continue to rely on dividends from certain of its subsidiaries
and cash on hand to satisfy its obligations, including funding the debt service
payments on its subordinated debt (approximately $15 million of principal in
1997 and approximately $59 million of principal in 1998) and the operations of
its other subsidiaries, which will be substantial. It is anticipated that the
Entertainment Group Credit Facility will contain substantial restrictions on
dividend payments to MIG by such subsidiaries. Accordingly, in order to be able
to meet its cash requirements, MIG may in the future have to (i) dispose of
non-strategic assets or (ii) obtain additional financing through a public or
private sale of debt or equity securities of MIG. There can be no assurance that
any of the foregoing can be accomplished on reasonably acceptable terms, if at
all. Management of MIG periodically reviews market conditions for the possible
sale of the Company's equity or debt securities. In light of this review and
subject to satisfactory market conditions, in addition to the Offering and the
Entertainment Group Credit Facility, MIG may seek additional equity or debt
financing during 1996.
10
<PAGE>
FUTURE FINANCING NEEDS
Each of MIG's operating businesses is engaged in an industry which requires
significant cash and capital expenditures prior to the receipt of revenue.
Generally, producers of motion picture product are required to spend significant
capital in order to fund the development, production and distribution costs
associated with such motion picture product prior to its theatrical release or
other distribution and the receipt of any revenues. MIG is attempting to reduce
the risks associated with substantial up-front production costs by obtaining
financing from third party production partners and/or by "pre-selling" certain
rights in films prior to production. There can be no assurance, however, that
MIG will be successful in either pre-selling rights or obtaining production
partners on commercially reasonable terms. The Communications Group's businesses
are similarly capital intensive and require the investment of significant
amounts of capital in order to construct and develop operational systems and to
attract a significant number of subscribers. As a result, MIG may require
additional financing in order to satisfy its on-going working capital and debt
service requirements and to achieve its long-term business strategies. No
assurance can be given that additional financing will be available to MIG on
acceptable terms, if at all. If MIG raises additional funds by issuing
additional equity securities, further dilution to existing equity holders
(including those purchasing shares of Common Stock in the Offering) will result.
If adequate additional funds are not available, MIG may be required to curtail
significantly its long term business objectives and MIG's results from
operations may be materially and adversely affected.
NO ASSURANCE OF SUCCESSFUL INTEGRATION OF BUSINESSES/FUTURE ACQUISITIONS
As a result of the November 1 Mergers and the contemplated Acquisitions, MIG
has significantly transformed its business. There can be no assurance that MIG
will be able to establish, maintain or increase the profitability of its
acquired businesses or that such businesses will be successfully integrated into
MIG's operations. In addition, in the future, MIG intends to pursue a strategy
of making attractive acquisitions on a selective basis. There can be no
assurance that MIG will be able to identify and acquire suitable acquisition
candidates or that it will be able to finance significant acquisitions in the
future. Furthermore, any acquisition may initially have an adverse effect on
MIG's operating results while the acquired business is being integrated into
MIG's operations.
COMPETITIVE INDUSTRIES
MIG operates in businesses which are highly competitive and such businesses
compete with many other entertainment and communications companies which are
well-known global entertainment, media and communications companies with
substantially greater financial, management and other resources than MIG. The
Entertainment Group competes with many motion pictures companies, including the
"major" motion picture studios, many of which are larger, diversified
entertainment companies and, accordingly, which have other operations to offset
the performance of their motion picture operations. See "Business--Entertainment
Group--Competition and Seasonality." Similarly, the Communications Group
operates in industries that are highly competitive worldwide. MIG recognizes
that in the future the Communications Group is likely to encounter significant
competition from other entities which may be led by successful and experienced
members of the communications industry and which may have established operating
infrastructures and superior access to financial resources. The Communications
Group also faces potential competition from competing technologies such as
coaxial cable television systems and satellite master television systems which
could emerge over time in Eastern Europe, the former Soviet Republics and other
emerging markets and compete directly with the Communications Group's cable
television operations. Competitive alternatives to the Communication Group's
wireless telephony systems could also stem from other wireless communications
systems, including cellular telephone. In addition, MIG does not expect to
maintain or to be granted exclusive licenses to operate its communications
businesses in any of the markets where it currently provides or plans to provide
its services. See "Business--Communications Group--Competition."
11
<PAGE>
MOTION PICTURE INDUSTRY INVOLVES A SUBSTANTIAL DEGREE OF RISK
MIG is engaged in the exploitation of its film libraries and other assets
and the distribution and production of theatrical motion pictures. The motion
picture industry is unpredictable and involves a substantial degree of risk. The
success of MIG's motion picture product is heavily dependent on public taste,
which is both unpredictable and susceptible to change. Accordingly, there can be
no assurance as to the financial success of any motion picture.
SUBSTANTIAL COSTS OF MOTION PICTURES
The motion picture business in which MIG is engaged requires substantial
outlays of capital. The costs of producing and marketing motion pictures have
only increased in recent years, and may continue to increase in the future,
thereby increasing the costs to MIG of the motion pictures it produces or with
respect to which it acquires distribution rights. Consequently, MIG may be
subject to substantial financial risks relating to the production, completion
and release of motion pictures. Moreover, there can be no assurance that MIG
will be able to obtain additional financing if it is required. See "Risk
Factors--Future Financing Needs."
POLITICAL, SOCIAL AND ECONOMIC RISKS FOR THE COMMUNICATIONS GROUP
MIG's operations may be materially and adversely affected by significant
political, social and economic uncertainties in Eastern Europe, the former
Soviet Republics and in other emerging markets where it conducts or may in the
future conduct business. Political stability in many of the Communications
Group's markets has been affected by political tensions between different
branches of government. The impending presidential elections in the Russian
Federation could result in a change in the policies of such government with
respect to the Communications Group's operations. In addition, internal military
conflicts have occurred in certain regions of some of the countries in which the
Communications Group has made investments. There are also concerns about
potential civil unrest fueled by, among other things, economic and social crises
in certain of the Communications Group's markets. Moreover, political tensions
between national and local governments in certain of the Communications Group's
markets could have a material adverse effect on the Communications Group's
operations in such areas. The Communications Group's operations may also be
materially and adversely affected by bureaucratic infighting between government
agencies with unclear and overlapping jurisdictions.
The governments in the Communications Group's markets exercise substantial
influence over many aspects of the private sector. The governments in these
areas have been attempting to a varying degree to implement economic reform
policies and encourage private economic activity. However, these reforms have
been only partially successful to date. The economies in many of the
Communications Group's markets are still characterized by high unemployment,
high inflation, high foreign debt, weak currencies and the possibility of
widespread bankruptcies. Moreover, in some of the Communications Group's
markets, the governments have continued to reserve large sectors of the economy
for state ownership and have not dismantled all portions of the command economy
system. Important infrastructure and utility sectors, such as certain sectors of
the telecommunications industry, of some of the economies in which the
Communications Group conducts or plans to conduct business are still primarily
state-owned and operated and are subject to pervasive regulatory control.
Despite some success in implementing reform policies and developing the private
sector, there can be no assurance that the pursuit of economic reforms by any of
these governments will continue or prove to be ultimately effective, especially
in the event of a change in leadership, social or political disruption or other
circumstances affecting economic, political or social conditions.
GENERAL OPERATING RISKS FOR THE COMMUNICATIONS GROUP
The Communications Group's operating results are dependent upon the sale of
commercial advertising time, the ability to attract subscribers to its cable,
paging and telephony systems and its ability to control operating expenses. The
sale of commercial advertising time and the ability to attract
12
<PAGE>
subscribers are dependent on the general economic conditions in the market where
each radio station, cable system, paging system and telephony system is located,
the relative popularity of the programming of the Communications Group's radio
stations and cable systems, the demographic characteristics of the audience of
the Communications Group's radio stations and cable systems, the technical
attractiveness of the equipment and service of the Communications Group's
existing and proposed telephony systems to customers, the activities of
competitors and other factors which may be outside of the Communications Group's
control.
The Communications Group relies heavily in many of the countries in which it
operates upon the availability and accessibility of government owned broadcast
and transmission facilities for distribution of its signal throughout its
license areas. Most of the joint ventures in which the Communications Group
makes investments often require substantial construction of new systems and
additions to the physical plant of existing systems. Construction projects are
adversely affected by cost overruns and delays not within the control of the
Communications Group or its subcontractors, such as those caused by governmental
action or inaction. Delays also can occur as a result of design changes and
material or equipment shortages or delays in delivery of material or equipment.
The failure to complete construction of a communications system on a timely
basis could jeopardize the franchise or license for such system or provide
opportunities to the Communications Group's competitors.
RISKS TO THE COMMUNICATIONS GROUP INHERENT IN FOREIGN INVESTMENT
The Communications Group has invested substantial resources in operations
outside of the United States and, in the ordinary course of its business, plans
to make additional international investments in the near future. Risks inherent
in foreign operations include loss of revenue, property and equipment from
expropriation, nationalization, war, insurrection, terrorism and other political
risks, risks of increases in taxes and governmental royalties and involuntary
modifications of contracts with or licenses issued by foreign governments or
their affiliated commercial enterprises. While the Communications Group has
obtained political risk insurance from the Overseas Private Investment
Corporation ("OPIC") for some of its projects, such insurance does not cover
many of these risks. In addition, there can be no assurance that MIG will elect
to obtain or be able to obtain OPIC insurance for any of its additional systems
or renew existing policies. See "Business--Communications Group--Communications
Group Overview--Markets."
The Communications Group is also vulnerable to the risk of changes in
foreign and domestic laws and policies that govern operations of overseas-based
companies. Exchange control regulations currently in place or which could be
enacted in many of the Communication Group's markets could create substantial
barriers to the conversion or repatriation of funds, and such restrictions could
adversely affect the Communications Group's and MIG's ability to pay overhead
expenses, meet any of their respective debt obligations and to continue and
expand its communications businesses. Tax laws and regulations may also be
amended or differently interpreted and implemented, thereby adversely affecting
the profitability after tax of the Communications Group's ventures. In addition,
criminal organizations in certain of the countries in which the Communications
Group operates threaten and intimidate businesses. While the Communications
Group has thus far not experienced widespread difficulties with criminal
organizations in these countries, there can be no assurance that such pressures
from criminal organizations will not increase in the future and have a material
adverse effect on MIG and its operations.
There is significant uncertainty as to the extent to which local parties and
entities, particularly government authorities, in the Communications Group's
markets will respect the contractual and other rights of foreign parties, such
as the Communications Group, and also the extent to which the "rule of law" has
taken hold and will be upheld in each of these countries. Although the general
legal framework and the governments' strategy in some of the Communications
Group's markets currently encourage foreign trade and investments, relevant laws
of the countries in which the Communications Group has invested may not be
enforced in accordance with their terms or implemented in countries in which
they do not now exist. Laws in the Communications Group's markets affecting
foreign investment, trade and
13
<PAGE>
communications activities often change and create uncertainty and confusion.
Additionally, foreign investment and sales may be materially and adversely
affected by conflicting and restrictive administrative regulations in many of
the Communications Group's markets.
MIG may also be materially and adversely affected by laws restricting
foreign investment in the field of communications. Certain countries have
extensive restrictions on foreign investment in the communications field and the
Communications Group is attempting to structure its prospective projects in
order to comply with such laws. However, there can be no assurance that such
legal and regulatory restrictions will not increase in the future or, as
currently promulgated, will not be interpreted in a manner giving rise to
tighter restrictions, and thus have a material adverse effect on MIG's
prospective projects in that country. Legislation passed in the Republic of
Latvia in September 1995 will limit to 20% the interest which a foreign person
is permitted to own in entities engaged in certain communication businesses,
such as radio, cable television and other systems of broadcasting. The
legislation could require the Communications Group to reduce to 20% or otherwise
restructure its existing ownership interests in joint ventures which operate a
wireless cable television system and an FM radio station in Riga, Latvia by
September 1996. 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 broadcasting licenses. While such proposed legislation was
not made into law, it is possible that such legislation could be reintroduced
and enacted in Russia and/or that other countries in Eastern Europe and the
former Soviet Republics may enact similar legislation which could have a
material adverse effect on the business, operations, financial condition or
prospects of MIG. Such legislation could be similar to United States federal law
which limits the foreign ownership in entities owning broadcasting licenses.
There is no way of predicting whether foreign ownership limitations will be
enacted in any of the Communications Group's markets, or whether any such law,
if enacted, will force the Communications Group to reduce or restructure its
ownership interest in any of the ventures in which the Communications Group
currently has an ownership interest. If foreign ownership limitations are
enacted in any of the Communications Group's markets and the Communications
Group is required to reduce or restructure its ownership interests in any
ventures, it is unclear how such reduction or restructuring would be
implemented, or what impact such reduction or restructuring would have on the
Communications Group.
DEVELOPING LEGAL STRUCTURES IN THE COMMUNICATIONS GROUP'S TARGET MARKETS
As a result of recent political, economic and social changes in Eastern
Europe, the countries of the former Soviet Union and in other emerging markets,
the bodies of commercial and corporate laws in the Communications Group's
markets are, in most cases, in their formative stages. Despite the fact that
many of these areas have undergone radical changes in recent years, commercial
and corporate laws in these markets are still significantly less developed or
clear than comparable laws in the United States and countries of Western Europe
and are subject to frequent changes, preemption and reinterpretation by local or
administrative regulations, by administrative officials and, in the case of
Eastern Europe and countries of the former Soviet Union, by new governments.
Such lack of development or clarity makes it difficult for the Communications
Group's businesses to plan operations and maintain compliance with
administrative interpretations of the law. No assurance can be given that the
uncertainties associated with the existing and future laws and regulations in
the Communications Group's markets will not have a material adverse effect on
MIG's ability to conduct its business and to generate profits.
In addition, the courts in many of the Communications Group's markets often
do not have the experience, resources or authority to resolve significant
economic disputes and enforce their decisions. In some cases courts are not
insulated from political considerations and other outside pressures and
sometimes do not function in an independent manner. Enforcement of legal rights
in these areas is also affected in some cases by political discretion and
lobbying. This creates particular concerns for the Communications Group because
the licenses held by the Communications Group's businesses or the contracts
providing such businesses access to the airwaves or other rights essential for
operations may be significantly modified, revoked or canceled without
justification, and legal redress may be substantially delayed or even
unavailable in such cases.
14
<PAGE>
RISK INHERENT IN THE COMMUNICATIONS GROUP'S GROWTH STRATEGY
The Communications Group has grown rapidly since its inception. Many of the
Communications Group's ventures are either in developmental stages or have only
recently commenced operations. The Communications Group has incurred significant
operating losses to date. The Communications Group is pursuing additional
investments in a variety of communications businesses in both its existing
markets and additional markets. This growth strategy entails the risks inherent
in assessing the strength and weaknesses of development opportunities, in
evaluating the costs and uncertain returns of developing and constructing the
facilities for operating systems and in integrating and managing the operations
of existing and additional systems. MIG's growth strategy requires MIG to expend
significant capital in order to enable the Communications Group to continue to
develop its existing operations and to invest in additional ventures. There can
be no assurance that MIG will have the funds necessary to support the capital
needs of the Communications Group's current investments or any of the
Communications Group's additional investment opportunities or that the
Communications Group will be able to obtain financing from third parties. If
such financing is unavailable, the Communications Group may not be able to
further develop its existing ventures and the number of additional ventures in
which it invests may be significantly curtailed.
APPROVALS AND UNCERTAINTY OF LICENSE RENEWALS FOR THE COMMUNICATIONS GROUP
The Communications Group's operations are subject to governmental regulation
in its markets and its operations require certain governmental approvals. There
can be no assurance that the Communications Group will obtain necessary
approvals to operate additional wireless cable television, wireless telephony or
paging systems or radio broadcast stations in any of the markets in which it is
seeking to establish its businesses.
The licenses pursuant to which the Communications Group's businesses operate
are issued for limited periods. Certain of these licenses expire over the next
several years. Specifically, during 1996 and 1997, licenses utilized by seven of
MIG's 19 operating joint ventures will expire or require reissuance. No
statutory or regulatory presumption exists for renewal by the current license
holder, and there can be no assurance that such licenses will be renewed upon
the expiration of their current terms. The Communications Group's partners in
these ventures have not advised the Communications Group of any reason such
licenses would not be renewed. The failure of such licenses to be renewed may
have a material adverse effect on MIG.
Additionally, certain of the licenses pursuant to which the Communications
Group's businesses operate contain network build-out milestones. The failure to
satisfy such milestones could result in the loss of such licenses which may have
a material adverse effect on MIG.
EXCHANGE RATE FLUCTUATIONS AND INFLATION RISKS IN THE COMMUNICATIONS GROUP'S
TARGET MARKETS
In most cases, the Communications Group's local joint ventures set the
prices for their services in U.S. dollars but receive some payments from their
customers in local currencies. Accordingly, a change in the value of these
currencies against the U.S. dollar will result in corresponding changes in the
price and affordability of the services provided to such customers which could
have a material adverse impact on MIG's business, financial condition and
results of operations. Moreover, if the exchange rate relative to the U.S.
dollar of a currency in which a local joint venture receives income declines
between the time of a joint venture's receipt of such income and the time it
distributes earnings in U.S. dollars to the Communications Group, the amount of
such earnings in U.S. dollars would decrease and MIG's results of operations
would be adversely impacted. The Communications Group currently does not hedge
against foreign currency exchange risks. In addition, the economies of certain
of the Communications Group's target markets have experienced significant and in
some periods extremely high rates of inflation over the past few years.
Inflation and rapid fluctuation in exchange rates have had and may continue to
have negative effect on these economies and may have a material adverse impact
on MIG's business, financial condition and results of operations.
15
<PAGE>
POSSIBLE INABILITY TO CONTROL CERTAIN OF THE COMMUNICATIONS GROUP'S JOINT
VENTURES
The Communications Group has invested in virtually all of its joint ventures
with local partners. Although the Communications Group exercises significant
influence in the management and operations of the joint ventures in which it has
an ownership interest and intends to invest in the future only in joint ventures
in which it can exercise significant influence in management, the degree of its
voting power and the voting power and veto rights of its joint venture partners
may limit the Communications Group from effectively controlling the operations,
strategies and financial decisions of the joint ventures in which it has an
ownership interest. In certain markets where the Communications Group conducts
or may in the future conduct business, increases in the capitalization of a
joint venture require not only the consent of all joint venture partners, but
also government approval, thereby creating a risk that a venture may not be able
to obtain additional capital without cooperation of the joint venture partner
and government approval. The Communications Group is dependent on the continuing
cooperation of its partners in the joint ventures and any significant
disagreements among the participants could have a material adverse effect on any
such venture. In addition, in most instances, the Communications Group's
partners in a joint venture include a governmental entity or an affiliate of a
governmental entity. The presence of a governmental entity or affiliate thereof
as a partner poses a number of risks, including the possibility of decreased
governmental support or enthusiasm for the venture as a result of a change of
government or government officials, a change of policy by the government and
perhaps most significantly the ability of the governmental entities to exert
undue control or influence over the project in the event of a dispute or
otherwise. In addition, if the joint ventures become profitable and generate
sufficient cash flows in the future, there can be no assurance that the joint
ventures will pay dividends or return capital at any time. Moreover, the equity
interests of the Communications Group in these investments generally are not
freely transferable. Therefore, there can be no assurance of MIG's ability to
realize economic benefits through the sale of the Communications Group's
interests in its joint ventures.
TECHNICAL APPROVAL OF THE COMMUNICATIONS GROUP'S TELEPHONY EQUIPMENT
Many of the Communications Group's proposed wireless telephony operations
are dependent upon approval of the Communications Group's wireless telephony
equipment by the communications authorities in the markets where MITI and its
ventures plan to operate. While the Communications Group believes that such
equipment will be type approved, there is no assurance that this will occur and
the failure to obtain such type approvals could have a materially adverse effect
on many of the Communications Group's proposed telephony operations. In
addition, while the Communications Group believes that it will be able to
acquire sufficient amounts of wireless telephony equipment from its supplier on
a timely basis, there can be no assurance that this will be the case or that the
Communications Group would be able to procure alternative equipment.
TECHNOLOGICAL AND PRODUCT OBSOLESCENCE FOR THE COMMUNICATIONS GROUP
The communications industry has been characterized in recent years by rapid
and significant technological changes and frequent new product introductions.
New market entrants could introduce new or enhanced products with features which
would render the Communications Group's technology obsolete or significantly
less marketable. The ability of the Communications Group to compete successfully
will depend to a large extent on its ability to respond quickly and adapt to
technological changes and advances in its industry. There can be no assurance
that the Communications Group will be able to keep pace, or will have the
financial resources to keep pace, with the technological demands of the
marketplace.
CONTROL OF MIG BY METROMEDIA COMPANY DUE TO CONCENTRATION OF SHARE OWNERSHIP AND
VOTING CONTROL
On a pro forma basis after giving effect to the Offering and the
Acquisitions (and (i) assuming an Average Closing Price of $13.12, (ii) the
exercise of the Goldwyn Put and (iii) without giving effect to the exercise or
conversion of any options, warrants or convertible securities exercisable for or
convertible into Common Stock), Metromedia Company and its affiliates will
collectively own approximately 24.1%
16
<PAGE>
of the outstanding shares of Common Stock and will be MIG's largest stockholder.
In addition, Metromedia Company has nominated or designated a majority of the
members of MIG's Board of Directors. In accordance with the Restated Certificate
of Incorporation and By-laws of MIG and Delaware law, in the future the majority
of the members of MIG's Board of Directors will nominate the directors for
election to MIG's Board of Directors. Accordingly, it is likely that directors
designated or nominated by Metromedia Company will continue to constitute a
majority of the members of MIG's Board of Directors. As such, Metromedia Company
will likely control the direction of future operations of MIG, including
decisions regarding acquisitions and other business opportunities, the
declaration of dividends and the issuance of additional shares of MIG's capital
stock and other securities. Such concentration of ownership may also have the
effect of delaying, deferring or preventing a change of control of MIG pursuant
to a transaction which might otherwise be beneficial to stockholders.
ANTI-TAKEOVER PROVISIONS IN MIG'S CHARTER AND BY-LAWS
MIG's Restated Certificate of Incorporation and By-laws contain provisions
that could delay, defer or prevent a change in control without the approval of
its incumbent Board of Directors. These provisions, among other things, (i)
divide the Board of Directors into three classes, with members of each class to
be elected in staggered three-year terms, (ii) prohibit stockholder action by
written consent in lieu of a meeting, (iii) limit the right to call special
meetings of stockholders to the Chairman or Vice Chairman of MIG's Board of
Directors and (iv) authorize the Board of Directors to issue preferred stock in
one or more classes or series without any action on the part of stockholders.
Such provisions could limit the price that investors might be willing to pay in
the future for shares of Common Stock and significantly impede the ability of
the holders of Common Stock to replace management. In addition, the MIG Board of
Directors intends during 1996 to adopt a stockholder rights plan which will have
certain anti-takeover effects. MIG does not intend to solicit stockholder
approval with respect to its stockholder rights plan. Although the exact terms
of such rights plan have not been determined, it is anticipated that such rights
plan will cause substantial dilution to a person or group that attempts to
acquire MIG on terms not approved by MIG's Board of Directors. Provisions and
agreements that inhibit or discourage takeover attempts could reduce the market
value of the Common Stock.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws, regulations and
ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous wastes, and (ii) impose liability
for the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposals or other releases of hazardous substances (together,
"Environmental Laws"). The Company, through its predecessors, has been in
operation since 1929 and, over the years, has operated in diverse industries,
including, various equipment, sporting goods and furniture manufacturing, sheet
metal processing, and trucking. With the exception of Snapper and the Company's
interest in Roadmaster, the Company has divested itself of all
non-entertainment, media and communications-related operations. However, in the
course of certain such divestitures, the Company has retained certain
indemnification obligations for environmental cleanup matters, and in one case a
contaminated parcel at which the Company has undertaken cleanup activities. See
"Business--Environmental Matters." In other cases, particularly for operations
that were divested in the past, the Company could incur unanticipated
environmental cleanup obligations, to the extent they may exist or arise in the
future, as a result, at least in part, of changes in legal requirements that
have occurred since such divestitures. At the present time, the Company is not
aware of any environmental liabilities related to any such divestitures that the
Company believes would have a material adverse effect on its results of
operations or financial condition. However, because some divestitures may have
occurred many years ago, there can be no assurance that environmental matters
will not arise in the future that could have such an effect.
17
<PAGE>
VOLATILITY OF STOCK PRICE
Since November 2, 1995, the Common Stock has been listed and traded on the
American Stock Exchange and the Pacific Stock Exchange ("PSE"). Prior thereto,
the Common Stock was traded on the New York Stock Exchange ("NYSE") and the PSE.
The market price of the Common Stock has been, and could in the future be,
subject to significant fluctuations. Future announcements concerning the Company
or its competitors, including operating results and earnings estimates and other
developments, as well as general economic and market conditions, could cause the
market price of the Common Stock to fluctuate substantially. See "Price Range of
Common Stock and Dividend Policy."
DILUTION
On a pro forma basis as described herein, purchasers of Common Stock in this
Offering will incur immediate and substantial dilution in net tangible book
value of $11.28 per share. See "Dilution."
18
<PAGE>
USE OF PROCEEDS
Special Note: Certain statements set forth below under this caption
constitute "forward-looking statements" within the meaning of the Reform Act.
See "Special Note Regarding Forward-Looking Statements" on page 86 for
additional factors relating to such statements.
The net proceeds to the Company from the Offering are estimated to be a
total of approximately $206.0 million (assuming a closing price on AMEX on June
24, 1996 of the Company's Common Stock of $14 1/4 and assuming no exercise of
the Underwriters' over-allotment option). The Company will use the estimated net
proceeds of the Offering to repay approximately $29.0 million of the Company's
existing bank debt(1) and to provide MIG with approximately $177.0 million of
cash (i) to finance the build-out of the Communications Group's systems in
Eastern Europe and other emerging markets and (ii) for general corporate
purposes, including the working capital needs of MIG and its subsidiaries and
for potential future acquisitions. In addition, concurrently with the
consummation of the Offering, the Entertainment Group will repay approximately
$215.0 million of indebtedness of Orion, Goldwyn and MPCA with borrowings under
the Entertainment Group Credit Facility.
The following summarizes the anticipated sources and uses of funds obtained
from the Offering and the Entertainment Group Credit Facility (assuming the
Offering, the Entertainment Group Credit Facility and the Acquisitions occurred
on March 31, 1996): (in millions)
<TABLE>
<CAPTION>
SOURCES OF FUNDS USES OF FUNDS
- -------------------------------------------- --------------------------------------------
<S> <C> <C> <C>
The Offering(2).................... $213.0 Refinance Existing MIG Credit
Entertainment Group Credit 215.0 Facility...........................
Facility........................... $ 29.0
------
Refinance Orion Bank Debt.......... 126.0
Refinance Existing Goldwyn Debt.... 73.0
Working Capital.................... 168.0(3)
Refinance Existing MPCA Debt and
Other Miscellaneous Expenses....... 15.0(4)
Transaction Expenses............... 17.0(5)
------
Total Sources.................. $428.0 Total Uses......................... $428.0
------ ------
------ ------
</TABLE>
- ------------
(1) MIG entered into its existing credit facility with Chemical Bank on November
1, 1995. Such facility matures on November 1, 1996 and bears interest at
MIG's option at a rate of LIBOR plus 2% or Chemical Bank's alternative base
rate plus 1%. The proceeds of such facility were used to repay a portion of
Orion's Plan Debt (as defined herein) in connection with the consummation of
the November 1 Mergers.
(2) Based on a closing price of $14 1/4 on the AMEX on June 24, 1996. Assumes no
exercise of the underwriters' overallotment option.
(3) Approximately $6.2 million of indebtedness outstanding as of May 28, 1996
under a bridge loan agreement between the Communications Group and
Metromedia Company will be repaid with proceeds of the Offering thereby
resulting in a reduction of working capital of $6.2 million. Such bridge
loan bears interest at a rate of prime plus 2% and matures upon consummation
of the Goldwyn Acquisition. In addition, the Entertainment Group would have
$85.0 million available under the Entertainment Group Credit Facility.
(4) Includes approximately $10.0 million of MPCA indebtedness at March 31, 1996.
(5) Represents estimated aggregate expenses incurred in connection with the
Goldwyn Acquisition, the Offering and the Entertainment Group Credit
Facility, including underwriting fees and expenses.
19
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Since November 2, 1995, the Company's Common Stock has been listed and
traded on the AMEX and the PSE under the symbol "MMG." Prior to November 2,
1995, the Common Stock was listed and traded on both the NYSE and the PSE under
the symbol "ACT." The following table sets forth the quarterly high and low
closing sales prices per share for the Company's 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 the Company's Common Stock as reported by the AMEX from November 2,
1995 through the present.
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------
FISCAL QUARTER ENDED HIGH LOW
- ----------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
1994
March 31............................................................... $ 9 1/4 $ 5 7/8
June 30................................................................ 9 3/8 5 3/4
September 30........................................................... 13 3/4 8 1/4
December 31............................................................ 10 3/8 8 3/8
1995
March 31............................................................... $11 $ 8 3/4
June 30................................................................ 13 3/8 8 5/8
September 30........................................................... 19 1/8 13 1/4
December 31............................................................ 18 7/8 13 3/4
1996
March 31............................................................... $14 1/8 $11 1/2
June 30 (through June 24, 1996)........................................ 16 5/8 12 1/2
</TABLE>
MIG has not paid a dividend to its stockholders since the dividend declared
in the fourth quarter of 1993, and has no plans to pay cash dividends in the
foreseeable future. Any future dividends will depend upon MIG's earnings,
capital requirements, financial condition and other relevant factors, including
the existence or absence of any contractual limitations on the payment of
dividends.
20
<PAGE>
DILUTION
After giving effect to the Goldwyn Acquisition and the Entertainment Group
Credit Facility, the pro forma net tangible book value (deficit) of the Company
at March 31, 1996 would have been approximately $(89) million, or $(1.92) per
share of Common Stock. Pro forma net tangible book value (deficit) per share is
equal to the Company's total assets less intangible assets and deferred
financing costs of approximately $195 million, less its total liabilities,
divided by the total pro forma number of outstanding shares of Common Stock at
March 31, 1996 (assuming consummation of the Goldwyn Acquisition as of such date
and an Average Closing Price of $13.12, including exercise of the Goldwyn Put,
but not including 5,834,051 shares of Common Stock issuable upon the exercise or
conversion of options or convertible securities exercisable for or convertible
into shares of Common Stock or shares issuable in the MPCA Acquisition). After
also giving effect to the sale by the Company of 15,000,000 shares of Common
Stock offered by the Company hereby at the assumed offering price of $12 7/8 per
share reflected in the Company's Pro Forma Consolidated Condensed Financial
Statements included elsewhere in this prospectus (assuming the U.S.
Underwriters' over-allotment option is not exercised) and the application of a
portion of the estimated net proceeds from the Offering as described under the
heading "Use of Proceeds," the pro forma net tangible book value of the Company
at March 31, 1996 would have been approximately $98 million or $1.60 per share.
This represents an immediate increase in net tangible book value of $3.52 per
share to existing stockholders and an immediate dilution of $11.28 per share to
stockholders purchasing shares in the Offering. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Public offering price per share(1)........................ $12.88
Pro forma net tangible book value (deficit) per share
before the Offering....................................... $(1.92)
Increase per share attributable to new stockholders... 3.52
------
Pro forma net tangible book value per share after the
Offering.................................................. 1.60
------
Dilution in net tangible book value per share to new
stockholders.............................................. $11.28
------
------
</TABLE>
- ------------
(1) Before deducting the underwriting discounts and commissions and Offering
expenses to be paid by the Company.
21
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of MIG at March 31, 1996
and the capitalization of MIG at such date on a pro forma basis to reflect the
consummation of the Offering, the Goldwyn Acquisition and the Entertainment
Group Credit Facility and the application of proceeds as described in "Use of
Proceeds." The table should be read in conjunction with (i) the unaudited
consolidated financial statements of the Company and the related notes thereto
and "Management's Discussion and Analysis of Financial Condition" relating to
the Company incorporated by reference and included elsewhere in this prospectus
and (ii) the unaudited pro forma financial information and related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT MARCH 31, 1996
----------------------
ACTUAL PRO FORMA
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Cash, cash equivalents and short-term investments.................... $ 17,180 $ 170,506
--------- ---------
--------- ---------
Debt:
Existing bank credit facility...................................... $ 28,754 --
Entertainment Group Credit Facility................................ 125,700 200,000(1)
6 1/2% Convertible Debentures due 2002............................. 57,689 $ 57,689
Other long-term debt, including current portion.................... 92,789 96,207
--------- ---------
Total debt..................................................... 304,932 353,896
--------- ---------
Stockholders' equity:
Preferred Stock.................................................... -- --
Common Stock....................................................... 42,635 61,204
Additional paid-in capital......................................... 728,964 943,678
Retained earnings (accumulated deficit)............................ (707,247) (712,228)
--------- ---------
Total stockholders' equity..................................... 64,352 292,654
--------- ---------
Total capitalization........................................... $ 369,284 $ 646,550(1)
--------- ---------
--------- ---------
</TABLE>
- ------------
(1) Does not reflect the consummation of the MPCA Acquisition including an
additional $10.0 million of indebtedness that would have been incurred in
connection therewith at March 31, 1996 (which amount is expected to be $15.0
million at the consummation of the Offering), 2,135,922 shares of Common
Stock to be issued in connection with the MPCA Acquisition and the payment
of $5.0 million in the MPCA Acquisition.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
THE COMPANY
The following selected consolidated financial data presented below as of and
for the year ended December 31, 1995 and as of and for each of the years in the
four year period ended February 28, 1995 have been derived from financial
statements audited by KPMG Peat Marwick LLP, independent certified public
accountants. The consolidated financial statements as of December 31, 1995 and
February 28, 1995, and for the year ended December 31, 1995 and each of the
years for the two year period ended February 28, 1995 together with the report
of KPMG Peat Marwick LLP, are contained in MIG's Annual Report on Form 10-K for
the year ended December 31, 1995, as amended. The selected unaudited data
presented below for the three month periods ended March 31, 1996 and 1995 and as
of March 31, 1996, are derived from the unaudited consolidated financial
statements of MIG contained in MIG's Form 10-Q which are incorporated herein by
reference. In the opinion of management of the Company, the unaudited financial
data reflect all adjustments, consisting of normal recurring adjustments,
necessary to present fairly the financial data for such periods and as of such
date. The results for the three month periods ended March 31, 1996 and 1995 are
not necessarily indicative of results to be expected for the full year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED YEARS ENDED FEBRUARY 28/29,
---------------------- DECEMBER 31, ----------------------------------------------
1996 1995 1995(1) 1995 1994 1993 1992
--------- --------- ------------ -------- --------- -------- ---------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................. $ 30,808 $ 37,678 $ 138,871 $194,789 $ 175,713 $222,318 $ 491,117
Equity in losses of joint
ventures................. 1,783 588 (7,981) (2,257) (777) -- --
Loss from continuing
operations before
extraordinary item....... (19,141) (20,366) (87,024) (69,411) (132,530) (72,973) (280,832)
Loss from continuing
operations before
extraordinary item per
common share............. (0.45) (0.97) (3.54) (3.43) (7.71) (19.75) (3,052.52)
Common and common
equivalent shares
entering into
computation of per share
amounts.................. 42,615 20,935 24,541 20,246 17,188 3,694 92
Dividends per common
share.................... -- -- -- -- -- -- --
BALANCE SHEET DATA (END
OF PERIOD):
Total assets............. 567,133 --(2) 599,638 391,870 520,651 704,356 856,950
Notes and subordinated
debt..................... 304,932 --(2) 304,643 237,027 284,500 325,158 521,968
</TABLE>
- ------------
(1) 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 million
and $11.4 million, respectively.
(2) The accounting survivor of the November 1 Mergers (as defined herein) was
Orion, whose fiscal year prior to the consummation of the November 1 Mergers
ended on February 28. As a result, the balance sheet data as of March 31,
1995 are not available.
23
<PAGE>
GOLDWYN
The following table sets forth selected consolidated financial information
of Goldwyn. The selected consolidated financial data set forth below have been
derived from Goldwyn's consolidated financial statements which have been audited
by Price Waterhouse LLP, independent public accountants, whose report for the
fiscal year ended March 31, 1996 includes an explanatory paragraph regarding
Goldwyn's ability to continue as a going concern in the absence of alternative
capital with which to restructure its bank debt. The data set forth below are
qualified by reference to and should be read in conjunction with the
consolidated financial statements and notes thereto of Goldwyn included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------
INCOME STATEMENT DATA: 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues......................................... $107,784 $ 91,348 $108,791 $107,820 $ 61,260
Cost of revenues................................. 108,301 91,461 81,117 80,276 46,579
Selling, general and administrative expenses..... 19,891 17,999 15,515 16,405 11,908
Depreciation and amortization.................... 3,770 3,508 3,129 3,198 873
Operating income (loss).......................... (24,178) (21,620) 9,030 7,941 1,900
Interest expense................................. 8,490 5,626 5,632 6,497 6,177
Income (loss) before income taxes................ (32,668) (27,246) 3,398 1,444 (4,277)
Income tax provision (benefit)................... (541) (7,163) 1,912 381 (894)
Extraordinary gain (loss), net................... (742) -- 759 -- --
Net income (loss)................................ (32,869) (20,083) 2,245 1,063 (3,383)
Net income (loss) per share...................... (3.87) (2.37) 0.30 0.18 (0.62)
Weighted average shares outstanding.............. 8,489 8,488 7,386 5,902 5,484
BALANCE SHEET DATA (END OF PERIOD):
Cash............................................. $ 1,849 $ 6,322 $ 1,391 $ 1,595 $ 423
Accounts receivable, net......................... 9,021 11,205 19,703 22,249 21,424
Film costs, net.................................. 63,899 74,080 70,755 75,879 72,911
Total assets..................................... 111,850 125,947 123,875 131,307 128,378
Notes payable.................................... 82,029 67,610 59,819 94,252 91,377
Total liabilities................................ 132,159 113,387 91,137 124,123 122,791
Shareholders' equity (deficit)................... (20,309) 12,560 32,738 7,184 5,587
</TABLE>
24
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION
OF THE COMPANY
The following unaudited Pro Forma Combining Balance Sheet of MIG as of March
31, 1996 and unaudited Pro Forma Combining Statements of Operations for the
three months ended March 31, 1996 and the year ended December 31, 1995
illustrates the effect of the Offering, the Goldwyn Acquisition and the
Entertainment Group Credit Facility and the use of proceeds therefrom. The
unaudited Pro Forma Combining Balance Sheet assumes that the Offering, the
Goldwyn Acquisition and the Entertainment Group Credit Facility occurred on
March 31, 1996 and the Unaudited Pro Forma Combining Statements of Operations
assumes that the Offering, the Goldwyn Acquisition and the Entertainment Group
Credit Facility occurred at the beginning of the period presented. The following
information does not give effect to the consummation of the MPCA Acquisition.
In addition, separate pro formas have been presented to illustrate the
effect of prior acquisitions and refinancings of MIG, as discussed in the
respective footnotes to such pro formas.
Pursuant to the terms of the Goldwyn Merger Agreement, each share of Goldwyn
common stock will be converted into and exchangeable for a number of shares of
Common Stock (the "Goldwyn Exchange Ratio") determined by dividing $5.00 by the
Average Closing Price on the day which is five business days prior to the day of
the Meeting (the "Goldwyn Determination Date"); provided, that, if the Average
Closing Price is below $12.50, the Average Closing Price shall be deemed to be
$12.50 and if the Average Closing Price is greater than $16.50, the Average
Closing Price shall be deemed to be $16.50.
These unaudited Pro Forma Combining Financial Statements have been prepared
assuming a Goldwyn Exchange Ratio of .3811 (which assumes an Average Closing
Price of $13.12) and the exercise of the Goldwyn Put, i.e., the issuance of
shares of Goldwyn common stock to a trust affiliated with Samuel Goldwyn, Jr.
(the "Goldwyn Family Trust") in exchange for a reduction of accrued but unpaid
participations owed to the Goldwyn Family Trust by Goldwyn. The actual Goldwyn
Exchange Ratio will be determined on the Goldwyn Determination Date in
accordance with the formulas set forth in the Goldwyn Acquisition Agreement. See
"The Acquisitions."
ACCOUNTING TREATMENT OF THE GOLDWYN ACQUISITION
The Goldwyn Acquisition will be accounted for as a purchase transaction. For
accounting purposes, MIG will be deemed to be the surviving corporation of the
Goldwyn Acquisition.
The pro forma adjustments are based upon currently available information and
upon certain assumptions that management of each of MIG and Goldwyn
(collectively "Management") believes are reasonable. The Goldwyn Acquisition
will be recorded based upon the estimated fair market value of the net tangible
and intangible assets acquired at the date of acquisition. The adjustments
included in the unaudited Pro Forma Combining Financial Statements represent
Management's preliminary determination of these adjustments based upon available
information. There can be no assurance that the actual adjustments will not
differ significantly from the pro forma adjustments reflected in the pro forma
financial information.
The unaudited Pro Forma Combining Financial Statements are not necessarily
indicative of either future results of operations or results that might have
been achieved if the foregoing transactions had been consummated as of the
indicated dates. The unaudited Pro Forma Combining Financial Statements should
be read in conjunction with the (i) the consolidated financial statements and
the related notes thereto of the Company and "Management's Discussion and
Analysis of Financial Condition" relating to the Company incorporated by
reference and included elsewhere in this prospectus and (ii) the consolidated
financial statements and related notes thereto of Goldwyn included elsewhere in
this prospectus.
25
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
UNAUDITED PRO FORMA COMBINING BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------------------------------------------------------------------
PRO FORMA MIG PRO FORMA
MERGER AND PRO FORMA WITH EQUITY MIG
MIG GOLDWYN DEBT REFINANCING DEBT REFINANCING REFINANCING PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED ADJUSTMENTS COMBINED
---------- ---------- ---------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cash and marketable
securities............... $ 17,180 $ 1,849 $ (6,100)(1) $ 12,929 $ 157,577(7) $ 170,506
Accounts receivable...... 26,991 8,266 -- 35,257 -- 35,257
Notes receivable......... -- -- -- -- -- --
Inventories.............. -- -- -- -- -- --
Film inventories......... 56,892 8,905 -- 65,797 -- 65,797
Other current assets..... 4,975 426 -- 5,401 -- 5,401
---------- ---------- ---------------- ---------------- ----------- ---------
Current assets........... 106,038 19,446 (6,100) 119,384 157,577 276,961
Film inventories......... 126,396 54,994 -- 181,390 -- 181,390
Property and equipment,
net...................... 9,181 32,206 -- 41,387 -- 41,387
Intangibles.............. 118,818 3,619 68,722(2) 187,540 -- 187,540
(3,619)(3)
Other assets............ 206,700 1,585 (830)(4) 206,571 -- 206,571
(3,403)(5)
(4,981)(1)
7,500(1)
---------- ---------- ---------------- ---------------- ----------- ---------
Total assets.......... $ 567,133 $ 111,850 $ 57,959 $ 736,272 $ 157,577 $ 893,849
---------- ---------- ---------------- ---------------- ----------- ---------
---------- ---------- ---------------- ---------------- ----------- ---------
Accounts payable and
accrued expenses......... $ 97,301 $ 9,138 $ 2,700(2) $ 109,139 $ -- $ 109,139
Short-term debt.......... 55,327 73,633 (78,450)(1) 90,510 (28,754)(7) 61,756
40,000(1)
Other current
liabilities.............. 31,431 12,236 (800)(6) 39,464 -- 39,464
(3,403)(5)
---------- ---------- ---------------- ---------------- ----------- ---------
Current liabilities...... 184,059 95,007 (39,953) 239,113 (28,754) 210,359
Deferred revenues....... 40,839 18,583 -- 59,422 -- 59,422
Long-term debt.......... 249,605 2,685 160,000(1) 292,140 -- 292,140
(120,150)(1)
Other liabilities....... 28,278 15,884 (4,888)(6) 39,275 -- 39,275
Stockholders' equity:
Common stock............ 42,635 1,706 175(6) 46,204 15,000(7) 61,204
3,569(2)
(1,881)(2)
Additional paid-in
capital.................. 728,964 24,654 5,513(6) 772,347 178,125(7) 943,678
42,381(2) (6,794)(7)
1,002(2)
(30,167)(2)
Retained earnings
(accumulated deficit).... (707,247) (46,137) 50,586(2) (712,228) -- (712,228)
(3,619)(3)
(830)(4)
(4,981)(1)
Treasury stock.......... -- (532) 532(2) -- -- --
---------- ---------- ---------------- ---------------- ----------- ---------
Total
stockholders'equity
(deficiency)............. 64,352 (20,309) 62,280 106,323 186,331 292,654
---------- ---------- ---------------- ---------------- ----------- ---------
Total liabilities and
stockholders' equity
(deficiency)............. $ 567,133 $ 111,850 $ 57,289 $ 736,272 $ 157,577 $ 893,849
---------- ---------- ---------------- ---------------- ----------- ---------
---------- ---------- ---------------- ---------------- ----------- ---------
</TABLE>
26
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
UNAUDITED PRO FORMA COMBINING STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996,
------------------------------------------------------------------------------------------
PRO FORMA MIG PRO FORMA
MERGER AND PRO FORMA WITH EQUITY MIG
MIG GOLDWYN DEBT REFINANCING DEBT REFINANCING REFINANCING PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED ADJUSTMENTS COMBINED
---------- ---------- ---------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................ $ 30,808 $ 35,493 -$- $ 66,301 $-- $ 66,301
Cost of revenues................ 25,089 34,526 -- 59,615 -- 59,615
Operating expenses.............. 14,066 6,788 -- 20,854 -- 20,854
Depreciation and amortization... 1,723 1,028 (57)(8) 3,381 -- 3,381
687(9) --
---------- ---------- ------ ------- ----- ---------
Operating income (loss)......... (10,070) (6,849) (630) (17,549) -- (17,549 )
Other income (expense):
Interest expense............... (7,034) (3,143) 3,143(10) (7,489) -- (7,489 )
(3,750)(11)
(675)(12)
3,970(15)
Other.......................... (54) -- -- (54) -- (54 )
---------- ---------- ------ ------- ----- ---------
Income (loss) before tax........ (17,158) (9,992) 2,058 (25,092) -- (25,092 )
Provision for income taxes...... 200 779 (779)(14) 200 -- 200
Equity in losses of
subsidiaries.................... 1,783 -- -- 1,783 -- 1,783
---------- ---------- ------ ------- ----- ---------
Net income (loss) from
continuing operations.......... $ (19,141) $ (10,771) $2,837 $(27,075) $-- $(27,075 )
---------- ---------- ------ ------- ----- ---------
---------- ---------- ------ ------- ----- ---------
Number of shares issued and
outstanding..................... 42,635 8,489 46,204 15,000 61,204
---------- ---------- ------- ----- ---------
---------- ---------- ------- ----- ---------
Loss per share.................. $ (0.45) $ (1.27) $ (0.59) $ (0.44 )
---------- ---------- ------- ---------
---------- ---------- ------- ---------
</TABLE>
27
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
UNAUDITED PRO FORMA COMBINING STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED,
----------------------------------------------------------------------------------------------------
PRO FORMA MIG PRO FORMA
DECEMBER 31, 1995 MARCH 31, 1996 MERGER AND PRO FORMA WITH EQUITY MIG
MIG GOLDWYN DEBT REFINANCING DEBT REFINANCING REFINANCING PRO FORMA
PRO FORMA HISTORICAL ADJUSTMENTS COMBINED ADJUSTMENTS COMBINED
----------------- -------------- ---------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues............. $ 145,150 $107,784 $-- $ 252,934 $-- $ 252,934
Cost of revenues..... 132,762 108,301 -- 241,063 -- 241,063
Operating expenses... 67,972 19,891 -- 87,863 -- 87,863
Depreciation and
amortization......... 6,442 3,770 (229)(8) 12,732 -- 12,732
2,749(9) --
-------- -------------- ------ -------- ----------- ---------
Operating income
(loss)............... (62,026) (24,178) (2,520) (88,724) -- (88,724)
Other income
(expense):
Interest expense.... (25,489) (8,490) 8,490(10) (29,453) -- (29,453)
(15,000)(11)
(2,700)(12)
13,736(13)
Other............... 10,360 -- -- 10,360 -- 10,360
-------- -------------- ------ -------- ----------- ---------
Income (loss) before
tax.................. (77,155) (32,668) 2,006 (107,817) -- (107,817)
Provision for income
taxes................ 973 (541) 541(14) 973 -- 973
Equity in losses of
subsidiaries......... 11,818 -- -- 11,818 -- 11,818
-------- -------------- ------ -------- ----------- ---------
Net income (loss)
from continuing
operations........... $ (89,946) $(32,127) $ 1,465 $ (120,608) $-- $(120,608)
-------- -------------- ------ -------- ----------- ---------
-------- -------------- ------ -------- ----------- ---------
Number of shares
issued and
outstanding.......... 42,635 8,489 46,204 15,000 61,204
-------- -------------- -------- ----------- ---------
Loss per share....... $ (2.11) $ (3.78) $ (2.61) $ (1.97)
-------- -------------- -------- ---------
-------- -------------- -------- ---------
</TABLE>
28
<PAGE>
(1) Reflects refinancing of Goldwyn's bank debt and Orion's bank debt and
payment of refinancing fees with (a) $200 million from the Entertainment
Group Credit Facility and (b) cash on hand. Deferred financing fees
associated with Orion's bank debt in the amount of $5.0 million have been
written off and are accounted for as an extraordinary loss in the pro forma
combining balance sheet as a charge to retained earnings (accumulated
deficit).
(2) Reflects the excess of cost over the estimated fair value of net
liabilities assumed in the Goldwyn Acquisition, the elimination of
Goldwyn's historical common stock and historical additional paid-in
capital, adjusted for the shares issued pursuant to the shareholder
participation rights, retained earnings (accumulated deficit), retirement
of Goldwyn's treasury stock, and the value of the Common Stock and options
issued to the Goldwyn Stockholders in the Goldwyn Acquisition.
<TABLE>
<S> <C>
Shares to be issued in exchange for accrued stockholder
participation rights........................................... 875
Goldwyn shares outstanding at March 31, 1996..................... 8,489
--------
Goldwyn shares outstanding at March 31, 1996 adjusted............ 9,364
Number of shares issued to acquire Goldwyn....................... 3,569
Per share price at closing (assumed for illustrative purposes)... $ 12.875
--------
Value of shares issued........................................... $ 45,950
Value of Goldwyn options (using Black-Scholes method)............ 1,002
Transaction costs................................................ 2,700
--------
Purchase price................................................... 49,652
Less--Estimated fair value of net liabilities assumed.......... (19,070)
--------
Excess of cost over fair value of the net liabilities assumed.... $ 68,722
--------
--------
</TABLE>
These adjustments reflect an assumed closing price for the Common Stock of
$12.875. As a result, each share of Goldwyn common stock would be converted into
0.3811 shares of Common Stock based on the assumed Average Closing Price of
$13.12.
The Company has made a preliminary allocation of excess cost over estimated fair
value of net liabilities assumed to goodwill as Goldwyn's assets and liabilities
are estimated to approximate fair value. However there can be no assurance
that the actual adjustment will not differ significantly from the pro forma
adjustment.
(3) Reflects write-off of Goldwyn's historical goodwill.
(4) Reflects write-off of Goldwyn deferred financing fees.
(5) Reflects elimination of interim financing between Orion and Goldwyn.
(6) Reflects a reduction of $5,700 of an historical accrued participation right
of a Goldwyn Stockholder in exchange for the issuance of 875,000 Goldwyn
shares.
(7) Reflects the issuance of 15.0 million shares of Common Stock at an assumed
price of $12.875 per share, net of estimated Common Stock issuance costs of
$6,794, and the refinancing of MIG's credit facility.
(8) Reflects elimination of historical Goldwyn goodwill amortization.
(9) Reflects amortization expense of the excess of cost over the fair value of
net tangible assets acquired in the Goldwyn Acquisition by use of the
straight-line method over 25 years.
(10) Reflects elimination of interest expense attributable to Goldwyn's bank
debt as a result of the Entertainment Group Credit Facility.
(11) Reflects additional interest expense on the Entertainment Group Credit
Facility (assumed rate 7.50%). A 1/8% change in the assumed rate would
result in a change of $250 in annual interest expense.
29
<PAGE>
(12) Reflects amortization of deferred financing fees arising from the
Entertainment Group Credit Facility. This amount is being amortized using
the effective interest method over a period of five years.
(13) Reflects elimination of interest expense attributable to MIG's credit
facility and Orion's bank debt amounting to $2,325 and $11,031,
respectively, as well as elimination of amortization on Orion's deferred
financing fees of $380 as a result of the Entertainment Group Credit
Facility.
(14) Reflects elimination of Goldwyn provision for taxes.
(15) Reflects elimination of interest expense attributable to MIG's credit
facility and Orion's bank debt amounting to $805 and $2,683, respectively,
as well as elimination of amortization on Orion's deferred financing fees
of $482 as a result of the Entertainment Group Credit Facility.
30
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1995,
--------------------------------------------------------------------------------------------
MIG
MIG ACTAVA STERLING REFINANCING PRO FORMA MIG
HISTORICAL(A) ADJUSTMENTS(B) ADJUSTMENTS(B) ADJUSTMENTS(C) ADJUSTMENTS PRO FORMA
------------- -------------- -------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................... $ 138,871 $ -- $ 6,279 $ -- $ -- $145,150
Cost of revenues............ 132,762 -- 4,336 -- -- 137,098
Operating expenses.......... 50,771 8,126 3,489 -- 1,250(d) 63,636
Depreciation and
amortization................ 2,795 -- -- -- 3,647(e) 6,442
------------- ------- ------ ------- ----------- ---------
Operating income (loss)..... (47,457) (8,126) (1,546) -- (4,897) (62,026 )
Other income (expense)
Interest expense........... (29,539) (11,717) -- 15,767 -- (25,489 )
Other...................... (1,280) 11,640 -- -- -- 10,360
------------- ------- ------ ------- ----------- ---------
Income (loss) before tax.... (78,276) (8,203) (1,546) 15,767 (4,897) (77,155 )
Provision for income tax.... 767 -- 206 -- -- 973
Equity in losses of
subsidiaries................ 7,936 3,882 -- -- -- 11,818
------------- ------- ------ ------- ----------- ---------
Income (loss) from cont.
operations.................. $ (86,979) $(12,085) $ (1,752) $ 15,767 $(4,897) $(89,946 )
------------- ------- ------ ------- ----------- ---------
------------- ------- ------ ------- ----------- ---------
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Reflects 12 months of operations of Orion and MITI, 2 months of operations of Actava and
Sterling, and 2 months of MITI minority interest step-up.
(b) Reflects additional 10 months of activity for Actava and Sterling prior to the November
1 Mergers.
(c) Reflects interest expense on the term loan portion of the Orion's bank debt (assumed
interest rate of 9.1%), the revolving credit portion of the Orion's bank debt (assumed
interest rate of 7.6%), MIG's credit facility (assumed interest rate of 8.1%),
commitment fee of 1% on unused portion of the revolving credit portion of Orion's bank
debt, net of $27.1 million reduction in interest expense related to refinanced Orion
debt and $2.4 million reduction in interest expense related to refinanced MITI debt.
(d) Reflects additional 10 month Metromedia Company management fee.
(e) Reflects additional 10 months of goodwill amortization for MITI, additional 10 months of
goodwill amortization for Sterling, and removal of 10 months of pre-merger goodwill
amortization for MITI. All goodwill is assumed to be amortized over a 25-year period.
</TABLE>
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
The section below includes portions of "Management's Discussion and Analysis
of Financial Condition and Results of Operations" relating to the Company which
have been incorporated by reference in this prospectus, as updated in certain
places to reflect the consummation of the Offering, the Goldwyn Acquisition and
the Entertainment Group Credit Facility. A detailed "Management's Discussion and
Analysis of Financial Condition and Results of Operations" relating to the
Company including an analysis of the Company's consolidated financial statements
is incorporated by reference from the Company's Form 10-K for the year ended
December 31, 1995, as amended, and the Company's Form 10-Q for the quarter ended
March 31, 1996. Special Note: Certain statements set forth below under this
caption constitute "forward-looking statements" within the meaning of the Reform
Act. See "Special Note Regarding Forward-Looking Statements" on page 86 for
additional information relating to such statements.
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." 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 acquisitions of Actava and Sterling
were accounted for as reverse acquisitions. As a result of the reverse
acquisitions, 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 Snapper and 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 entered into a definitive agreement to acquire Goldwyn and on
May 17, 1996 entered into the MPCA Merger Agreement to acquire MPCA. See "The
Acquisitions." The acquisition of Goldwyn will provide MIG with a valuable
library of over 850 film and television titles, including numerous Hollywood
classics and critically acclaimed recent films. Goldwyn also owns the leading
specialized theatre circuit of 52 theatres with 140 screens. The MPCA
Acquisition will enhance the Entertainment Group's ability to produce and
acquire new film product. Consummation of the MPCA Acquisition remains subject
to certain conditions, including the expiration or early termination of the
waiting period under the Hart Scott Act, the execution of certain ancillary
agreements, the satisfaction by MIG of its due diligence review of MPCA and
other customary closing conditions. The acquisitions of Goldwyn and MPCA are
important steps in MIG's plan to enhance its role as a leading global
entertainment, media and communications company.
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 communications 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, and
(ii) the Communications Group, which includes wireless cable television, paging
services, radio broadcasting, and various types of telephony services.
32
<PAGE>
THE ENTERTAINMENT GROUP
The Company's Entertainment Group consists of Orion, Goldwyn and MPCA. Until
November 1, 1995, Orion operated under the terms of its Modified Third Amended
Joint Consolidated Plan of Reorganization (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" of the
Company for the year ended December 31, 1995 included elsewhere in this
prospectus. 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. As a result of the removal of the restrictions on the
Entertainment Group to finance, produce and acquire entertainment product in
connection with the November 1 Mergers, the Entertainment Group intends to
acquire and produce new theatrical product. See "Business--Entertainment Group."
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's Communications Group, 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 of the former Soviet Republics 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, paging
services, radio broadcasting, trunked mobile radio services and various types of
telephony 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 which the Company does not
control, but exercises significant influence, have been accounted for using the
equity method.
PRO FORMA LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, on a pro forma basis assuming the consummation of the
Offering, the Goldwyn Acquisition and the Entertainment Group Credit Facility
and the estimated use of proceeds therefrom, MIG would have had approximately
$170 million of cash on hand and the Entertainment Group would have had
borrowing availability of approximately $100.0 million (or approximately $85.0
million after the MPCA Acquisition) under the Entertainment Group Credit
Facility. See "Use of Proceeds." The Company intends to use these available
funds together with cash flow from operations to fund its businesses, including
(i) the Communications Group's further expansion in Eastern Europe, the former
Soviet Republics and the Pacific Rim and (ii) the Entertainment Group's
production and acquisition of entertainment product. MIG believes that these
resources will enable it to realize the value of its assets, by providing
capital necessary for such businesses.
MIG is a holding company which operates through its subsidiaries and,
therefore, does not generate cash flow on its own. In addition to providing
funds to its operating subsidiaries, MIG is
33
<PAGE>
obligated to make principal and interest payments under its various debt
agreements in addition to funding its working capital needs, which consist
principally of corporate overhead and payments on self insurance claims. For the
remainder of the year ended December 31, 1996 and in the years ended December
31, 1997 and 1998, MIG will be required to make principal payments of
approximately $0.6 million, $15 million and $59 million, respectively, to meet
the scheduled maturities of its outstanding long-term debt. MIG does not
currently anticipate receiving dividends from its subsidiaries but intends to
use its cash on hand and proceeds from asset sales described below to meet these
cash requirements.
During December 1995, the Company adopted a formal plan to dispose of
Snapper. At March 31, 1996 the carrying value of Snapper was $73.8 million. The
carrying value of Snapper represents the Company's estimated proceeds from the
sale of Snapper and the cash flows from the operations of Snapper, principally
repayment of intercompany loans, through the date of sale. Management believes
that Snapper will be disposed of by the end of 1996. In addition, the Company
anticipates disposing of its investment in Roadmaster by the end of 1996. The
carrying value of the Company's investment in Roadmaster at March 31, 1996 was
$47.5 million. There can be no assurance that MIG will dispose of these assets
during the time period anticipated or that it will realize proceeds upon such
sales equal to the carrying value of its investments.
The Company's Entertainment Group requires capital to fund the production of
its filmed entertainment and to meet its general working capital needs,
including interest and principal payments required under the Entertainment Group
Credit Facility. At March 31, 1996, on a pro forma basis assuming the
consummation of the Offering, the Goldwyn Acquisition and the Entertainment
Group Credit Facility and the estimated use of proceeds therefrom, the
Entertainment Group would have had approximately $200.0 million outstanding
indebtedness under the Entertainment Group Credit Facility and borrowing
capacity of approximately $100.0 million on a revolving basis to fund its
production needs. See "Use of Proceeds." MIG believes that the amounts available
under the Entertainment Group Credit Facility together with cash generated from
operations will provide the Entertainment Group with sufficient working capital
to implement its production and distribution activities and to meet debt
obligations during 1996 and 1997. The Entertainment Group Credit Facility will
restrict the Entertainment Group's ability to pay dividends to MIG.
The Communications Group is in the early stages of constructing and
developing its communications businesses. As a result, the Communications Group
does not generate operating cash flow and is dependent upon MIG for the capital
required to fund its businesses. MIG estimates that the Communications Group's
funding requirements are currently approximately $40 million for 1996. MIG
believes that the remaining proceeds of the Offering after satisfying its own
working capital needs and its debt service obligations will enable MIG to
provide the Communications Group with the capital it requires for the
anticipated funding needs for its existing and planned projects during 1996 and
1997. However, the Communication Group's capital needs could vary substantially
depending upon the stage of development of its existing projects and its
acquisition of new licenses or businesses.
The Company believes that it will report significant operating losses for
the fiscal year ended December 31, 1996. In addition, because its Communications
business is in the early stages of development, the Company expects this group
to continue 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.
HISTORICAL LIQUIDITY AND CAPITAL RESOURCES
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. During December 1991, 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
34
<PAGE>
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 foreseeable future. Furthermore, as described in
Note 2 to the "Notes to the Consolidated Financial Statements" of the Company
for the year ended December 31, 1995 included elsewhere in this prospectus,
approximately two-thirds of Orion's film inventories at December 31, 1995 are
stated at amounts approximating their estimated net realizable value and
accordingly should 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 Entertainment Group's credit agreement. 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 Entertainment Group's existing revolving credit facility.
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 the Entertainment Group's investment in any single film.
The Communications Group. MITI has invested significantly (in cash, through
capital contributions and loans, and in 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
is 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, for working capital purposes, as direct payment of
expenses or expenditures, or in the form of equipment, at the cost of the
equipment plus cost of shipping. As of
35
<PAGE>
March 31, 1996 and December 31, 1995, MITI was committed to provide funding
under the various credit lines in an aggregate amount of approximately $47.1
million and $46.8 million, respectively, of which $12.3 million and $16.9
million, respectively, remains unfunded. 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 sale of commercial advertising
time, the ability to attract subscribers to their systems and their ability to
control operating expenses. Management's current plans with respect to the joint
ventures are to increase subscribers and advertiser bases 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. 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 inflow in the near future. Even if the
joint ventures do become profitable and generate sufficient cash inflows in the
future, there can be no assurances that the joint ventures will pay dividends or
return capital and repay 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. Notes payable were
due within one year from the issuance of the note and carried interest rates
ranging from the prime rate to the prime rate plus 2%. During the first quarter
of 1996, MITI's primary sources of funds were intercompany loans from MIG.
During 1994, MITI received equity contributions of approximately $24.2
million. Approximately $22.8 million 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, $6.5 million of notes payable were converted to common
stock. The remaining $1.4 million of equity contributions was the result of the
issuance of common stock to an affiliate. During 1994, MITI received financing
of $20.1 million through the issuance of notes payable.
During 1995, MITI received equity contributions of approximately $62.0
million from MIG or its affiliates, representing notes payable to a Metromedia
Company affiliate that were converted into equity of MIG at the time of the
November 1 Mergers. In connection with the November 1 Mergers, MITI became a
wholly-owned subsidiary of MIG.
36
<PAGE>
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 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 $13.5 million for capital expenditures on behalf
of its joint ventures, including $9.5 million for cable TV, $2.1 million for
paging, $38,000 for radio and $1.9 million for all others. MITI also provided
$2.4 million 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 others. 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, $1.4 million for radio operations and $7,000 for all
others.
During 1996, MITI will continue to fund its joint ventures in a similar
manner. MITI anticipates funding $20.8 million in capital requirements for its
joint ventures, consisting of $14.7 million for cable TV, $4.8 million for
paging joint ventures, $883,000 for telephony and $325,000 for radio. In
addition, MITI anticipates approximately $2.3 million in working capital funding
requirements for joint ventures, consisting of $836,000 for cable TV, $598,000
for paging, $323,000 for telephony operations and $536,000 for radio operations.
In addition to the foregoing, MITI anticipates that it will require
approximately an additional $18.0 million in financing to fund its corporate
operations during 1996.
For the three months ended March 31, 1996, MITI expended $2.5 million on
behalf of its ventures, consisting of $1.7 million for capital equipment
requirements and approximately $800,000 for working capital funding
requirements. The capital requirements consists of approximately $1.0 million
for cable TV and approximately $700,000 for paging ventures. In addition, the
working capital funding requirements consisted of approximately $130,000 for
cable TV, approximately $80,000 for paging, approximately $320,000 for telephony
operations and approximately $270,000 for radio operations.
For the three months ended March 31, 1996, MITI's primary source of funds
were non-interest bearing intercompany loans from MIG. MITI anticipates that it
will continue to rely on the Company for its funds for the remainder of 1996.
In addition, there is available to MITI a bridge loan pursuant to an
agreement, dated February 29, 1996, between MITI and Metromedia Company. The
bridge loan provides for up to $15 million of funding at an interest rate of
prime plus 2%. The agreement is in place for the period between the date of the
agreement and the earlier of January 15, 1997, or the date upon which the
refinancing of MIG is completed. As of May 28, 1996 there was approximately $6.2
million outstanding under this facility, all of which will be repaid with
proceeds of the Offering.
COMPARISON OF STATEMENT OF CASH FLOWS--THREE MONTHS ENDED MARCH 31, 1996
COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Cash Flows from Operating Activities
Cash provided by operating activities decreased from $11.8 million for the
three month period ended March 31, 1995 to cash used in operations of $9.6
million for the three month period ended March 31, 1996.
Losses from operations include significant non-cash items of depreciation,
amortization, and equity in loss of Joint Ventures. Non-cash items decreased
$11.0 million or 36% from $30.7 million in the first quarter of 1995 to $19.7
million in the first quarter of 1996. The decrease in non-cash items principally
37
<PAGE>
relates to amortization of film costs. Net changes in assets and liabilities
decreased cash flows from operations in the first quarter of 1996 by $10.1
million and increased cash provided by operations by $1.5 million in the first
quarter of 1995. After adjusting net losses for non-cash items and net changes
in assets and liabilities, the Company's cash flow from (used in) operating
activities was ($9.6) million and $11.8 million in the first quarter of 1996 and
1995, respectively.
As discussed below, the decrease in cash flows in the first quarter of 1996
generally resulted from the reduction in revenues caused by Orion's reduced
release schedule and increases in selling, general and administrative expenses
at MITI, Orion and corporate headquarters. Net interest expense has remained
relatively constant for the first quarter 1996 and 1995. However, Orion's
interest expense has decreased due to the refinancing of its debt in November,
1995 offset by interest expense relating to debt acquired in the November 1
Mergers. 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.
As a result of the removal of the restrictions on the Entertainment Group to
finance, produce and acquire entertainment product in connection with the
November 1 Mergers, the Entertainment Group intends to acquire and produce new
theatrical product. During the first quarter of 1996, Orion made a $5.0 million
payment to a subdistributor under an agreement entered into in connection with
the Plan. In addition, Orion made payments of $3.2 million for deferred
financing costs during the first quarter of 1996.
Cash Flows from Investing Activities
Cash used in investing activities was $5.4 million and $5.0 million for the
first quarters 1996 and 1995, respectively.
During the first quarter 1995, the principal use of cash in investing
activities was $4.3 million invested or advanced to joint ventures. During the
first quarter 1996, the Company collected $5.4 million from Snapper as repayment
of outstanding advances and paid $2.5 million, $1.6 million and $3.6 million for
investments in joint ventures, film inventories and property, plant and
equipment, respectively.
Cash Flows from Financing Activities
Cash used in financing activities was $108,000 and $5.5 million for the
first quarters of 1996 and 1995, respectively.
Proceeds from issuance of long-term debt decreased from $12.5 million to
$11.8 million from the first quarter of 1995 to 1996.
Payments on notes and subordinated debt decreased from $18.1 million to
$12.3 million from the first quarter of 1995 to 1996.
COMPARISON OF STATEMENT OF CASH FLOWS--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
38
<PAGE>
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.
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.
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 Services, 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.
39
<PAGE>
COMPARISON OF STATEMENT OF CASH FLOWS--FISCAL YEAR 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.
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 Company in fiscal
1995 and 1994.
RESULTS OF OPERATION--SEGMENT INFORMATION
The following tables sets forth the operating results and financial
condition of the Company's Entertainment Group and Communications Group for the
quarters ended March 31, 1996 and 1995 and for the Calendar Year ended December
31, 1995 and Fiscal Years 1995 and 1994. Financial information summarizing the
results of operations of Snapper, which is classified as an asset held for sale,
is presented in Note 2 to the "Notes to the Consolidated Financial Statements"
of the Company for the year ended December 31, 1995 included elsewhere in this
prospectus.
40
<PAGE>
SEGMENT INFORMATION
<TABLE>
<CAPTION>
QUARTER ENDED MARCH
31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Revenues
Entertainment...................................................... $ 27,641 $ 36,567
Communications..................................................... 3,164 1,111
Other.............................................................. 3 --
-------- --------
Total.......................................................... 30,808 37,678
Cost of Rentals and Operating Expenses
Entertainment...................................................... (25,102) (36,868)
Communications..................................................... 13 --
Other.............................................................. -- --
-------- --------
Total.......................................................... (25,089) (36,868)
Selling, General & Administrative
Entertainment...................................................... (4,912) (5,372)
Communications..................................................... (7,400) (5,458)
Other.............................................................. (1,379) --
-------- --------
Total.......................................................... (13,691) (10,830)
Management Fees
Entertainment...................................................... -- --
Communications..................................................... (125) (144)
Other.............................................................. (250) --
-------- --------
Total.......................................................... (375) (144)
Depreciation & Amortization
Entertainment...................................................... (267) (142)
Communications..................................................... (1,449) (386)
Other.............................................................. (7) --
-------- --------
Total.......................................................... (1,723) (528)
Operating Loss
Entertainment...................................................... (2,640) (5,815)
Communications..................................................... (5,797) (4,877)
Other.............................................................. (1,633) --
-------- --------
Total.......................................................... (10,070) (10,692)
Interest Expense
Entertainment...................................................... (3,455) (8,005)
Communications..................................................... -- (931)
Other.............................................................. (4,824) --
-------- --------
Total.......................................................... (8,279) (8,936)
Interest Income
Entertainment...................................................... 31 325
Communications..................................................... 1,090 492
Other.............................................................. 124 --
-------- --------
Total.......................................................... 1,245 817
Chapter 11 Losses.................................................... (54) (767)
Provision for Income Taxes........................................... (200) (200)
Equity in Joint Ventures............................................. (1,783) (588)
-------- --------
Net Loss....................................................... $(19,141) $(20,366)
-------- --------
-------- --------
</TABLE>
41
<PAGE>
SEGMENT INFORMATION
<TABLE>
<CAPTION>
CALENDAR YEAR FISCAL YEAR FISCAL YEAR
1995(1) 1995 1994
------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
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)
Other...................................................... 188 221 34
------------- ----------- -----------
Total.................................................. (132,762) (187,256) (242,996)
Selling, General & Administrative
Entertainment.............................................. (22,695) (21,278) (20,931)
Communications............................................. (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)
Communications............................................. (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 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)
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
- ------------
(1) See Note 1 to the "Notes to the Consolidated Financial Statements" of the
Company for the year ended December 31, 1995 included elsewhere in this
prospectus.
42
<PAGE>
MIG CONSOLIDATED--RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Net loss decreased to $19.1 million in the three month period ended March
31, 1996 from $20.4 million for the three months ended March 31, 1995.
The decrease in the Company's consolidated loss of $1.3 million for the
three month period ended March 31, 1996 versus March 31, 1995 is primarily
attributable to decreases in operating losses at the Company's Entertainment
Group, partially offset by increases in operating losses at the Communications
Group, corporate overhead and equity in net losses of joint ventures.
The improvement in filmed entertainment's operations was a result of
writedowns of film inventory totaling approximately $5.4 million in the first
quarter of 1995 compared to nominal writedowns for 1996.
The Communications Group experienced increases in selling, general and
administrative expenses as it continues to expand its business. Corporate
overhead increased to $1.4 million in 1996 from zero in 1995 as a result of the
addition of Actava's corporate headquarters after the November 1 Mergers.
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
"The Communications Group--Results of Operations." The fiscal 1994 net loss of
$132,530,000 was from continuing operations.
The effect of the acquisitions 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 Orion Plan Debt, which was
refinanced with funds provided under the Existing Entertainment Group Credit
Facility and a noninterest bearing promissory note from MIG, and to the
charge-off of the unamortized discount associated with such obligations.
THE ENTERTAINMENT GROUP--RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Revenues. Total revenues for the three months ended March 31, 1996 were
$27.6 million, a decrease of $8.9 million or 24% from the three months ended
March 31, 1995.
Theatrical revenues for the current quarter were $222,000, a decrease of
$289,000 or 57% from the previous year's first quarter. 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 the current quarter were $5.6 million, a
decrease of $3.6 million or 39% from the previous year's first quarter. The
decrease in domestic home video revenue was due primarily to Orion's reduced
theatrical release schedule in 1995 and 1994. Orion's reduced theatrical release
schedule in 1995 has had and will continue to have an adverse effect on home
video annual revenues until new product is available for distribution.
43
<PAGE>
Home video subdistribution revenues for the current quarter were $2.3
million, an increase of $2.2 million from the previous year's first quarter.
These revenues are primarily generated in the foreign marketplace through a
subdistribution agreement with Sony Pictures Entertainment, Inc. The increase
was primarily due to the release of the last titles under this agreement in some
major territories. All 23 pictures covered by this agreement have been released
theatrically. Orion's reduced theatrical schedule in 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
distribution.
Pay television revenues were $7.2 million in the current quarter, a decrease
of $2.6 million or 27% from the previous year's first quarter. The decrease in
pay television revenues which was primarily due to the availability of no titles
during 1996 in the domestic pay cable market compared to two titles during 1995
which was partially offset by an increase in the number of titles that became
available under the British Sky Broadcasting, Ltd. pay cable agreement in the
U.K. Orion's reduced theatrical release schedule in 1995 will continue to have
an adverse effect on future pay television revenues.
Free television revenues for the current quarter were $12.3 million, a
decrease of $4.6 million or 27% from the previous year's first quarter. In both
the domestic and international marketplaces, Orion derives significant revenue
from the licensing of free television rights. 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.
Selling, General & Administrative Expenses. Selling, general and
administrative expenses decreased $500,000 to $4.9 million during the first
quarter of 1996 from $5.4 million during the first quarter of 1995. The decrease
resulted from a reduction in insurance costs and outside computer consulting
costs.
Operating Loss. Operating loss decreased by $3.2 million in the current
quarter to ($2.6) million from an operating loss of ($5.8) million in the
previous year's first quarter. The 1995 results were adversely affected by
writedowns to estimated net realizable value of the carrying amounts on certain
film product totaling approximately $5.4 million for 1995 compared to nominal
writedowns for 1996. 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 for the three months ended March 31, 1996
decreased by $4.6 million or 57% to $3.5 million, primarily due to the
refinancing of Orion's debt in connection with the November 1 Mergers including
the repayment and termination of the debt associated with the Plan. The average
debt outstanding and related average interest rates were $137.2 million at 8.3%
and $210.8 million at 12.2% for the three month periods ended March 31, 1996 and
1995, respectively.
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.
44
<PAGE>
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. 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.
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
Existing Entertainment Group Credit Facility (as defined herein) and with a non-
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, Orion's ability to
produce or acquire additional theatrical product was limited. Therefore, Orion
released in the domestic theatrical marketplace only those pictures that were
fully or substantially financed by Orion prior to the
45
<PAGE>
Filing Date. This lack of product has negatively impacted theatrical revenues
and will continue to do so until Orion produces or acquires new product for
theatrical distribution.
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 Orion'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 Pictures Entertainment, Inc. 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 Orion 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 Orion's fiscal 1995 operating results came from the
recognition of significant domestic pay television license fees pursuant to the
Showtime Settlement. Orion'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 Settlement,
disappointing results of four pictures released that year, and additional
provisions on the five then unreleased pictures. 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 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.
46
<PAGE>
THE COMMUNICATIONS GROUP--RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Revenues. Revenues increased to $3.2 million in the three months ended March
31, 1996 from $1.1 million for the three months ended March 31, 1995. This
growth in revenues resulted primarily from an increase in radio operations in
Hungary and paging service operations in Romania. Revenue from radio operations
for the first three months of 1996 was $2.4 million as compared to $807,000 in
the first three months of 1995. Radio paging services generated revenues of
$576,000 for the first three months of 1996 as compared to $179,000 in the first
three months of 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $1.9 million or 36% for the three months
ended March 31, 1996 as compared to the three months ended March 31, 1995. The
increase from 1995 to 1996 relates principally to the hiring of additional staff
and additional 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 as well as additional staffing at the radio station and radio paging
operations.
Interest Income. In 1994, MITI began to charge interest to the joint
ventures for credit facilities granted to the ventures by MITI. The interest was
charged at rates ranging from the prime rate to the prime rate plus two 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 $1.1 million for the three months ended March 31, 1996 as compared to
$492,000 for the three months ended March 31, 1995.
Interest Expense. MITI incurred no interest expense for the three months
ended March 31, 1996 as compared to $931,000 for the three months ended March
31, 1995. There was no interest expense for the three months ended March 31,
1996 because all of MITI's borrowings were from its parent, MIG. The average
debt outstanding and related average interest rates was $30.9 million at 11.5%
for the three month period ended March 31, 1995.
Equity in Losses of Affiliated Joint Ventures. MITI accounts for the
majority of its joint venture investees 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 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
as a separate caption in its statement of operations.
MITI recognized equity in losses of joint venture investees of approximately
$1.8 million for the three months ended March 31, 1996 as compared to $588,000
for the three months ended March 31, 1995. The losses recorded for the three
months ended March 31, 1996 and 1995 represent MITI's equity in losses of the
venture operations for the three months ended December 31, 1995 and 1994,
respectively.
Equity in the losses of the joint ventures are generally reflected according
to the level of ownership of the joint venture by MITI until each 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 for the joint ventures. MITI recognized
equity in losses of Joint Venture Investees of approximately $8.0 million in
1995, and $2.3 million in 1994.
The increase in losses of the Joint Venture Investees of $5.7 million from
1994 to 1995 is primarily attributable to increased losses incurred of $4.0
million as part of the expansion of cable TV operations, and a radio station in
Moscow with an increased loss of $1.3 million. As of September 30, 1995 there
were six cable TV ventures in operation as compared to four the prior year.
Within the cable TV operations, two ventures, in Moscow and Riga, incurred $2.1
million and $1.3 million, respectively of this increased loss. This was due to
one-time write downs 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 contributed an increase of
47
<PAGE>
$669,000 in losses. The increased loss experienced by the radio station was
attributable to a substantial revision in its programming format and the
creation of sales and related support staff needed to effectively compete in the
Moscow market. All other operations, including five paging entities, of which
three were started up in 1995, and one telephony operation, incurred increased
losses of $388,000.
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
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 years 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 venture investees grow
and become more dependent on local currency based transactions, MITI expects its
foreign currency risk and exposure to increase. MITI currently does not hedge
against foreign currency exchange rate risks.
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 MITI 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 MITI 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.
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
48
<PAGE>
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 two percent in 1994 and
from the prime rate to the prime rate plus four percent in 1995. 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.
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
49
<PAGE>
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.
50
<PAGE>
BUSINESS
Special Note: Certain statements set forth below under this caption
constitute "forward-looking statements" within the meaning of the Reform Act.
See "Special Note Regarding Forward-Looking Statements" on page 86 for
additional factors relating to such statements.
ENTERTAINMENT GROUP
Through the Entertainment Group, MIG 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. MIG also holds a valuable library of over 2,000 film and
television 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 classic motion pictures such as Wuthering Heights, The Pride of the
Yankees, Guys and Dolls and The Best Years of Our Lives. This library provides
MIG with a stable stream of cash flow to support its various production
operations. MIG has adopted a conservative theatrical production, acquisition
and distribution strategy consisting primarily of commercial and specialized
films, with well-defined target audiences in which MIG's portion of the
production cost generally ranges from $5 million to $10 million per picture. The
Entertainment Group's management has significant experience in the production of
motion picture and television entertainment and was responsible for producing
the recent box-office success Dumb and Dumber and the Academy Award winning The
Madness of King George. MIG also owns what management believes is the leading
specialty theatre circuit with 52 motion picture theatres with a total of 140
screens located in the United States.
Strategies
MIG intends to further enhance the value of the Entertainment Group's assets
by (i) exploiting its valuable film and television library, (ii) expanding its
production of feature films and (iii) enhancing the value of its theatre
circuit.
Exploiting the Existing Library
MIG expects its film and television library to generate significant cash
flow from its existing, long-term distribution contracts and further
exploitation of its library in traditional domestic and international media,
such as free and pay television and home video. In addition, MIG will also
benefit from several factors which are expected to contribute to an increase in
the demand for MIG's programming. These factors include: (i) the emergence of
technological advances; (ii) the marketing of MIG's titles in new geographic
markets; and (iii) the impact of MIG's expanded feature film production.
MIG has historically been successful in selling its library titles to the
free and pay television and home video markets. These markets are expected to
continue to experience significant growth, primarily as a result of
technological advances and the expansion of the multi-channel television
industry worldwide. The emergence of digital compression, video-on-demand,
direct-to-home-broadcasting, DVD and other new technologies is expected to
increase the worldwide demand for entertainment programming largely by
increasing existing transmission capabilities and by increasing the percentage
of the population which can access multi-channel television systems. With an
extensive library which contains a variety of film and television titles, MIG
believes it is well-positioned to benefit from this anticipated increase in
demand for programming.
In addition to continuing to market its library in countries with
established multi-channel television industries such as the United Kingdom and
France, MIG intends to aggressively market its library in new international
markets in which the multi-channel television industry has recently emerged or
is in the early stages of development.
51
<PAGE>
MIG also expects that the marketability and value of its existing library
will increase as MIG expands its new feature film production operations, which
will enable MIG to market these films together with titles already in its
library.
Expanding Motion Picture Production
MIG has adopted a conservative theatrical production, acquisition and
distribution strategy which it believes will generate more stable cash flows
than the approach of the major motion picture studios. MIG intends to produce or
acquire and release 10 to 14 theatrical features per year, consisting primarily
of commercial and specialized films with a well-defined target audience and
marketing campaign and generally with MIG's portion of the production cost
generally ranging from $5.0 million to $10.0 million each. MIG also expects to
spend between $4.0 million and $8.0 million in domestic print and advertising
costs for each film it produces or acquires. This production strategy has been
followed and is based on MPCA's prior success, including the performance of its
commercially successful films such as Dumb and Dumber and Threesome. MIG also
plans to continue to be a leader in the production, acquisition and distribution
of specialized motion pictures and art films, including those films management
believes may have crossover commercial potential. This strategy has been
followed by Goldwyn and is based on its success with such films as Much Ado
About Nothing, The Madness of King George, Eat Drink Man Woman and Angels and
Insects. In addition, the Entertainment Group intends to continue to co-produce
(with limited financial exposure to the Entertainment Group) larger budget
movies with major studios. For example, Goldwyn is currently producing, in
conjunction with Walt Disney Pictures, The Preacher's Wife, starring Denzel
Washington and Whitney Houston and directed by Penny Marshall. Goldwyn has a
gross profit participation in this film. In order to expand its production
capabilities and minimize its exposure to the performance of any particular
film, MIG intends to finance a significant portion of each film's budget by
pre-licensing foreign distribution rights. Furthermore, certain MIG executives
will, on behalf of MIG, enter into "producer-for-hire" agreements with other
studios for which MIG and such executives will receive a fee.
As of April 30, 1996, MIG has scheduled for domestic theatrical release the
following motion pictures during the year ending December 31, 1996.
<TABLE>
<CAPTION>
TITLE DIRECTOR CAST DESCRIPTION
- ------------------- ------------------ ------------------ -------------------------------
<S> <C> <C> <C>
American Buffalo Michael Corrente Dustin Hoffman Based on the popular and
Dennis Franz influential David Mamet play, a
Sean Nelson powerfully emotional and funny
story of a planned and botched
coin theft.
August Anthony Hopkins Anthony Hopkins Oscar-winning actor Anthony
Kate Burton Hopkins makes his directorial
Hugh Lloyd debut with this film which
Rhoda Lewis transposes Anton Chekov's stage
Leslie Phillips classic Uncle Vanya, to a
northern Welsh village.
I Shot Andy Warhol Mary Harron Stephen Dorff A riveting portrait of the
Martha Plimpton lesbian revolutionary who
Jared Harris almost
Lili Taylor killed Andy Warhol, and a
Lothaire Bluteau tribute to the true King of Pop
Anna Thompson and the world surrounding him.
Lucky Break Ben Lewis Gia Cerides A sophisticated and bawdy tale
Anthony LaPaglia of a passionate affair with
Rebecca Gibney physical mishaps, set in a
world where everybody is
slightly impaired and with an
unforgettable photo finish.
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
TITLE DIRECTOR CAST DESCRIPTION
- ------------------- ------------------ ------------------ -------------------------------
<S> <C> <C> <C>
Maybe . . . Maybe Sonke Wortmann Til Schweiger A hilarious look at infidelity
Not Katja Reimann and mistaken sexual identity as
Joachim Krol an achingly handsome but skirt
Rufus Beck chasing boyfriend gets
entangled in a web of
miscommunications and
misinterpreted situations.
Napoleon Mario Andrecchio In this live action adventure,
an adorable puppy gets lost in
the wild Australian outback.
Befriended by exotic animals,
Napoleon overcomes his fears
and discovers the magic of
nature.
Oh Mary This London Suri Krishnamurna Jason Barry A poignant and dramatic tale
Uba Seagrave from the author of My Left
Foot. Based on actual
incidents, this sometimes
comical, sometimes tragic film
has a powerful emotional
charge.
Original Gangstas Larry Cohen Jim Brown A contemporary action- adventure
Fred Williamson set in Gary, Indiana with a
Pam Grier soundtrack to include music
Richard Roundtree from a number of popular rap
Ron O'Neal groups.
Paul Winfield
Isabelle Sanford
Palookaville Alan Taylor William Forsythe Three young men embrace crime
Adam Trese as a temporary change of
Vincent Gallo lifestyle and the solution to
unemployment.
Phat Beach Doug Ellin Jermaine Hopkins The unprecedented hip hop beach
Brian Hooks comedy involving the comedic
Claudia Kalcem misadventures of two friends
during their summer break.
The Substitute Robert Mandel Tom Berenger A mercenary goes undercover as
Ernie Hudson a substitute teacher after his
Diane Venora girlfriend is brutally attacked
Glenn Plummer by a gang of students. In an
Marc Anthony 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.
The Arrival David Twohy Charlie Sheen A sci-fi thriller that revolves
Ron Silver around an unassuming scientist
Lindsay Crouse who becomes the only thing that
Teri Polo stands between our civilization
and certain destruction when he
investigates an unusual
shockwave from outer space and
discovers a team of
extraterrestrials poised to
take over the world.
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
TITLE DIRECTOR CAST DESCRIPTION
- ------------------- ------------------ ------------------ -------------------------------
<S> <C> <C> <C>
Trees Lounge Steve Buscemi Anthony LaPaglia Revolves around Tommy Basilio,
Chloe Sevigny who loses his job and his
Mimi Rogers girlfriend to his best friend.
Daniel Baldwin But he manages to stumble
Carol Kane across friendship, inspiration,
and a strange kind of truth in
the last place he expected, the
local bar.
</TABLE>
- ------------
Enhance the Value of its Theatrical Exhibition Assets
MIG believes it is the largest exhibitor of specialized motion pictures and
art films in the United States. The Entertainment Group's theatre circuit
currently consists of 52 theatres with a total of 140 screens. MIG's strategy is
to: (i) expand in existing and new major markets through internal growth and
acquisitions, (ii) upgrade and multiplex existing locations where there is
demand for additional screens and (iii) continue to reduce operating and
overhead costs as a percentage of revenue.
Entertainment Group Overview
The Entertainment Group derives its revenue from the distribution of its
product theatrically and in ancillary markets such as home video, pay and free
television throughout the world and from the exhibition of feature films in
MIG's theatres.
Production, Acquisition and Distribution
Theatrical Production, Acquisition and Distribution. MIG intends to
emphasize the production and acquisition of commercial films at significantly
lower than average industry costs. MIG believes that it can successfully control
costs and increase returns by carefully selecting projects that: (i) are based
on exploitable concepts, such as action-adventure and specialized motion
pictures; (ii) are aimed at and cost-effectively marketed to specific niche
audiences; (iii) employ affordable, well-recognized or emerging talent; and (iv)
fit within pre-established cost/performance criteria. MIG also currently plans
to avoid peak seasonal release periods such as early summer, Christmas and other
holidays, when competition for screens is most intense and marketing costs are
highest. MIG plans to continue acquiring product from independent producers for
distribution on a fee basis with no investment other than recoupable
distribution costs. MIG's acquisition program contemplates output arrangements
with producers and the acquisition of existing catalogs, as well as film-by-film
acquisitions.
Home Video Distribution. In addition to releasing its new product, MIG will
continue to exploit titles from its existing library, including previously
released rental titles, re-issued titles and initially released titles, in the
expanding sell-through and premium market sectors and through arrangements with
mail-order and other selected licensees. In addition to distribution in the
traditional videocassette sector, MIG also intends to pursue opportunities to
distribute its library in video discs (see "--The United States Motion Picture
Industry Overview--Emerging Technologies" below) and other emerging multimedia
formats. MIG will continue to act as exclusive U.S. distributor for Streamline
Pictures, a leading supplier of the increasingly popular Japanese anime genre,
and to provide exclusive distribution services for Major League Baseball home
video product and the Fox-Lorber catalog of foreign language and specialty
films.
Television Production and Distribution. MIG's television distribution
involves licensing its film and television library to both pay television
services as well as the free television market. MIG is currently negotiating
services and is in the process of nationwide sales of various syndication
packages to independent television stations and the non-traditional networks.
Such syndication packages will be offered with unpackaged library titles, on a
market-by-market basis. MIG also plans to expand its exploration of
opportunities to produce original programming, including talk and game shows,
for pay television, basic cable, first-run syndication and the non-traditional
networks. MIG has historically engaged in the production and licensing of
television series for first run syndication. MIG has produced
54
<PAGE>
and syndicated seven seasons of the athletic competition series American
Gladiators and has produced and syndicated one season of the series The New
Adventures of Flipper, a remake of its classic series Flipper. MIG intends to
continue to produce television product for the first run syndication market, for
cable networks and for foreign broadcasts. MIG does not intend to produce
deficit-financed television programming for the domestic networks.
Distribution in Foreign Markets. MIG distributes its existing library in
traditional media and established markets outside of the United States and
Canada, while actively pursuing new areas of exploitation. MIG intends to
aggressively market its library in (i) new international markets in which the
multi-channel television industry has recently emerged or is in the early stages
of development, and (ii) territories which have not been reached by privatized
free television, cable television, home video and other traditional media, but
where the industry is expected to develop in the future. MIG will also explore
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
English language library product.
Exhibition
MIG believes that its theatre circuit, with 140 screens in 52 theatres, is
the largest exhibitor of specialized motion pictures and art films in the United
States. The operation of these theatres provides MIG with relatively stable cash
flows and allows MIG to participate in revenues from the exhibition of its films
as well as films produced and distributed by others. MIG intends, on an
opportunistic basis, to acquire additional screens in its existing markets and
to expand into new markets that the Company considers to be among the primary
markets for the exhibition of specialized and art films.
MIG currently operates theatres in 19 cities in California, Colorado,
Louisiana, Massachusetts, Minnesota, Ohio, Texas, Washington and Wisconsin. MIG
emphasizes the exhibition of specialized motion pictures and art films and
commercial films with literary and artistic components which appeal to the
specialized film audience. The seating capacity for all theaters operated by MIG
is approximately 40,000, of which 52% is in theatres located in California. The
following table summarizes the location and number of theatres and screens
operated by MIG:
<TABLE>
<CAPTION>
LOCATION THEATERS SCREENS
- -------------------------------------------------------- -------- -------
<S> <C> <C>
Belmont, California..................................... 1 3
Berkeley, California.................................... 5 16
Los Angeles, California................................. 3 7
Newport Beach, California............................... 1 1
Oakland, California..................................... 1 3
Palo Alto, California................................... 4 6
Pasadena, California.................................... 1 1
Sacramento, California.................................. 2 6
San Diego, California................................... 5 9
San Francisco, California............................... 6 15
Denver, Colorado........................................ 3 8
New Orleans, Louisiana.................................. 2 5
Cambridge, Massachusetts................................ 1 9
Minneapolis, Minnesota.................................. 2 6
Cleveland, Ohio......................................... 1 3
Dallas, Texas........................................... 1 3
Houston, Texas.......................................... 2 6
Seattle, Washington..................................... 9 28
Milwaukee, Wisconsin.................................... 2 5
--
-------
52 140
-- -------
-- -------
</TABLE>
55
<PAGE>
The exhibition of first-run specialized motion pictures and art films is a
niche in the film exhibition business that is distinct from the exhibition of
higher budget, wide-release films. For the most part, specialized motion
pictures and art films are marketed by different distributors and exhibited in
different theatres than commercial films produced by the major studios.
Exhibitors of wide-release films typically must commit a substantial percentage
of their screens to a small number of films. In contrast, exhibitors such as MIG
typically show approximately 30 to 40 different films on their screens at any
given time.
In the normal course of its business, MIG opens new theatres in promising
locations and closes theatres that are not performing well or for which it may
not be feasible to renew the lease. During the twelve months ended March 31,
1996, MIG added 3 theatres with a total of 17 screens and closed one theatre
with a total of two screens.
Competition and Seasonality
All aspects of the Entertainment Group's operations are conducted in a
highly competitive environment. To the extent that MIG seeks to distribute the
films contained in its library or acquire or produce product, MIG will need to
compete with many other motion picture distributors, including the "majors,"
most of which are larger and have substantially greater resources, film
libraries and histories of obtaining film properties, as well as production
capabilities and significantly broader access to distribution and exhibition
opportunities. Many of MIG's competitors have substantially greater assets and
resources. By reason of their resources, these competitors may have access to
programming that would not generally be available to MIG and may also have the
ability to market programming more extensively than MIG.
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 MIG's competitors in
the theatrical motion picture distribution business have become affiliated with
owners of chains of motion picture theatres. In addition, program suppliers of
home video product compete for the open to buy dollars of video specialty stores
and mass merchant retailers. A larger portion of these dollars are designated
for megahit theatrically based sell-thru titles, video games and other
entertainment media. The success of all the Entertainment Group's product is
heavily dependent upon public taste, which is both unpredictable and susceptible
to change.
Although there are no other nationwide exhibitors of specialty motion
pictures, MIG faces direct competition in each market from local or regional
exhibitors of specialized motion pictures and art films. To a lesser degree, MIG
also competes with other types of motion picture exhibitors. Other
organizations, including the national and regional circuits, major studios,
production companies, television networks and cable companies are or may become
involved in the exhibition of films comparable to the type of films exhibited by
MIG. Many of these companies have greater financial and other resources than
MIG. As a result of new theater development and conversion of single-screen
theatres to multiplexes, there is an increasing number of motion picture screens
in the geographic areas in which MIG operates. At the same time, many motion
picture exhibitors have been merging or consolidating their operations,
resulting in fewer competitors with an increased number of motion picture
screens competing for the available pictures. This combination of factors may
tend to increase competition for films that are popular with the general public.
MIG also competes with national and regional circuits and independent exhibitors
with respect to attracting patrons and acquiring new theatres.
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
56
<PAGE>
Pictures, Tri-Star Pictures and Sony Classics), Paramount Pictures and The Walt
Disney Company (including Buena Vista, Touchstone Pictures, Hollywood Pictures
and Miramax), 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 theatre exhibitors.
In recent years, "independent" motion picture production companies played an
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 "majors." Independents typically produce fewer motion
pictures at substantially lower average production costs than major studios.
Several of the more prominent independents, including Miramax and New Line, were
acquired by large entertainment companies, giving them access to greater
financial resources.
Motion Picture Production and Financing
The production of a motion picture begins with the screenplay adaptation 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 (i)
engages creative personnel to the extent not previously committed; (ii)
finalizes the filming schedule and production budget; (iii) obtains insurance
and secures completion guarantees; (iv) if necessary, establishes filming
locations and secures any necessary studio facilities and stages; and (v)
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
and 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 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
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
substantial production costs begin to be incurred and must be paid.
57
<PAGE>
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 financing 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 pictures.
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 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. Similarly, 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. Substantial 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
58
<PAGE>
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:
<TABLE>
<CAPTION>
MONTHS AFTER APPROXIMATE
INITIAL RELEASE RELEASE PERIOD
-------------------- -------------------
<S> <C> <C>
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 or basic
cable............................ 30-36 months 18-36 months
Domestic syndication............. 30-36 months 3-15 years
Foreign home video............... 6-12 months --
Foreign television............... 18-24 months 3-12 years
</TABLE>
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 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, some motion picture
distributors generate revenues from distribution of motion pictures in foreign
theaters, home video, 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.
59
<PAGE>
Emerging Technologies
Video-On-Demand. Perhaps the most 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, DVD is expected to become a widely-accepted format for home
video programming.
DBS. Direct Broadcast Satellite (DBS) technology also offers a new
transmission technology. As the major delivery system for premium television
services in Europe, particularly in the U.K., DBS is expected to expand the pay
television market in the United States.
COMMUNICATIONS GROUP
Through the Communications Group, MIG intends to capitalize on the demand,
which developed in the late 1980s and early 1990s, for modern communications
systems in Eastern Europe and other emerging markets. MIG 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. MIG's joint ventures typically cover markets which have large
populations and strong economic potential, but lack reliable and efficient
communications services. MIG also targets markets where systems can be
constructed with relatively low capital investments and where multiple
communications services can be offered to the population.
MIG owns interests in and participates along with local entities in the
management of joint ventures which operate and/or are constructing: (i) 10
wireless cable television systems with combined households of approximately 9.0
million; (ii) 8 paging systems with combined target populations of approximately
79.5 million; (iii) an international toll calling service in the Republic of
Georgia covering a population of approximately 5.5 million; (iv) 4 trunked
mobile radio systems with an aggregate target population of approximately 88.0
million; and (v) 5 radio stations in 7 cities reaching combined target
households of approximately 8.6 million in Hungary, Russia and Latvia. The
Communications Group recently purchased for $2.6 million (plus rights to acquire
up to a maximum of $500,000 worth of common stock) 56% of a U.K. company that
has ownership interests in 9 companies providing trunked mobile radio services
in certain cities in Portugal, Spain, Belgium and Germany. The Company is also
pursuing licenses for similar services in other emerging markets, where the
economies are expanding, including the Pacific Rim. In addition, the
Communications Group has entered into a definitive agreement to acquire 80% of a
Company operating a radio station in Prague, Czech Republic.
MIG believes that the performance of its existing joint ventures has
demonstrated that there is significant demand for these services in its license
areas. Many of the joint ventures are in the early stages of constructing and/or
marketing their services, and MIG expects to significantly increase its
subscriber and customer bases as these businesses mature. In addition, as one of
the first entrants into these markets, MIG believes that it has developed a
reputation for providing quality service and has formed important relationships
with local entities. As a result, MIG believes it is well positioned to
capitalize on opportunities to provide additional communications services in its
markets as licenses are awarded.
60
<PAGE>
For a summary of the joint ventures' markets and existing projects, their
status, MIG's direct or indirect ownership interest, the year such projects
became operational, the population or number of households in the ventures'
market and the amounts loaned to such venture by MIG and contributed to such
projects by MIG, see "- Communications Group Overview - Markets" below.
Strategies
MIG's strategy is to grow its subscriber and customer bases, as well as its
revenues and cash flows by (i) completing the build out of existing license
areas; (ii) pursuing additional licenses in existing markets and (iii) obtaining
new licenses in attractive markets.
Completing Build Out of Existing License Areas
The Communications Group was formed to capitalize on the demand, which
developed in the late 1980s and early 1990s, for modern communications systems
in Eastern Europe. Since its formation in 1990, the Communications Group has
been aggressively investing in joint ventures to obtain communications licenses
in underserved markets. Many of the Communications Group's operating companies
are currently in various stages of constructing their systems. MIG intends to
accelerate the build out of those areas requiring additional construction and
believes that, as a result of the Company's use of wireless technology, a
significant portion of this build out can be completed at a significantly lower
cost than wired technology.
Pursuing Additional Licenses in Existing Markets
MIG is pursuing opportunities to provide additional communications services
in regions in which it currently operates. This strategy will enable MIG to more
efficiently utilize its existing infrastructure and to capitalize on marketing
opportunities by bundling its services. MIG expects to benefit from its
knowledge of and experience with local governments, laws and customs in pursuing
such opportunities. MIG believes that in the markets in which it currently
provides certain of its services, the Company typically has several significant
competitive advantages that will enable it to obtain licenses for and
successfully operate additional services in these markets. These competitive
advantages include (i) established relationships with local joint venture
partners; (ii) established relationships with consumers; and (iii) a fundamental
understanding of the region's political, economic and cultural issues.
Obtaining New Licenses in Attractive Markets
MIG is actively pursuing investments in joint ventures to obtain new
licenses for wireless cable television, paging, wireless telephony and radio
broadcast projects in markets in which it presently does not have any licenses.
MIG intends to target emerging markets with strong economic potential which lack
adequate communications services. MIG has identified several attractive
opportunities in Eastern Europe and the Pacific Rim, and recently began to
provide cable services in Bucharest, Romania and paging services in St.
Petersburg, Russia. In evaluating whether to enter a new market, MIG assesses,
among other factors, the (i) potential demand for MIG's services and the
availability of competitive services; (ii) strength of local partners; and (iii)
political, social and economic environment.
Communications Group Overview
Markets
A summary, as of May 1, 1996, of the Communications Group's markets and
existing projects, their status, MIG's direct or indirect ownership interest in
each such project, the year such projects became operational, the population or
number of households in the project's market, the amount of capital loaned to
such projects by MIG and contributed to such projects by MIG is detailed in the
chart below:
61
<PAGE>
<TABLE>
<CAPTION>
DIRECT
OR INDIRECT HOUSEHOLD/ AMOUNT LOANED
OWNERSHIP YEAR POPULATION TO PROJECT
MARKET AND PROJECTS(15) STATUS INTEREST OPERATIONAL (IN MILLIONS)(1) (IN THOUSANDS)(2)
-------------------------------------- ------------------- -------------- ----------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
. MOSCOW, RUSSIA
Wireless Cable Television............. Operational 50.0% 1992 3.5 $ 8,881
FM Radio (2 Frequencies).............. Operational 51.0 1994(3) 3.5 1,838
. TBILISI, GEORGIA
Wireless Cable Television............. Operational 49.0 1993 0.5 3,520
International Toll Calling Operational 30.0 1994 5.5 --
(Nationwide) (4)......................
Paging................................ Operational 45.0 1994 5.0(5) 475
. RIGA, LATVIA
Wireless Cable Television............. Operational 50.0 1992 0.4 8,184
Paging (Nationwide)................... Operational 50.0 1995(6) 2.7 1,268
FM Radio.............................. Operational 55.0 1995(7) 0.4 35
Cellular Telephony (Nationwide)....... Licensed 24.5 -- 2.8 --
. TASHKENT, UZBEKISTAN
Wireless Cable Television............. Operational 50.0 1993 1.2 3,360(12)
Paging................................ Operational 50.0 1994 23.1(5) --
Wireless Local Loop Telephony......... License pending 50.0 -- 2.1 --
. ESTONIA
Paging................................ Operational 39.1 1993 1.5 2,535
. BUCHAREST, ROMANIA
Wireless Cable Television............. Operational 99.0 1996 0.9 786
Paging................................ Operational 54.1 1993 23.0(5) 2,324
Trunked Mobile Radio.................. Operational 54.1 1995 2.1 448
. KISHINEV, MOLDOVA
Wireless Cable Television............. Operational 50.0 1994 0.3 1,346
. ALMATY, KAZAKHSTAN
Wireless Cable Television............. Operational 50.0 1995 0.8 1,016
Paging................................ Operational 50.0 1995 17.4(5) 245
. ST. PETERSBURG, RUSSIA
Wireless Cable Television............. Under contract 45.0 -- 9.0 --
AM Radio.............................. Operational 50.0 1995(8) 0.9 --
FM Radio.............................. Operational 50.0 1995(8) 0.9 429
Paging................................ Operational 40.0 1995(9) 5.5 --
. NIZHNY NOVGOROD, RUSSIA
Paging................................ Operational 45.0 1994 2.8 52
. MINSK, REPUBLIC OF BELARUS
Wireless Cable Television............. Under construction 50.0 -- 0.3 518
. BUDAPEST, SIOFOK, AND KHEBEGY,
HUNGARY
AM Radio.............................. Operational 100.0 1994(10) 3.5(11) 948(13)
FM Radio (2 Frequencies).............. Operational 100.0 1994(10)
. SOCHI, RUSSIA
FM Radio.............................. Operational 51.0 1995 0.3 85
. VILNIUS, LITHUANIA
Wireless Cable Television............. Under construction 55.0 -- 0.2 --
. BATUMI, GEORGIA
Paging................................ Licensed, under 35.0 -- 0.5 --
construction
<CAPTION>
AMOUNT
CONTRIBUTED
TO PROJECT
(IN THOUSANDS)(2)
-----------------
<S> <C>
.
$ 1,093
823
.
779
2,556
250
.
819
250
140
--
.
580(12)
--
--
.
396
.
682
490
--
.
400
.
222
2
.
--
--
133
527
.
330
.
400
.
8,107(13)
.
185
.
81
.
-- (14)
</TABLE>
- ------------
(1) Covered population is provided for paging, telephony and trunk 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 the entire Republic of
Georgia and the rest of the world and is the only Intelsat designated
representative in Georgia to provide such services.
(5) Indicates population the Communications Group intends to cover in the
foreseeable future. In each of the foregoing markets, the Communications
Group 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) Purchased equity of existing operational company in 1995; the company was
formed in 1993.
(9) Purchased equity of existing company in 1995; the company was formed in
1994.
(10) Purchased equity of existing operational company in 1994; the company was
formed in 1989.
(11) Total household coverage of AM and FM radio.
(12) Reflects amounts loaned and contributed to all projects in Tashkent,
Uzbekistan.
(13) Reflects amounts loaned and contributed to all projects in Hungary.
(14) The Communications Group contributed $63,450 to the equity of this project
after December 31, 1995.
(15) Does not give effect to the consummation on May 17, 1996 of an acquisition
of 56% of a United Kingdom company holding interests in 9 companies
providing trunked mobile radio services in certain cities in Portugal,
Spain, Belgium and Germany or the purchase of 80% of a company operating a
radio station in Prague, Czech Republic in which the Communications Group
has not yet competed the acquisition of its ownership interest.
62
<PAGE>
The markets which MIG targets for its services typically (i) have large
populations; (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. MIG 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 MIG anticipates will often become premium service customers.
MIG believes that the vast majority of the political, social 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. MIG believes that its systems can provide a solution
to these problems because: (i) MIG'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) MIG'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) MIG'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, which is often overloaded or unavailable. MIG 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 MIG and its operations in these
markets.
In most cities where MIG provides or expects to provide service, a
substantial percentage of the population (approximately 90% in Moscow) lives in
large apartment buildings. This characteristic 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. MIG currently is licensed to provide
wireless cable television to markets which have in the aggregate approximately
9.0 million households, and paging services in markets with a population
totaling approximately 79.5 million. MIG believes that the cost of constructing
a coaxial cable television system covering the same number of households as are
covered by each of MIG's systems would be significantly more expensive than the
costs incurred by MIG in constructing a wireless system.
MIG has obtained political risk insurance from OPIC for its operating cable
television systems in Moscow, Riga, Tbilisi and Tashkent and for its
international toll calling joint venture which operates in the Republic of
Georgia 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 United States investors with insurance against expropriation,
political violence and loss of business income in more than 130 developing
nations. Subject to the exclusions provided for in the contract of insurance,
OPIC insurance provides coverage up to certain policy limits for loss of
investment in a joint venture due to expropriation by foreign governments or
political violence. In some ventures, the policy also covers loss of business
income resulting from political violence. Risks not related to expropriation or
political violence are not covered by OPIC insurance. OPIC insurance does not
cover loss of investment related to non-payment of principal and/or interest on
any loan extended to any joint venture and/or joint venture project unless such
non-payment was caused by an expropriation by a foreign government or political
violence. The Communications Group currently has outstanding a significant
amount of loans to its joint ventures. MIG 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) $3,000,000 with respect to its
Tbilisi cable television system; (iv) $2,000,000 with respect to its Tashkent
cable television system and (v) $2,858,000 with respect to its international
toll calling joint venture in the Republic of Georgia. MIG 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. MIG is also currently
63
<PAGE>
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 MIG from OPIC will
adequately compensate MIG for any losses it may incur or that MIG will elect to
obtain or be able to obtain OPIC insurance for any of its additional systems or
renew existing policies. See "RISK FACTORS - Risk to the Communications Group
Inherent in Foreign Investment."
Joint Ventures
After deciding to obtain an interest in a particular communication business,
MIG generally enters into discussions with the appropriate Ministry of
Communications or local parties which have interests in communications
properties in a particular market. If the negotiations are successful, a joint
venture agreement is entered into and is registered, and the right to use
frequency licenses is contributed to the joint venture by MIG's local partner or
is allocated by the appropriate governmental authority to the joint venture. In
the case of MIG's radio station operations, MIG 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, MIG 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 MIG's other markets limiting foreign
ownership of broadcasting licenses and MIG 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. See "RISK FACTORS--Risks to the Communications
Group Inherent in Foreign Investment."
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 MIG and its local partner. In other cases, a
differing number of directors or managers of the joint venture may be selected
by MIG on the basis of the percentage ownership interest of MIG in the joint
venture.
In many cases, the credit agreement pursuant to which MIG loans funds to a
joint venture provides MIG 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 MIG's
percentage ownership interest in the joint venture or under the terms of the
joint venture's governing instruments.
MIG'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. Because the joint ventures are limited liability companies, the
joint ventures' equityholders have limited liability to the extent of their
investment. Under the joint venture agreements, each of MIG 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, MIG has
established or plans to establish an agreement with the joint venture whereby,
in addition to cash contributions by MIG, each of MIG and the local partner
makes in-kind contributions (usually communications equipment in the case of MIG
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 MIG
pursuant to which MIG loans the venture certain funds. Typically, such credit
agreements provide for interest payments to MIG at MIG'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 MIG and the local partner. As of March 31, 1996, MIG had
obligations to fund (i) an additional $0.3 million to the equity of its joint
ventures (or to complete the payment of shares purchased by MIG) and (ii) up to
an additional $12.3 million to fund the various credit lines MIG has extended to
its joint ventures. MIG's funding commitments under such credit lines are
contingent upon
64
<PAGE>
its approval of the joint ventures' business plans. To the extent that MIG does
not approve a joint venture's business plan, MIG is not required to provide
funds to such joint venture under the credit line. After the full repayment of
the loan owed by the joint venture to MIG, the distributions (including profits)
from the joint venture to MIG and the local partner are made on a pro rata basis
in accordance with their respective ownership interests.
Services to and Payments from Joint Ventures
In addition to loaning funds to the joint ventures, MIG often provides
certain services to many of the joint ventures. MIG currently charges certain
ventures for services provided by it. MIG often does not require start-up joint
ventures to reimburse it for certain services that MIG provides such as
engineering advice, assistance in locating programming, and assistance in
ordering equipment. As each joint venture grows, MIG institutes various payment
mechanisms to have the joint venture reimburse it for such services where they
are provided. The failure of MIG to obtain reimbursement of such services will
not have a material impact on MIG.
Under existing legislation in certain of MIG's markets, distributions from a
joint venture to its partners will be subject to taxation. The laws in MIG'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 MIG'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 MIG and its operations.
Marketing
MIG 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, 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 MIG 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 MIG'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 multiple channel 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.
65
<PAGE>
Wireless Cable Television Programming. MIG currently offers English, French,
German and Russian language programming, with plans to expand into other
languages as demand increases. Some of MIG's channels are dubbed and others are
subtitled into the local language. Generally, MIG's "basic" service provides
programming of local off-air channels and an additional five to six channels
with a varied mixture of European or American sports, music, international news
or general entertainment. MIG'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,
which feature such actors as Robert De Niro, Candice Bergen, Charles Bronson and
Sean Connery.
MIG'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 a movie channel.
MIG 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
MIG uses automatically deduct the purchase of a particular service from the
amount paid in advance.
Paging. MIG'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.
MIG 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 MIG's AM and FM markets is designed
to appeal to the particular interests of a specific demographic group in such
markets. Although MIG'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, MIG believes it will be able
to attract advertisers seeking to reach these listeners. MIG believes that the
technical programming and marketing expertise that it provides to its joint
ventures enhances the performance of the joint ventures' radio stations.
International Toll Calling. MIG 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. MIG's Romanian joint venture provides trunked mobile
radio services in certain areas in Romania. MIG also recently purchased a 56%
interest in Protocall Ventures, Ltd., a U.K. company with ownership interests in
trunked mobile radio systems operating in Portugal, Spain, Belgium and Germany.
Trunked mobile radio systems are primarily designed to provide mobile voice
communications among members of user groups and interconnection to the public
switched telephone
66
<PAGE>
network. Trunked mobile radio systems are commonly used by taxi companies,
construction teams, security services and other groups with need for significant
internal communications.
Wireless Telephony. MIG is currently exploring a number of investment
opportunities in wireless telephony 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 and has installed test systems in certain of
these markets. MIG believes that its proposed wireless telephony systems are a
time and cost effective means of improving the communications infrastructure in
Eastern Europe, the former Soviet Republics and emerging markets in the Pacific
Rim. 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.
MIG'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 MIG's current cable television competitors in its markets are
undercapitalized, small, local companies that are providing limited programming
to their subscribers. MIG 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 MIG's in its markets. MIG 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 MIG. MIG currently competes in all of its markets with over-the-air
broadcast television stations. MIG is also aware that equipment is being
manufactured for the purpose of unlawfully receiving and decoding encrypted
signals transmitted by wireless cable television ventures. MIG 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 MIG are videotape cassettes. MIG's
wireless cable also competes with individual satellite dishes.
Paging
In some of MIG's paging markets, MIG has experienced and can expect to
continue to experience competition from existing small, local, paging operators
who have limited areas of coverage and from, in some cases, paging operators
established by Western European and United States investors with substantial
experience in paging. MIG 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 MIG's paging
operations. MIG 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 MIG'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 MIG'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. MIG 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 MIG's in its markets. In
certain markets, cellular telephone operators exist and represent a competitive
alternative to MIG's proposed wireless telephony and cellular systems. 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
67
<PAGE>
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 switch 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 lower cost.
FM and AM Radio
In each of MIG'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, MIG expects to face
significantly increased competition for listeners and advertising revenues from
parties with programming, engineering and marketing expertise comparable to
MIG's. Other media businesses, including broadcast television, cable television,
newspapers, magazines and billboard advertising also compete with MIG's radio
stations for advertising revenues.
ENVIRONMENTAL MATTERS
Certain of the Company's former operations have used or generated, and
Snapper continues to use or generate, substances or wastes that are regulated or
may be deemed hazardous under applicable Environmental Laws. From time to time,
the Company's operations have resulted or may result in certain noncompliance
with applicable requirements under Environmental Laws. See "Risk Factors--
Environmental Matters." The Company also may incur liability pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended ("CERCLA" or "Superfund"), for contamination at or from sites to
which it may have sent hazardous wastes. Courts have interpreted CERCLA to
impose strict, joint and several liability upon all persons liable for response
costs at a hazardous waste disposal site if the harm at the site is indivisible.
This generally means that each responsible party could be held liable for the
entire costs of the necessary response actions at a Superfund site. As a
practical matter, however, at sites where there are multiple responsible parties
for a cleanup, the costs of cleanup typically are allocated, according to a
volumetric or other standard, among the parties. CERCLA also provides that
responsible parties generally may seek contribution for the costs of cleaning up
a site from other responsible parties. Thus, if one party is
required to clean up an entire site, that party can seek reimbursement or
recovery of such costs from other responsible parties.
In that regard, certain predecessors or former subsidiaries of the Company
have been identified as potentially responsible parties ("PRPs") pursuant to
CERCLA at seven sites to which such entities, among others, sent hazardous
wastes. In divesting one such subsidiary, the Company provided indemnification
to the purchaser pursuant to which the Company has undertaken the defense or
payment of cleanup costs, as appropriate, for five such Superfund matters. The
Company believes that its obligations with respect to three of the seven sites
have been completed. Furthermore, the costs incurred by the Company with respect
to all such matters have not been significant, and the Company has established
reserves (which are currently at $1.3 million), that, together with certain
anticipated offsets from the purchaser for other matters relating to the
purchase, it believes will be sufficient to cover the remaining, as well as any
future, such environmental obligations. As a result, the Company does not
believe that such matters will have a material adverse effect upon the Company's
results of operations or financial condition. However, because neither the final
total cleanup costs at the four remaining Superfund sites have been ascertained
nor the former subsidiary's final proportionate share determined, there can be
no assurance that such matters, or any similar liabilities that arise in the
future, will not ultimately have such an effect.
In addition, a wholly-owned subsidiary of the Company is undertaking a
cleanup at a contaminated site, which was formerly used for the storage of
manufacturing wastes. In anticipation of site cleanup, the Company established
reserves of $1.8 million for the cleanup of this site. In early 1996, the site
was targeted by the State of Alabama Department of Environmental Management
("ADEM") for cleanup.
68
<PAGE>
Since that time, the Company has undertaken site investigations, submitted a
remediation plan to ADEM, and has engaged in ongoing discussions with ADEM for
the cleanup and closure of the site. The Company believes that it has reached
agreement with ADEM regarding remediation at the site. Based on cost estimates
for the anticipated remediation, the Company believes that the previously-
established reserves for this site will be adequate to cover the costs of
remediating the property. However, because the agreement between the Company and
ADEM and the remediation plan for the site are not yet final, and because it is
possible that the remediation costs could be higher than estimated, there can be
no assurance that the reserves in fact will be adequate to cover the remediation
at the site. Nonetheless, the Company does not believe that the final cleanup
costs for the site will have a material adverse effect upon the Company's
results of operations or financial condition.
69
<PAGE>
MANAGEMENT
The executive officers of the Company and certain executive officers of the
Company's subsidiaries and their respective ages and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE OFFICE
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
John W. Kluge............................. 81 Chairman
Stuart Subotnick.......................... 54 Vice Chairman
John D. Phillips.......................... 53 President and Chief Executive Officer
Silvia Kessel............................. 45 Senior Vice President, Chief Financial
Officer and Treasurer
Arnold L. Wadler.......................... 52 Senior Vice President, General Counsel and
Secretary
W. Tod Chmar.............................. 42 Senior Vice President
Robert A. Maresca......................... 61 Senior Vice President (Chief Accounting
Officer)
Communications Group:
Carl C. Brazell........................... 55 Co-President of MITI
Richard J. Sherwin........................ 52 Co-President of MITI
Entertainment Group:
Samuel Goldwyn, Jr........................ 69 Chairman of Goldwyn
Meyer Gottlieb............................ 56 President and C.O.O. of Goldwyn
Bradley R. Krevoy......................... 39 Co-President of MPCA
Steven Stabler............................ 41 Co-President of MPCA
Leonard White............................. 56 President and Chief Executive Officer of
Orion
</TABLE>
The following is a biographical summary of the experience of the executive
officers of the Company and certain executive officers of the Company's
subsidiaries.
MR. KLUGE has served as Chairman of the Board of Directors of MIG 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 Company 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 MIG's Executive Committee.
MR. SUBOTNICK has served as Vice Chairman of the Board of Directors of MIG
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 Company 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 MIG.
MR. PHILLIPS has served as President and Chief Executive Officer of MIG
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 and a Director of
70
<PAGE>
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 MIG.
MR. WADLER has served as Senior Vice President, General Counsel and
Secretary of MIG 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 Company for over five years. Mr. Wadler is Chairman of the
Nominating Committee of MIG.
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 MIG since November 1,
1995. Mr. Maresca has served as a Senior Vice President--Finance of Metromedia
Company for the prior five years.
MR. BRAZELL has served as Co-President and Director of MITI and a
predecessor company since 1993. Prior to that, Mr. Brazell served as President
and Chief Executive Officer of Command Communications, Inc., an owner of radio
properties, and prior to that served in various capacities in the radio
broadcasting industry, including serving as President of the radio division of
Metromedia, Inc., the predecessor-in-interest to Metromedia Company.
MR. SHERWIN has served as Co-President and Director of MITI and a
predecessor company since October 1990. Prior to that, Mr. Sherwin served as the
Chief Operating Officer of Graphic Scanning Corp., a paging and wireless
telecommunications company.
MR. GOLDWYN founded Goldwyn in 1979 and has been its Chairman of the Board
of Directors and Chief Executive Officer since that time. Mr. Goldwyn has been
involved in the filmed entertainment business his entire adult life and has
produced a number of feature films. Mr. Goldwyn is also a prize-winning
documentary producer, an Emmy Award-winning television producer, a writer for
theatrical motion pictures and television, and a director. Mr. Goldwyn has
served as a member of the Board of Governors of the Academy of Motion Picture
Arts and Sciences.
MR. GOTTLIEB, Chief Operating Officer and a Director of Goldwyn since 1979
and President of Goldwyn since 1987 assisted Mr. Goldwyn in creating the
business plan which resulted in the founding of Goldwyn. From 1975 to 1979, Mr.
Gottlieb was associated with Mr. Goldwyn in various executive positions in the
motion picture production and distribution organization that was the predecessor
to Goldwyn. Mr. Gottlieb is a member of the Academy of Motion Picture Arts and
Sciences.
MR. KREVOY is the Co-Chairman of Motion Picture Corporation of America. From
the inception of Motion Picture Corporation of America in 1985 until the
present, Mr. Krevoy has presided over all aspects of MPCA's film production and
corporate management, sharing duties with Steven Stabler. Mr. Krevoy's recent
production credits include Dumb and Dumber, If Lucy Fell, Bio-dome and
Threesome. Prior to MPCA, Mr. Krevoy served as Executive Vice President of
Concorde Pictures, and President of Concorde Pictures International, overseeing
the completion of more than 200 motion pictures. Mr. Krevoy is a member of the
executive branch of the Academy of Motion Picture Arts and Sciences.
MR. STABLER is the Co-Chairman of Motion Picture Corporation of America.
From the inception of Motion Picture Corporation of America in 1985 until the
present, Mr. Stabler has presided over all aspects of MPCA's film production and
corporate management, sharing duties with Bradley R. Krevoy, Mr. Stabler's
production credits include Dumb and Dumber, If Lucy Fell, Bio-dome and
Threesome. Prior to that, Mr. Stabler spent two years working in both the News
and Network Operations Departments of ABC Television. Mr. Stabler is currently a
member of the Directors' Guild of America and the Academy of Motion Picture Arts
and Sciences.
MR. WHITE has served as President and Chief Executive Officer of Orion from
March 1992 through November 1, 1995. He served as interim president and Chief
Executive Officer of Orion from March 1992 until November 1992. Prior to that,
Mr. White was the Chairman of the Board and the Chief Executive Officer of Orion
Home Entertainment Corporation, a subsidiary of Orion ("OHEC"), from March 1991
until March 1992 and President and Chief Operating Officer of Orion Home Video
Division of OHEC from March 1987 until March 1991.
71
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the pro forma beneficial ownership of Common
Stock assuming (i) consummation of the Offering (assuming no exercise of the
Underwriters' over-allotment option), (ii) consummation of the Goldwyn
Acquisition (assuming an Average Closing Price of $13.12), (iii) the exercise of
the Goldwyn Put and (iv) consummation of the MPCA Acquisition, with respect to
(i) each director of the Company, (ii) certain executive officers of the Company
and the Company's subsidiaries and (iii) all of such persons as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK PERCENTAGE
BENEFICIALLY OF COMMON
NAME OF BENEFICIAL OWNER OWNED(1) STOCK
- ------------------------------------------------------- ------------------- ---------
<S> <C> <C>
Carl C. Brazell........................................ 96,303(9) *
W. Tod Chmar........................................... 753,042(2)(6)(7) 1.2%
Samuel Goldwyn Jr...................................... 2,281,364(11) 3.6
Meyer Gottlieb......................................... 117,045(12) *
John P. Imlay, Jr...................................... 20,000(9) *
Clark A. Johnson....................................... 28,000(2)(9) *
Bradley R. Krevoy...................................... 1,079,460(13) 1.7
John W. Kluge.......................................... 15,030,903(3)(9) 23.7
Silvia Kessel.......................................... 53,085(9) *
John D. Phillips....................................... 1,010,000(4)(9) 1.6
Carl E. Sanders........................................ 32,097(2)(8)(9) *
Richard J. Sherwin..................................... 912,605(10) 1.4
Steven Stabler......................................... 745,783(14) 1.2
Stuart Subotnick....................................... 12,656,680(5)(9) 20.0
Arnold L. Wadler....................................... 65,416(9) *
Leonard White.......................................... 50,000(9) *
All Directors and Officers as a group (16 persons)..... 21,817,328 33.8%
</TABLE>
- ------------
<TABLE>
<C> <S>
* 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 Company and Met
Telcell, Inc. ("Met Telcell"), a corporation owned and controlled by Messrs. Kluge and
Subotnick, 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 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 Company and Met
Telcell and 231,225 shares owned directly by Mr. Subotnick.
(6) Includes shares allocated to the named officer's account under MIG's Employee Stock
Purchase Plan as of the date hereof.
</TABLE>
(Footnotes continued on following page)
72
<PAGE>
(Footnotes continued from preceding page)
<TABLE>
<C> <S>
(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 $41 5/8 per share.
(9) Includes options issued under the Metromedia International Group, Inc. 1996 Incentive
Stock Plan (the "MIG 1996 Stock Plan") exercisable within 60 days of the date hereof.
The MIG 1996 Stock Plan has not been approved by MIG's stockholders and the options
issued thereunder are subject to forfeiture in the event the MIG 1996 Stock Plan is not
approved by stockholders.
(10) Includes options to purchase 657,916 shares of Common Stock exercisable within 60 days
of the date hereof.
(11) Represents 5,986,261 shares of Goldwyn's common stock, each share of which is
exchangeable for approximately .3811 shares of Common Stock pursuant to the Goldwyn
Merger Agreement (assuming an Average Closing Price of $13.12).
(12) Represents 307,125 (including 35,875 shares issuable upon exercise of options
exercisable within 60 days of the date hereof) shares of Goldwyn's common stock, each
share of which is exchangeable for approximately .3811 shares of Common Stock pursuant
to the Goldwyn Merger Agreement (assuming an Average Closing Price of $13.12).
(13) Represents 322,858 shares of MPCA's common stock exchangeable into Common Stock pursuant
to the MPCA Merger Agreement.
(14) Represents 223,058 shares of MPCA's common stock exchangeable into Common Stock pursuant
to the MPCA Merger Agreement.
</TABLE>
73
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following table summarizes the indebtedness of the Company and its
consolidated subsidiaries (assuming the Goldwyn Acquisition, the Offering and
the Entertainment Group Credit Facility occurred as of March 31, 1996):
<TABLE>
<CAPTION>
AT MARCH 31, 1996
-----------------
(IN THOUSANDS)
<S> <C>
Entertainment Group Credit Facility....................... $ 200,000(1)
6 1/2% Convertible Debentures due 2002.................... 57,689
9 7/8% Senior Debentures due 1997......................... 15,172
9 1/2% Subordinated Debentures due 1998................... 59,358
10% Subordinated Debentures due 1999...................... 6,075
Other Long-Term Debt...................................... 15,602
-----------------
Total Debt............................................ $ 353,896
-----------------
-----------------
</TABLE>
- ------------
(1) Does not reflect the consummation of the MPCA Acquisition including an
additional $10.0 million of indebtedness that would have been incurred in
connection therewith at March 31, 1996 (which amount is expected to be $15.0
million at the consummation of the Offering).
Entertainment Group Credit Facility
The Entertainment Group has entered into a commitment letter with Chemical
Bank ("Chemical") which provides that Chemical is committed, subject to the
satisfaction of certain conditions, to provide the $300 million of financing to
the Entertainment Group described below. Chemical has committed to fund the
entire amount of the facility, but a portion of the commitment may be syndicated
to other financial institutions either before or after the Goldwyn Effective
Time. Pursuant to the commitment letter with Chemical, at the Goldwyn Effective
Time, the Entertainment Group, Chemical and the other bank parties thereto will
enter into the Entertainment Group Credit Facility which will provide for an
aggregate of $300 million of financing consisting of a secured term loan of $200
million (the "Term Loan") and a revolving credit facility of $100 million,
including a $10 million letter of credit subfacility (the "Revolving Credit
Facility"). At the Goldwyn Effective Time, approximately $85.0 million will be
available under the Revolving Credit Facility. The Term Loan will be used solely
to refinance up to $200.0 million of Orion's, Goldwyn's and MPCA's existing
indebtedness and the Revolving Credit Facility will be used to finance the
Entertainment Group's production, acquisition and distribution of motion
pictures, for its domestic theatrical exhibition business and for general
working capital purposes.
Borrowings under the Entertainment Group Credit Facility which do not exceed
the "borrowing base" described below will bear interest at the Entertainment
Group's option at a rate of LIBOR plus 2 1/2% or Chemical's alternative base
rate plus 1 1/2%, and borrowings in excess of the borrowing base, which have the
benefit of the guarantee referred to below, will bear interest at the
Entertainment Group's option at a rate of LIBOR plus 1% or Chemical's
alternative base rate. The Term Loan will have a final maturity date of June 30,
2001 and will amortize in 20 equal quarterly installments of $7.5 million
commencing on September 30, 1996, with the remaining principal amount due at the
final maturity date. The amount of the Term Loan at the Goldwyn Effective Time
will be the amount, up to a maximum of $200.0 million, based upon a "borrowing
base" for the Entertainment Group calculated using a percentage of its eligible
outstanding accounts receivable (including cash flow from the Entertainment
Group's domestic theatrical exhibition business) and a credit for the
Entertainment Group's film and television library. Such borrowing base would
currently provide for $200 million of availability under the Term Loan. In
addition to the amortization schedule described above, the Entertainment Group
Credit Facility will provide that in the event that the amount outstanding under
the Term Loan exceeds the borrowing base, the Entertainment Group must pay down
the excess outstandings. The Term Loan and the Revolving Credit Facility will be
secured by a first priority lien on all of the stock of Orion and its
subsidiaries and on substantially all of the Entertainment Group's
74
<PAGE>
assets, including its accounts receivable and film and television library.
Amounts outstanding under the Revolving Credit Facility will also be guaranteed
jointly and severally by Metromedia Company and by John W. Kluge. To the extent
the borrowing base exceeds the amount outstanding under the Term Loan, such
excess will be used to support the Revolving Credit Facility so as to reduce the
exposure of the guarantors under such facility.
The Entertainment Group Credit Facility will contain customary covenants
including maintenance of corporate existence, compliance with ERISA, maintenance
of properties, delivery of certain monthly, quarterly and annual financial
information, delivery of budgets and other information regarding new motion
picture productions, limitations on the issuance of additional indebtedness and
guarantees, limitations on the creation of new liens, limitations on the
development costs and budgets for such films, limitations on the aggregate
amount of unrecouped print and advertising costs the Entertainment Group may
incur, limitations on the amount of the Entertainment Group's leases, capital
and overhead expenses (including specific limitations on the Entertainment
Group's theatrical exhibition subsidiary's capital expenditures), prohibitions
on the declaration of dividends or distributions by the Entertainment Group
(other than up to $15 million of subordinated loans made by the Company to the
Entertainment Group which may be repaid to the Company), limitations on the
merger or consolidation of the Entertainment Group or the sale by the
Entertainment Group of any substantial portion of its assets or stock and
restrictions on the Entertainment Group's line of business, other than
activities relating to the production, distribution and exhibition of
entertainment product. The Entertainment Group Credit Facility will also contain
financial covenants, including requiring maintenance by the Entertainment Group
of the ratio of the Entertainment Group's Free Cash Flow (as defined in the
Entertainment Group Credit Facility) to the Entertainment Group's cumulative
investment in film product above certain specified levels at the end of each
fiscal quarter, and requiring that the Entertainment Group's cumulative
investment in film product not exceed Free Cash Flow by more than certain
specified levels. In addition, the Entertainment Group Credit Facility will
contain a minimum ratio of (a)(i) Theater Group EBITDA (as defined in the
Entertainment Group Credit Facility) plus (ii) Theater Group Occupancy Charges
(as defined in the Entertainment Group Credit Facility) to (b) Theater Group
Occupancy Charges for each rolling four quarter period.
The Revolving Credit Facility will contain 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. A "change of
control" is defined to mean (i) a change in ownership of Orion which results in
it not being wholly owned by MIG or (ii)(a) if Metromedia Company and its
affiliates do not control at least 20% of the outstanding Common Stock or (b) if
a third party controls more Common Stock than Metromedia Company and its
affiliates or is entitled to designate a majority of the members of MIG's Board
of Directors. The Term Loan portion of the Entertainment Group Credit Facility
will also contain a number of customary events of default including non-payment
of principal and interest and the occurrence of a "change of management" (as
defined below), 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 its material subsidiaries.
A "change of management" is defined to mean a termination of employment of
Existing Management (as defined in the Entertainment Group Credit Facility) and
the objection to such person's replacement by the required lenders within a
designated period.
The commitment letter with Chemical for the Entertainment Group Credit
Facility provides for a number of customary conditions precedent to the making
of loans to the Entertainment Group, including the receipt of certain legal
opinions and certificates, absence of any material adverse change in the
Entertainment Group's business and satisfaction by Chemical of the results of
its investigation of the Entertainment Group to confirm certain assumptions.
75
<PAGE>
MIG's 6 1/2% Convertible Debentures
MIG's $75 million face value 6 1/2% Convertible Debentures are due in 2002.
Such debentures are convertible into the Company's Common Stock at a conversion
price of $41 5/8 per share at the holder's option and do not require annual
principal payments. At the Company's option, the 6 1/2% Convertible Debentures
may be redeemed at any time at a price equal to 100% of the principal amount
plus accrued interest to such date.
MIG's 9 7/8% Senior Subordinated Debentures
The 9 7/8% Senior Subordinated Debentures are due in 1997 and 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.
MIG's 9 1/2% Subordinated Debentures
MIG 9 1/2% Subordinated Debentures are due in 1998. These debentures do not
require annual principal payments.
MIG's 10% Subordinated Debentures
The 10% Subordinated Debentures are due in 1999 and are redeemable at the
option of the Company, in whole or in part, at 100% of 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 ACQUISITIONS
THE SAMUEL GOLDWYN COMPANY
On January 31, 1996, the Company and Goldwyn entered into the Goldwyn Merger
Agreement providing for the Goldwyn Acquisition, pursuant to which SGC Mergerco,
a newly formed, wholly-owned subsidiary of the Company will merge with and into
Goldwyn. The acquisition of Goldwyn will expand the Entertainment Group by
adding a valuable library of over 850 film and television titles, including
numerous Hollywood classics and more recent critically acclaimed films, and what
management believes is the leading specialized theatre circuit with 140 screens
in the United States.
The Goldwyn Merger Agreement provides that upon consummation of the Goldwyn
Acquisition, Goldwyn Stockholders will receive $5.00 worth of Common Stock for
each share of Goldwyn common stock , provided that the Average Closing Price
ending on the day which is five days prior to the Meeting of Goldwyn
Stockholders held to vote upon the Goldwyn Acquisition is between $12.50 and
$16.50. If the Average Closing Price 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 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. Assuming
the Goldwyn Acquisition occurred on May 28, 1996 and an Average Closing Price of
$13.12, the Company would have issued approximately .3811 shares of Common Stock
for each share of Goldwyn Common Stock and would have issued an aggregate of
3,568,902 shares of Common Stock to the Goldwyn Stockholders.
Consummation of the Goldwyn Acquisition is subject to various conditions,
including: (i) the receipt of approval of the Goldwyn Stockholders; (ii) the
receipt of certain opinions of counsel with respect to certain legal matters and
as to the qualification of the Goldwyn Acquisition 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
76
<PAGE>
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 Goldwyn Family Trust, of which Samuel Goldwyn, Jr., Chairman and
Chief Executive Officer of Goldwyn, is trustee, and the surviving corporation of
the Goldwyn Acquisition shall have entered into a distribution agreement
pursuant to which such corporation will acquire distribution rights to a library
of 75 classic films held by the Goldwyn Family Trust for a term which extends
until the year 2020; (vi) that Samuel Goldwyn, Jr. and Meyer Gottlieb, President
of Goldwyn, shall each have entered into employment agreements with the
surviving corporation of the Goldwyn Acquisition on terms satisfactory to the
parties; (vii) that Goldwyn's bank and production indebtedness shall have been
refinanced or repaid in full or extended beyond the effective time of the
Goldwyn Acquisition; (viii) that Orion shall have provided to Goldwyn up to $5.5
million of interim funding as an advance for certain distribution rights in six
feature films; (ix) that a Form S-3 Registration Statement registering for
resale pursuant to Rule 415 under the Securities Act the shares of Common Stock
to be received in the Goldwyn Acquisition by Samuel Goldwyn, Jr. and the Goldwyn
Family Trust be declared effective by the Commission prior to the Effective
Time, (x) that a Registration Statement on Form S-8 permitting resale of the
shares of Common Stock to be issued to MIG Stockholders, who are former Goldwyn
Stockholders who held options to acquire shares of Goldwyn Common Stock which,
by virtue of the Goldwyn Acquisition, were converted into options to acquire
shares of Common Stock upon the exercise of such options, be declared effective
by the Commission prior to the Effective Time; (xi) that the surviving
corporation of the Goldwyn Acquisition and Samuel Goldwyn, Jr. 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; (xii) that a
certain Option Agreement among Goldwyn, Samuel Goldwyn, Jr. and the Goldwyn
Family Trust shall be amended and restated on terms satisfactory to the Company;
and (xiii) that the shares of Common Stock to be issued in the Goldwyn
Acquisition 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. With
respect to the condition set forth in clause (vii) above, the proceeds from the
Entertainment Group Credit Facility will be used to satisfy such condition. See
"Use of Proceeds."
The Goldwyn Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval thereof by the Goldwyn
Stockholders: (i) by the mutual written consent of MIG and Goldwyn, (ii)
unilaterally, by the Board of Directors of MIG or Goldwyn if the Goldwyn
Acquisition 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,
(iv) by either MIG or Goldwyn if the Goldwyn Stockholders fail to approve and
adopt, by the requisite vote, the Goldwyn Merger Agreement, or (v) by the Board
of Directors of MIG 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 Acquisition and such order, decree, ruling or other action shall
have become final and non-appealable. The Goldwyn Merger Agreement may also be
terminated by MIG or Goldwyn if the Goldwyn Board of Directors recommends a
competing offer or otherwise modifies or changes, in a manner adverse to MIG,
its recommendation that its stockholders approve the Goldwyn Merger Agreement.
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 MIG a termination fee of $3 million and reimburse
MIG 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 Goldwyn Family Trust,
beneficial owner of approximately 60.2% of the outstanding common stock of
Goldwyn, has agreed to vote its shares in favor of the Goldwyn Acquisition.
Accordingly, the affirmative vote of the Goldwyn Family Trust in favor of the
Goldwyn Acquisition in accordance with such voting agreement will be sufficient
to approve the Goldwyn Merger Agreement without any action on the part of any
other Goldwyn Stockholders. It is contemplated that
77
<PAGE>
the Goldwyn Acquisition, the Offering and the Entertainment Group Credit
Facility will be consummated simultaneously.
On May 20, 1996, a purported class action lawsuit against Goldwyn and its
directors was filed in the Superior Court of the State of California for the
County of Los Angeles Michael Shores v. Samuel Goldwyn Company, et. al., BC
150360. In the complaint, plaintiff alleged that Goldwyn's Board of Directors
breached its fiduciary duties to Goldwyn Stockholders by agreeing to sell
Goldwyn to MIG at no premium yet providing Mr. Goldwyn, the Goldwyn Family Trust
and Mr. Gottlieb with benefits, and sought to enjoin consummation of the Goldwyn
Merger. Based upon a review of the complaints, management of the Company and
Goldwyn do not believe that this litigation will have a material adverse effect
on the Goldwyn Acquisition. The time to answer the complaint has not yet
expired. Goldwyn intends to vigorously defend such action.
MOTION PICTURE CORPORATION OF AMERICA
On May 17, 1996, the Company and MPCA entered into the MPCA Merger Agreement
providing for the MPCA Acquisition, pursuant to which a newly-formed,
wholly-owned subsidiary of the Company will merge with and into 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 Dumb and Dumber, which cost
a reported $16 million to produce and grossed a reported total of approximately
$250 million and Threesome, which cost a reported $3.5 million to produce and
grossed a reported total of $60 million. The acquisition price for the MPCA
Acquisition is approximately $27.5 million of Common Stock (approximately
2,135,922 shares assuming a closing price of $12.875 as reported on the AMEX on
May 28, 1996), up to $5.0 million of cash in repayment of loans from MPCA's
stockholders and the assumption of certain indebtedness (approximately $10.0
million at March 31, 1996). Messrs. Krevoy and Stabler will be employed by MIG's
Entertainment Group following the MPCA Acquisition. The shares of Common Stock
issued to the stockholders of MPCA pursuant to the MPCA Merger Agreement have
not been registered for resale under the Securities Act. It is anticipated,
however, that MIG and MPCA will enter into a registration rights agreement
pursuant to which MIG will grant to the stockholders of MPCA two demand
registration rights and unlimited "piggyback" registration rights (subject to
customary cutbacks). Pursuant to such registration rights agreement, MIG and the
stockholders of MPCA have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act. Consummation of the
MPCA Acquisition remains subject to certain conditions, including the expiration
or early termination of the waiting period under the Hart Scott Act, the
execution of certain ancillary agreements, the satisfaction by MIG of its due
diligence review of MPCA and other customary closing conditions.
78
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States Federal tax
consequences of the acquisition, ownership, and disposition of Common Stock by a
holder that, for United States Federal income tax purposes is not a "United
States person" (a "Non-United States Holder"). This discussion is based upon the
United States Federal tax law now in effect, which is subject to changes,
possibly retroactively. For purposes of this discussion, a "United States
person" means a citizen or resident of the United States, a corporation,
partnership, or other entity created or organized in the United States or under
the laws of the United States or any political subdivision thereof; or an estate
or trust whose income is includible to gross income for United States Federal
income tax purposes regardless of its source.
This discussion does not consider any specific facts or circumstances that
may apply to a particular Non-United States Holder. Prospective investors are
urged to consult their tax advisors regarding the United States Federal tax
consequences of acquiring, holding, and disposing of Common Stock, as well as
any tax consequences that may arise under the laws of any foreign, state, local,
or other taxing jurisdiction.
DIVIDENDS
Dividends paid to a Non-United States Holder will generally be subject to
withholding of United States Federal income tax at the rate of 30% unless the
dividend is effectively connected with the conduct of a trade or business within
the United States by the Non-United States Holder, in which case the dividend
will be subject to the United States Federal income tax on net income that
applies to United States persons generally (and, with respect to corporate
holders and under certain circumstances, the branch profits tax). Non-United
States Holders should consult any applicable income tax treaties, which may
provide for a lower rate of withholding or other rules different from those
described above. A Non-United States Holder may be required to satisfy certain
certification requirements in order to claim treaty benefits or otherwise claim
a reduction of or exemption from withholding under the foregoing rules.
GAIN ON DISPOSITION
A Non-United States Holder will generally not be subject to United States
Federal income tax on gain recognized on a sale or other disposition of Common
Stock unless (i) the gain is effectively connected with the conduct of a trade
or business within the United States by the Non-United States Holder, (ii) in
the case of a Non-United States Holder who is a nonresident alien individual and
holds the Common Stock as a capital asset, such holder is present in the United
States for 183 or more days in the taxable year and certain other requirements
are met, or (iii) the Company is or has been a United States real property
holding company for the United States Federal income tax purposes which the
Company does not believe it is or is likely to become. Gain that is effectively
connected with the conduct of a trade or business within the United States by
the Non-United States Holder will be subject to the United States Federal income
tax on net income that applies to United States persons generally (and, with
respect to corporate holders and under certain circumstances, the branch profits
tax) but will not be subject to withholding. Non-United States Holders should
consult applicable treaties, which may provide for different rules.
FEDERAL ESTATE TAXES
Common Stock owned or treated as owned by an individual who is not a citizen
or resident (as specially defined for United States Federal estate tax purposes)
of the United States at the date of death will be included in such individual's
estate for United States Federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.
79
<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under temporary United States Treasury regulations, United States
information reporting requirements and backup withholding tax will generally not
apply to dividends paid on the Common Stock to a Non-United States Holder at an
address outside the United States. Payments by a United States office of a
broker of the proceeds of a sale of the Common Stock is subject to both backup
withholding at a rate of 31% and information reporting unless the holder
certifies its Non-United States Holder status under penalties of perjury or
otherwise establishes an exemption. Information reporting requirement (but not
backup withholding) will also apply to payments of the proceeds of sales of the
Common Stock by foreign offices of United States brokers, or foreign brokers
with certain types of relationships to the United States, unless the broker has
documentary evidence in its records that the holder is a Non-United States
Holder and certain other conditions are met, or the holder otherwise establishes
an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-United
States Holder's United States Federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.
These information reporting and backup withholding rules are under review by
the United States Treasury and their application to the Common Stock could be
changed by future regulations. The Internal Revenue Service has recently issued
proposed Treasury Regulations concerning the withholding of tax and reporting
for certain amounts paid to non-resident individuals and foreign corporations.
The proposed Treasury Regulations, if adopted in their present form, would be
effective for payments made after December 31, 1997. Prospective investors
should consult their tax advisors concerning the potential adoption of such
proposed Treasury Regulations and the potential effect on their ownership of the
Common Stock.
80
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement,
a syndicate of U.S. underwriters named below (the "U.S. Underwriters"), for whom
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), Furman Selz LLC
("Furman Selz") and Schroder Wertheim & Co. Incorporated are acting as
representatives (the "U.S. Representatives"), and the international managers
named below (the "International Managers" and, together with the U.S.
Underwriters, the "Underwriters"), for whom DLJ, Furman Selz and J. Henry
Schroder & Co. Limited are acting as representatives (the "International
Representatives" and, together with the U.S. Representatives, the
"Representatives"), have severally agreed to purchase from the Company an
aggregate of 15,000,000 shares of Common Stock. The number of shares of Common
Stock that each Underwriter has agreed to purchase is set forth opposite its
name below:
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
- ------------------------------------------------------------------------------- ----------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation............................
Furman Selz LLC................................................................
Schroder Wertheim & Co. Incorporated...........................................
----------
U.S. Offering subtotal................................................... 12,000,000
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL MANAGERS
- -------------------------------------------------------------------------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation............................
Furman Selz LLC................................................................
J. Henry Schroder & Co. Limited................................................
----------
International Offering subtotal.......................................... 3,000,000
----------
Total.................................................................. 15,000,000
----------
----------
</TABLE>
81
<PAGE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions. The Underwriters are obligated to take and pay for
all the shares of Common Stock offered hereby (other than in connection with the
over-allotment option described below) if any are taken. The offering price and
underwriting discount and commissions per share for the U.S. Offering and the
International Offering are identical.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock directly to the public initially at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per share.
Any Underwriter may allow, and such dealers may reallow, a discount not in
excess of $ per share to any other Underwriter and to certain other dealers.
After the initial public offering of the shares of Common Stock, the public
offering price and other selling terms may be changed by the Representatives.
Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date hereof, to
purchase up to an additional 2,250,000 shares of Common Stock at the public
offering price less the underwriting discounts and commissions set forth on the
cover page hereof. The U.S. Underwriters may exercise such option to purchase
additional shares solely for the purpose of covering over-allotments, if any,
made in connection with the sale of the shares of Common Stock offered hereby.
To the extent such over-allotment option is exercised, each Underwriter will
become obligated, subject to certain conditions, to purchase the same percentage
of such additional shares as the number set forth next to such U.S.
Underwriter's name in the preceding table bears to the total number of shares
set forth on the cover page hereof.
The Company, certain stockholders and the directors and executive officers
of the Company will agree with the Underwriters not to offer, sell, grant any
other option to purchase or otherwise dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for, or warrants, rights or options to acquire, Common Stock or
enter into any agreement to do any of the foregoing for a period of 180 days
after the date of this Prospectus without the prior written consent of DLJ.
The Company and its direct and indirect subsidiaries have agreed to
indemnify the Underwriters against certain liabilities, including liabilities
under the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof.
Pursuant to an Agreement Between U.S. Underwriters and International
Managers (the "Agreement Between U.S. Underwriters and International Managers"),
each U.S. Underwriter has represented and agreed that, with respect to the
Common Stock included in the U.S. Offering and with certain exceptions, (a) it
is not purchasing any Common Stock for the account of anyone other than a United
States or Canadian Person (as defined below) and (b) it has not offered or sold,
and will not offer or sell, directly or indirectly, any Common Stock or
distribute this Prospectus outside of the United States or Canada, or to anyone
other than a United States or Canadian Person. Pursuant to the Agreement Between
U.S. Underwriters and International Managers, each International Manager has
represented and agreed that, with respect to the Common Stock included in the
International Offering and with certain exceptions, (a) it is not purchasing any
Common Stock for the account of any United States or Canadian Person and (b) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
Common Stock or distribute this Prospectus within the United States or Canada or
to any United States or Canadian Person. The foregoing limitations do not apply
to stabilization transactions and to certain other transactions among the
International Managers and the U.S. Underwriters. As used herein, "United States
or Canadian Person" means any national or resident of the United States or
Canada or any corporation, pension, profit-sharing or other trust or other
entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States or Canada of any United States or Canadian Person) and includes any
United States or Canadian branch of a person who is not otherwise a United
States or
82
<PAGE>
Canadian Person, and "United States" means the United States of America, its
territories, its possessions and all areas subject to its jurisdiction.
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, sales may be made between U.S. Underwriters and the International
Managers of any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price and
currency of settlement of any shares of Common Stock so sold shall be the public
offering price set forth on the cover page hereof, in United States dollars,
less an amount not greater than the per share amount of the concession to
dealers set forth above.
Pursuant to the Agreement Between U.S. Underwriters and International
Mangers, each U.S. Underwriter has represented that it has not offered or sold,
and has agreed not to offer or sell, any Common Stock, directly or indirectly,
in Canada in contravention of the securities laws of Canada or any province or
territory thereof and has represented that any offer of Common Stock in Canada
will be made only pursuant to an exemption from the requirement to file a
prospectus in the province or territory of Canada in which such offer is made.
Each U.S. Underwriter has further agreed to send any dealer who purchases from
it any Common Stock a notice stating in substance that, by purchasing such
Common Stock, such dealer represents and agrees that it has not offered or sold,
and will not offer or sell, directly or indirectly, any of such Common Stock in
Canada in contravention of the securities laws of Canada or any province or
territory thereof and that any offer of Common Stock in Canada will be made only
pursuant to an exemption from the requirements to file a prospectus in the
province or territory of Canada in which such offer is made, and that such
dealer will deliver to any other dealer to whom it sells any of such Common
Stock a notice to the foregoing effect.
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, each International Manager has represented and agreed that (i) it has
not offered or sold and during the period of six months from the date of this
Prospectus will not offer or sell any Common Stock to persons in the United
Kingdom except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which do not
constitute an offer to the public in the United Kingdom for the purposes of the
Public Offers of Securities Regulations 1995 of Great Britain (the
"Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act of 1986 of Great Britain and the
Regulations with respect to anything done by it in relation to the Common Stock
in, from or otherwise involving the United Kingdom; and (iii) it has only issued
or passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issue of the Common Stock to a person who
is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1995 of Great Britain or its a
person to whom the document may otherwise lawfully be issued or passed on.
No action has been taken in any jurisdiction by the Company or the
Underwriters that would permit a public offering of Common Stock offered
pursuant to the Offering in any jurisdiction where action for that purpose is
required, other than the United States. The distribution of this Prospectus and
the offering or sale of the Common Stock offered hereby in certain jurisdictions
may be restricted by law. Accordingly, the Common Stock offered hereby may not
be offered or sold, directly or indirectly, and neither this Prospectus nor any
other offering material or advertisements in connection with such Common Stock
may be distributed or published, in or from any jurisdiction, except under
circumstances that will result in compliance with applicable rules and
regulations of any such jurisdiction. Such restrictions may be set out in
applicable Prospectus supplements. Persons into whose possession this Prospectus
comes are required by the Company and the Underwriters to inform themselves
about and to observe any applicable restrictions. None of the Company or any of
the Underwriters accepts any legal responsibility for any violation by any
person, whether or not a prospective purchaser of Common Stock, of any such
restrictions. This Prospectus does not constitute an offer of, or an invitation
to subscribe for purchase of, any shares of Common Stock and may not be used for
the purpose of an offer to, or solicitation by, anyone in any jurisdiction or in
any circumstances in which such offer or solicitation is not authorized or is
unlawful.
83
<PAGE>
DLJ from time to time performs investment banking and other financial
services for the Company and its affiliates for which it receives advisory or
transaction fees, as applicable, of the nature and in amounts customary in the
industry for such services plus reimbursement for out-of-pocket expenses. DLJ
has acted as the Company's financial advisor in connection with the Goldwyn
Acquisition, for which services the Company has agreed to pay DLJ a customary
fee for rendering a fairness opinion and a fee upon consummation of the Goldwyn
Acquisition. DLJ and its affiliates own approximately 600,000 shares of Common
Stock. Furman Selz has acted as Goldwyn's financial advisor in connection with
the Goldwyn Acquisition, for which Goldwyn has agreed to pay Furman Selz a
customary fee for rendering a fairness opinion and a fee upon consummation of
the Goldwyn Acquisition.
LEGAL MATTERS
The validity of the Common Stock and certain other legal matters in
connection with this Offering will be passed upon for the Company by Paul,
Weiss, Rifkind, Wharton & Garrison, New York, New York. Certain legal matters
relating to this Offering will be passed upon for the Underwriters by Skadden,
Arps, Slate, Meagher & Flom, Los Angeles, California.
EXPERTS
The consolidated financial statements and related schedules for Metromedia
International Group, Inc. as of December 31, 1995 and February 28, 1995 and for
the year ended December 31, 1995, and for each of the years in the two-year
period ended February 28, 1995 have been included and/or incorporated by
reference herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants included and incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements and related schedules of The Actava
Group Inc. appearing in The Actava Group Inc. Annual Report on Form 10-K for the
year ended December 31, 1994 as amended, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements and
related schedules are incorporated by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements and related schedules of The Samuel
Goldwyn Company as of March 31, 1996 and 1995 and for the three years ended
March 31, 1996, appearing in The Samuel Goldwyn Company Annual Report on Form
10-K for the year ended March 31, 1996 have been incorporated herein in reliance
upon the report of Price Waterhouse LLP, independent public accountants,
included therein and upon the authority of such firm as experts in accounting
and auditing.
The report of Price Waterhouse LLP on the consolidated financial statements
of The Samuel Goldwyn Company as at March 31, 1996 and 1995 and for the three
years ended March 31, 1996 contains an explanatory paragraph stating that the
possibility that The Samuel Goldwyn Company's credit facility and loan terms may
not be extended beyond the June 28, 1996 maturity date raises substantial doubt
about its ability to continue as a going concern.
84
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected without charge at, and copies
thereof may be obtained at prescribed rates from, the public reference
facilities of the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
Suite 1300, New York, New York 10048. The Company's Common Stock is traded on
the AMEX, and copies of reports, proxy statements and other information can be
inspected at the offices of the AMEX, 86 Trinity Place, New York, New York
10006.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities offered hereby (the "Registration Statement"). This
prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and the securities offered hereby, reference is made to
the Registration Statement, including the exhibits and schedules thereto, which
may be inspected at, and copies thereof may be obtained at prescribed rates
from, the public reference facilities of the Commission at the addresses set
forth above.
-------------------
INFORMATION INCORPORATED BY REFERENCE
The following documents have been filed with the Commission (File No.
1-5706) and are incorporated in this prospectus by reference and made a part
hereof:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1995, Form 10-K/A Amendment No. 1 filed on April 29, 1996 amending the
Company's Form 10-K for the year ended December 31, 1995 and Form 10-K/A
Amendment No. 2 filed on May 30, 1996 amending the Company's Form 10-K for
the fiscal year ended December 31, 1995.
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996 and Form 10-Q/A Amendment No. 1 filed on June 25, 1996
amending the Company's Form 10-Q for the quarter ended March 31, 1996.
3. The Company's Current Report on Form 8-K dated January 31, 1996.
4. The Company's Current Report on Form 8-K dated April 29, 1996.
5. The Consolidated Financial Statements and related schedules of The
Actava Group, Inc. (now known as the Company) included in the Annual Report
on Form 10-K for the fiscal year ended December 31, 1994 of The Actava Group
Inc. (now known as the Company), as amended by Form 10-K/A Amendment No. 1
filed on April 20, 1995 and Form 10-K/A Amendment No. 2 filed on July 13,
1995.
6. The description of the Company's Common Stock contained in its
registration statement on Form 8-A, as filed with the Commission on November
1, 1995, including any amendent or report filed for the purpose of amending
such description (File No. 1-5706).
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and
prior to the termination of the Offering shall be deemed to be incorporated by
reference in this prospectus and to be a part hereof from the dates of filing of
such documents.
85
<PAGE>
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this prospectus shall be deemed to be modified or
superseded for purposes of this prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference in this prospectus modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this prospectus.
The Company will provide without charge to each person to whom this
prospectus is delivered, upon such person's written or oral request, a copy of
any and all of the information that has been incorporated by reference in this
prospectus (not including exhibits to such information unless such exhibits are
specifically incorporated by reference into such information). Any such request
should be directed to Secretary, Metromedia International Group, Inc., c/o
Metromedia Company, One Meadowlands Plaza, East Rutherford, New Jersey 07073,
telephone (201) 531-8000.
-------------------
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in the Prospectus Summary and under the captions "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere in this
Prospectus 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, the former Soviet Republics and
other emerging markets, which may affect the Company's results of operations;
timely completion of construction projects for new systems for the joint
ventures in which the Company has invested, which may impact the costs of such
projects; developing legal structures in Eastern Europe, the former Soviet
Republics and other emerging markets which may affect the Company's results of
operations; cooperation of local partners for the Company's communications
investments in Eastern Europe and the former Soviet Republics; exchange rate
fluctuations; license renewals for the Company's investments in Eastern Europe
and the former Soviet Republics; the loss of any significant customers; 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 Prospectus. See "Risk Factors."
86
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
METROMEDIA INTERNATIONAL GROUP, INC.
Report of Independent Auditors..................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1995,
February 28, 1995 and February 28, 1994.............................................. F-4
Consolidated Balance Sheets as of December 31, 1995 and February 28, 1995.......... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995,
February 28, 1995 and February 28, 1994.............................................. F-6
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-7
Notes to Consolidated Financial Statements......................................... F-8
Consolidated Condensed Statement of Operations for the Three Months Ended March 31,
1996 and March 31, 1995 (unaudited).................................................. F-43
Consolidated Condensed Balance Sheets as of March 31, 1996 and December 31, 1995
(unaudited).......................................................................... F-44
Consolidated Condensed Statements of Cash Flows for the Three Months Ended March
31, 1996 and March 31, 1995 (unaudited).............................................. F-45
Consolidated Condensed Statements of Common Stock, Paid-in Surplus and Accumulated
Deficit for the Three Months Ended March 31, 1996 (unaudited)........................ F-46
Notes to Consolidated Condensed Financial Statements............................... F-47
THE SAMUEL GOLDWYN COMPANY
Report of Independent Accountants.................................................. F-58
Consolidated Balance Sheet as of March 31, 1996 and 1995........................... F-59
Consolidated Statements of Operations for the Years ended March 31, 1996, 1995 and
1994................................................................................. F-60
Consolidated Statement of Stockholders' Equity for the years ended March 31, 1996,
1995 and 1994........................................................................ F-61
Consolidated Statement of Cash Flows for the years ended March 31, 1996, 1995 and
1994................................................................................. F-62
Notes to Consolidated Financial Statements......................................... F-63
</TABLE>
F-1
<PAGE>
[This Page Intentionally Left Blank]
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Metromedia International Group, Inc.:
We have audited the accompanying consolidated balance sheets of Metromedia
International Group, Inc. and subsidiaries as of December 31, 1995 and February
28, 1995 and the related consolidated statements of operations, common stock,
paid-in surplus and accumulated deficit and cash flows for the year ended
December 31, 1995, and for each of the years in the two-year period ended
February 28, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements 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.
KPMG PEAT MARWICK LLP
New York, New York
February 29, 1996
except as to Note 15 which is
as of April 29, 1996
F-3
<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-4
<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 $223
at December 31, 1995 and February 28, 1995, respectively...... 2,146 1,073
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 SHAREHOLDERS' 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-5
<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-6
<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-7
<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
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
F-8
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BASIS OF PRESENTATION, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
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
$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 date of sale. Management believes that Snapper will be disposed of by 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-9
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BASIS OF PRESENTATION, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
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-to-maturity 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.
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
F-10
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BASIS OF PRESENTATION, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
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.
PROPERTY PLANT AND EQUIPMENT
Property, plant and equipment, net consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1995
------------ ------------
<S> <C> <C>
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
------ ------
------ ------
</TABLE>
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.
F-11
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BASIS OF PRESENTATION, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
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 regularly 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.
The loss per share amounts for fiscal 1995 and fiscal 1994 represent
combined Orion and MITI's 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.
F-12
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BASIS OF PRESENTATION, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
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.
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".
F-13
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BASIS OF PRESENTATION, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
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):
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1995
------------ ------------
<S> <C> <C>
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
------------ ------------
------------ ------------
</TABLE>
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.
F-14
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BASIS OF PRESENTATION, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Supplemental disclosure of cash flow information (in thousands):
<TABLE>
<CAPTION>
CALENDAR FISCAL FISCAL
1995 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Cash paid during the year for:
Interest................................... $ 12,270 $13,108 $14,907
-------- ------- -------
-------- ------- -------
Taxes...................................... $ 996 $ 1,804 $ 2,934
-------- ------- -------
-------- ------- -------
</TABLE>
Supplemental schedule of non-cash investing and financing activities (in
thousands):
<TABLE>
<CAPTION>
CALENDAR FISCAL FISCAL
1995 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Acquisition of business:
Fair value of assets acquired.............. $290,456 $ -- $ --
Fair value of liabilities assumed............ 239,109 -- --
-------- ------- -------
Net value.................................... $ 51,347 $ -- $ --
-------- ------- -------
-------- ------- -------
</TABLE>
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
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
F-15
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. THE MERGERS--(CONTINUED)
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 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.
F-16
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. THE MERGERS--(CONTINUED)
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):
<TABLE>
<CAPTION>
<S> <C>
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)
--------
--------
</TABLE>
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):
<TABLE>
<CAPTION>
<S> <C>
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
--------
--------
</TABLE>
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. 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):
<TABLE>
<CAPTION>
CALENDAR FISCAL
1995 1995
-------- --------
<S> <C> <C>
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)
</TABLE>
F-17
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. THE MERGERS--(CONTINUED)
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.
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):
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. securities.................... $ 5,319 $ 47 -$- $ 5,366
</TABLE>
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
F-18
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. INVESTMENTS--(CONTINUED)
differ from contractual maturities because the issuers of the securities may
have the right to prepay obligations without prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
AVAILABLE-FOR-SALE COST VALUE
- ------------------------------------------------------- --------- ---------
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
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):
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
----------------- ------------
(UNAUDITED)
<S> <C> <C>
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
</TABLE>
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.
F-19
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. FILM ACCOUNTS RECEIVABLE AND DEFERRED REVENUES--(CONTINUED)
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):
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1995
------------ ------------
<S> <C> <C>
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
------------ ------------
------------ ------------
</TABLE>
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.
F-20
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--(CONTINUED)
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.
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
JOINT VENTURES YEAR
------------------ 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.
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):
F-21
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--(CONTINUED)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1995 1994 1993
------------- ------------- ------------
<S> <C> <C> <C>
Assets
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-22
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--(CONTINUED)
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-23
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--(CONTINUED)
<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>
F-24
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--(CONTINUED)
<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-25
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LONG-TERM DEBT
Long-term debt at December 31, 1995 and February 28, 1995 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1995
------------ ------------
<S> <C> <C>
MIG (EXCLUDING ORION AND MITI)
MIG Revolver........................................................... $ 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
------------ ------------
------------ ------------
</TABLE>
Aggregate annual repayments of long-term debt over the next five years and
thereafter are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996............................................................. $40,597
1997............................................................. 44,548
1998............................................................. 88,714
1999............................................................. 31,923
2000............................................................. 39,453
Thereafter....................................................... 77,325
</TABLE>
F-26
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LONG-TERM DEBT--(CONTINUED)
MIG (EXCLUDING ORION AND MITI)
On November 1, 1995, the Company entered into a $35 million revolving credit
agreement ("MIG Revolver") with Chemical Bank. On December 31, 1995, the Company
had utilized $28.8 million. At the borrower's option, the MIG Revolver bears
interest at a rate of LIBOR plus 2%, or Chemical Bank's alternative base rate
plus 1%. The MIG Revolver terminates October 30, 1996.
Under terms of the MIG Revolver, the aggregate amount of all outstanding
loans cannot exceed 65% of the market value of Roadmaster stock (see Note 4).
Borrowings under the MIG Revolver 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
Revolver 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.
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
F-27
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LONG-TERM DEBT--(CONTINUED)
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.
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.
F-28
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LONG-TERM DEBT--(CONTINUED)
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:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
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
------------
------------
</TABLE>
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.
F-29
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. STOCKHOLDERS' EQUITY--(CONTINUED)
After giving effect to the Merger, the following table reflects changes in
the stock options issued under these plans:
<TABLE>
<CAPTION>
SHARES AVERAGE
SUBJECT TO OPTION PRICE
OPTION PER SHARE
---------- -------------
<S> <C> <C>
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
----------
----------
</TABLE>
There were 153,000 shares under the stock option plans at December 31, 1995
which were available for the granting of additional stock options.
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.
F-30
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. STOCKHOLDERS' EQUITY--(CONTINUED)
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):
<TABLE>
<CAPTION>
CALENDAR FISCAL FISCAL
1995 1995 1994
-------- ------ ------
<S> <C> <C> <C>
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
-------- ------ ------
-------- ------ ------
</TABLE>
Such provision has been allocated to continuing operations before
extraordinary items, discontinued operations and extraordinary items as follows
(in thousands):
<TABLE>
<CAPTION>
CALENDAR FISCAL FISCAL
1995 1995 1994
-------- ------ ------
<S> <C> <C> <C>
Operations before extraordinary items............ $767 $1,300 $2,100
Discontinued operations.......................... -- -- --
Extraordinary items.............................. -- -- --
-------- ------ ------
$767 $1,300 $2,100
-------- ------ ------
-------- ------ ------
</TABLE>
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. 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.
F-31
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES--(CONTINUED)
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):
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1995
------------ ------------
<S> <C> <C>
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..................................... $ -- $ --
------------ ------------
------------ ------------
</TABLE>
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.
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):
<TABLE>
<CAPTION>
CALENDAR FISCAL FISCAL
1995 1995 1994
--------- -------- --------
<S> <C> <C> <C>
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
--------- -------- --------
--------- -------- --------
</TABLE>
F-32
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES--(CONTINUED)
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 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.
F-33
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-34
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. BUSINESS SEGMENT DATA--(CONTINUED)
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.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. BUSINESS SEGMENT DATA--(CONTINUED)
BUSINESS SEGMENT DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
CALENDAR FISCAL FISCAL
1995 1995 1995
-------- -------- --------
<S> <C> <C> <C>
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
-------- -------- --------
-------- -------- --------
</TABLE>
Management fees of $100,000 charged to operations are eliminated from the
business segment data.
The sources of the Company's revenues from continuing operations by market
for each of the last three fiscal years are set forth in "Management's
Discussion and Analysis of Financial Condition and Results of Operations". The
Company derives significant revenues from the foreign distribution of its
theatrical motion pictures and television programming. The following table sets
forth Orion's export
F-36
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. BUSINESS SEGMENT DATA--(CONTINUED)
sales from continuing operations by major geographic area for each of the last
three fiscal years (in thousands):
<TABLE>
<CAPTION>
CALENDAR FISCAL FISCAL
1995 1995 1994
-------- ------- -------
<S> <C> <C> <C>
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
-------- ------- -------
-------- ------- -------
</TABLE>
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):
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---------------------------------------------------------- ------
<S> <C>
1996................................................ $1,911
1997................................................ 954
1998................................................ 832
1999................................................ 519
2000................................................ 252
Thereafter.......................................... 526
------
Total minimum rental commitments.................... $4,994
------
------
</TABLE>
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.
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.
F-37
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. COMMITMENTS AND CONTINGENT LIABILITIES--(CONTINUED)
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.
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
F-38
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. COMMITMENTS AND CONTINGENT LIABILITIES--(CONTINUED)
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.
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
F-39
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. COMMITMENTS AND CONTINGENT LIABILITIES--(CONTINUED)
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 has performed other
F-40
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. COMMITMENTS AND CONTINGENT LIABILITIES--(CONTINUED)
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>
- ------------
<TABLE>
<C> <S>
(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.
(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.
</TABLE>
F-41
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)--(CONTINUED)
<TABLE>
<C> <S>
(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.
</TABLE>
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.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 31, MARCH 31,
1996 1995
--------- ---------
<S> <C> <C>
Revenues............................................................... $ 30,808 $ 37,678
Costs and expenses:
Cost of rentals and operating expenses............................... 25,089 36,868
Selling, general and administrative.................................. 14,066 10,974
Depreciation and amortization........................................ 1,723 528
--------- ---------
Operating loss......................................................... (10,070) (10,692)
Interest expense, including amortization of debt discount of $1,259
at March 31, 1996 and $4,334 at March 31, 1995....................... 8,279 8,936
Interest income........................................................ 1,245 817
--------- ---------
Interest expense, net................................................ 7,034 8,119
Chapter 11 reorganization items........................................ 54 767
--------- ---------
Loss before provision for income taxes and equity in losses of joint
ventures............................................................... (17,158) (19,578)
Provision for income taxes............................................. 200 200
Equity in losses of Joint Ventures 1,783 588
--------- ---------
Net loss............................................................... $ (19,141) $ (20,366)
--------- ---------
--------- ---------
Loss per common share:
Primary:
Net loss............................................................... $ (0.45) $ (0.97)
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
F-43
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents......................................... $ 12,656 $ 26,889
Short-term investments............................................ 4,524 5,366
Accounts receivable, net of allowance of $11,926 at March 31, 1996
and $11,913 at December 31, 1995 26,991 29,452
Film inventories.................................................. 56,892 59,430
Other assets...................................................... 4,975 6,314
----------- ------------
Total current assets.............................................. 106,038 127,451
Investments in and advances to joint ventures....................... 37,095 36,934
Assets held for sale--Roadmaster Industries, Inc.................... 47,455 47,455
Asset held for sale--Snapper, Inc................................... 73,800 79,200
Property, plant and equipment, net of accumulated depreciation...... 9,181 6,021
Film inventories.................................................... 126,396 137,233
Long-term film accounts receivable.................................. 30,023 31,308
Intangible assets, net of accumulated amortization.................. 118,818 119,485
Other assets........................................................ 18,327 14,551
----------- ------------
Total assets...................................................... $ 567,133 $ 599,638
----------- ------------
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts payable.................................................. $ 3,957 $ 4,695
Accrued expenses.................................................. 93,344 96,696
Participations and residuals...................................... 19,494 19,143
Current portion of long-term debt................................. 55,327 40,597
Deferred revenues................................................. 11,937 15,097
----------- ------------
Total current liabilities......................................... 184,059 176,228
Long-term debt...................................................... 249,605 264,046
Participations and residuals........................................ 27,753 28,465
Deferred revenues................................................... 40,839 47,249
Other long-term liabilities......................................... 525 395
----------- ------------
Total liabilities................................................. 502,781 516,383
----------- ------------
Commitments and contingencies
Shareholders' equity:
Preferred Stock, authorized 70,000,000 shares, none issued...... -- --
Common Stock, $1.00 par value, authorized 110,000,000 Shares,
issued and outstanding 42,635,488 shares at March 31, 1996 and
42,613,738 shares at December 31, 1995.............................. 42,635 42,614
Paid-in surplus................................................. 728,964 728,747
Accumulated deficit............................................. (707,247) (688,106)
----------- ------------
Total shareholders' equity.................................. 64,352 83,255
----------- ------------
Total liabilities and shareholders' equity.......................... $ 567,133 $ 599,638
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
F-44
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 31, MARCH 31,
1996 1995
--------- ---------
<S> <C> <C>
Operating activities:
Net loss............................................................. $ (19,141) $ (20,366)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Equity in losses of joint ventures and investees................... 1,783 588
Amortization of film costs......................................... 14,953 25,211
Amortization of debt discounts and bank guarantee.................. 1,259 4,334
Depreciation and amortization...................................... 1,723 528
Decrease in accounts receivable.................................... 3,688 10,084
Decrease in accounts payable and accrued expenses.................. (889) (1,202)
Payments of deferred financing costs............................... (3,200) --
Accrual of participations and residuals............................ 4,316 5,342
Payments of participations and residuals........................... (4,677) (6,185)
Decrease in deferred revenues...................................... (9,570) (6,476)
Other operating activities, net.................................... 192 (79)
--------- ---------
Cash provided by (used in) operations............................ (9,563) 11,779
--------- ---------
Investing activities:
Investments in and advances to Joint Ventures........................ (2,542) (4,299)
Proceeds from repayment of advances to Snapper....................... 5,400 --
Investment in film inventories....................................... (1,578) (781)
Additions to property, plant and equipment........................... (3,616) (383)
Other investing activities, net...................................... (3,068) 482
--------- ---------
Cash used in investing activities................................ (5,404) (4,981)
--------- ---------
Financing Activities:
Proceeds from issuance of long-term debt............................. 11,800 12,477
Proceeds from issuance of stock...................................... 238 --
Payments on notes and subordinated debt.............................. (12,288) (18,141)
Other financing activities, net...................................... 142 194
--------- ---------
Cash used in financing activities................................ (108) (5,470)
--------- ---------
Net increase (decrease) in cash in cash equivalents.................... (15,075) 1,328
Effect of Change in Fiscal Year........................................ -- (13,583)
Cash and cash equivalents at beginning of period....................... 32,255 27,422
--------- ---------
Cash and cash equivalents at end of period............................. $ 17,180 $ 15,167
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
F-45
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED CONDENSED STATEMENT OF COMMON STOCK,
PAID-IN SURPLUS AND ACCUMULATED DEFICIT
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
--------------------------------------------------------
COMMON STOCK
--------------------
NUMBER OF PAID-IN ACCUMULATED
SHARES AMOUNT SURPLUS DEFICIT TOTAL
---------- ------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1995................ 42,613,738 $42,614 $728,747 $(688,106) $ 83,255
Shares issued.............................. 21,750 21 217 238
Net Loss................................... (19,141) (19,141)
---------- ------- -------- ----------- --------
Balances, March 31, 1996................... 42,635,488 $42,635 $728,964 $(707,247) $ 64,352
---------- ------- -------- ----------- --------
---------- ------- -------- ----------- --------
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
F-46
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying interim consolidated condensed 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"). Snapper, Inc.
("Snapper"), also a wholly-owned subsidiary, is included in the accompanying
consolidated condensed financial statements as an 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 have 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." The Company accounts for its
equity in earnings (losses) of the Joint Ventures on a three month lag.
The accompanying interim consolidated condensed financial statements have
been prepared without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures made
are adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the consolidated financial
statements and related footnotes included in the Company's latest Annual Report
on Form 10-K (the "1995 Form 10-K"). In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company as of March 31, 1996, the
results of its operations for the three-month periods ended March 31, 1996 and
1995, and its cash flows for the three-month periods ended March 31, 1996 and
1995 have been included. The results of operations for the interim period are
not necessarily indicative of the results which may be realized for the full
year.
2. LIQUIDITY
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. MITI, the Company's communications subsidiary, 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, in addition to funding its working capital needs,
which consist principally of corporate overhead and payments on self-insurance
claims.
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. During December 1995, the Company adopted a formal plan to
dispose of Snapper. At March 31, 1996, the carrying value of Snapper of $73.8
million 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
F-47
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
2. LIQUIDITY--(CONTINUED)
investment in Roadmaster Industries, Inc. ("Roadmaster") during 1996. The
carrying value of the Company's investment in Roadmaster at March 31, 1996 was
approximately $47.5 million.
Management believes that its available cash on hand, proceeds from the
dispositions of Snapper and its investment in Roadmaster, borrowings under the
MITI Bridge Loan (as defined below) 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 (as defined
below), the Company intends to refinance the MIG Credit Facility (as defined
below), the Orion Credit Agreement (as defined below), and the existing Goldwyn
Debt (as defined below). The Company intends to use the proceeds of an offering
of the Company's common stock and a new credit facility to be entered into by
its Entertainment Group (the "New 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 intends to satisfy its long-term liquidity needs 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, including the integration of The Samuel Goldwyn Company ("Goldwyn") and
Motion Picture Corporation of America ("MPCA") (as discussed more fully below);
(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 Credit
Facility. There can be no assurance that the Company will be successful in
consummating the equity offering and entering into the New Credit Facility or
that such refinancing can be accomplished on favorable terms. In the event the
Company is unable to successfully complete such a refinancing or successfully
implement its business strategies, the Company, in addition to disposing of
Snapper and its investment in Roadmaster, may be required to (i) attempt to
obtain additional financing through another 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 (as defined below) 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.
3. 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.
F-48
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
3. EARNINGS PER SHARE OF COMMON STOCK--(CONTINUED)
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. 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.
The loss per share amount for the quarter ended March 31, 1995 has been
calculated using the combined Orion and MITI's common shares converted at the
exchange rate used in the November 1 Mergers (see Note 4).
4. THE NOVEMBER 1 MERGERS
On November 1, 1995, 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 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 Merger Corp., and MITI
Merger Corp., and the merger of Sterling with and into the Company
(collectively, the "November 1 Mergers"). In connection with the November 1
Mergers, the Company changed its name from "The Actava Group Inc." to
"Metromedia International Group, Inc."
Due to the existence of Metromedia Holders' (as defined below) common
control of Orion and MITI prior to consummation of the November 1 Mergers, their
combination pursuant to the November 1 Mergers was accounted for as a
combination of entities under common control. Orion was deemed to be the
acquiror in the November 1 Mergers. 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 November
1 Mergers.
For accounting purposes only, Orion and MITI were deemed to be the joint
acquirors of Actava and Sterling. The acquisitions of Actava and Sterling were
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 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 the Company. In addition, the Company's
investment in Roadmaster was deemed to be a non-strategic asset and the Company
plans to dispose of its investment during 1996. (see Note 6 below).
5. ACQUISITIONS
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."
F-49
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
5. ACQUISITIONS--(CONTINUED)
In connection with the Goldwyn Merger, the Company, as described in Note 2
above, intends to refinance a portion of its indebtedness and that of Orion, as
well as substantially all of the indebtedness of Goldwyn. The Company has also
entered into a letter of intent to acquire MPCA.
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. On April 29, 1996, the Company and
Alliance entered into a Termination and Release Agreement terminating the
Alliance Merger Agreement.
6. ASSETS HELD FOR SALE
Roadmaster Industries, Inc.
As of March 31, 1996, the Company owned approximately 38% of the issued and
outstanding shares of Common Stock of Roadmaster (the "Roadmaster Common Stock")
based on the approximate 48,600,000 shares of Roadmaster Common Stock
outstanding.
The Company has deemed its investment in Roadmaster to be a non-strategic
asset and it plans to dispose of its investment in Roadmaster during 1996 and
will exclude its equity in earnings and losses of Roadmaster from the Company's
results of operations through the date of sale. The carrying value of the
Company's investment in Roadmaster at December 31, 1995 and March 31, 1996 was
$47.5 million based on the anticipated proceeds from its sale.
Summarized financial information for Roadmaster is shown below (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Net sales...................................................... $730,875
Gross profit................................................... 86,607
Net loss....................................................... (51,004)
Current assets................................................. 406,586
Non-current assets............................................. 170,521
Current liabilities............................................ 232,502
Non-current liabilities........................................ 289,081
Redeemable common stock........................................ 2,000
Total shareholders' equity..................................... 55,524
</TABLE>
The Company has pledged all of its shares of Roadmaster to Chase Manhattan
Bank, ("Chase") pursuant to a $35 million revolving credit agreement (the "MIG
Credit Facility"). The MIG Credit Facility provides that the aggregate amount of
outstanding loans under the MIG Credit Facility cannot exceed 65% of the market
value of Roadmaster stock. At March 31, 1996, the market value of the stock was
$38.3 million and outstanding loans under the MIG Credit Facility were $28.8
million. As a result of a market value decrease in the value of Roadmaster
stock, such loans exceeded the 65% threshold. Metromedia Company, a Delaware
general partnership ("Metromedia") and an affiliate of the Company, has
guaranteed payment to Chase of amounts which exceed the 65% threshold.
F-50
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
6. ASSETS HELD FOR SALE--(CONTINUED)
Snapper, Inc.
During December 1995, the Company adopted a formal plan to dispose of
Snapper. At March 31, 1996 and December 31, 1995, the carrying value of Snapper
was approximately $73.8 million and $79.2 million, respectively. The carrying
value of Snapper 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.
The results of Snapper for the period January 1, 1996 through March 31,
1996, which are excluded from the accompanying consolidated statement of
operations, are as follows (in thousands):
<TABLE>
<S> <C>
Net Sales........................................................ $62,724
Operating expenses............................................... 60,100
-------
Operating profit................................................. 2,624
Interest expense................................................. (2,152)
Other income..................................................... 9
-------
Profit before taxes.............................................. 481
Income taxes..................................................... --
-------
Net profit....................................................... $ 481
-------
-------
</TABLE>
The Company received $5.4 million of cash from Snapper during the period
from January 1, 1996 to March 31, 1996. Accordingly, this amount has been
removed from the carrying value of Snapper as of March 31, 1996.
7. STOCK OPTION PLANS
On January 31, 1996, the Board of Directors of the Company approved and
later amended, subject to the approval of the Company's stockholders, the
Metromedia International Group, Inc. 1996 Incentive Stock Plan (the "1996
Incentive Stock Plan"). The purpose of the 1996 Incentive Stock Plan is to give
the Company a significant advantage in retaining key employees, officers and
directors, and to provide an incentive to selected key employees, officers and
directors of the Company who have substantial responsibility in the direction of
the Company, and others whom the Compensation Committee of the Board of
Directors determines provide substantial and important services to the Company,
to continue as employees, officers and directors or in their other capacities,
and to increase their efforts on behalf of the Company through the provision of
a proprietary interest in the Company.
The types of awards that may be granted pursuant to the 1996 Incentive Stock
Plan include (i) incentive stock options ("ISOs"), (ii) non-qualified stock
options ("NQSOs" and together with ISOs, "Stock Options"), and (iii) tandem
stock appreciation rights ("Tandem SARs"). ISOs are intended to be treated as
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986. NQSOs are, in general, options which do not have the
special income tax advantages associated with ISOs. Tandem SARs are rights
granted in conjunction with Stock Options that, upon exercise, entitle the
holder to receive an amount equal to the excess of the fair market value of a
share of Common Stock on the date of exercise over the exercise price of the
related Stock Option, in cash or in stock, as determined by the Company.
Stock Option grants will consist of the maximum number of ISOs that may be
granted to a particular grantee under applicable law with the balance of the
Stock Options being NQSOs. Tandem SARs will be granted in connection with Stock
Options. Subject to certain exceptions set forth in the
F-51
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
7. STOCK OPTION PLANS--(CONTINUED)
1996 Incentive Stock Plan, the aggregate number of shares of Common Stock that
may be the subject of Stock Options and Tandem SARs is 9,000,000.
8. FILM INVENTORIES
The following is an analysis of film inventories (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Current:
Theatrical films released, less amortization....................... $ 47,652 $ 53,813
Television programs released, less amortization.................... 9,240 5,617
--------- ------------
56,892 59,430
--------- ------------
Non-Current:
Theatrical films released, less amortization....................... 122,642 132,870
Television programs released, less amortization.................... 3,754 4,363
--------- ------------
126,396 137,233
--------- ------------
$ 183,288 $196,663
--------- ------------
--------- ------------
</TABLE>
The Company has made substantial write-offs 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 the Company's quasi-reorganization (February 28, 1982),
when the Company's inventories were restated to reflect their then current
market value, the Company has amortized 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 March 31, 1999. As of March 31, 1996, approximately 62% of the
unamortized balance of film inventories will be amortized within the next
three-year period based upon the Company's revenue estimates at that date.
9. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
MITI has recorded its investments in Joint Ventures at cost, net of
adjustments for its equity in earnings or losses. Advances to the Joint Ventures
under the line of credit agreements are reflected based on amounts recoverable
under the credit agreement, plus accrued interest.
Advances are made to Joint Ventures in the form of cash, for working capital
purposes and for payment of expenses or capital expenditures, or in the form of
equipment purchased on behalf of the Joint Ventures. Interest rates charged to
the Joint Ventures range from the prime rate to the 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. MITI has
entered into credit agreements with its Joint Ventures to provide up to $47.1
million in funding of which $12.3 million remains available at March 31, 1996.
MITI funding commitments are contingent on its approval of the Joint Ventures'
business plans.
F-52
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
9. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--(CONTINUED)
MITI investments in the Joint Ventures at a cost net of adjustments for its
equity in earnings and losses were as follows (in thousands):
<TABLE>
<CAPTION>
INVESTMENTS IN
AND ADVANCES TO
JOINT VENTURES
------------------------- YEAR DATE
MARCH 31, DECEMBER 31, OWNERSHIP VENTURE OPERATIONS
NAME 1996 1995 % FORMED COMMENCED
- ---------------------------------- --------- ------------ --------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Kosmos TV, Moscow, Russia......... $ 2,958 $ 4,317 50 1991 May, 1992
Baltcom TV, Riga Latvia........... 7,244 6,983 50 1991 June, 1992
Ayety TV, Tbilisi, Georgia........ 4,096 3,630 49 1991 September, 1993
Sun TV, Kishinev, Moldova......... 1,665 1,613 50 1993 October, 1994
Raduga TV, Nizhny Novgorod........ 180 254 50 1994 Pre-Operational
Minsk Cable, Minsk, Belarus....... 967 918 50 1993 Pre-Operational
Kamalak, Tashkent, Uzbekistan..... 4,484 3,731 50 1992 September, 1993
Alma-TV, Almaty, Kazakhstan....... 1,651 1,318 50 1994 June, 1995
Baltcom Paging, Tallin, Estonia... 2,754 2,585 39 1992 December, 1993
Raduga Paging, Nizhny Novgorod.... 387 364 45 1993 October, 1994
Baltcom Plus, Riga, Latvia........ 1,788 1,412 50 1994 April, 1995
Tbilisi Paging, Tbilisi,
Georgia........................... 748 619 45 1993 November, 1994
St. Petersburg Paging,
St. Petersburg, Russia............ 744 527 40 1994 October, 1995
SAC-Radio 7, Moscow, Russia....... 494 1,174 51 1991 January, 1994
Telecom Georgia, Tbilisi,
Georgia........................... 2,534 2,078 30 1994 September, 1994
Other............................. 4,401 5,411
--------- ------------
$37,095 $ 36,934
--------- ------------
--------- ------------
</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 and other emerging markets. These include matters arising out of
government policies, economic conditions, imposition of 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.
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.
F-53
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
9. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--(CONTINUED)
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.
Management believes that the ultimate outcome of this matter will not have a
material adverse impact on the Company's financial position and results of
operations.
Summarized combined financial information of Joint Ventures accounted for
under the equity method that have commenced operations as of the dates indicated
are as follows (in thousands):
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1995
------------ -------------
<S> <C> <C>
ASSETS
Current assets.................................... $ 10,704 $ 6,937
Investments in wireless systems and equipment,
net............................................... 33,696 31,349
Other assets...................................... 2,956 2,940
------------ -------------
Total Assets................................ $ 47,356 $41,226
------------ -------------
LIABILITIES AND JOINT VENTURES' DEFICIT
Current liabilities............................... $ 21,889 $10,954
Amount payable under MITI credit facility......... 29,859 33,699
------------ -------------
$ 51,748 $44,653
Joint Ventures' Deficit........................... (4,392) (3,427)
------------ -------------
Total Liabilities and Joint Ventures'
Deficit........................................... $ 47,356 $41,226
------------ -------------
------------ -------------
</TABLE>
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Revenues.......................................... $8,995 $ 2,961
------------ ------------
Expenses:
Cost of service................................. 4,161 1,384
Selling, general and administrative............. 4,409 986
Depreciation and amortization................... 1,322 867
Other........................................... -- 323
------------ ------------
Total Expenses.............................. 9,892 3,560
------------ ------------
Operating Loss.............................. (897) (599)
Interest Expense................................ (732) (354)
Other Loss...................................... (10) (19)
Foreign Currency Translation.................... 846 (121)
------------ ------------
Net Loss.................................... $ (793) $ (1,093)
------------ ------------
------------ ------------
</TABLE>
F-54
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
9. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--(CONTINUED)
Financial information for Joint Ventures which are not yet operational is
not included in the above summary. MITI's investment in and advances to those
Joint Ventures at March 31, 1996 amounted to approximately $6.3 million.
The following tables represent summary financial information for all
operating entities grouped as indicated as of and for the three months ended
March 31, 1996 (in thousands):
<TABLE>
<CAPTION>
WIRELESS RADIO
CABLE TV PAGING BROADCASTING TELEPHONY TOTAL
-------- ------ ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Consolidated Subsidiaries and Joint
Ventures
Revenues................................... $ -- $ 576 $2,378 $ -- $ 2,954
Depreciation and amortization.............. -- 78 82 -- 160
Operating income (loss) before taxes....... -- (219) 731 -- 512
Assets..................................... -- 2,352 3,234 -- 5,586
Capital expenditures....................... -- 69 351 -- 420
Unconsolidated Equity Joint Ventures
Revenues................................... $ 3,059 $1,147 $ 298 $ 4,491 $ 8,995
Depreciation and amortization.............. 1,075 100 9 138 1,322
Operating income (loss) before taxes....... (1,465) (149) (224) 941 (897)
Assets..................................... 25,127 4,629 259 17,341 47,356
Capital expenditures....................... 1,958 253 4 256 2,471
Net investment in Joint Ventures........... $ 21,760 $6,014 $ 494 $ 2,534 $30,802
MITI equity in losses of unconsolidated
investees.................................. (1,843) (127) (269) 456 (1,783)
Combined
Revenues................................... $ 3,059 $1,723 $2,676 $ 4,491 $11,949
Depreciation and amortization.............. 1,075 178 91 138 1,482
Operating income (loss) before taxes....... (1,465) (368) 507 941 (385)
Assets..................................... 25,127 6,981 3,493 17,341 52,942
Capital expenditures....................... 1,958 322 355 256 2,891
</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 and Eastern Europe.
On March 18, 1996, Metromedia Asia Limited ("MAL"), MITI's 90% owned
subsidiary, entered into a joint venture agreement with Golden Cellular
Communications, Ltd., ("GCC") a company located in the People's Republic of
China ("PRC"). The purpose of the joint venture is to provide wireless local
loop telephone equipment, network planning, technical support and training to
domestic telephone operators throughout the PRC. The total equity contribution
to be made to the venture is $8.0 million of which 60% will be contributed by
MAL and 40% by GCC.
F-55
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
10. ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121").
SFAS 121 established accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. Adoption of SFAS 121, effective January 1, 1996,
did not have a material impact on the Company's consolidated condensed financial
statements.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". The Company has elected to retain the current approach set forth
in APB Opinion 25 "Accounting for Stock Issued
to Employees," and to provide expanded disclosures in the footnotes commencing
with its 1996 Form 10-K.
11. CONTINGENT LIABILITIES
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.
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
F-56
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
11. CONTINGENT LIABILITIES--(CONTINUED)
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 condensed
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 March 31, 1996, 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 has
taken 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.
F-57
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of The SAMUEL GOLDWYN COMPANY
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of The Samuel
Goldwyn Company (the "Company") and its subsidiaries at March 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended March 31, 1996 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 2 to the
financial statements, the Company's credit facility matures on June 28, 1996.
The Company's management believes that the credit facility may not be extended
beyond that date should the merger transaction with Metromedia International
Group Inc., which is also described in Note 2, not be consummated which causes
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
PRICE WATERHOUSE LLP
Century City, California
May 3, 1996
F-58
<PAGE>
THE SAMUEL GOLDWYN COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Assets
Cash and cash equivalents.................................... $ 1,849,000 $ 6,322,000
Receivables, net............................................. 9,021,000 11,205,000
Film costs, net.............................................. 63,899,000 74,080,000
Property and equipment, net.................................. 32,206,000 28,153,000
Other assets................................................. 4,875,000 6,187,000
------------ ------------
$111,850,000 $125,947,000
------------ ------------
------------ ------------
Liabilities and Shareholders' Equity
Notes payable................................................ $ 82,029,000 $ 67,610,000
Accounts payable and accrued expenses........................ 9,531,000 7,179,000
Accrued film rights payable.................................. 8,578,000 3,350,000
Participations payable to shareholder........................ 10,353,000 9,373,000
Participations payable to others............................. 2,527,000 2,347,000
Income taxes payable......................................... 558,000 259,000
Deferred revenue............................................. 18,583,000 21,717,000
Deferred income taxes........................................ -- 1,552,000
------------ ------------
132,159,000 113,387,000
------------ ------------
Shareholders' equity:
Common stock, par value $0.20; 15,000,000 shares authorized;
shares issued and outstanding: 8,489,231 and 8,488,854......... 1,706,000 1,706,000
Additional paid-in capital................................... 24,654,000 24,654,000
Treasury stock............................................... (532,000) (532,000)
Retained earnings (deficit).................................. (46,137,000) (13,268,000)
------------ ------------
(20,309,000) 12,560,000
------------ ------------
$111,850,000 $125,947,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-59
<PAGE>
THE SAMUEL GOLDWYN COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------
1996 1995 1994
------------- ------------- ------------
<S> <C> <C> <C>
Revenues....................................... $ 107,784,000 $ 91,348,000 $108,791,000
------------- ------------- ------------
Cost of revenues............................... 108,301,000 91,461,000 81,117,000
Selling, general and administrative expenses... 19,891,000 17,999,000 15,515,000
Depreciation and amortization.................. 3,770,000 3,508,000 3,129,000
------------- ------------- ------------
131,962,000 112,968,000 99,761,000
------------- ------------- ------------
Operating income (loss)........................ (24,178,000) (21,620,000) 9,030,000
Interest expense............................... 8,490,000 5,626,000 5,632,000
------------- ------------- ------------
Income (loss) before income taxes.............. (32,668,000) (27,246,000) 3,398,000
Income tax provision (benefit)................. (541,000) (7,163,000) 1,912,000
------------- ------------- ------------
Income (loss) before extraordinary items....... (32,127,000) (20,083,000) 1,486,000
Extraordinary loss, net of applicable income
tax benefit of $40,000....................... (742,000) -- --
Extraordinary gain, net of applicable income
tax provision of $506,000.................... -- -- 759,000
------------- ------------- ------------
Net income (loss).............................. $ (32,869,000) $ (20,083,000) $ 2,245,000
------------- ------------- ------------
------------- ------------- ------------
Earnings per share:
Income (loss) before extraordinary items..... $ (3.78) $ (2.37) $ 0.20
------------- ------------- ------------
------------- ------------- ------------
Net income (loss)............................ $ (3.87) $ (2.37) $ 0.30
------------- ------------- ------------
------------- ------------- ------------
Weighted average shares outstanding............ 8,489,000 8,488,000 7,386,000
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-60
<PAGE>
THE SAMUEL GOLDWYN COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK RETAINED
---------------------- PAID-IN ----------------- EARNINGS
SHARES AMOUNT CAPITAL SHARES AMOUNT (DEFICIT)
--------- ---------- ----------- ------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1993....... 5,950,721 $1,213,000 $ 1,675,000 34,872 $274,000 $ 4,570,000
Exchange of Heritage shares for
Goldwyn shares.................. 102,794 8,750 (8,750)
Exercise of stock options....... 1,250 250 (250)
Purchase of Heritage creditor
shares pursuant to Heritage
Plan of Reorganization........ 8,576 258,000
Issuance of common stock........ 2,472,500 472,000 23,095,000
Net income...................... 2,245,000
--------- ---------- ----------- ------ -------- ------------
Balance at March 31, 1994....... 8,527,265 1,694,000 24,761,000 43,448 532,000 6,815,000
Exchange of Heritage shares for
Goldwyn shares.................. 5,037 12,000 (12,000)
Purchase of Class A warrants
pursuant to Heritage Plan of
Reorganization.................. (95,000)
Net loss........................ (20,083,000)
--------- ---------- ----------- ------ -------- ------------
Balance at March 31, 1995....... 8,532,302 1,706,000 24,654,000 43,448 532,000 (13,268,000)
Exchange of Heritage shares for
Goldwyn shares.................. 377
Net loss........................ (32,869,000)
--------- ---------- ----------- ------ -------- ------------
Balance at March 31, 1996....... 8,532,679 $1,706,000 $24,654,000 43,448 $532,000 $(46,137,000)
--------- ---------- ----------- ------ -------- ------------
--------- ---------- ----------- ------ -------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-61
<PAGE>
THE SAMUEL GOLDWYN COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income................................ $(32,869,000) $(20,083,000) $ 2,245,000
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Extraordinary gain on retirement of debt......... -- (1,265,000)
Amortization of film costs....................... 50,827,000 45,886,000 38,696,000
Amortization of goodwill......................... 229,000 229,000 233,000
Depreciation of property and equipment........... 3,541,000 3,279,000 2,896,000
Increase (decrease) from changes in:
Receivables.................................... 2,184,000 8,498,000 2,546,000
Other assets, excluding goodwill............... 1,083,000 1,232,000 (464,000)
Accounts payable and accrued expenses.......... 2,352,000 243,000 (827,000)
Accrued film rights payable.................... 5,228,000 3,350,000 --
Participations payable to shareholder.......... 980,000 341,000 1,135,000
Participations payable to others............... 180,000 (951,000) (75,000)
Income taxes payable........................... 299,000 (574,000) 489,000
Deferred revenue............................... (3,134,000) 19,657,000 (605,000)
Deferred income taxes.......................... (1,552,000) (7,607,000) 1,330,000
------------ ------------ ------------
Net cash provided by operating activities........ 29,348,000 53,500,000 46,334,000
------------ ------------ ------------
Investing activities:
Additions to film costs........................ (40,646,000) (49,211,000) (33,572,000)
Additions to property and equipment............ (7,594,000) (7,054,000) (3,107,000)
Additions to treasury stock.................... -- -- (258,000)
------------ ------------ ------------
(48,240,000) (56,265,000) (36,937,000)
------------ ------------ ------------
Financing activities:
Issuance of common stock....................... -- -- 23,567,000
Purchase of warrants........................... -- (95,000) --
Retirement of bank debt........................ -- -- (10,800,000)
Additions to (repayment of) notes payable...... 14,419,000 7,791,000 (22,368,000)
------------ ------------ ------------
14,419,000 7,696,000 (9,601,000)
------------ ------------ ------------
Net increase (decrease) in cash.................. (4,473,000) 4,931,000 (204,000)
Cash at beginning of period...................... 6,322,000 1,391,000 1,595,000
------------ ------------ ------------
Cash at end of period............................ $ 1,849,000 $ 6,322,000 $ 1,391,000
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosure of cash paid for:
Interest....................................... $ 8,002,000 $ 6,136,000 $ 5,154,000
Income taxes................................... 693,000 512,000 7,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-62
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
The Samuel Goldwyn Company (the "Company") is engaged in the production and
distribution of motion picture films in the theatrical, videocassette,
television and ancillary markets, the production and licensing of television
programs, and the operation of a movie theatre circuit.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of The Samuel
Goldwyn Company and its subsidiaries. All significant intercompany accounts have
been eliminated.
USE OF ESTIMATES
The preparation of these financial statements in conformity with generally
accepted accounting principles required 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 these estimates.
FILM DISTRIBUTION REVENUES
Theatrical films are distributed in the various media of exhibition
depending upon the Company's distribution rights to the films. A motion picture
is initially released (licensed) in the theatrical market. Approximately six
months thereafter it is licensed to the pay-per-view and home video markets.
Approximately one year after a film's initial theatrical release, it is licensed
to the pay television market and subsequently to the syndicated television
market two or more years after pay television. Distribution of motion pictures
in foreign territories approximates the domestic release pattern.
Revenues from theatrical distribution are recognized as the films are
exhibited. Distribution of the Company's films in foreign countries is primarily
accomplished through the licensing of various distribution rights to
subdistributors. The terms of licensing agreements with such subdistributors
generally include the receipt of non-refundable guaranteed amounts by the
Company and accordingly, revenue is recognized when the film is available for
exhibition.
FILM EXHIBITION REVENUES
Theatre admission revenues, and related film rental expenses, are recognized
as films are exhibited.
TELEVISION LICENSING REVENUES
Television licensing revenues are derived from licensing the rights to
telecast a program on either a barter basis or for a cash license fee. For
programs licensed on a barter basis, typically to independent television
stations, the Company receives rights to advertising time and hires an agent to
sell on its behalf the advertising time retained within its programs (See Note
8). Television licensing revenues are generally recognized when the program
material is available for telecast by the licensee and when certain other
conditions are met. Revenue from barter basis license agreements is recorded as
the advertising within the programs is aired based on statements received from
the agent.
CASH EQUIVALENTS
The Company's cash equivalents consist of cash on hand and highly liquid
investments purchased with maturities of three months or less.
F-63
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1-- DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:-- (CONTINUED)
FILM COSTS
Film costs include acquisition costs, production costs and exploitation
costs. Such costs are amortized, and participation expenses are accrued, in the
proportion that revenue recognized during the year for each film bears to the
estimated total revenue to be received from all sources under the individual
film forecast method. Estimated total revenues and costs are reviewed on a
quarterly basis and revisions to amortization rates are recorded as necessary.
Film costs are stated at the lower of unamortized cost or estimated net
realizable value.
PROPERTY AND EQUIPMENT
Property, equipment and leasehold improvements are carried at cost and
depreciated over their estimated useful lives. Buildings (asset lives of 25
years) and equipment, furniture and fixtures (asset lives of 3 to 7 years) are
depreciated on the straight-line method. Theatre leasehold interests and
leasehold improvements are amortized on a straight-line basis over the lesser of
the estimated useful lives of the improvements or the terms of the respective
leases. Maintenance and repairs are expensed as incurred.
GOODWILL AMORTIZATION
The excess of the cost of purchased businesses over their net book value at
date of acquisition (classified as other assets in the consolidated balance
sheet) is amortized over a period of 20 years. The Company periodically reviews
the value of its goodwill to determine if an impairment has occurred. In making
such determination, the Company evaluates the performance, on a non-discounted
basis, of the underlying businesses whose acquisition gave rise to such amount.
INCOME TAXES
The provision for income taxes is computed using the asset and liability
method specified by Statement of Financial Accounting Standards No. 109,
"Accounting For Income Taxes." Under SFAS 109, deferred income taxes are
provided for the temporary differences between the financial reporting basis and
the tax basis of the Company's assets and liabilities.
INCOME (LOSS) PER SHARE
Net income (loss) per share is computed based upon the weighted average
number of common and common equivalent shares outstanding during the year.
NOTE 2--MERGER WITH METROMEDIA INTERNATIONAL GROUP, INC.:
On December 19, 1995, a Letter Agreement (the "Letter Agreement") was
entered into among PolyGram Filmed Entertainment Distribution Inc. ("PolyGram"),
the Company and The Samuel Goldwyn Jr. Family Trust confirming the basic terms
set forth in a Deal Memo for the acquisition by PolyGram of certain assets of
the Company. The Deal Memo constituted an agreement in principle for PolyGram to
acquire distribution rights to the Company's film and television library
together with the assumption of certain related assets and liabilities for
$62,000,000 in cash consideration, subject to adjustment. The transaction was to
exclude the Company's other interests including its chain of theaters, film and
television projects in development and domestic and foreign distribution
operations. As no definitive documentation was entered into by January 22, 1996,
substantially all of the provisions
F-64
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--MERGER WITH METROMEDIA INTERNATIONAL GROUP, INC.:--(CONTINUED)
of the Letter Agreement are of no further force and effect, except for the
Company's obligation to pay PolyGram a break up fee of $2,000,000 plus
PolyGram's costs and expenses associated with the transaction.
On January 31, 1996 the Company and Metromedia International Group, Inc.
("MIG") entered into a definitive merger agreement providing for the merger of
the Company into a wholly owned subsidiary of MIG. The terms of the merger
agreement provide for the Company's shareholders to receive $5.00 worth of MIG
stock for each Company share, provided that the average closing price per share
of MIG stock over the 20 consecutive-day trading period ending five business
days prior to the Company's stockholder meeting to approve the merger is between
$12.50 and $16.50. If the average closing price is lower than $12.50,
shareholders of the Company will receive for each Company share 0.4 shares of
MIG common stock; if the average price is higher than $16.50 shareholders will
receive for each Company share 0.303 shares of MIG common stock.
The Boards of Directors of MIG and the Company have approved the merger. The
consummation of the merger is subject to customary closing conditions, including
approval of the transaction by the stockholders of the Company, and the receipt
of all regulatory approvals including the lapse or early termination of the
applicable waiting period under the Hart-Scott-Rodino Act (which has lapsed),
and other customary conditions. In connection with the transaction, The Samuel
Goldwyn Jr. Family Trust, which owns 60% of the outstanding common stock of the
Company, has agreed to vote in favor of the merger pursuant to the terms of a
Voting Agreement with MIG dated as of January 31, 1996. In addition, MIG has
caused Orion Pictures Corporation ("Orion") to provide the Company up to
$5,500,000 of interim financing, and in connection therewith, the Company and
Orion have entered into a six-picture distribution agreement.
Pursuant to the definitive merger agreement, it is the intention of the
parties to refinance (or extend the maturity date of) the entire outstanding
balance of the Company's bank indebtedness and it is a condition of closing that
such amounts shall have been repaid or refinanced in full.
MIG is a worldwide communications, media and entertainment company. Its core
businesses are Metromedia International Telecommunications, Inc., a company
which operates wireless cable, communications and media businesses in Eastern
Europe and former Soviet Republics; and Orion, a motion picture production and
distribution company with a film library of more than 1,000 titles.
The Company incurred a net loss of approximately $20 million in fiscal 1995
and approximately $32.8 million in fiscal 1996 and experienced a decrease in
working capital during both years. As a result, the Company has been unable to
refinance its bank debt for a period extending beyond June 28, 1996. In the
absence of alternative financing or consummation of the merger, the Company will
have insufficient liquidity to repay the loan upon maturity and may experience
liquidity shortfalls in meeting on-going obligations. Management believes that
one or more members of the Company's current bank syndicate may be unwilling to
further extend or restructure the agreement beyond the maturity date.
NOTE 3--ISSUANCE OF STOCK:
In October 1993, the Company completed a public offering of 2,472,500 shares
of common stock. The proceeds to the Company from this stock offering, net of
underwriter's discount, commissions and offering expenses were $23,567,000 and
were applied to reduce bank indebtedness.
F-65
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--FILM COSTS:
Film costs, net of amortization, consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Theatrical Film Costs
Released...................................... $43,415,000 $54,600,000
Completed, not released....................... 1,661,000 891,000
In process.................................... 2,713,000 2,075,000
----------- -----------
47,789,000 57,566,000
----------- -----------
Television Film Costs
Released...................................... 16,049,000 14,508,000
In process.................................... 61,000 2,006,000
----------- -----------
16,110,000 16,514,000
----------- -----------
$63,899,000 $74,080,000
----------- -----------
----------- -----------
</TABLE>
The Company did not capitalize any interest in connection with the
production of films and television series during the year ended March 31, 1996.
The Company capitalized approximately $736,000 of interest incurred in
connection with the production of films and television series during the year
ended March 31, 1995. The Company currently anticipates that approximately 75%
of the unamortized costs related to released films will be amortized under the
individual film forecast method during the three years ending March 31, 1999.
F-66
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Receivables:
Accounts receivable........................... $10,019,000 $12,311,000
Allowance for doubtful accounts............... (998,000) (880,000)
Unamortized discount.......................... -- (226,000)
----------- -----------
$ 9,021,000 $11,205,000
----------- -----------
----------- -----------
Property and equipment:
Land and buildings............................ $ 4,190,000 $ 4,190,000
Theatre leasehold interests................... 25,214,000 20,908,000
Leasehold improvements........................ 8,322,000 6,018,000
Equipment, furniture and fixtures............. 7,696,000 6,832,000
Construction in progress...................... 84,000 898,000
----------- -----------
45,506,000 38,846,000
Accumulated depreciation...................... (13,300,000) (10,693,000)
----------- -----------
$32,206,000 $28,153,000
----------- -----------
----------- -----------
Other assets:
Goodwill, net of amortization of $974,000 and
$745,000........................................ $ 3,619,000 $ 3,848,000
Deferred charges.............................. -- 782,000
Other miscellaneous........................... 1,256,000 1,557,000
----------- -----------
$ 4,875,000 $ 6,187,000
----------- -----------
----------- -----------
Accounts payable and accrued expenses
Accounts payable.............................. $ 5,020,000 $ 5,305,000
Accrued expenses.............................. 4,511,000 1,874,000
----------- -----------
$ 9,531,000 $ 7,179,000
----------- -----------
----------- -----------
Deferred Revenue
Home video deposit............................ $17,115,000 $20,000,000
Other deposits................................ 1,468,000 1,717,000
----------- -----------
$18,583,000 $21,717,000
----------- -----------
----------- -----------
</TABLE>
Deferred charges at March 31, 1995 consisted of costs incurred in connection
with obtaining the Company's credit facilities. Such costs were amortized on a
straight-line basis over the applicable term of the credit agreements.
In December 1994 the Company entered into a servicing agreement with a video
distributor, Hallmark Home Entertainment ("Hallmark"), and received a deposit
against the delivery of future titles. The deposit has been classified as
deferred revenue and is being recognized as revenue upon the release of titles
by Hallmark.
F-67
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--NOTES PAYABLE:
Notes payable consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Notes payable to banks.......................... $72,900,000 $62,400,000
Capital lease obligations....................... 5,950,000 1,355,000
Other notes payable............................. 3,179,000 3,855,000
----------- -----------
$82,029,000 $67,610,000
----------- -----------
----------- -----------
</TABLE>
On April 28, 1995, the Company entered into a $77,400,000 credit facility
with its bank lenders. This facility was comprised of a $62,400,000 term loan
and a $15,000,000 revolving credit facility. The entire facility was converted
to a term loan in February 1996. The maturity date of the credit facility was
April 30, 1996. The maturity date of the credit facility has been extended to
June 28, 1996 as a result of a recent amendment to the credit agreement. The
revolving credit facility bore interest at either the bank's reference (prime)
rate plus 1% or LIBOR plus 2%. The term loan bore interest at LIBOR plus 2%.
Pursuant to an amendment to the loan agreement dated as of November 30, 1995,
the outstanding loan amount subsequent to such date bears interest at the bank's
prime rate plus 1.50% or LIBOR plus 2.5%, at the Company's option, both rates
increasing by one-half percent each month for months subsequent thereto until
maturity. At March 31, 1996, the Bank's prime rate was 8.25%. The Company's
effective interest rate for the year ended March 31, 1996 was 10.47%, including
interest related to its interest rate swap. The credit facility contains
covenants which, among other things, require adherence to certain financial
ratios and balances and impose limitations on film acquisition and production
costs and general and administrative costs. The credit facility is secured by
substantially all of the Company's assets and the films owned by The Samuel
Goldwyn Jr. Family Trust.
The Company is currently not in default under its credit agreement and on
April 26, 1996, entered into an amendment to such agreement with its bank
lenders to extend the maturity date of the credit facility to June 28, 1996 and
to continue the waiver of certain financial ratio covenants to the maturity date
of the credit agreement.
The Company has an interest rate swap agreement with its bank which had a
total notional principal amount of $15,000,000 and $35,000,000 at March 31, 1996
and 1995, respectively. The weighted average receipt and payment rates
associated with the swap agreements at March 31, 1996 and 1995 were 6.35% and
9.50%, respectively. The incremental interest expense related to the swap
agreement was $197,000, $511,000, and $630,000 for the years ended March 31,
1996, 1995 and 1994, respectively. The swap terminates on December 31, 1996 and
its fair value as of March 31, 1996 was $116,000. The Company has exposure to
credit risk but does not anticipate nonperformance by the counterparties to the
agreement.
Other notes payable at March 31, 1996 are comprised of various obligations
of the Theatre Goup. Interest and principal payments under these notes are due
monthly through October 2003. The notes accrue interest at rates ranging from 9%
to 10.5% per annum and are collateralized by various theatres and equipment.
NOTE 7--INCOME TAXES:
Effective April 1, 1993 the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109) "Accounting for Income Taxes." This
statement superseded SFAS 96 which the
F-68
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--INCOME TAXES:--(CONTINUED)
Company had previously adopted. The cumulative effect of adopting SFAS 109 was
immaterial and was recorded in the first quarter of fiscal 1994.
Income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------
1996 1995 1994
------------ ------------ ----------
<S> <C> <C> <C>
Income (loss) before income taxes.................. $(32,668,000) $(27,246,000) $3,398,000
------------ ------------ ----------
------------ ------------ ----------
Provision (benefit) for income taxes:
Current--
Federal........................................ $ -- $ (161,000) $ 256,000
State.......................................... 20 000 162,000 63,000
Foreign........................................ 951,000 443,000 750,000
------------ ------------ ----------
971,000 444,000 1,069,000
------------ ------------ ----------
Deferred--
Federal........................................ -- (5,582,000) 802,000
State.......................................... (1,512,000) (2,025,000) 41,000
------------ ------------ ----------
(1,512,000) (7,607,000) 843,000
------------ ------------ ----------
Provision (benefit) on income before extraordinary
items.............................................. (541,000) (7,163,000) 1,912,000
Provision on extraordinary item.................... (40,000) -- 506,000
------------ ------------ ----------
Total tax provision (benefit)...................... $ (581,000) $ (7,163,000) $2,418,000
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
At March 31, 1996, the major tax effected components of the deferred tax
liability are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Operating loss carryforwards................................ $16,560,000
Foreign tax credits......................................... 910,000
Investment tax credits...................................... 203,000
Participations accrued...................................... 5,577,000
Deferred revenue............................................ 5,806,000
Receivables................................................. 1,645,000
Accruals, reserves and other................................ 75,000
-----------
30,776,000
Valuation allowance......................................... (13,710,000)
-----------
17,066,000
-----------
-----------
Deferred tax liabilities:
Film costs.................................................. 12,859,000
Depreciation and amortization............................... 4,007,000
Other....................................................... 200,000
-----------
17,066,000
-----------
Net deferred tax liability.................................. $ 0
-----------
-----------
</TABLE>
Deferred taxes reflect timing differences in the recognition of certain
income and expense items for financial reporting and income tax purposes. The
valuation allowance which has been provided against a portion of deferred tax
assets increased by $11,668,000 during fiscal 1996.
F-69
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--INCOME TAXES:--(CONTINUED)
The components of the deferred income tax provision (benefit) are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------
1995 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Film cost, net....................................... $ 29,000 $(3,218,000) $ 333,000
Revenue recognition.................................. (1,404,000) (6,631,000) 580,000
State taxes.......................................... 119,000 1,361,000 46,000
Fixed assets......................................... (77,000) (601,000) 215,000
Other................................................ (179,000) 1,482,000 156,000
----------- ----------- ----------
$(1,512,000) $(7,607,000) $1,330,000
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
A reconciliation of the federal statutory tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------
1996 1995 1994
----- ----- ----
<S> <C> <C> <C>
Federal statutory tax (benefit) rate................................ (34.0)% (34.0)% 34.0%
State taxes, net of federal benefit................................. (3.1) (4.9) 5.1
Foreign taxes, net of federal benefit............................... 1.9 1.1 14.6
Non-deductible expenses............................................. 2.8 0.3 2.4
Deferred tax valuation allowance.................................... 33.9 7.5 --
Other............................................................... (3.2) 3.7 0.2
----- ----- ----
Effective tax (benefit) rate........................................ (1.7)% (26.3)% 56.3%
----- ----- ----
----- ----- ----
</TABLE>
At March 31, 1996, the Company had consolidated net operating loss ("NOL")
carryovers of approximately $47,798,000 for federal tax return purposes expiring
through 2010. The Company also has investment tax credit carryovers for tax
purposes totaling approximately $200,000 expiring through 2001. However, because
of the prospective change in ownership that will result upon the completion of
the pending merger with MIG, the Company's utilization of its NOL and other tax
credits may be subject to annual limitations in periods subsequent to the
merger.
F-70
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8--SEGMENT INFORMATION:
The Company operates principally in two business segments: film and
television distribution and theatrical exhibition. Financial information
relative to these business segments is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE
Film and television distribution................ $ 56,886,000 $ 45,919,000 $ 68,465,000
------------ ------------ ------------
Theatrical exhibition........................... 50,898,000 45,429,000 40,326,000
------------ ------------ ------------
$107,784,000 $ 91,348,000 $108,791,000
------------ ------------ ------------
------------ ------------ ------------
OPERATING INCOME (LOSS)
Film and television distribution $(25,751,000) $(23,492,000) $ 6,668,000
Theatrical exhibition........................... 1,573,000 1,872,000 2,362,000
------------ ------------ ------------
$(24,178,000) $(21,620,000) $ 9,030,000
------------ ------------ ------------
------------ ------------ ------------
DEPRECIATION AND AMORTIZATION
Film and television distribution................ $ 201,000 $ 267,000 $ 146,000
Theatrical exhibition........................... 3,569,000 3,241,000 2,983,000
------------ ------------ ------------
$ 3,770,000 $ 3,508,000 $ 3,129,000
------------ ------------ ------------
------------ ------------ ------------
IDENTIFIABLE ASSETS
Film and television distribution................ $ 74,916,000 $ 92,580,000 $ 94,138,000
Theatrical exhibition........................... 36,934,000 33,367,000 29,737,000
------------ ------------ ------------
$111,850,000 $125,947,000 $123,875,000
------------ ------------ ------------
------------ ------------ ------------
CAPITAL EXPENDITURES
Film and television distribution................ $ 7,000 $ 291,000 $ 171,000
Theatrical exhibition........................... 7,607,000 6,763,000 2,936,000
------------ ------------ ------------
$ 7,614,000 $ 7,054,000 $ 3,107,000
------------ ------------ ------------
------------ ------------ ------------
DOMESTIC AND EXPORT REVENUES
United States................................... $ 86,971,000 $ 79,542,000 $ 84,572,000
Export revenues (including Canada).............. 20,813,000 11,806,000 24,219,000
------------ ------------ ------------
$107,784,000 $ 91,348,000 $108,791,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Certain of the Company's television programming is distributed under barter
basis agreements, primarily through one barter sales agent. Barter revenue is
determined based on actual sales of advertising time as reported by the barter
sales agent, and is recognized when the advertising within the programming is
aired. Barter revenue recognized during the years ended March 31, 1996, 1995 and
1994 was $5,002,000, $10,414,000 and $10,929,000, respectively, which
constituted approximately 5%, 10% and 10%, respectively, of the Company's total
revenues for such years.
There is no country outside of the United States in which the Company does
business that individually contributed significantly to total revenues.
F-71
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--RELATED PARTY TRANSACTIONS:
LICENSES TO FILMS BENEFICIALLY OWNED BY SAMUEL GOLDWYN JR.
The Company entered into a distribution agreement dated March 1, 1991 with
The Samuel Goldwyn Jr. Family Trust (the "Goldwyn Trust") for the worldwide
distribution in all media of the over 70 theatrical motion pictures which were
produced by Samuel Goldwyn Sr. and which are owned by the Goldwyn Trust. The
term of the agreement expires December 31, 2003, subject to automatic renewal
for an additional two year period, and thereafter for additional one-year
periods upon expiration of the initial term. The agreement provided that from
March 1, 1991 through December 31, 1993, the Goldwyn Trust received 50% of the
proceeds derived from the distribution of such films after the payment of all
costs relating to such distribution, with the Company retaining the remaining
50% of such net proceeds as its distribution fee. From January 1, 1994 until
December 31, 1996, the Goldwyn Trust will receive all gross receipts derived
from the distribution of such films, after the payment to the Company of a
distribution fee equal to 35% of gross receipts and after the Company recoups
all costs incurred in connection with such distribution. From January 1, 1997
until December 31, 2003 and during any renewal periods after December 31, 2003,
the distribution fee payable to the Company will be 30%.
The films owned by the Goldwyn Trust partially secure the Company's notes
under its credit facility. Such credit facility further provides that the amount
of participations that may be paid to the Goldwyn Trust and its beneficiaries in
any one year may not exceed $800,000 and that no distributions may be made that
will result in the aggregate participation payable being less than $8,500,000.
For the fiscal years ended March 31, 1996, 1995 and 1994, the Company accrued
obligations of $1,445,000, $1,141,000 and $1,836,000, respectively, as a result
of revenues being recognized by the Company from such films during such periods.
The Goldwyn Trust, however, received payments of $465,000, $800,000 and
$700,000, respectively from the Company during such years. As of March 31, 1996,
a profit participation in the amount of $10,353,000 remained payable by the
Company. This participation payable does not bear interest.
SAMUEL GOLDWYN PRODUCTIONS AND NIGHTLIFE, INC.
Samuel Goldwyn Productions ("Productions") is a California corporation which
is wholly owned by Samuel Goldwyn Jr. and is involved in the acquisition and
development of literary properties for production as motion pictures. Under a
non-exclusive agreement between the Company and Productions, the Company
reimburses Productions for all accountable out-of-pocket costs incurred by
Productions in connection with the development of properties undertaken at the
request and on behalf of the Company, regardless of whether such properties are
then acquired by the Company. For the years ended March 31, 1996, 1995 and 1994,
the Company reimbursed Productions $205,000, $418,000 and $446,000,
respectively, for development costs associated with properties acquired or to be
acquired by the Company.
Nightlife, Inc. is a California corporation which is wholly owned by the
President of the Company, and is involved in the production of motion pictures
and television programs. The Company reimburses Nightlife, Inc. for all
accountable out-of-pocket costs incurred in connection with any motion picture
or television program which it produces for the Company. In addition to
reimbursement for these actual costs, the Company pays Nightlife, Inc. an annual
fee of $10,000 plus a 2.5% net profit participation in the films and television
programs it produces. To date, the Company has neither paid, nor is it required
to accrue, any profit participations to Nightlife, Inc. For the years ended
March 31, 1996, 1995 and 1994, the Company made payments to Nightlife, Inc. of
$375,000, $99,000 and $249,000, respectively. These amounts include $10,000 in
fees each year.
F-72
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--STOCK AWARDS PLANS:
The Company has a stock awards plan under which 1,000,000 shares of the
Company's common stock are available for nonqualified or incentive stock options
or other stock awards. The plan provides that awards may be granted to
consultants and key employees, including officers and directors, of the Company
upon such terms as the Stock Awards Committee of the Board of Directors may
determine. The options that are outstanding have been granted at an exercise
price at least equal to the fair market value at the date of grant and are
generally exercisable in installments over one to five years. Options generally
expire ten years after date of grant. Activity under the stock awards plan was
as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Outstanding at beginning of year.............................. 485,400 185,525 167,800
Awards cancelled.............................................. (198,983) (25,125) (32,000)
Awards granted................................................ 375,250 325,000 50,975
Awards exercised.............................................. -- -- (1,250)
-------- ------- -------
Outstanding at March 31....................................... 661,667 485,400 185,525
-------- ------- -------
-------- ------- -------
</TABLE>
Options outstanding at March 31, 1996 and 1995 ranged in price from $6.00 to
$32.50 per share. Options exercised in 1994 were at $8.00 per share. At March
31, 1996, options for 97,467 shares had vested and were exercisable. There are
337,083 shares available for future awards.
The Company has a Directors' Stock Option Plan under which 25,000 shares of
the Company's common stock are available for nonqualified stock options to
nonemployee members of the Board of Directors to be awarded at the rate of 500
options per year for each Director. At March 31, 1996 and 1995, a total of 7,500
and 4,500 ten year options exercisable from $4.69 to $18.75 per share were
outstanding to the three nonemployee Directors.
Effective April 13, 1993, the Company, Samuel Goldwyn Jr., and the Goldwyn
Trust entered into an Option Agreement (the "Option Agreement") pursuant to
which the Company and Mr. Goldwyn each have unilateral six-year options
entitling (i) Mr. Goldwyn to acquire any part or all of 875,000 shares of Common
Stock at a cash exercise price of $8.00 per share (the market value of the
Common Stock on the date of the Option Agreement), and (ii) the Company to issue
up to 875,000 shares of Common Stock to the Goldwyn Trust in exchange for a
dollar-for-dollar reduction of participations payable, at an exchange price
equal to the then market price of the Common Stock, if such market price is not
greater than $9.00 per share or less than $6.50 per share and if greater or
lesser than such amounts, at $9.00 and $6.50, respectively. If the options were
exercised in their entirety by the Company, or Mr. Goldwyn, and the market price
of the Common Stock at the time of exercise were $8.00 per share, the Company
would issue 875,000 shares in exchange for $7,000,000 in cash or reduction of
participations payable by the Company, as applicable, The 875,000 shares are
considered common stock equivalents and, to the extent that they are dilutive,
have been included in the determination of weighted average number of
outstanding shares used to calculate net income (loss) per share, using the
treasury stock method.
NOTE 12--LEASES:
At March 31, 1996, the Company has long-term operating and capital leases,
primarily involving office and theatre facilities. The leases have varying terms
and contain renewal options. Future
F-73
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--LEASES:--(CONTINUED)
minimum lease payments under non-cancelable operating leases consist of the
following at March 31, 1996:
<TABLE>
<S> <C>
1997.......................................................... $ 5,212,000
1998.......................................................... 4,698,000
1999.......................................................... 3,525,000
2000.......................................................... 3,060,000
2001.......................................................... 2,715,000
Thereafter.................................................... 21,997,000
-----------
Total future minimum lease commitments........................ $41,207,000
-----------
-----------
</TABLE>
At March 31, 1996, future minimum lease payments under capital leases,
including interest, consist of the following:
<TABLE>
<S> <C>
1997.......................................................... $ 868,000
1998.......................................................... 867,000
1999.......................................................... 866,000
2000.......................................................... 1,364,000
2001.......................................................... 769,000
Thereafter.................................................... 9,166,000
-----------
13,900,000
Less amount representing interest............................. (7,950,000)
-----------
Present value of future minimum lease payments................ $ 5,950,000
-----------
-----------
</TABLE>
Total rent expense was $5,660,000, $5,284,000 and $4,717,000 for the years
ending March 31, 1996, 1995 and 1994, respectively.
NOTE 13--COMMITMENTS AND CONTINGENCIES:
As of March 31, 1996, the Company had outstanding guarantees of indebtedness
of approximately $4.7 million related to the production financing of one
theatrical motion picture.
The Company is involved in various lawsuits, claims and inquiries.
Management and its legal counsel believe that the resolution of these matters
will not have a material adverse effect on the financial position of the Company
or the results of its operations.
In December 1994, a decision was entered in the Los Angeles Superior Court
in the case entitled Virgin Vision, Ltd. vs. The Samuel Goldwyn Company
assessing damages against the Company of approximately $3,500,000 plus costs and
legal fees arising out of a complaint filed by Virgin Vision on October 26,
1990, alleging failure by the Company to provide a presentation credit in
certain territories on the foreign distribution by the Company of the motion
picture, sex, lies and videotape. The court assessed such damages after finding
on June 25, 1993 that the Company had committed unfair competition under
California law, violated the federal Lanham Act, breached its contract with
Virgin Vision and breached its fiduciary duty to Virgin Vision as its agent. The
Company has appealed the decision. In the opinion of management, the ultimate
outcome will not have a material adverse effect on the Company's financial
position or results of operations because damages are expected to be covered by
insurance.
F-74
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--COMMITMENTS AND CONTINGENCIES:--(CONTINUED)
On December 28, 1995 a shareholder derivative suit against the Company and
its directors was filed in the Delaware Court of Chancery, Kinder v. The Samuel
Goldwyn Company, et al., C.A. No. 14751. On January 2, 1996, the Company was
served with legal process in connection therewith. In the Complaint, plaintiffs
allege that the Company's deal memorandum with PolyGram Filmed Entertainment
Distribution Inc. was not in the best interests of the shareholders and thus
constituted, among other things, a breach of the director's fiduciary duties to
the Company's shareholders. Plaintiffs seek various forms of relief, including
declaratory, injunctive and compensatory damages. The Company believes the
complaint is without merit and based on consultations with counsel, the Company
believes that the resolution of this matter will not have a material adverse
effect on the Company.
F-75
<PAGE>
- ---------------------------------------- -----------------------------------
- ---------------------------------------- -----------------------------------
NO DEALER, SALESPERSON OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED 15,000,000 SHARES
BY THE COMPANY OR THE UNDER WRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN [LOGO]
OFFER TO SELL, OR SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY METROMEDIA
JURISDICTION WHERE SUCH AN OFFER OR INTERNATIONAL
SOLICITATION WOULD BE UNLAWFUL. NEITHER GROUP, INC.
THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION COMMON STOCK
THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
-------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary................ 3
Risk Factors...................... 10
Use of Proceeds................... 19
Price Range of Common Stock and
Dividend Policy................... 20 ---------------------
Dilution.......................... 21 PROSPECTUS
Capitalization.................... 22 ---------------------
Selected Consolidated Financial
Data.............................. 23
Pro Forma Consolidated Condensed
Financial Information of the
Company........................... 25
Management's Discussion and Analysis DONALDSON, LUFKIN & JENRETTE
of Financial Condition............ 32 SECURITIES CORPORATION
Business.......................... 51
Management........................ 70 FURMAN SELZ
Principal Stockholders............ 72
Description of Certain SCHRODER WERTHEIM & CO.
Indebtedness...................... 74
The Acquisitions.................. 76 , 1996
Certain United States Federal Tax
Consequences to Non-United States
Holders........................... 79
Underwriting...................... 81
Legal Matters..................... 84
Experts........................... 84
Available Information............. 85
Information Incorporated by
Reference......................... 85
Special Note Regarding
Forward-Looking Statements........ 86
Index to Financial Statements.....F-1
- ---------------------------------------- -----------------------------------
- ---------------------------------------- -----------------------------------
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION, DATED JUNE 6, 1996
PROSPECTUS
, 1996
[LOGO]
15,000,000 SHARES
METROMEDIA INTERNATIONAL GROUP, INC.
COMMON STOCK
All of the shares of Common Stock, par value $1.00 per share (the "Common
Stock"), offered hereby are being sold by Metromedia International Group, Inc.
(the "Company" or "MIG").
The Company is offering 15,000,000 shares (assuming no exercise of the
Underwriters' overallotment option) of its Common Stock in the Offering (as
defined below). Of the 15,000,000 shares of Common Stock being offered by the
Company, 3,000,000 shares are being offered for sale outside the United States
and Canada by the International Managers (the "International Offering") and
12,000,000 shares are being offered for sale in the United States and Canada in
a concurrent offering by the U.S. Underwriters (the "U.S. Offering" and,
together with the International Offering, the "Offering"), subject to transfers
between the International Managers and the U.S. Underwriters. See
"Underwriting". The Company intends to consummate the Offering simultaneously
with the consummation of the proposed acquisition (the "Goldwyn Acquisition") of
The Samuel Goldwyn Company ("Goldwyn"), which acquisition is contingent upon
certain conditions, including the refinancing of certain of Goldwyn's
indebtedness. See "The Acquisitions."
The Company's Common Stock is traded on the American Stock Exchange ("AMEX")
under the symbol "MMG." The closing price of the Company's Common Stock as
reported on the AMEX on June 5, 1996 was $14 1/4 per share.
SEE "RISK FACTORS" STARTING ON P. 10 FOR A DISCUSSION OF CERTAIN INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share........................................ $ $ $
Total(3)......................................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the International Managers and the U.S.
Underwriters (collectively, the "Underwriters") against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the U.S. Underwriters a 30-day option to purchase
up to 2,250,000 additional shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions and Proceeds to
the Company will be $ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to various prior conditions, including the rights of
the Underwriters to reject any order in whole or in part. It is expected that
delivery of the shares will be made in New York, New York on or about
, 1996.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
FURMAN SELZ
SCHRODERS
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
<PAGE>
- ---------------------------------------- -----------------------------------
- ---------------------------------------- -----------------------------------
NO DEALER, SALESPERSON OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED 15,000,000 SHARES
BY THE COMPANY OR THE UNDER WRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN [LOGO]
OFFER TO SELL, OR SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY METROMEDIA
JURISDICTION WHERE SUCH AN OFFER OR INTERNATIONAL
SOLICITATION WOULD BE UNLAWFUL. NEITHER GROUP, INC.
THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION COMMON STOCK
THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
THERE ARE RESTRICTIONS ON THE OFFER
AND SALE OF THE COMMON STOCK OFFERED
HEREBY IN THE UNITED KINGDOM. ALL
APPLICABLE PROVISIONS OF THE FINANCIAL
SERVICES ACT 1986 AND THING DONE BY ANY
PERSONS IN RELATION TO THE COMMON STOCK
IN, FROM OR OTHERWISE INVOLVING THE
UNITED KINGDOM MUST BE COMPLIED WITH.
SEE "UNDERWRITING."
IN THIS PROSPECTUS, REFERENCE TO
"DOLLARS" AND "$" ARE TO UNITED STATES
DOLLARS UNLESS STATED OTHERWISE.
-------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary................ 3
Risk Factors...................... 10
Use of Proceeds................... 19
Price Range of Common Stock and
Dividend Policy................... 20 ---------------------
Dilution.......................... 21 PROSPECTUS
Capitalization.................... 22 ---------------------
Selected Consolidated Financial
Data.............................. 23
Pro Forma Consolidated Condensed
Financial Information of the
Company........................... 25
Management's Discussion and Analysis DONALDSON, LUFKIN & JENRETTE
of Financial Condition............ 32 SECURITIES CORPORATION
Business.......................... 51
Management........................ 70 FURMAN SELZ
Principal Stockholders............ 72
Description of Certain SCHRODER WERTHEIM & CO.
Indebtedness...................... 74
The Acquisitions.................. 76 , 1996
Certain United States Federal Tax
Consequences to Non-United States
Holders........................... 79
Underwriting...................... 81
Legal Matters..................... 84
Experts........................... 84
Available Information............. 85
Information Incorporated by
Reference......................... 85
Special Note Regarding
Forward-Looking Statements........ 86
Index to Financial Statements.....F-1
- ---------------------------------------- -----------------------------------
- ---------------------------------------- -----------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection with the
issuance and distribution of the securities registered hereby, all of which
expenses, except for the SEC registration fee and the NASD filing fee, are
estimated:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 81,046
--------
National Association of Securities Dealers, Inc. filing fee..... 24,004
--------
AMEX listing fee................................................ 17,500
Printing expenses............................................... 225,000
Legal fees and expenses (other than Blue Sky)................... 375,000
Accounting fees and expenses.................................... 200,000
Blue Sky fees and expenses (including legal fees)............... 20,000
Miscellaneous................................................... 12,450
--------
Total....................................................... $955,000
--------
--------
</TABLE>
- ------------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Law") empowers a Delaware corporation to indemnify any persons who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceedings, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer, director,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include judgments, fines, amounts
paid in settlement and expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided that such officer or director acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interests, and, with respect to criminal proceedings, had no reasonable cause to
believe his conduct was illegal. A Delaware corporation may indemnify its
officers and directors against expenses actually and reasonably incurred by them
in connection with an action by or in the right of the corporation under the
same conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation
in the performance of his duty. Where an officer or director is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually and reasonably incurred in connection therewith.
Section 102(b)(7) of the Delaware Law further provides that a corporation in
its certificate of incorporation may eliminate or limit the personal liability
of its directors to the corporation or its stockholders for breach of their
fiduciary duties in certain circumstances.
In accordance with Section 145 of the Delaware Law, the Company's Restated
Certificate of Incorporation provides that the Company shall 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.
In addition, as permitted by Section 102(b)(7) of the Delaware Law, the
Company's Restated Certificate of Incorporation contains a provision limiting
the personal liability of the Company's directors for violations of their
fiduciary duties to the fullest extent permitted by the Delaware Law.
II-1
<PAGE>
This provision eliminates each director's liability to the Company or its
stockholders for monetary damages except (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the Delaware Law, or (iv) for any transaction
from which a director derived an improper personal benefit. The general effect
of this provision is to eliminate a director's personal liability for monetary
damages for actions involving a breach of his or her fiduciary duty of care,
including any such actions involving gross negligence.
Also, in accordance with the Delaware Law and pursuant to the Company's
Restated Certificate of Incorporation, the Company is authorized to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Company, is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of such person's status as such, whether or not the Company would
have the power to indemnify such person against liability under the Delaware
Law.
The Company has entered into agreements (the "Indemnification Agreements")
with certain directors and officers of the Company (the "Indemnified Parties")
which require the Company to indemnify each Indemnified Party against, and to
advance expenses incurred by each Indemnified Party in the defense of, any claim
arising out of his or her employment to the fullest extent permitted under law.
The Indemnification Agreements also provide, among other things, for (i)
advancement by the Company of expenses incurred by the director or officer in
defending certain litigation, (ii) the appointment of an independent legal
counsel to determine whether the director or officer is entitled to indemnity
and (iii) the continued maintenance by the Company of directors' and officers'
liability insurance providing each director or officer who is a party to any
such agreement with $5 million of primary coverage and an excess policy
providing $5 million of additional coverage. These Indemnification Agreements
were approved by the stockholders at the Company's 1993 Annual Meeting of
Stockholders.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. EXHIBITS
The exhibits listed below are filed as part of or incorporated by reference
in this Registration Statement. Where such filing is made by incorporation by
reference to a previously filed report, such report is identified in
parentheses. See the Index of Exhibits included with the exhibits filed as part
of this Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement
2.2 Agreement and Plan of Merger dated as of January 31, 1996 by and among the
Registrant, The Samuel Goldwyn Company and SGC Merger Corp., without disclosure
schedules (Exhibit 99.1 to the Current Report on Form 8-K dated January 31, 1996).
The Registrant agrees to furnish a copy of any omitted schedule supplementally to
the Commission upon request.
2.3 Agreement and Plan of Merger dated as of December 20, 1995 by and among the
Registrant, Alliance Merger Corp. and Alliance Entertainment Corp., without
disclosure schedules (Exhibit 99.1 to the Current Report on Form 8-K dated December
20, 1995). The Registrant agrees to furnish a copy of any omitted schedule
supplementally to the Commission upon request.
2.4 Termination and Release Agreement dated April 29, 1996 by and among the Registrant,
Alliance Merger Corp., and Alliance Entertainment Corp. (Exhibit 99.2 to the Current
Report on Form 8-K dated April 29, 1996).
2.5* Amended and Restated Agreement and Plan of Merger, dated as of May 17, 1996, by and
among the Registrant, Motion Picture Corporation of America, Bradley Krevoy, Steven
Stabler and MPCA Merger Corp. The Registrant agrees to furnish a copy of any omitted
schedule supplementally to the Commission upon request.
4.1 Restated Certificate of Incorporation of the Registrant (Exhibit 3(a) to
Registration Statement on Form S-3 (Registration No. 33-63853)).
4.2 Restated By-laws of the Registrant (Exhibit 3(b) to Registration Statement on Form
S-3 (Registration No. 33-63853)).
5* Opinion of Paul, Weiss, Rifkind, Wharton & Garrison regarding the legality of the
Securities being registered.
23.1** Consent of KPMG Peat Marwick LLP regarding the Registrant.
23.2** Consent of Ernst & Young LLP regarding the Registrant.
23.3** Consent of Price Waterhouse LLP regarding Goldwyn.
23.4* Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in the opinion filed
as Exhibit 5 hereto).
24 Power of Attorney (included on page II-5 of the Registration Statement on Form S-3
filed on May 8, 1996 (File No. 333-3353)).
</TABLE>
- ------------
* Filed herewith.
** Previously filed.
B. FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules have been omitted because they are not
applicable or not required or because the information has been incorporated by
reference.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
II-3
<PAGE>
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets the
requirements for filing on Form S-3 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Atlanta, State of Georgia:
METROMEDIA INTERNATIONAL GROUP, INC.
By: /s/ JOHN D. PHILLIPS
..................................
John D. Phillips
President and Chief Executive
Officer
Date: June 27, 1996
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated on the 27th day of
June, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ---------------------------------------------
<S> <C>
* Chairman of the Board
.............................................
John W. Kluge
* Vice Chairman of the Board
.............................................
Stuart Subotnick
* President and Chief Executive Officer and
............................................. Director (Principal Executive Officer)
John D. Phillips
* Senior Vice President, Chief Financial
............................................. Officer and Director (Principal Financial
Silvia Kessel Officer)
* Senior Vice President, General Counsel and
............................................. Director
Arnold L. Wadler
* Senior Vice President (Principal Accounting
............................................. Officer)
Robert A. Maresca
* Director
.............................................
John P. Imlay, Jr.
* Director
.............................................
Clark A. Johnson
* Director
.............................................
Richard J. Sherwin
* Director
.............................................
Leonard White
* Director
.............................................
Carl E. Sanders
</TABLE>
By /s/ SILVIA KESSEL
..........................................
Silvia Kessel
Attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
- ------- -------------------------------------------------------------------------- --------
<S> <C> <C>
1.1* Form of Underwriting Agreement............................................
2.2 Agreement and Plan of Merger dated as of January 31, 1996 by and among the
Registrant, The Samuel Goldwyn Company and SGC Merger Corp., without
disclosure schedules (Exhibit 99.1 to the Current Report on Form 8-K dated
January 31, 1996). The Registrant agrees to furnish a copy of any omitted
schedule supplementally to the Commission upon request....................
2.3 Agreement and Plan of Merger dated as of December 20, 1995 by and among
the Registrant, Alliance Merger Corp. and Alliance Entertainment Corp.,
without disclosure schedules (Exhibit 99.1 to the Current Report on Form
8-K dated December 20, 1995). The Registrant agrees to furnish a copy of
any omitted schedule supplementally to the Commission upon request........
2.4 Termination and Release Agreement dated April 29, 1996 by and among the
Registrant, Alliance Merger Corp., and Alliance Entertainment Corp.
(Exhibit 99.2 to the Current Report on Form 8-K dated April 29, 1996).....
2.5* Amended and Restated Agreement and Plan of Merger, dated as of May 17,
1996, by and among the Registrant, Motion Picture Corporation of America,
Bradley Krevoy, Steven Stabler and MPCA Merger Corp. The Registrant agrees
to furnish a copy of any omitted schedule supplementally to the Commission
upon request.
4.1 Restated Certificate of Incorporation of the Registrant (Exhibit 3(a) to
Registration Statement on Form S-3 (Registration No. 33-63853)).
4.2 Restated By-laws of the Registrant (Exhibit 3(b) to Registration Statement
on Form S-3 (Registration No. 33-63853)).
5* Opinion of Paul, Weiss, Rifkind, Wharton & Garrison regarding the legality
of the Securities being registered........................................
23.1** Consent of KPMG Peat Marwick LLP regarding the Registrant.................
23.2** Consent of Ernst & Young LLP regarding the Registrant.....................
23.3** Consent of Price Waterhouse LLP regarding Goldwyn.........................
23.4* Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in the
opinion filed as Exhibit 5 hereto)........................................
24 Power of Attorney (included on page II-5 of the Registration Statement on
Form S-3 filed May 8, 1996 (File No. 333-3353))...........................
</TABLE>
- ------------
* Filed herewith.
** Previously filed.
Exhibit 1.1
15,000,000 SHARES
METROMEDIA INTERNATIONAL GROUP, INC.
COMMON STOCK
($1.00 PAR VALUE)
UNDERWRITING AGREEMENT
----------------------
June __, 1996
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
FURMAN SELZ LLC
SCHRODER WERTHEIM & CO. INCORPORATED
As representatives of the several U.S. Underwriters named in
Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
FURMAN SELZ LLC
J. HENRY SCHRODER & CO. LIMITED
As representatives of the several International
Managers named in Schedule II hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Ladies and Gentlemen:
Metromedia International Group, Inc., a Delaware corporation (the
"Company"), confirms its agreement with (i) the several U.S. underwriters
listed in Schedule I hereto (the "U.S. Underwriters"), for whom Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ"), Furman Selz LLC ("Furman
Selz") and Schroder Wertheim & Co. Incorporated have been duly authorized
to act as representatives (the "U.S. Representatives"), and (ii) the
several International Managers named in Schedule II
<PAGE>
hereto (the "International Managers"), for whom DLJ, Furman Selz and J.
Henry Schroder & Co. Limited have been duly authorized to act as repre-
sentatives (the "International Representatives" and, together with the U.S.
Representatives, the "Representatives"). The U.S. Underwriters and the
International Managers are hereinafter collectively referred to as the
"Underwriters." The agreement is as follows:
1. The Shares. Subject to the terms and conditions herein set
----------
forth, the Company proposes to sell to the Underwriters an aggregate of
15,000,000 shares (the "Firm Shares") of common stock, $1.00 par value per
share, of the Company (the "Common Stock") as follows: 12,000,000 Firm
Shares (the "U.S. Shares") of Common Stock will be sold to the U.S.
Underwriters in connection with the offering and sale of such U.S. Shares
in the United States and Canada to United States and Canadian Persons (as
such terms are defined in the Agreement between U.S. Underwriters and
International Managers of even date herewith), and 3,000,000 Firm Shares
(the "International Shares") will be sold to the International Managers in
connection with the offering and sale of such International Shares outside
the United States and Canada to persons other than United States and
Canadian Persons.
The Company also proposes to sell to the U.S. Underwriters an
aggregate of not more than 2,250,000 additional shares of Common Stock (the
"Additional Shares"), if requested by the U.S. Underwriters as provided in
Section 3 hereof. The Firm Shares and the Additional Shares are herein
collectively called the "Shares."
The Shares are being issued and sold concurrently with the
consummation of (i) the merger (the "Goldwyn Merger") of a wholly owned
subsidiary of the Company with and into The Samuel Goldwyn Company, a Dela-
ware corporation ("Goldwyn"), and (ii) the merger (the "MPCA Merger") of a
wholly owned subsidiary of the Company with and into Motion Picture
Corporation of America, a Delaware corporation ("MPCA"). The Goldwyn
Merger is being effected pursuant to the Agreement and Plan of Merger dated
as of January 31, 1996, by and among the Company, SGC Merger Corp., a
Delaware corporation and a wholly owned subsidiary of the Company (the
"Goldwyn
2
<PAGE>
Merger Sub"), and Goldwyn, as amended by Amendment No. 1 to the Goldwyn
Merger Agreement dated as of May 29, 1996 (such agreement, as so amended,
the "Goldwyn Merger Agreement"). Pursuant to the Goldwyn Merger Agreement,
Goldwyn will become a wholly owned subsidiary of the Company. The MPCA
Merger is being effected pursuant to the Agreement and Plan of Merger dated
as of May 17, 1996, by and among the Company, MPCA Merger Corp., a Delaware
corporation and a wholly owned subsidiary of the Company (the "MPCA Merger
Sub"), Bradley Krevoy, Steven Stabler and MPCA (the "MPCA Merger
Agreement"). Pursuant to the MPCA Merger Agreement, MPCA will become a
wholly owned subsidiary of the Company.
Prior to or concurrently with the issuance and sale of the
Shares, Orion Pictures Corporation, a wholly owned subsidiary of the
Company ("Orion"), and Goldwyn will enter into a new $300 million secured
credit facility, consisting of a $200 million five-year term loan facility
and a $100 million revolving credit facility (together with the documents
and agreements contemplated thereby, the "Entertainment Group Credit Facil-
ity"), with Chemical Bank, as administrative agent, and certain lenders
named in such credit facility.
2. Registration Statement and Prospectus. The Company has
-------------------------------------
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of
1933, as amended, and the rules and regulations of the Commission promul-
gated pursuant thereto (collectively, the "Act"), a registration statement
on Form S-3 (No. 333-3353), including a preliminary prospectus, subject to
completion, relating to the Shares. The registration statement contains
two prospectuses to be used in connection with the offering and sale of the
Shares: the U.S. prospectus, to be used in connection with the offering
and sale of Shares in the United States and Canada to United States and
Canadian Persons, and the international prospectus, to be used in connec-
tion with the offering and sale of Shares outside the United States and
Canada to persons other than United States and Canadian Persons. The
international prospectus is identical to the U.S. prospectus except for the
outside front and back cover pages. The registration statement, as amended
at the time it becomes effective or, if a post-effective amendment is filed
with respect thereto, as amended by such
3
<PAGE>
post-effective amendment at the time of its effectiveness (including in
each case all documents incorporated or deemed incorporated by reference
therein, if any, all financial statements and exhibits, and the informa-
tion, if any, contained in a prospectus or term sheet subsequently filed
with the Commission pursuant to Rule 424(b) under the Act and deemed to be
a part of the registration statement at the time of its effectiveness
pursuant to Rule 430A or Rule 434 under the Act (as applicable), and any
additional registration statement relating to the issuance of additional
shares of Common Stock filed pursuant to Rule 462(b) under the Act, is
hereinafter referred to as the "Registration Statement"; and the U.S. pro-
spectus and the international prospectus, constituting a part of the Regis-
tration Statement at the time it became effective, or such revised U.S. or
international prospectus as shall be provided to the Underwriters for use
in connection with the offering of the Shares that differs from the U.S. or
international prospectus on file with the Commission at the time the
Registration Statement became effective including, in each case, all docu-
ments incorporated or deemed incorporated by reference therein, if any, and
including any U.S. or international prospectus subject to completion and
any term sheet meeting the requirements of Rule 434(c), filed pursuant to
Rule 424(b), in the respective forms used to confirm sales of the Shares,
whether or not filed with the Commission pursuant to Rule 424(b) under the
Act, are hereinafter referred to collectively as the "Prospectus."
3. Agreements to Sell and Purchase. On the basis of the
-------------------------------
representations and warranties contained in this Agreement, and subject to
the terms and conditions hereof, the Company agrees to issue and sell to
each of the U.S. Underwriters, and each of the U.S. Underwriters agrees,
severally and not jointly, to purchase from the Company, at a price per
share of $[ ] (the "Purchase Price") the aggregate number of Firm
Shares set forth opposite the name of such U.S. Underwriter in Schedule I
hereto.
On the basis of the representations and warranties contained in
this Agreement, and subject to its terms and conditions, the Company agrees
to issue and sell to each of the International Managers, and each of the
International Managers agrees, severally and not jointly, to purchase from
the Company at the Purchase
4
<PAGE>
Price the aggregate number of Firm Shares set forth opposite the name of
such International Manager in Schedule II hereto.
On the basis of the representations and warranties contained in
this Agreement, and subject to the terms and conditions hereof, the Company
agrees to issue and sell to the U.S. Underwriters, and the U.S. Underwrit-
ers shall have a right to purchase, severally and not jointly, from time to
time, up to an aggregate of 2,250,000 Additional Shares at the Purchase
Price. Additional Shares may be purchased as provided in Section 4 hereof
solely for the purpose of covering over-allotments made in connection with
the offering of the Firm Shares. If any Additional Shares are to be pur-
chased, each U.S. Underwriter, severally and not jointly, agrees to pur-
chase the number of Additional Shares (subject to such adjustments to
eliminate fractional shares as the Representatives may determine) which
bears the same proportion to the total number of Additional Shares to be
purchased as the number of Firm Shares set forth opposite the name of such
U.S. Underwriter in Schedule I hereto bears to the total number of Firm
Shares.
The Company hereby agrees, and the Company shall, concurrently
with the execution of this Agreement, deliver an agreement executed by the
persons named on Schedule III (each of the directors and executive officers
of the Company and certain stockholders of the Company, reflecting consum-
mation of the Goldwyn Merger and the MPCA Merger by the Company), pursuant
to which each such person will agree not to, directly or indirectly, offer,
sell, contract to sell, grant any option to purchase or otherwise dispose
of (whether directly or indirectly), without the prior written consent of
DLJ, any shares of Common Stock, or any securities convertible into or
exercisable or exchangeable for, or warrants, options or rights to purchase
or acquire, Common Stock or enter into any agreement to do any of the
foregoing (whether directly or indirectly), for a period of 180 days after
the date of the Prospectus, except (A) pursuant to this Agreement, (B)
pursuant to stock options or stock option plans referred to in the Prospec-
tus or (C) that, in the case of the Goldwyn Family Trust, it may sell any
of its shares of Common Stock received upon the conversion pursuant to the
Goldwyn Merger of 875,000 shares of Goldwyn common stock received pursuant
to the
5
<PAGE>
option agreement dated April 13, 1993 by and among Goldwyn, Samuel Goldwyn,
Jr. and the Goldwyn Family Trust, as such option agreement is further de-
scribed in the Goldwyn Merger Agreement.
Each U.S. Underwriter hereby makes to the Company the represen-
tations and agreements of such U.S. Underwriter contained in the fifth
paragraph of Section 3 of the Agreement Between U.S. Underwriters and
International Managers of even date herewith. Each International Manager
hereby makes to the Company the representations and agreements of such
International Underwriter contained in the seventh, eighth, ninth and tenth
paragraphs of Section 3 of such Agreement.
4. Delivery and Payment. Delivery to you of and payment for the
--------------------
Firm Shares shall be made at 9:00 A.M., New York City time, on the third or
fourth business day, unless otherwise permitted by the Commission pursuant
to Rule 15c6-1 under the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Exchange Act"), (such time and date being referred to as the "Closing
Date") following the date of the public offering of the Firm Shares as
advised by the Representatives to the Company, at such place as you shall
reasonably designate. The Closing Date and the location of delivery of the
Firm Shares may be varied by agreement between the Representatives and the
Company.
Delivery to the U.S. Underwriters of and payment for any Ad-
ditional Shares to be purchased by the U.S. Underwriters shall be made at
such place as the U.S. Representatives shall designate in writing, at 9:00
A.M., New York City time, on such date or dates (individually, an "Option
Closing Date"), which may be the same as the Closing Date but shall in no
event be earlier than the Closing Date, as shall be specified in a written
notice from the U.S. Representatives to the Company of the U.S.
Underwriters' determination to purchase a number, specified in said notice,
of Additional Shares. Any such notice may be given at any time not later
than 30 days after the date of this Agreement. Any Option Closing Date and
the location of delivery of and payment for the Additional Shares may be
varied by agreement among the U.S. Representatives and the Company.
6
<PAGE>
Certificates for the Shares shall be registered in such names and
issued in such denominations as you shall request in writing not later than
two full business days prior to the Closing Date or the applicable Option
Closing Date, as the case may be, and shall be made available to you at
such place as you shall reasonably request for inspection not later than
9:30 A.M., New York City time, on the business day next preceding the Clos-
ing Date or the applicable Option Closing Date, as the case may be.
Certificates in definitive form evidencing the Shares (or such other method
of delivery as may be acceptable to you) shall be delivered to you on the
Closing Date or the applicable Option Closing Date, as the case may be,
with any transfer taxes payable upon initial issuance thereof duly paid by
the Company, for the respective accounts of the Underwriters against
payment of the Purchase Price by wire transfer payable in same day funds,
to an account or accounts designated in writing by the Company.
5. Agreements of the Company. The Company agrees with each of
-------------------------
the Underwriters that:
(a) It will, if the Registration Statement has not heretofore
become effective under the Act, file an amendment to the Registration
Statement or, if necessary pursuant to Rule 430A under the Act, a
post-effective amendment to the Registration Statement, in each case
as soon as practicable after the execution and delivery of this
Agreement, and will use all reasonable efforts to cause the Registra-
tion Statement or such post-effective amendment to become effective at
the earliest possible time. The Company will comply fully and in a
timely manner with the applicable provisions of Rule 424 and Rule
430A, and if applicable, Rule 462, under the Act.
(b) It will advise you promptly and, if requested by you,
confirm such advice in writing, (i) when the Registration Statement
has become effective, if and when the Prospectus is sent for filing
pursuant to Rule 424 under the Act and when any post-effective
amendment to the Registration Statement becomes effective, (ii) of the
receipt of any comments from the Commission or any state securities
commission or regulatory authority that relate to the Registration
Statement or requests by the Com
7
<PAGE>
mission or any state securities commission or regulatory authority for
amendments to the Registration Statement or amendments or supplements
to the Prospectus or for additional information, (iii) of the issuance
by the Commission of any stop order suspending the effectiveness of
the Registration Statement, or of the suspension of qualification of
the Shares for offering or sale in any jurisdiction, or the initiation
of any proceeding for such purpose by the Commission or any state
securities commission or other regulatory authority, and (iv) of the
happening of any event during such period as in your judgment the
Underwriters are required to deliver a prospectus in connection with
sales of the Shares which makes any statement of a material fact made
in the Registration Statement untrue or which requires the making of
any additions to or changes in the Registration Statement (as amended
or supplemented from time to time) in order to make the statements
therein not misleading or that makes any statement of a material fact
made in the Prospectus (as amended or supplemented from time to time)
untrue or which requires the making of any additions to or changes in
the Prospectus (as amended or supplemented from time to time) in order
to make the statements therein, in light of the circumstances under
which they were made, not misleading. The Company shall use its best
efforts to prevent the issuance of any stop order by the Commission or
order suspending the qualification or exemption of the Shares under
any state securities or Blue Sky laws, and, if at any time the Commis-
sion shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification
or exemption of the Shares under any state securities or Blue Sky
laws, the Company shall use every reasonable effort to obtain the
withdrawal or lifting of such order at the earliest possible time.
(c) It will furnish to you without charge two (2) copies of the
signed copies of the Registration Statement as first filed with the
Commission and of each amendment to it, including all exhibits filed
therewith, and will furnish to you such number of conformed copies of
the Registration Statement as so
8
<PAGE>
filed and of each amendment to it, without exhibits, as you may rea-
sonably request.
(d) It will not file any amendment or supplement to the
Registration Statement, whether before or after the time when it
becomes effective, or make any amendment or supplement to the Prospec-
tus, of which you shall not previously have been advised and provided
a copy within two business days prior to the filing thereof (or such
reasonable amount of time as is necessitated by the exigency of such
amendment or supplement) or to which you shall reasonably object; and
it will prepare and file with the Commission, promptly upon your
reasonable request, any amendment to the Registration Statement or
supplement to the Prospectus which may be necessary or advisable in
connection with the distribution of the Shares by you, and will use
all reasonable efforts to cause any amendment to the Registration
Statement to become effective as promptly as possible.
(e) Promptly after the Registration Statement becomes effective,
and from time to time thereafter for such period in your reasonable
judgment as a prospectus is required to be delivered in connection
with sales of the Shares by the Underwriters, it will furnish to each
Underwriter and dealer without charge as many copies of the Prospectus
(and of any amendment or supplement to the Prospectus) as such Under-
writers and dealers may reasonably request. The Company consents to
the use of the Prospectus and any amendment or supplement thereto by
any Underwriter or any dealer, both in connection with the offering or
sale of the Shares and for such period of time thereafter as the Pro-
spectus is required by the Act or the Exchange Act to be delivered in
connection therewith.
(f) If during such period specified in Paragraph (e) any event
shall occur as a result of which it becomes necessary to amend or
supplement the Prospectus in order to make the statements therein, in
the light of the circumstances existing as of the date the Prospectus
is delivered to a purchaser, not misleading, or if it is necessary to
amend or supplement the Prospectus to comply with any law, it
9
<PAGE>
will promptly prepare and file with the Commission an appropriate
amendment or supplement to the Prospectus so that the statements in
the Prospectus, as so amended or supplemented, will not, in the light
of the circumstances existing as of the date the Prospectus is so
delivered, be misleading, and will comply with applicable law, and
will furnish to each Underwriter and dealer without charge such number
of copies thereof as such Underwriters and dealers may reasonably
request.
(g) Prior to any public offering of the Shares, it will
cooperate with you and your counsel in connection with the
registration or qualification of the Shares for offer and sale by the
Underwriters under the state securities or Blue Sky laws of such
jurisdictions as you may reasonably request (provided, that the
Company shall not be obligated to qualify as a foreign corporation in
any jurisdiction in which it is not so qualified or to take any action
that would subject it to general consent to service of process in any
jurisdiction in which it is not now so subject). The Company will
continue such qualification in effect so long as required by law for
distribution of the Shares. The Company will inform the Florida
Department of Banking and Finance if, prior to the completion of the
distribution of the Shares by the Underwriters, the Company commences
engaging in business with the government of Cuba or with any person or
affiliate located in Cuba. Such information will be provided within
90 days of the commencement thereof or after a change to any such
previously reported information.
(h) It will make generally available to its security holders as
soon as reasonably practicable a consolidated earnings statement
covering a period of at least twelve months beginning after the
"effective date" (as defined in Rule 158 under the Act) of the
Registration Statement (but in no event commencing later than 90 days
after such date) which shall satisfy the provisions of Section 11(a)
of the Act and Rule 158 thereunder and will advise you in writing when
such statement has been so made available.
(i) During the period of five years hereafter, the Company will
furnish to you as soon as avail
10
<PAGE>
able, a copy of each report of the Company mailed to shareholders or
filed with the Commission.
(j) Whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, it will pay and be
responsible for all costs, expenses and fees in connection with or
incident to (i) the printing, processing, filing, distribution and
delivery under the Act or the Exchange Act of the Registration
Statement, each preliminary prospectus, the Prospectus and all amend-
ments or supplements thereto, (ii) the printing and delivery of this
Agreement, any memoranda describing state securities or Blue Sky laws
and all other agreements, memoranda, correspondence and other
documents printed, distributed and delivered in connection with the
offering of the Shares, (iii) the registration with the Commission and
the issuance and delivery of the Shares, (iv) the registration or
qualification of the Shares for offer and sale under the securities or
Blue Sky laws of the jurisdictions referred to in paragraph (g) above
(including, in each case, the fees and disbursements (including filing
fees) of counsel relating to such registration or qualification and
blue sky memoranda relating thereto (which amounts referred to in this
clause (iv) are not expected to exceed $25,000), (v) furnishing such
copies of the Registration Statement, Prospectus and preliminary pro-
spectus, and all amendments and supplements to any of them, as may be
reasonably requested by you, (vi) any filing fees incurred in connec-
tion with the filing, registration and clearance with the National
Association of Securities Dealers, Inc. (the "NASD") in connection
with the offering of the Shares, (vii) the listing of the Shares on
the American Stock Exchange, (viii) any "qualified independent under-
writer" as required by Schedule E of the Bylaws of the NASD (including
fees and disbursements of counsel for such qualified independent
underwriter) and (ix) the performance by the Company of its other
obligations under this Agreement, the cost of its personnel and other
internal costs and the cost of printing and engraving the certificates
representing the Shares; provided, that the Company shall have no
liability or obligation with respect to any fees or expenses of
counsel to the Underwriters, except as provided in
11
<PAGE>
clause (iv) above, or for any costs of personnel or other internal
costs of the Underwriters.
(k) It will use the proceeds from the sale of the Shares in the
manner described in the Prospectus under the caption "Use of
Proceeds."
(l) It will cause the Shares to be listed on the American Stock
Exchange and will use its reasonable best efforts to maintain such
listing while any of the Shares are outstanding.
(m) It will use all reasonable efforts to do and perform all
things required to be done and performed under this Agreement by it
prior to or after the Closing Date and to satisfy all conditions
precedent on its part to the delivery of the Shares.
6. Representations and Warranties. The Company represents and
------------------------------
warrants to each of the Underwriters that:
(a) When the Registration Statement becomes effective, including
at the date of any post-effective amendment, at the date of the
Prospectus (if different) and at the Closing Date, the Registration
Statement will comply in all material respects with the provisions of
the Act and will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; the Prospec-
tus and any supplements or amendments thereto will not at the date of
the Prospectus, at the date of any such supplements or amendments and
at the Closing Date contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and warran-
ties contained in this paragraph (a) shall not apply to statements in
or omissions from the Registration Statement or the Prospectus (or any
supplement or amendment to them) made in reliance upon and in confor-
mity with information relating to any Underwriter furnished to the
Company in writing by or on behalf of any Underwriter through you ex-
pressly for
12
<PAGE>
use therein. The Company acknowledges for all purposes under this
Agreement that the statements with respect to price and underwriting
discount and the last paragraph, all on the cover page, and under the
caption "Underwriting" in the Prospectus (or any amendment or supple-
ment) constitute the only written information furnished to the Company
by any Underwriter expressly for use in the Registration Statement or
the Prospectus (or any amendment or supplement to them) or any
preliminary prospectus (collectively, the "Underwriter Information")
and that the Underwriters shall not be deemed to have provided any
other information (and therefore are not responsible for any such
statement or omission).
(b) The documents incorporated by reference into the Prospectus,
at the time they were or hereafter are filed with the Commission,
complied or when so filed will comply, as the case may be, in all
material respects with the requirements of the Exchange Act, and, when
read together with the other information in the Prospectus, did not
and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circum-
stances under which they were or are made, not misleading.
(c) Each preliminary prospectus filed as part of the Regis-
tration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Act, and each
Registration Statement filed pursuant to Rule 462(b) under the Act, if
any, complied when so filed in all material respects with the Act.
(d) The Company and each corporation, partnership, joint venture
or other legal entity of which the Company owns, directly or in-
directly, 50% or more of the stock or other equity interests the
holders of which are generally entitled to vote for the election of
the Board of Directors or similar governing body of such corporation,
partnership, joint venture or other legal entity (each, a "Subsidiary"
and, collectively, the "Subsidiaries"), has been duly organized, is
validly existing as a corporation or other entity in good standing
(where such
13
<PAGE>
concept is applicable) under the laws of its jurisdiction of organiza-
tion and has the requisite power and authority to carry on its busi-
ness as it is currently being conducted, to own, lease and operate its
properties and, in the case of the Company, to execute, deliver and
perform this Agreement and, on the Closing Date, the Entertainment
Group Credit Facility, and each is duly qualified and is in good
standing as a foreign corporation or other entity authorized to do
business in each jurisdiction where the operation, ownership or
leasing of property or the conduct of its business requires such
qualification, except where the failure to be so qualified could not,
singly or in the aggregate, reasonably be expected to have a material
adverse effect on the properties, business, results of operations,
condition (financial or otherwise) or prospects of the Company and the
Subsidiaries taken as a whole (a "Material Adverse Effect").
(e) All of the issued and outstanding shares of capital stock
of, or other ownership interests in, each Subsidiary have been duly
and validly authorized and issued and are owned, directly or through
Subsidiaries, by the Company. All of the ownership interests in each
corporation, partnership, joint venture or other legal entity of which
Metromedia International Telecommunications, Inc. ("MITI"), owns,
directly or indirectly, less than 50% of the stock or other equity
interests the holders of which are generally entitled to vote for the
election of the Board of Directors or similar governing body of such
corporation, partnership, joint venture or other legal entity (each, a
"MITI Minority Venture" and, collectively, the "MITI Minority Ven-
tures") have been duly and validly authorized and issued and are
owned, directly or through subsidiaries, by MITI in the percentages
described in the Prospectus under the heading "Business-Communications
Group-Communications Group Overview-Markets." All such ownership
interests are (to the extent such concept is applicable) fully paid
and nonassessable, and are owned free and clear of any security inter-
est, mortgage, pledge, claim, lien or encumbrance (each, a "Lien"),
except for Liens arising (x) on the date hereof, under (i) the Fi-
nancing and Security Agreement dated as of October 23, 1992 between
14
<PAGE>
the Company and Deutsche Financial Services Corporation, as amended,
(ii) the Credit, Security and Guaranty Agreement dated as of November
1, 1995 among Orion Pictures Corporation, the Corporate Guarantors
referred to therein, the Lenders referred to therein, and Chemical
Bank and (iii) the Credit Agreement dated as of November 1, 1995 be-
tween the Company and Chemical Bank ((i), (ii) and (iii) being
referred to collectively as the "Existing Credit Facilities") and
(y) on the Closing Date, under the Entertainment Group Credit Facili-
ty. There are no outstanding subscriptions, rights, warrants, op-
tions, calls, convertible securities, commitments of sale or Liens
related to or entitling any person to purchase or otherwise to acquire
any shares of the capital stock of, or other ownership interest in,
any Subsidiary or any MITI Minority Venture, except for, on the date
hereof, Liens pursuant to the Existing Credit Facilities or, on the
Closing Date, Liens pursuant to the Entertainment Group Credit
Facility.
(f) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under "Capitalization"; all
the shares of issued and outstanding Common Stock have been duly
authorized and validly issued and are fully paid, nonassessable and
not subject to any preemptive or other similar rights; the Shares have
been duly authorized for issuance and sale to the Underwriters pur-
suant to this Agreement and, when issued and delivered by the Company
pursuant to this Agreement against payment of the consideration set
forth herein, will be validly issued and fully paid and nonassessable;
the capital stock of the Company, including the Common Stock, conforms
in all material respects to all statements relating thereto in the
Prospectus and the Registration Statement; and the issuance of the
Shares by the Company will not be subject to preemptive or other
similar rights.
(g) Except as could not, singly or in the aggregate, reasonably
be expected to have a Material Adverse Effect, neither the Company nor
any of the Subsidiaries nor, to the best knowledge of the Company, any
of the MITI Minority Ventures is (i) in violation of its respective
charter or bylaws or
15
<PAGE>
other organizational or partnership document or (ii) in default in the
performance of any bond, debenture, note or any other evidence of
indebtedness or any indenture, mortgage, deed of trust or other con-
tract, lease or other instrument to which the Company or any of the
Subsidiaries is a party or by which any of them is bound, or to which
any of the property or assets of the Company or any of the Subsidiar-
ies is subject.
(h) This Agreement has been duly authorized and validly executed
and delivered by the Company and constitutes a valid and legally
binding agreement of the Company, enforceable against the Company in
accordance with its terms (assuming the due execution and delivery
hereof by you).
(i) The execution and delivery of this Agreement by the Company,
the issuance and sale of the Shares, the performance of this Agreement
and the consummation of the transactions contemplated by this Agree-
ment will not (x) conflict with or result in a breach or violation of
the charter or bylaws or other organizational or partnership document
of the Company or any of the Subsidiaries or any of the MITI Minority
Ventures, (y) conflict with or result in a breach or violation of any
of the terms or provisions of, or constitute a default or cause an
acceleration of any obligation under or result in the imposition or
creation of (or the obligation to create or impose) a Lien (except for
Liens pursuant to the Entertainment Group Credit Facility) with re-
spect to, any bond, note, debenture or other evidence of indebtedness
or any indenture, mortgage, deed of trust or other agreement or in-
strument to which the Company or any of the Subsidiaries or any of the
MITI Minority Ventures is a party or by which it or any of them is
bound, or to which any properties of the Company or any of the Sub-
sidiaries or any of the MITI Minority Ventures is or may be subject,
or (z) contravene any order of any court or governmental agency or
body having jurisdiction over the Company or any of the Subsidiaries
or any of the MITI Minority Ventures or any of their properties, or
violate or conflict with any statute, rule or regulation or ad-
ministrative or court decree applicable to the Company or any of the
Subsidiaries or
16
<PAGE>
any of the MITI Minority Ventures, or any of their respective proper-
ties (other than state securities or blue sky laws, as to which no
representation or warranty is made), except in the case of any of the
foregoing as could not, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(j) There is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, pending
against or affecting the Company or any of the Subsidiaries or, to the
best knowledge of the Company, any of the MITI Minority Ventures, or
any of their respective properties, which could reasonably be expected
to result, singly or in the aggregate, in a Material Adverse Effect or
which could reasonably be expected to materially and adversely affect
the consummation of this Agreement or the transactions contemplated
hereby, and to the best of the Company's knowledge, no such pro-
ceedings are contemplated or threatened. No agreement, contract or
document of a character required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement is not so described or filed.
(k) To the best of the Company's knowledge, no action has been
taken and no statute, rule or regulation or order has been enacted,
adopted or issued by any Federal or state governmental agency or body
which prevents or makes unlawful the issuance of the Shares, suspends
the effectiveness of the Registration Statement, prevents or suspends
the use of any preliminary prospectus or suspends the sale of the
Shares in any jurisdiction referred to in Section 5(g) hereof; no
injunction, restraining order or order of any nature by a Federal or
state court of competent jurisdiction has been issued with respect to
the Company or any of the Subsidiaries which would prevent or suspend
the issuance or sale of the Shares, the effectiveness of the Regis-
tration Statement, or the use of any preliminary prospectus in any
jurisdiction referred to in Section 5(g) hereof; no action, suit or
proceeding is pending against or, to the best of the Company's
knowledge, threatened against or affecting the Company or any of the
17
<PAGE>
Subsidiaries before any court or arbitrator or any governmental body,
agency or official, domestic or foreign, which, if adversely deter-
mined, could reasonably be expected to materially interfere with or
adversely affect the issuance of the Shares or in any manner draw into
question the validity of this Agreement; and every request of the Com-
mission or any securities authority or agency of any jurisdiction for
additional information (to be included in the Registration Statement
or the Prospectus or otherwise) has been complied with in all material
respects.
(l) Except as could not, singly or in the aggregate, reasonably
be expected to have a Material Adverse Effect, (i) the Company and
each of the Subsidiaries is in compliance with all federal, state or
local laws and regulations ("Environmental Laws") relating to pollu-
tion or protection of human health or the environment, or otherwise
relating to the use, treatment, storage, disposal, transport or
handling of toxic or hazardous substances or wastes, or petroleum
products ("Materials of Environmental Concern"), including compliance
with all permits, licenses, approvals or authorizations ("Permits")
required under any Environmental Laws, and (ii) the Company, any of
the Subsidiaries or any person or entity for whom the Company or any
Subsidiary has retained or assumed (either contractually or by opera-
tion of law) liability therefor (collectively, the "Covered Persons"),
(A) neither the Company nor any of the Subsidiaries has received any
communication from any person or entity alleging violation of any
Environmental Laws by any of the Covered Persons, and there is no
pending or threatened claim, action, investigation or notice for site
investigations, clean up, response costs, natural resources or proper-
ty damages, personal injuries, attorney's fees, or penalties (collec-
tively, "Environmental Claims") asserted or pending against any of the
Covered Persons, and (B) there are no conditions that, to the best
knowledge of the Company, could reasonably be expected to form the
basis of any Environmental Claim against any of the Covered Persons.
18
<PAGE>
(m) Neither the Company nor any of the Subsidiaries has violated
any Federal, state or local law relating to discrimination in the
hiring, promotion or pay of employees nor any applicable wage or hour
laws, nor any provisions of the Employee Retirement Income Security
Act of 1974 ("ERISA") or the rules and regulations promulgated
thereunder, nor has the Company or any of the Subsidiaries engaged in
any unfair labor practice, which in each case described in this
sentence could, singly or in the aggregate, reasonably be expected to
result in a Material Adverse Effect. There is (i) no significant
unfair labor practice complaint pending against the Company or any of
the Subsidiaries or, to the best knowledge of the Company, threatened
against any of them, before the National Labor Relations Board or any
state or local labor relations board, and no significant grievance or
significant arbitration proceeding arising out of or under any collec-
tive bargaining agreement is so pending against the Company or any of
the Subsidiaries or, to the best knowledge of the Company, threatened
against any of them, (ii) no significant strike, labor dispute,
slowdown or stoppage pending against the Company or any of its Sub-
sidiaries or, to the best knowledge of the Company, threatened against
the Company or any of the Subsidiaries and (iii) to the best knowledge
of the Company, no union representation question existing with respect
to the employees of the Company or any of the Subsidiaries and, to the
best knowledge of the Company, no union organizing activities are
taking place, except (with respect to any matter specified in clause
(i), (ii) or (iii) above, singly or in the aggregate) such as could
not, singly or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(n) The Company and each of its Subsidiaries and the MITI
Minority Ventures has good and marketable title, free and clear of all
Liens, to all property and assets described in the Registration
Statement as being owned by it, except (x) on the date hereof, for
Liens pursuant to the Existing Credit Facilities and (y) on the
Closing Date, for Liens pursuant to the Entertainment Group Credit
Facility, and except for Liens that could not, singly or in the aggre-
gate, reasonably be expected
19
<PAGE>
to result in a Material Adverse Effect. All leases to which the
Company or any Subsidiary is a party are valid and binding (except
where the failure to be valid and binding could not, singly or in the
aggregate, reasonably be expected to have a Material Adverse Effect)
and no default has occurred or is continuing thereunder (which could,
singly or in the aggregate, reasonably be expected to have a Material
Adverse Effect) and the Company and each of its Subsidiaries enjoy
peaceful and undisturbed possession under all such leases to which any
of them is a party as lessee with such exceptions as do not materially
interfere with the use made by the Company or any such Subsidiary.
(o) The firms of accountants that have certified or shall
certify the applicable consolidated financial statements and suppor-
ting schedules of the Company and its predecessors and of Goldwyn
filed or to be filed with the Commission as part of the Registration
Statement and the Prospectus are independent public accountants with
respect to the Company and its predecessors and Goldwyn, as the case
may be, as required by the Act. The consolidated historical and pro
---
forma financial statements, together with related schedules and notes,
-----
set forth in the Prospectus and the Registration Statement comply as
to form in all material respects with the requirements of the Act.
Such historical financial statements fairly present the consolidated
financial position of the Company at the respective dates indicated
and the results of their operations and their cash flows for the re-
spective periods indicated, in accordance with generally accepted
accounting principles ("GAAP") consistently applied throughout such
periods. Such pro forma financial statements have been prepared on a
--- -----
basis consistent with such historical statements, except for the pro
---
forma adjustments specified therein, and give effect to assumptions
-----
made on a reasonable basis and present fairly the proposed transac-
tions contemplated by the Prospectus and this Agreement. The other
financial and statistical information and data included in the
Prospectus and in the Registration Statement, historical and pro
---
forma, are, in all material respects, accurately presented and
-----
prepared on a basis consistent with such financial statements and the
20
<PAGE>
books and records of the Company and its predecessors and Subsidiar-
ies.
(p) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus and up to
the Closing Date, except as otherwise disclosed therein, neither the
Company nor any of the Subsidiaries has incurred any liabilities or
obligations, direct or contingent, which are material to the Company
and the Subsidiaries taken as a whole, nor entered into any transac-
tion not in the ordinary course of business that is material to the
Company and its Subsidiaries, taken as a whole, and there has not
been, singly or in the aggregate, any material adverse change, or any
development which could reasonably be expected to have a Material
Adverse Effect.
(q) All tax returns required to be filed by the Company or any
of the Subsidiaries in any jurisdiction have been filed, other than
those filings being contested in good faith, and all material taxes,
including withholding taxes, penalties and interest, assessments, fees
and other charges due or claimed to be due from such entities have
been paid, other than those being contested in good faith and for
which adequate reserves have been provided or those currently payable
without penalty or interest.
(r) On the Closing Date, no authorization, approval or consent
or order of, or filing with, any court or governmental body or agency
is necessary in connection with the transactions contemplated by this
Agreement, except such as may be required by the NASD or have been
obtained and made under the Act, the Exchange Act or state securities
or Blue Sky laws or regulations, and except those where the lack
thereof could not, singly or in the aggregate, reasonably be expected
to have a Material Adverse Effect. Neither the Company nor any of its
affiliates is presently doing business with the government of Cuba or
with any person or affiliate located in Cuba.
(s) Except as could not, singly or in the aggregate, reasonably
be expected to have a Material Adverse Effect, (i) each of the Compa-
ny, the Subsid-
21
<PAGE>
iaries and the MITI Minority Ventures has all certificates, consents,
exemptions, orders, permits, licenses, authorizations or other approv-
als (each, an "Authorization") of and from, and has made all declara-
tions and filings with, all Federal, state, local and other govern-
mental authorities, domestic or foreign, all self-regulatory organiza-
tions and all courts and other tribunals, necessary or required to
own, lease, license and use its properties and assets and to conduct
its business in the manner described in the Prospectus, (ii) all such
Authorizations are valid and in full force and effect and (iii) the
Company, the Subsidiaries and the MITI Minority Ventures are in com-
pliance with the terms and conditions of all such Authorizations and
with the rules and regulations of the regulatory authorities and gov-
erning bodies having jurisdiction with respect thereto.
(t) Neither the Company nor any of the Subsidiaries is (a) an
"investment company" or a company "controlled" by an investment
company within the meaning of the Investment Company Act of 1940, as
amended, or (b) a "holding company" or a "subsidiary company" of a
holding company, or an "affiliate" thereof within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
(u) No holder of any security of the Company has or will have
any right to require the registration of such security by virtue of
any transaction contemplated by this Agreement, except for regis-
tration rights granted in connection with the Goldwyn Merger to
(i) Samuel Goldwyn, Jr. and (ii) holders of shares of Goldwyn common
stock with respect to Common Stock received by such holders upon the
exercise of certain options, as further described in the Goldwyn
Merger Agreement, and registration rights granted to the two stock-
holders of MPCA in connection with the MPCA Merger, none of which
rights are applicable to the registration of the sale of the Shares.
(v) The Shares have been approved for listing on the American
Stock Exchange, subject to notice of issuance.
22
<PAGE>
(w) The Company and the Subsidiaries possess all rights in and
to the patents, patent rights, licenses, inventions, copyrights, know-
how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names (collectively, "Intellectual
Property") presently employed by them in connection with the busi-
nesses now operated by them, and neither the Company nor any of the
Subsidiaries has received any notice of infringement of or conflict
with asserted rights of others with respect to the foregoing which,
singly or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. The use of such Intellectual Property in
connection with the business and operations of the Company and the
Subsidiaries does not, to the best of the Company's knowledge, in-
fringe on the rights of any person except for infringements which, if
proven, could not, singly or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
(x) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters pursuant
to the terms hereof shall be deemed to be a representation and war-
ranty by the Company to each Underwriter as to the matters covered
thereby.
(y) Neither the Company nor any of the Subsidiaries has taken,
directly or indirectly, any action designed to cause or to result in,
or that has constituted or which could reasonably be expected to
constitute, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares
in violation of law.
(z) The Company and each Subsidiary maintains insurance covering
their properties, operations, personnel and businesses. Such in-
surance insures against such losses and risks as are reasonably
adequate in accordance with customary industry practice to protect the
Company and its Subsidiaries and their businesses.
23
<PAGE>
(aa) At Closing, the Company, the Goldwyn Merger Sub, Goldwyn,
the MPCA Merger Sub and MPCA (each, a "Merger Party" and, collectively
the "Merger Parties") have, to the extent each is or will be a party
thereto, all requisite corporate power and authority to execute, de-
liver and perform their respective obligations under the Goldwyn
Merger Agreement and the MPCA Merger Agreement, as applicable, and all
related documents and agreements (collectively, the "Transaction Docu-
ments"); each of the Transaction Documents has been duly and validly
authorized, executed and delivered by the Merger Parties, to the
extent each is a party thereto, and each constitutes a valid and
legally binding agreement of the Merger Party enforceable against each
Merger Party in accordance with its terms (assuming due authorization,
execution and delivery of each Transaction Document by any other party
thereto) except that enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights general-
ly and (ii) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity);
except as set forth in the Prospectus, no consent, approval,
authorization or order of any court or governmental agency or body is
required for the performance of any of the Transaction Documents by
each of the Merger Parties, to the extent each is a party thereto, or
the consummation by each of the Merger Parties of any of the transac-
tions contemplated thereby, except such as may be required and have
been obtained, or upon effectiveness of the Registration Statement,
will have been obtained, under the Act or state securities or "Blue
Sky" laws. The Goldwyn Merger and the MPCA Merger have each been
effected in accordance with Delaware and all other applicable law.
(ab) At Closing, the execution, delivery and performance by the
Merger Parties, to the extent each is a party thereto, of each of the
Transaction Documents, and the consummation by the Merger Parties of
the transactions contemplated thereby, will not violate, conflict with
or constitute or result in a breach of or a default under (or an event
which, with notice or lapse of time, or both, would
24
<PAGE>
constitute a breach of or a default under) any of (i) the terms or
provisions of any of the Transaction Documents or any other indenture,
mortgage, deed of trust, loan agreement, note, lease, license,
franchise agreement, or agreement or instrument to which the Merger
Party, is a party or to which any of their respective properties or
assets are subject, which violation, conflict, breach or default
could, singly or in the aggregate, reasonably be expected to have a
Material Adverse Effect, (ii) the certificate of incorporation or
bylaws of the Merger Party, or (iii) (assuming compliance with all
applicable state securities and "Blue Sky" laws) any statute, judg-
ment, decree, order, rule or regulation of any court, governmental
agency or other body or self regulatory organization applicable to
each Merger Party, or any of their respective properties or assets,
which violation, conflict, breach or default in the case of this
clause (iii) could, singly or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
(ac) None of the Company, any of the Subsidiaries or any of the
MITI Minority Ventures is in violation of any statute, law, ordinance,
governmental rule or regulation or any judgment, decree, rule or order
of any court, governmental agency or authority applicable to the
Company, any of the Subsidiaries or any of the MITI Minority Ventures
or any of their properties or assets, except such violations as could
not, singly or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
7. Indemnification.
---------------
(a) The Company and each of the Subsidiaries, jointly and
severally, agree to indemnify and hold harmless (i) each of the Under-
writers and (ii) each person, if any, who controls (within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act) any of the
Underwriters (any of the persons referred to in this clause (ii) being
hereinafter referred to as a "controlling person"), and (iii) the re-
spective officers, directors, partners, employees, representatives and
agents of any of the Underwriters or any controlling person (any
person
25
<PAGE>
referred to in clause (i), (ii) or (iii) may hereinafter be referred
to as an "Indemnified Person") to the fullest extent lawful, from and
against any and all losses, claims, damages, liabilities, judgments,
actions and expenses (including without limitation and as incurred,
reimbursement of all costs of investigating, preparing, pursuing or
defending any claim or action, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, including
the fees and expenses of counsel to any Indemnified Person) directly
or indirectly caused by, related to, based upon, arising out of or in
connection with any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any
amendment thereto), including the information deemed to be a part of
the Registration Statement pursuant to Rule 430A(b) promulgated under
the Act, if applicable, or the Prospectus (including any amendment or
supplement thereto) or any preliminary prospectus, or any omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein (in the
case of the Prospectus, in light of the circumstances under which they
were made) not misleading, provided, however, that (i) this indemnity
-------- -------
agreement shall not apply to such losses, claims, damages, liabili-
ties, judgments, actions or expenses to the extent they are caused by
an untrue statement or omission or alleged untrue statement or omis-
sion that is made in reliance upon and in conformity with the
Underwriter Information and (ii) the foregoing indemnity agreement
with respect to any untrue statement contained in or omission from a
preliminary prospectus shall not inure to the benefit of the
Underwriter from whom the person asserting any such losses,
liabilities, claims, damages or expenses purchased Shares, or any
person controlling such Underwriter, if a copy of the Prospectus (as
then amended or Supplemented, if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on
behalf of the Underwriters to such person, if such is required by law,
at or prior to the written confirmation of the sale of such Shares to
such person and the untrue statement contained in or omission from
such preliminary prospectus was corrected in the Prospectus (or the
26
<PAGE>
Prospectus as amended or supplemented). The Company shall notify you
promptly of the institution, threat or assertion of any claim,
proceeding (including any governmental investigation) or litigation in
connection with the matters addressed by this Agreement which involves
the Company or an Indemnified Person.
(b) In case any action or proceeding (including any governmental
investigation) shall be brought or asserted against any of the Indem-
nified Persons with respect to which indemnity may be sought against
the Company or any Subsidiary, such Underwriter (or the Underwriter
controlled by such controlling person) shall promptly notify the
Company in writing (provided, that the failure to give such notice
shall not relieve the Company or any of the Subsidiaries of its obli-
gations pursuant to this Agreement or otherwise, except to the extent
that the Company or such Subsidiary, as the case may be, shall have
been prejudiced in any material respect by such failure (as determined
by a court of competent jurisdiction pursuant to a final judgment not
subject to appeal or review)) and the Company and the Subsidiaries
shall assume the defense thereof, including the employment of counsel
satisfactory to the Indemnified Persons and the payment of all fees
and expenses in connection therewith. Such Indemnified Person shall
have the right to employ its own counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Person unless (i)
the employment of such counsel has been specifically authorized in
writing by the Company, (ii) the Company failed promptly to assume the
defense and employ counsel reasonably satisfactory to the Indemnified
Person or (iii) the named parties to any such action (including any
impleaded parties) include both such Indemnified Person and the
Company or an affiliate of the Company, and such Indemnified Person
shall have been reasonably advised by counsel that a conflict may
exist between such Indemnified Person and the Company or such af-
filiate (in which case the Company shall not have the right to assume
the defense of such action on behalf of such Indemnified Person; it
being understood, however, that the Company and the Subsidiaries shall
not, in connection with any one such
27
<PAGE>
action or proceeding or separate but substantially similar or related
actions or proceedings in the same jurisdiction arising out of the
same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to
any local counsel) at any time for all such Indemnified Persons, which
firm shall be designated by the Representatives). Each of the Company
and the Subsidiaries shall not be liable for any settlement of any
such action or proceeding effected without the Company's prior written
consent, but if settled with the prior written consent of the Company,
which consent will not be unreasonably withheld, the Company and the
Subsidiaries each agrees to indemnify and hold harmless any Indemni-
fied Person from and against any loss, claim, damage, liability or ex-
pense by reason of any such settlement. Notwithstanding the foregoing
sentence, if at any time an Indemnified Person shall have requested
the Company to reimburse the Indemnified Person for fees and expenses
of counsel as contemplated by the second sentence of this paragraph,
the Company and the Subsidiaries each agrees that it shall be liable
for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 30 business
days after receipt by the Company of the aforesaid request, and (ii)
the Company and the Subsidiaries shall not have reimbursed the Indem-
nified Person in accordance with such request prior to the date of
such settlement. Neither the Company nor any of the Subsidiaries
shall, without the prior written consent of each Indemnified Person,
settle or compromise or consent to the entry of judgment in or other-
wise seek to terminate any pending or threatened action, claim,
litigation or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not any Indemnified
Person is a party thereto), unless such settlement, compromise, con-
sent or termination includes an unconditional release of each Indemni-
fied Person from all liability arising out of such action, claim,
litigation or proceeding.
(c) Each of the Underwriters agrees, severally and not jointly,
to indemnify and hold harmless the Company, its directors, its of-
ficers who sign the
28
<PAGE>
Registration Statement, any person controlling (within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act) the Company,
and the officers, directors, partners, employees, representatives and
agents of each such person, to the same extent as the foregoing
indemnity from the Company and the Subsidiaries to each of the Indem-
nified Persons, but only with respect to claims and actions based on
Underwriter Information relating to such Underwriter. In case any
action or proceeding (including any governmental investigation) shall
be brought or asserted against the Company, any of its directors, any
such officer, or any such controlling person based on the Registration
Statement, the Prospectus or any preliminary prospectus in respect of
which indemnity may be sought against any Underwriter pursuant to the
foregoing sentence, the Underwriter shall have the rights and duties
given to the Company by Section 7(b) above (except that if the Company
shall have assumed the defense thereof, such Underwriter shall not be
required to do so, but may employ separate counsel therein and par-
ticipate in the defense thereof but the fees and expenses of such
counsel shall be at the expense of such Underwriter), and the Company,
its directors, any such officers, and each such controlling person
shall have the rights and duties given to the Indemnified Person by
Section 7(b) above.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or expenses referred to herein, then each indem-
nifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as
a result of such losses, claims, damages, liabilities, judgments,
actions and expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the indemnifying party (with
the Company and the Subsidiaries being considered as one) on the one
hand and the indemnified party on the other hand from the offering of
the Shares or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i)
above
29
<PAGE>
but also the relative fault of the indemnifying parties and the
indemnified party, as well as any other relevant equitable consider-
ations. The relative benefits received by the Company and the Sub-
sidiaries, on the one hand, and any of the Underwriters, on the other
hand, shall be deemed to be in the same proportion as the total
proceeds from the offering (net of underwriting discounts and commis-
sions but before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by such
Underwriter, in each case as set forth in the table on the cover page
of the Prospectus. The relative fault of the Company and the Sub-
sidiaries (on the one hand) and the Underwriters (on the other hand)
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission
or alleged omission to state a material fact related to information
supplied by the Company or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The indemnity and contribution
obligations of any party set forth herein shall be in addition to any
liability or obligation such party may otherwise have to the other
party.
The Company, the Subsidiaries and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this
Section 7(d) were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the e-
quitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or expenses
referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, none of the Under-
writers (and their related Indemnified Persons) shall be required to
contribute, in the aggregate, any amount in excess of the amount by
30
<PAGE>
which the total underwriting discount applicable to the Shares pur-
chased by such Underwriter exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
The Underwriters' obligations to contribute pursuant to this Section
7(d) are several in proportion to the respective number of Shares pur-
chased by each of the Underwriters hereunder and not joint.
8. Conditions of Underwriters' Obligations. The several
---------------------------------------
obligations of the Underwriters to purchase the Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material
respects (except that such phrase "in all material respects" shall be
disregarded to the extent that any such representation and warranty is
qualified by "material," "Material Adverse Effect" or any similar
terms or by any phrase using any of such terms) on the Closing Date
with the same force and effect as if made on and as of the Closing
Date. The Company shall have in all material respects performed or
complied with all of its obligations and agreements herein contained
and required to be performed or complied with by it at or prior to the
Closing Date.
(b) (i) The Registration Statement shall have become effective
(or, if a post-effective amendment is required to be filed pursuant to
Rule 430A promulgated under the Act, such post-effective amendment
shall have become effective) not later than 9:00 A.M. (and in the case
of a Registration Statement filed under Rule 462(b) of the Act, not
later than 10:00 P.M.), New York City time, on the date of this Agree-
ment or at such later date and time as you may approve in writing,
(ii) at the Closing Date, no stop order suspending the effectiveness
of the Registration Statement shall have been issued and no
31
<PAGE>
proceedings for that purpose shall have been commenced or shall be
pending before or threatened by the Commission and every request for
additional information on the part of the Commission shall have been
complied with in all material respects, and (iii) no stop order
suspending the sale of the Shares in any jurisdiction referred to in
Section 5(g) shall have been issued and no proceeding for that purpose
shall have been commenced or shall be pending or threatened.
(c) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency which would, as of the Closing Date, prevent the
issuance of the Shares; no injunction, restraining order or order of
any nature by a Federal or state court of competent jurisdiction shall
have been issued as of the Closing Date which would prevent the
issuance of the Shares; and on the Closing Date, no action, suit or
proceeding shall be pending against, or, to the knowledge of the
Company, threatened against the Company, any of the Subsidiaries or
any of the MITI Minority Ventures before any court or arbitrator or
any governmental body, agency or official which, if adversely deter-
mined, would interfere with or adversely affect the issuance of the
Shares or could, singly or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
(d) Except as disclosed in the Registration Statement or the
Prospectus, (i) since the date hereof or since the latest balance
sheet date included in the Registration Statement and the Prospectus,
there shall not have been any material adverse change in the proper-
ties, business, results of operations, condition (financial or other-
wise) or prospect of the Company and the Subsidiaries taken as a whole
(a "Material Adverse Change"), (ii) since the date of the latest bal-
ance sheet included in the Registration Statement and the Prospectus,
there shall not have been any material change in the capital stock or
long-term debt, or material increase in short-term debt, of the
Company or any of the Subsidiaries and (iii) the Company and the
Subsidiaries shall have no liability or obligation,
32
<PAGE>
direct or contingent, that is material to the Company and the Sub-
sidiaries taken as a whole and is required to be disclosed on a
balance sheet in accordance with GAAP and is not disclosed on the
latest balance sheet included in the Registration Statement and the
Prospectus.
(e) You shall have received a certificate of the Company, dated
the Closing Date, executed in the name of and on behalf of the Compa-
ny, by the President or any Senior Vice President and a principal
financial or accounting officer of the Company confirming, as of the
Closing Date, the matters set forth in paragraphs (a), (b), (c) and
(d) of this Section 8.
(f) On the Closing Date, you shall have received:
(1) an opinion (reasonably satisfactory to you and your
counsel), dated the Closing Date, of Paul, Weiss, Rifkind, Wharton &
Garrison, counsel for the Company, in the form attached hereto as
Schedule IV.
(2) an opinion (satisfactory to you and your counsel),
dated the Closing Date, of Rubin Baum Levin Constant & Friedman, coun-
sel for the MITI Joint Ventures (defined below), to the effect that:
(i) each corporation, partnership, joint
venture or other legal entity of which MITI owns, directly or
indirectly, an equity interest the holders of which are generally
entitled to vote for the election of the Board of Directors or
similar governing body of such corporation, partnership, joint
venture or other legal entity (each, a "MITI Joint Venture" and,
collectively, the "MITI Joint Ventures") is a validly existing
corporation or partnership in good standing under the laws of its
jurisdiction of formation and has the requisite power and author-
ity to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the
Prospectus;
33
<PAGE>
(ii) all of the equity interests in each of
the MITI Joint Ventures have been validly issued, and the equity
interests in each of the MITI Joint Ventures are owned, directly
or indirectly, by MITI in the percentages set forth in the Pro-
spectus under the heading "Business--Communications Group--Commu-
nications Group Overview--Markets," and are owned free and clear
of any Lien;
(iii) to the best knowledge of such counsel,
there is no current, pending or threatened action, suit or
proceeding before any court or governmental agency, authority or
body or any arbitrator involving any of the MITI Joint Ventures
or to which any of their respective properties is subject of a
character required to be disclosed in the Registration Statement
which is not adequately disclosed in the Prospectus;
(iv) the execution and delivery of this Agree-
ment by the Company, the issuance and sale of the Shares, the
performance of this Agreement and the consummation of the tran-
sactions contemplated by this Agreement will not result in a
breach or violation of any of (A) any of the respective organi-
zational documents of any of the MITI Joint Ventures, or (B) to
the best knowledge of such counsel, constitute a default under
any statute, rule or regulation to which any of the MITI Joint
Ventures is bound or to which any of the properties of any of the
MITI Joint Ventures is subject, or (C) any order of any court or
governmental agency or body having jurisdiction over any of the
MITI Joint Ventures or any of their properties which conflict,
breach or default in each of the cases described in clauses (B)
and (C) could, singly or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
(3) Rubin Baum Levin Constant & Friedman shall addition-
ally state that such counsel has participated in conferences with
officers and other representatives of the Company, representatives of
34
<PAGE>
the independent public accountants for the Company, your representa-
tives and your counsel in connection with the preparation of the
Registration Statement and Prospectus and has considered the matters
required to be stated therein and the statements contained therein,
although such counsel has not independently verified the accuracy,
completeness or fairness of such statements (except as indicated
above); and such counsel advises you that, on the basis of the fore-
going, no facts came to such counsel's attention that caused such
counsel to believe that the Registration Statement (as amended or
supplemented, if applicable), at the time such Registration Statement
or any post-effective amendment became effective, contained an untrue
statement of a material fact or omitted to state a material fact re-
quired to be stated therein or necessary to make the statements there-
in not misleading (other than information omitted therefrom in
reliance on Rule 430A under the Act), or the Prospectus (as amended or
supplemented), as of its date and the Closing Date, contained an
untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Without
limiting the foregoing, such counsel may further state that it assumes
no responsibility for, and has not independently verified, the ac-
curacy, completeness or fairness of the financial statements, notes
and schedules and other financial data included or incorporated by
reference in the Registration Statement.
(4) a Reliance Letter from each of Paul, Weiss, Rifkind,
Wharton & Garrison and Rosenfeld, Meyer & Susman, L.L.P. with respect
to their legal opinions delivered pursuant to the Goldwyn Merger
Agreement and related agreements.
(g) You shall have received an opinion, dated the Closing Date,
of Skadden, Arps, Slate, Meagher & Flom ("Skadden Arps"), counsel for
the Underwriters, in form and substance reasonably satisfactory to
you.
(h) You shall have received letters on and as of the date hereof
as well as on and as of the
35
<PAGE>
Closing Date (in the latter case constituting an affirmation of the
statements set forth in the former), in form and substance satisfac-
tory to you, from KPMG Peat Marwick LLP, Ernst & Young LLP, and Price
Waterhouse LLP, each independent accountants, with respect to the
financial statements and certain financial information contained in
the Registration Statement and the Prospectus.
(i) Skadden Arps shall have been furnished with such documents
and opinions, in addition to those set forth above, as they may
reasonably require for the purpose of enabling them to review or pass
upon the matters referred to in this Section 8 and in order to
evidence the accuracy, completeness or satisfaction in all material
respects of any of the representations, warranties or conditions
herein contained.
(j) Prior to the Closing Date, the Company shall have furnished
to you such further information, certificates and documents as you may
reasonably request.
(k) At the Closing Date, the Shares shall have been approved for
listing on the American Stock Exchange, subject to notice of issuance.
(l) You shall have received each of the opinions required to be
delivered under any of the other Transaction Documents, together with
appropriate reliance letters addressed to the Underwriters.
(m) Except as disclosed in the Registration Statement or the
Prospectus, there shall have been no amendments, alterations, modifi-
cations, or waivers of any provisions of the Transaction Documents
since the date of the execution and delivery thereof by the parties
thereto other than those which under the Act are not required to be
disclosed in the Prospectus or any supplement thereto.
(n) Prior to or concurrently with the purchase and sale of the
Shares hereunder, the Company, Orion and Goldwyn shall have entered
into the Entertainment Group Credit Facility and each of the Company,
Orion and Goldwyn shall have satisfied all condi-
36
<PAGE>
tions to borrowing under such credit facility and you shall have re-
ceived counterparts, conformed as executed, of such credit facility.
All conditions precedent to the consummation of the Entertainment
Group Credit Facility, other than the consummation of the Goldwyn
Merger and the MPCA Merger shall have been satisfied.
(o) Anything herein to the contrary notwithstanding, the respec-
tive closings under this Agreement of the issuance and sale of the
U.S. Shares and the International Shares to the U.S. Underwriters and
the International Managers, respectively, are hereby expressly made
conditional on one another.
9. Defaults. If on the Closing Date or any Option Closing Date,
--------
as the case may be, any of the Underwriters shall fail or refuse to
purchase Firm Shares or Additional Shares, as the case may be, which it has
agreed to purchase hereunder on such date, and the aggregate amount of Firm
Shares or Additional Shares, as the case may be, that such defaulting
Underwriter(s) agreed but failed or refused to purchase does not exceed 10%
of the total number of Shares to be purchased on such date by all of the
Underwriters, each non-defaulting Underwriter shall be obligated severally,
in the proportion which the number of Firm Shares set forth opposite its
name in Schedule I hereto bears to the total number of Firm Shares which
all the non-defaulting Underwriters, as the case may be, have agreed to
purchase, or in such other proportion as you may specify, to purchase the
Firm Shares or Additional Shares, as the case may be, that such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or
refused to purchase on such date; provided that in no event shall the
--------
number of Firm Shares or Additional Shares, as the case may be, that any
Underwriter has agreed to purchase pursuant to Section 3 hereof be
increased pursuant to this Section 9 by an amount in excess of one-ninth of
such number of Firm Shares or Additional Shares, as the case may be,
without the written consent of such Underwriter. If, on the Closing Date
or on the Option Closing Date, as the case may be, any of the Underwriters
shall fail or refuse to purchase the Firm Shares or the Additional Shares,
as the case may be, with respect to which such default exceeds 10% of such
total number of the Shares to be purchased on such date by all
Underwriter(s) and arrangements satis
37
<PAGE>
factory to the other Underwriter(s) and the Company for the purchase of
such Shares are not made within 48 hours after such default, this Agreement
shall terminate without liability on the part of the non-defaulting Under-
writer(s) or the Company, except as otherwise provided in this Section 9.
In any such case that does not result in termination of this Agreement, the
Underwriters or the Company may postpone the Closing Date or the Option
Closing Date, as the case may be, for not longer than seven (7) days, in
order that the required changes, if any, in the Registration Statement and
the Prospectus or any other documents or arrangements may be effected. Any
action taken under this paragraph shall not relieve a defaulting
Underwriter from liability in respect of any default by any such Under-
writer under this Agreement.
10. Effective Date of Agreement and Termination. This Agreement
-------------------------------------------
shall become effective upon the later of (i) the execution and delivery of
this Agreement by the parties hereto, (ii) the effectiveness of the
Registration Statement, and (iii) if a post-effective amendment is required
to be filed pursuant to Rule 430A under the Act, the effectiveness of such
post-effective amendment.
This Agreement may be terminated at any time on or prior to the
Closing Date by you by notice to the Company if any of the following has
occurred: (i) subsequent to the date the Registration Statement is
declared effective or the date of this Agreement, any Material Adverse
Change occurs which, in the judgment of DLJ on behalf of the Represen-
tatives, make it impracticable or inadvisable to market the Shares or to
enforce contracts for the sale of the Shares, (ii) any outbreak or escala-
tion of hostilities or other national or international calamity or crisis
or material adverse change in the financial markets of the United States or
elsewhere, or any other substantial national or international calamity or
emergency if the effect of such outbreak, escalation, calamity, crisis or
emergency would, in the judgment of DLJ on behalf of the Representatives,
make it impracticable or inadvisable to market the Shares or to enforce
contracts for the sale of the Shares, (iii) any suspension or limitation of
trading generally in securities on the New York Stock Exchange, the Ameri-
can Stock Exchange, the Nasdaq Stock Market or in the over-the-counter mar-
kets or any setting of minimum prices for trading on such
38
<PAGE>
exchanges or markets, (iv) any declaration of a general banking moratorium
by Federal or New York authorities, (v) the taking of any action by any
United States Federal or state or local government or agency in respect of
its monetary or fiscal affairs that in the judgment of DLJ on behalf of the
Representatives has a material adverse effect on the financial markets in
the United States, and would, in the judgment of DLJ on behalf of the
Representatives, make it impracticable or inadvisable to market the Shares
or to enforce contracts for the sale of the Shares, (vi) the enactment,
publication, decree, or other promulgation of any United States Federal or
state statute, regulation, rule or order of any court or other governmental
authority which could, in the judgment of DLJ on behalf of the Represen-
tatives, singly or in the aggregate, result in a Material Adverse Effect,
or (vii) any securities of the Company or any of the Subsidiaries shall
have been downgraded or placed on any "watch list" for possible downgrading
by any nationally recognized statistical rating organization, provided,
--------
that in the case of such "watch list" placement, termination shall be
permitted only if such placement would, in the judgment of DLJ on behalf of
the Representatives, make it impracticable or inadvisable to market the
Shares or to enforce contracts for the sale of the Shares or materially
impair the investment quality of the Shares.
The indemnity and contribution provisions and the other
agreements, representations and warranties of the Company and of the Under-
writers set forth in or made pursuant to this Agreement shall remain opera-
tive and in full force and effect, and will survive delivery of and payment
for the Shares, regardless of (i) any investigation, or statement as to the
results thereof, made by or on behalf of any of the Underwriters or by or
on behalf of the Company, the officers or directors of the Company or any
controlling person of the Company, (ii) acceptance of the Shares and
payment for them hereunder and (iii) termination of this Agreement.
If this Agreement shall be terminated by the Underwriters
pursuant to clauses (i) or (vii) of the second paragraph of this Section 10
or because of the failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, the
Company agrees to reimburse you for all out-of-pocket expenses (including
the fees and dis-
39
<PAGE>
bursements of counsel) incurred by you. Notwithstanding any termination of
this Agreement, the Company shall be liable for all expenses which it has
agreed to pay pursuant to Section 5(k) hereof.
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the
Underwriters, any Indemnified Person referred to herein and their respec-
tive successors and assigns, all as and to the extent provided in this
Agreement, and no other person shall acquire or have any right under or by
virtue of this Agreement. The terms "successors and assigns" shall not
include a purchaser of any of the Shares from any of the Underwriters
merely because of such purchase.
11. Notices. Notices given pursuant to any provision of this
-------
Agreement shall be addressed as follows: (a) if to the Company, to it at
Metromedia International Group, Inc., c/o Metromedia Company, One Meadow-
lands Plaza, East Rutherford, New Jersey 07073, Attention: Arnold Wadler,
General Counsel, with a copy to Paul, Weirs, Rifkind, Wharton & Garrison,
1285 Avenue of the Americas, New York, New York 10019-6064, Attention:
James M. Dubin, Esq., and (b) if to any Underwriter, to Donaldson, Lufkin &
Jenrette Securities Corporation, 277 Park Avenue, New York, New York 10172,
Attention: Syndicate Department, and, in each case, with a copy to Skad-
den, Arps, Slate, Meagher & Flom at 300 South Grand Avenue, Suite 3400, Los
Angeles, California 90071, Attention: Nick P. Saggese, Esq., or in any
case to such other address as the person to be notified may have requested
in writing.
12. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK AS
APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW
YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY, ON
BEHALF OF ITSELF AND ITS SUBSIDIARIES, HEREBY IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN
THE CITY OF NEW YORK IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING
RELATED TO THIS AGREEMENT OR ANY OF THE MATTERS CONTEMPLATED HEREBY,
IRREVOCABLY WAIVES ANY DEFENSE OF LACK OF PERSONAL JURISDICTION AND
IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUIT, ACTION OR
PROCEEDING
40
<PAGE>
MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. THE COMPANY, ON BEHALF OF
ITSELF AND THE SUBSIDIARIES, IRREVOCABLY WAIVES, TO THE FULLEST EXTENT THEY
MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH THEY MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
13. Successors. This Agreement will inure to the benefit of and
----------
be binding upon the Company, the Subsidiaries and the Underwriters and
their respective successors and the officers and directors and other
persons referred to in Section 7, and no other person will have any right
or obligation hereunder.
41
<PAGE>
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument. Please confirm that
the foregoing correctly sets forth the agreement among the Company and you.
Very truly yours,
METROMEDIA INTERNATIONAL GROUP, INC.,
on behalf of itself and, with respect
to indemnification and related mat-
ters, the Subsidiaries
By: _______________________________
Name:
Title:
42
<PAGE>
The foregoing Underwriting Agreement
is hereby confirmed and accepted
as of the date first above written.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
FURMAN SELZ LLC
SCHRODER WERTHEIM & CO. INCORPORATED
Acting on behalf of themselves and as
representatives of the several U.S.
Underwriters named in Schedule I hereto
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: _________________________
Name:
Title:
By: FURMAN SELZ LLC
By: _________________________
Name:
Title:
By: SCHRODER WERTHEIM & CO.
INCORPORATED
By: _________________________
Name:
Title:
43
<PAGE>
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
FURMAN SELZ LLC
J. HENRY SCHRODER & CO. LIMITED
Acting on behalf of themselves and as
representatives of the several International
Managers named in Schedule II hereto
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
-------------------------
Name:
Title:
By: FURMAN SELZ LLC
By: _________________________
Name:
Title:
By: J. HENRY SCHRODER & CO. LIMITED
By: _________________________
Name:
Title:
44
<PAGE>
SCHEDULE I
Number of
Firm Shares
U.S. Underwriters to be Purchased
- ----------------- ---------------
Donaldson, Lufkin & Jenrette
Securities Corporation . . . . . . . .
Furman Selz LLC . . . . . . . . . . . . .
Schroder Wertheim & Co. Incorporated . .
Total . . . . . . . . . . . . . . . . 12,000,000
==========
45
<PAGE>
SCHEDULE II
Number of
Firm Shares
International Managers to be Purchased
- ---------------------- ---------------
Donaldson, Lufkin & Jenrette
Securities Corporation . . . . . . . .
Furman Selz LLC . . . . . . . . . . . . .
J. Henry Schroder & Co. Limited . . . . .
Total . . . . . . . . . . . . . . . . 3,000,000
=========
<PAGE>
SCHEDULE III
Directors, Executive Officers and
---------------------------------
Principal Stockholders
----------------------
Carl C. Brazell
W. Tod Chmar
Goldwyn Family Trust
Samuel Goldwyn, Jr.
Meyer Gottlieb
John P. Imlay, Jr.
Clark A. Johnson
Silvia Kessel
John W. Kluge
Bradley R. Krevoy
Robert A. Maresca
John D. Phillips
Carl E. Sanders
Richard J. Sherwin
Steven Stabler
Stuart Subotnick
Arnold L. Wadler
Leonard White
47
Exhibit 2.5
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of
May 17, 1996 (as amended, supplemented or otherwise modified from time to
time, this "Agreement"), between METROMEDIA INTERNATIONAL GROUP, INC., a
Delaware corporation, ("Metromedia"), MPCA MERGER CORP., a Delaware
corporation and a wholly-owned subsidiary of Metromedia ("MPCA Mergerco"),
and Bradley Krevoy and Steven Stabler (collectively, the "Stockholders")
and MOTION PICTURE CORPORATION OF AMERICA, a Delaware corporation (the
"Company").
WHEREAS, the Stockholders are the beneficial and record owners of
545,916 issued and outstanding shares (the "Shares") of common stock, $.01
par value per share, of the Company ("Company Common Stock");
WHEREAS, upon the terms and subject to the conditions of this
Agreement, the Company has agreed that at the Effective Time (as
hereinafter defined), MPCA Mergerco will merge with and into the Company
(the "Merger") and, among other things, the Stockholders will receive
shares of Metromedia in the manner provided in Section 2;
WHEREAS, Metromedia, MPCA Mergerco and the Company wish to make
certain representations, warranties and agreements in connection with the
Merger and also prescribe various conditions to the Merger.
Capitalized terms used herein and not otherwise defined shall
have the meanings assigned thereto in Section 12 hereof.
<PAGE>
2
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions
----------
set forth in this Agreement, and in accordance with the Delaware General
Corporation Law (the "DGCL"), MPCA Mergerco shall be merged with and into
the Company at the Effective Time. Upon and after the Effective Time, the
separate corporate existence of MPCA Mergerco shall cease and the Company
shall be the surviving corporation in the Merger (the "Surviving
Corporation"). In accordance with the DGCL, all of the rights, privileges,
powers, immunities, purposes and franchises of MPCA Mergerco and the
Company shall vest in the Surviving Corporation and all of the debts,
liabilities, obligations and duties of MPCA Mergerco and the Company shall
become the debts, liabilities, obligations and duties of the Surviving
Corporation.
1.2 Closing. The closing of the Merger (the "Closing") will
-------
take place at the offices of Metromedia Company at 10:00 a.m. on a Business
Day (as hereinafter defined) mutually agreed to by Metromedia, the Company
and the Stockholders prior to the Termination Date (as hereinafter
defined) following the satisfaction or waiver by the party entitled to the
benefit of such condition of each of the conditions set forth in Articles 7
and 8 or at such other place, time and date as
<PAGE>
3
Metromedia, the Company and the Stockholders may agree. The time and date
upon which the Closing occurs is referred to herein as the "Closing Date".
1.3 Effective Time. On the Closing Date (or on such other date
--------------
as Metromedia, the Company and the Stockholders may agree), MPCA Mergerco
and the Company shall cause a Certificate of Merger (the "Certificate of
Merger") to be executed and filed with the Secretary of State of the State
of Delaware in accordance with the relevant provisions of the DGCL and
shall make all other filings or recordings required under the DGCL. The
Merger shall become effective at such time as the Certificate of Merger is
duly filed with the Secretary of State of the State of Delaware, or at such
later time as Metromedia, the Company and the Stockholders agree to specify
in the Certificate of Merger (the "Effective Time").
1.4 Name, Certificate of Incorporation and By-laws. The
----------------------------------------------
Certificate of Incorporation (as defined in Section 104 of the DGCL) of the
Company as in effect at the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation from and after the Effective
Time until thereafter changed or amended as provided therein or by
applicable law except that the Certificate of Incorporation of the
Surviving Corporation shall be amended at the Effective Time to decrease
the number of authorized shares to 1000. The By-laws of the Company at the
Effective Time shall be the By-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
1.5 Officers and Directors.
----------------------
(a) The by-laws of the Surviving Corporation shall be
amended to provide that each of the directors of MPCA Mergerco and the
Company
<PAGE>
4
at the Effective Time shall be the directors of the Surviving Corporation
and shall hold office until their respective successors are duly elected or
appointed and qualified or until their earlier death, resignation or
removal in accordance with the Certificate of Incorporation and By-laws of
the Surviving Corporation.
(b) The officers set forth on Schedule 1.5 hereto shall be
the officers of the Surviving Corporation and they shall hold office until
their respective successors are duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Certificate of Incorporation and By-laws of the Surviving Corporation.
ARTICLE 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK
AND OPTIONS; EXCHANGE OF CERTIFICATES
2.1 Effect on Capital Stock of the Company. At the Effective
--------------------------------------
Time, by virtue of the Merger and without any action on the part of the
holder thereof:
(a) Conversion of Shares of Company Common Stock. Each
--------------------------------------------
issued and outstanding share of Company Common Stock (the "Company Common
Stock") shall, subject to compliance with Section 2.2, be converted into
the right to receive the Initial Shares, the Adjustment Shares (as defined
herein) and, to the extent the Closing Date Boot Limit exceeds the Existing
Note Amount (as such terms are defined in Section 2.3), the additional
consideration set forth in Section 2.3 to the extent of such excess. At
the Effective Time, all such shares of Company Common Stock shall no longer
be outstanding and shall automatically be cancelled and retired
<PAGE>
5
and shall cease to exist, and the Stockholders, who collectively hold
certificates representing all such shares of Company Common Stock shall
cease to have any rights with respect thereto, except the right to receive
for each share of Company Common Stock outstanding at the Effective Time
(a) the Initial Shares (as defined herein) to be issued in consideration
therefor upon surrender of such certificates in accordance with Section
2.2, without interest, plus (b) the Adjustment Shares (as defined herein),
if any, to be issued on the Adjustment Date (as defined herein), without
interest. The term "Initial Shares" shall mean a number of fully paid and
non-assessable shares of Common Stock , par value $1.00 per share, of
Metromedia (the "Metromedia Common Stock") equal to a fraction (rounded to
the fourth decimal point), (i) the numerator of which is 1,433,636 and (ii)
the denominator of which is the number of shares of Company Common Stock
outstanding at the Effective Time ("Company Outstanding Shares"). The term
"Adjustment Shares" shall mean (A) if the Average Closing Price (as defined
herein) is less than $16.50, a number of fully paid an non-assessable
shares of Metromedia Common Stock equal to (i) a fraction (rounded to the
fourth decimal point), (a) the numerator of which is (I) 23,655,000 less
(II) the product of (x) 1,433,636 and (y) the Average Closing Price, and
(b) the denominator of which is the Average Closing Price, divided by (ii)
the number of Company Outstanding Shares (rounding the quotient of (i) and
(ii) to the fourth decimal point); provided, however, that in no event
-------- -------
shall the Adjustment Shares exceed (i) 458,764 divided by (ii) the number
of Company Outstanding Shares, or (B) if the Average Closing Price is
greater than or equal to $16.50, zero. The term "Average Closing Price"
shall have the meaning ascribed to such term in that certain
<PAGE>
6
Agreement and Plan of Merger (the "Goldwyn Merger Agreement") dated as of
January 31, 1996 by and among Metromedia, SGC Merger Corp. and The Samuel
Goldwyn Company; provided, however, if the transactions contemplated by the
-------- -------
Goldwyn Merger Agreement are not consummated on or before September 30,
1996, the term "Average Closing Price" shall mean the average of the last
sale prices for the Metromedia Common Stock as reported by the American
Stock Exchange for the last 20 consecutive trading days ending on September
30, 1996. The term "Adjustment Date" shall mean five business days
following the earlier of (i) the consummation of the transactions
contemplated by the Goldwyn Merger Agreement and (ii) September 30, 1996.
(b) Treasury Shares. Each share of Company Common Stock
---------------
held in treasury by the Company immediately prior to the Effective Time
shall, by virtue of the Merger, be cancelled and retired and cease to
exist, without any conversion thereof.
(c) Mergerco Common Stock. Each then issued outstanding
---------------------
share of Common Stock, par value $.01 per share ("Mergerco Common Stock")
of MPCA Merger Co. shall be converted into one fully paid and
non-assessable share of Common Stock, $.01 par value per share of the
Surviving Corporation.
2.2 Exchange of Certificates.
------------------------
(a) Exchange Procedures. At the Closing, the Stockholders
-------------------
shall deliver to Metromedia all of the issued and outstanding shares of
stock of Company Common Stock, including the Restricted Stock, and
Metromedia shall deliver to the Stockholders the Initial Shares. The
Adjustment Shares shall be
<PAGE>
7
delivered to the Stockholders on the Adjustment Date. The notes and/or
other shares of Metromedia Common Stock issuable to the Stockholders
pursuant to Section 2.3 on account of the Company Common Stock and the
existing indebtedness of the Company to the Stockholders shall be delivered
as set forth in Section 2.3.
(b) Rule 144 Legend. The shares delivered to the
---------------
Stockholders in accordance with Section 2.2(a) and, if applicable, Section
2.3, shall contain a restrictive legend pursuant to Rule 144 under the
Securities Act of 1933, as amended.
2.3 Stockholder Loans; Additional Consideration.
-------------------------------------------
(a) For purposes of this Section 2.3, the following terms
shall have the following meanings:
(i) "Tax Fair Market Value Per Share" of Metromedia
Common Stock on a certain date shall mean the lesser of (A) the closing
price of Metromedia Common Stock as reported by the American Stock Exchange
for such date or (B) the average of the high and the low price of
Metromedia Common Stock as reported by the American Stock Exchange for such
date.
(ii) "Existing Note Amount" shall mean the aggregate
principal amount of the existing indebtedness of the Company to the
Stockholders determined at the close of business on the date immediately
preceding the date during which the Effective Time occurs, but not to
exceed $5,000,000.
(iii) "Closing Date Boot Limit" shall mean 25% of
the Tax Fair Market Value Per Share at the Effective Time multiplied by the
number of Initial Shares.
<PAGE>
8
(iv) "Test Principal Amount" of a note described in
this Section 2.3 shall be the amount assigned to it in such Section 2.3.
The actual principal amount of such a note shall be determined pursuant to
Section 2.3(g) below.
(v) "Maximum Additional Note Amount" shall mean the
excess, if any, of $5,000,000 over the aggregate principal amount of notes
issued pursuant to Sections 2.3(c)(i) or 2.3(d)(ii) below.
(vi) "Stock Amount" shall mean the excess, if any, of
the Maximum Additional Note Amount over the Test Principal Amount of the
notes issued pursuant to Section 2.3(e) below.
(b) If the Closing Date Boot Limit equals or exceeds
$5,000,000, then at the Closing:
(i) Metromedia shall issue to each of the Stockholders
a note dated as of the Effective Date with principal amount equal to, and
in replacement for, the existing indebtedness of the Company to such
Stockholder,
(ii) Metromedia shall issue to the Stockholders,
between them in proportion to the number of shares of Company Common Stock,
shares which such Stockholders deliver pursuant to Section 2.2(a), notes
dated as of the Effective Date with aggregate Test Principal Amounts equal
to the difference between $5,000,000 and the aggregate principal amounts of
the notes issued pursuant to Section 2.3(b)(i) above, and
(iii) Section 2.3(e) shall not apply.
(c) If the Closing Date Boot Limit is less than $5,000,000
but greater than or equal to the Existing Note Amount, then:
<PAGE>
9
(i) Metromedia shall issue to each of the Stockholders
a note dated as of the Effective Date with principal amount equal to, and
in replacement for, the existing indebtedness of the Company to such
Stockholder, and
(ii) The provisions of Section 2.3(e) shall apply.
(d) If the Closing Date Boot Limit is less than the
Existing Note Amount, then:
(i) The Stockholders shall contribute to the capital
of the Company as of the Effective Time an amount of the Company's existing
indebtedness to the Stockholders equal to the excess of the Existing Note
Amount over the Closing Date Boot Limit, between the Stockholders in
proportion to their amounts of the Company's indebtedness to the
Stockholders, to reduce the amount of the Company's indebtedness
outstanding to the Stockholders at that time to the Closing Date Boot
Limit,
(ii) Metromedia shall issue to each of the Stockholders
a note dated as of the Effective Date with principal amount equal to, and
in replacement for, the then reduced indebtedness of the Company to such
Stockholder and
(iii) The provisions of Section 2.3(e) shall apply.
(e) If the Closing Date Boot Limit is less than $5,000,000,
then this Section 2.3(e) applies and on the Adjustment Date, Metromedia
shall issue to the Stockholders, between them in proportion to the number
of shares of Company Common Stock which such Stockholders deliver pursuant
to Section 2.2(a), notes
<PAGE>
10
dated as of the Adjustment Date with aggregate Test Principal Amounts equal
to the Maximum Additional Note Amount, but not to exceed the lesser of the
amounts D and E in the equations below
D = [.25 x TFMV2 x (N1 + N2)] - FN
E = [.25 x [ (TFMV1 x N1) + (TFMV2 x N2))] - FN
where
TFMV1 = the Tax Fair Market Value per share at Effective Time
TFMV2 = the Tax Fair Market Value per share on the Adjustment Date
N1 = the aggregate number of Initial Shares
N2 = the aggregate number of Adjustment Shares
FN = the principal amount of notes issued pursuant to Sections 2.3(c)(i)
or
2.3(d)(ii).
(f) If the Closing Date Boot Limit is less than $5,000,000 so
that Section 2.3(e) applies but the Test Principal Amount of the notes
issued pursuant to such Section 2.3(e) is less than the Maximum Additional
Note Amount, then Metromedia shall, on the Adjustment Date, issue to the
Stockholders, between them in proportion to the number of shares of Company
Common Stock which such Stockholders deliver pursuant to Section 2.2(a), a
number of shares of Metromedia Common Stock equal to N3 in the equation:
N3 = Stock Amount/Average Closing Price,
then rounded down to the next lowest whole number of shares of Metromedia
Common Stock , provided, however, that the number of shares issued pursuant
to this Section 2.3(f) shall not exceed 974,872.
<PAGE>
11
(g) Any notes issued by Metromedia pursuant to Section 2.3
shall bear interest at the applicable federal rate as defined in Section
1274 of the Internal Revenue Code of 1986, as amended and shall be due 10
days after the Adjustment Date. Any notes issued pursuant to Sections
2.3(b)(ii) and 2.3(e) shall have an actual principal amount computed as
follows: the Test Principal Amount of each note shall be reduced by $500,
and such reduced amount shall be rounded down to the nearest even multiple
of $1000.
(h) The notes and/or shares of Metromedia Common Stock issued
pursuant to this Section 2.3, to the extent equal to or less than the
Existing Note Amount shall be in satisfaction of the existing indebtedness
of the Company to the Stockholders.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to Metromedia as follows:
3.1 Due Incorporation and Authority. The Company is a corporation
-------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and lawful
authority to own, lease and operate its Properties and to carry on its
business as is presently being conducted.
3.2 Subsidiaries and Other Affiliates. Schedule 3.2 sets forth
---------------------------------
the name and jurisdiction of organization of each corporation or other
entity (collectively, "Subsidiaries") in which the Company directly or
indirectly owns or has
<PAGE>
12
the power to vote shares of any capital stock or other ownership interests
having voting power to elect a majority of the directors of such
corporation, or other Persons performing similar functions for such entity,
as the case may be. Except for the Subsidiaries and except as set forth on
Schedule 3.2, the Company does not directly or indirectly own any ownership
interest in any other Person. Each of the Subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has the corporate power and lawful
authority to own, lease and operate its Properties and to carry on its
business as is presently being conducted.
3.3 Qualification. The Company and each of the Subsidiaries is
-------------
duly qualified or otherwise authorized as a foreign corporation to transact
business and is in good standing in each jurisdiction set forth on Schedule
3.3, which are the only jurisdictions in which such qualification or
authorization is required by law, except in those jurisdictions in which
failure to be so qualified or authorized would not, in the aggregate have a
material adverse effect on the Properties, business, operation or financial
condition of the Company and the Subsidiaries taken as a whole (a "Material
Adverse Effect").
3.4 Outstanding Capital Stock. The Company is authorized to issue
-------------------------
545,916 shares of Company Common Stock, of which 545,916 shares are issued
and are outstanding and no shares are held by the Company as treasury
stock. All of the outstanding shares of Common Stock are owned by the
Stockholders in the respective amounts set forth on Exhibit A. The
authorized and issued shares of capital stock of each Subsidiary are set
forth on Schedule 3.4. All issued and
<PAGE>
13
outstanding capital stock of each Subsidiary is owned by the Company, free
and clear of any lien, pledge, mortgage, security interest, claim, lease,
charge, option, right of first refusal, easement, servitude, transfer
restriction under any shareholder or similar agreement, encumbrance or any
other restriction or limitation whatsoever (collectively, "Liens"), except
as created by this Agreement and except for limitations on transfers
imposed by Federal and state securities or "blue sky" laws. All of the
outstanding shares of capital stock of the Company and the Subsidiaries are
duly authorized and validly issued, fully paid and nonassessable. No other
class of capital stock or other ownership interests of the Company or any
of the Subsidiaries is authorized or outstanding.
3.5 Options or Other Rights. Except as set forth on Schedule 3.5,
-----------------------
there is no outstanding right, subscription, warrant, call, unsatisfied
preemptive right, option or other agreement of any kind to purchase or
otherwise to receive from the Company, any of the Subsidiaries or any
Stockholder any of the outstanding, authorized but unissued, unauthorized
or treasury shares of the capital stock or any other security of the
Company or any of the Subsidiaries, and there is no outstanding security or
instrument of any kind convertible into, exercisable for, or exchangeable
for any such capital stock.
3.6 Charter Documents and Corporate Records. The Company has
---------------------------------------
heretofore caused to be delivered to Metromedia true and complete copies of
the Certificates of Incorporation and By-laws, or comparable instruments,
of the Company and each of the Subsidiaries as in effect on the date hereof
and has made
<PAGE>
14
available for inspection the true and complete minute books of the Company
and each of the Subsidiaries through the date hereof.
3.7 Financial Statements. The combined balance sheets of the
--------------------
Company and its Affiliates as of December 31, 1993, December 31, 1994, and
December 31, 1995 and the related combined statements of income, and
retained earnings and partners' capital and cash flows for the years then
ended, including the footnotes thereto, certified by KPMG Peat Marwick,
independent certified public accountants, which have been delivered to
Metromedia, fairly present in all material respects the combined financial
position of the Company and its Affiliates as at such dates and the
combined results of operations of the Company and its Affiliates for such
respective periods, in each case in accordance with generally accepted
accounting principles consistently applied for the periods covered thereby.
The foregoing combined financial statements of the Company and its
Affiliates as of December 31, 1995, and for the year then ended are
sometimes herein called the "Audited Financials". The unaudited combined
balance sheet of the Company and its Affiliates as of March 31, 1996 and
the related combined statement of income which have been delivered to
Metromedia, fairly present in all material respects the combined financial
position of the Company and its Affiliates as at such date and the results
of operations of the Company for the three months then ended, in each case
in conformity with generally accepted accounting principles applied on a
basis consistent with that of the Audited Financials (subject to the normal
year-end adjustments described in Schedule 3.7) and with all interim
financial statements of the Company heretofore delivered to Metromedia.
The foregoing unaudited combined financial
<PAGE>
15
statements of the Company and its Affiliates as of March 31, 1996 and for
the three months then ended are sometimes herein called the "Interim
Financials," the combined balance sheet included in the Interim Financials
is sometimes herein called the "Balance Sheet" and March 31, 1996 is
sometimes herein called the "Balance Sheet Date." Except as set forth on
Schedule 3.7, all of the assets reflected on the Balance Sheet are owned by
the Company or one of its Affiliates.
3.8 No Material Adverse Change. Except as set forth on Schedule
--------------------------
3.8, since the Balance Sheet Date, there has been no material adverse
change in the Properties, business, prospects, results of operations or
financial condition of the Company and the Subsidiaries taken as a whole (a
"Material Adverse Effect") other then changes in prospects resulting from
changes in general economic, political, legal or other like conditions and
in the motion picture industry generally. Neither the Company nor any of
the Subsidiaries Knows (as defined in Section 12.1(ii)) of any fact, event,
circumstance or change which is reasonably likely to have a Material
Adverse Effect and neither the Company nor any of its Subsidiaries knows of
any fact, event, circumstance or change which is reasonably likely to
result in any damage, destruction or loss of value with respect to the
Properties of the Company or any of the Subsidiaries not covered by
insurance which has had a Material Adverse Effect.
3.9 Tax Matters.
-----------
(i) Schedule 3.9(a) identifies all partnerships and
corporations which were predecessors or were Affiliates of the Company and
the Subsidiaries.
<PAGE>
16
(ii) Schedule 3.9(a)(ii) identifies which corporations,
included among the Company, the Subsidiaries, and their respective
predecessors or Affiliates were intended to be taxed as "S Corporations"
pursuant to Sections 1362 et. seq. of the Internal Revenue Code of 1986, as
-- ---
amended (Code") and comparable provisions of state and local tax laws
applicable to such corporations (the "S Corporations"). The S Corporations
timely filed elections to be taxed as "S Corporations" pursuant to Sections
1362 et. seq. of the Code and comparable provisions of state and local tax
-- ---
laws applicable to the S Corporations. The Company has provided Metromedia
with copies of any such elections. The S Corporations' elections did not
terminate under Sections 1362(d)(2) or (3) of the Code or comparable
provisions of state and local tax laws applicable to the S Corporations,
and such elections remained in full force and effect and were not
voluntarily revoked, until such S Corporations were liquidated, merged with
and into the Company or became one of the Subsidiaries.
(iii) All federal, state, county, local, foreign and other
taxes (including, without limitation, income, profits, premium, estimated,
excise, sales, use, occupancy, gross receipts, franchise, ad valorem,
severance, capital levy, production, transfer, withholding, employment,
unemployment compensation, payroll related, property, import duties and
other governmental charges and assessments), whether or not measured in
whole or in part by net income, and including deficiencies, interest,
additions to tax or interest, and penalties with respect thereto,
(hereinafter "Taxes" or, individually, a "Tax") required to be paid on or
before the date hereof (after giving effect to any applicable extensions)
by or with respect to the Company, the Subsidiaries and their respective
predecessors or Affiliates (or any of
<PAGE>
17
them), have been, or will be, timely paid when due (including extensions),
except with respect to Taxes for which the failure to pay would not have a
Material Adverse Effect with respect to the Company and the Subsidiaries
taken as a whole.
(iv) All material declarations, reports, information
returns, statements and returns for Taxes (hereinafter "Tax Returns" or,
individually, a "Tax Return") required to be filed by or with respect to
the Company, the Subsidiaries or their respective predecessors or
Affiliates (or any of them) on or before the date hereof have been timely
filed. No penalties or other charges in a material amount are or will
become due with respect to the late filing of any Tax Return of the
Company, the Subsidiaries or their respective predecessors or Affiliates or
the payment of any Tax of the Company, the Subsidiaries or their respective
predecessors or Affiliates, required to be filed or paid on or before the
date hereof.
(v) With respect to all Tax Returns filed by or with respect
to the Company and any of the Subsidiaries or their respective predecessors
or Affiliates, (A) Schedule 3.9(b) sets forth the periods for which the
statute of limitations for the assessment of federal Taxes have expired;
(B) except as set forth in Schedule 3.9(b), neither the Company nor the
Subsidiaries has been notified that, nor to the Knowledge of the
Stockholders is, there an audit in progress and no extension of time has
been executed with respect to any date on which any Tax Return was or is to
be filed and no waiver or agreement has been executed for the assessment or
payment of any Tax; and (C) except as set forth in Schedule 3.9(b), there
is no material unassessed deficiency of Taxes proposed or threatened
against the Company or any of the Subsidiaries or any of their respective
predecessors or Affiliates.
<PAGE>
18
(vi) Except as set forth in Schedule 3.9(c), none of the
Company or any of the Subsidiaries or any of their respective predecessors
or Affiliates has been or is a party to any tax sharing agreement or
similar arrangement.
3.10 Compliance with Laws. Neither the Company nor any of the
--------------------
Subsidiaries is in violation of any applicable order, judgment, injunction,
award, decree or writ (collectively, "Orders"), or any applicable law,
statute, code, ordinance, regulation or other requirement (collectively,
"Laws"), of any government or political subdivision thereof, whether
federal, state, local or foreign, or any agency or instrumentality of any
such government or political subdivision, any court or arbitrator
(collectively, "Governmental Bodies") the enforcement of which would have a
Material Adverse Effect on the condition of the Company and the
Subsidiaries taken as a whole, and except as set forth on Schedule 3.10,
neither the Company nor any of the Subsidiaries has received notice that
any such violation is being or may be alleged. The Company and the
Subsidiaries have not made any illegal payment to officers or employees of
any Governmental Body, or made any payment to customers for the sharing of
fees or to customers or suppliers for rebating of charges, or engaged in
any other reciprocal practice, or made any illegal payment or given any
other illegal consideration to purchasing agents or other representatives
of customers in respect of sales made or to be made by the Company or any
of the Subsidiaries.
3.11 Permits. The Company and the Subsidiaries have all licenses,
-------
permits, orders or approvals of, and have made all required registrations
with, any Governmental Body that are material to the current conduct of the
business of, or the current use of any of the Properties of, the Company or
any of the
<PAGE>
19
Subsidiaries (collectively, "Permits"). All Permits are listed on Schedule
3.11 and are in full force and effect; no material violations are or have
been recorded in respect of any Permit; and no proceeding is pending or, to
the Knowledge of the Company, any of the Subsidiaries or any of the
Stockholders, threatened to revoke or limit any Permit. No action by the
Stockholders, the Company or Metromedia is required in order that all
Permits will remain in full force and effect following the consummation of
the transactions provided for herein.
3.12 No Breach. The execution, delivery and performance of this
---------
Agreement by the Stockholders and the consummation of the transactions
contemplated hereby, including but not limited to, the conversion of shares
pursuant to Section 2.1 hereof (the "Contemplated Transactions") will not
(i) violate any provision of the Articles of Incorporation or By-laws of
the Company or any of the Subsidiaries; (ii) require the Stockholders, the
Company or any of the Subsidiaries to obtain any consent, approval or
action of, or make any filing with or give any notice to, any Governmental
Body or any other Person, except (a) filings under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder (the "HSR Act") and (b) as set forth on
Schedule 3.12 (b) (the "Required Consents"); (iii) if the Required Consents
are obtained, violate, conflict with or result in the breach of any of the
terms of, result in a material modification of the effect of, otherwise
cause the termination of or give any other contracting party the right to
terminate, or constitute (or with notice or lapse of time or both
constitute) a default under, any material contract, agreement, indenture,
note, bond, loan, instrument, lease, conditional sale contract, mortgage,
<PAGE>
20
license, franchise, commitment or other binding arrangement (collectively,
the "Contracts") to which the Company or any of the Subsidiaries is a party
or by or to which any of them or any of their Properties may be bound or
subject, or result in the creation of any Lien upon the material Properties
of the Company or any of the Subsidiaries pursuant to the terms of any such
Contract; (iv) if the Required Consents are obtained, violate any Order of
any Governmental Body against, or binding upon, the Company or any of the
Subsidiaries or upon their respective securities, Properties or business;
(v) if the Required Consents are obtained, violate any Law of any
Governmental Body; or (vi) if the Required Consents are obtained, violate
or result in the revocation or suspension of any Permit.
3.13 Claims and Proceedings. There are no outstanding Orders of
----------------------
any Governmental Body against or involving the Company or any of the
Subsidiaries. Except as set forth on Schedule 3.13, there are no actions,
suits, claims or legal, administrative or arbitral proceedings, public
investigations or to the Knowledge of the Company, any private
investigations (collectively, "Claims") (whether or not the defense thereof
or liabilities in respect thereof are covered by insurance) pending, or to
the Knowledge of the Company or any of the Subsidiaries, threatened,
against or involving the Company or any of the Subsidiaries or any of their
Properties as set forth on Schedule 3.13, to the Knowledge of the Company,
any of the Subsidiaries or any of the Stockholders, there is no fact, event
or circumstance that may give rise to any Claim. All notices required to
have been given to any insurance company listed as insuring against any
material Claim set forth on Schedule 3.13 have been timely and duly given
and, except as set forth on Schedule
<PAGE>
21
3.13, no insurance company has asserted, orally or in writing, that such
Claim is not covered by the applicable policy relating to such Claim.
Except as set forth on Schedule 3.13, no claims pending or threatened
against or involving the Company or any of its Subsidiaries have been
settled, adjudicated or otherwise disposed of since December 31, 1995.
3.14 Contracts.
---------
(a) Schedule 3.14 sets forth all of the following Contracts to
which the Company or any of the Subsidiaries is a party or by or to which
any of them or any of their Properties may be bound or subject: (i)
Contracts with any current or former officer, director, shareholder,
employee, consultant, agent or other representative or with an entity in
which any of the foregoing is a controlling Person; (ii) Contracts with any
labor union or association representing any employee or former employee;
(iii) Contracts for the sale of any Properties other than in the ordinary
course of business or for the grant to any Person of any option or
preferential rights to purchase any material Properties; (iv) partnership
or joint venture agreements; (v) Contracts under which the Company or any
of the Subsidiaries agrees to indemnify any party or to share tax liability
of any party; (vi) material Contracts which cannot be cancelled without
liability, premium or penalty only on 90 days' or more notice; (vii)
Contracts containing covenants of the Company or any of the Subsidiaries
not to compete in any line of business or with any Person in any
geographical area or covenants of any other Person not to compete with the
Company or any of the Subsidiaries in any line of business or in any
geographical area; (viii) Contracts relating to the acquisition by the
Company or any
<PAGE>
22
of the Subsidiaries of any operating business or the capital stock of any
other Person; (ix) Contracts relating to the borrowing of money; (x)
Contracts containing obligations or liabilities of any kind to holders of
the capital stock of the Company as such (including, without limitation, an
obligation to register any of such securities under any federal or state
securities laws); (xi) Contracts pursuant to which the Company or any of
the Subsidiaries may hold or use any interest owned or claimed by the
Company or any of the Subsidiaries in or to any material Property; (xii)
management Contracts and other similar agreements with any Person; (xiii)
any other Contracts pursuant to the terms of which there is either a
current or future obligation or right of the Company or any of the
Subsidiaries to make payments in excess of $50,000 or receive payments in
excess of $100,000; (xiv) Contracts with respect to the development,
financing or production of motion picture, video, television or interactive
productions; (xv) Distribution Contracts; (xvi) material Contracts relating
to the acquisition of Product, including Contracts relating to the
acquisition of licensing and distribution rights with respect to such
Product; (xvii) Contracts with motion picture studios; (xviii) Contracts
relating to television sales and distribution of Product; (xix) Contracts
entitling the Company or its Subsidiaries or any Affiliate, including the
Stockholders, to Contingent Compensation; and (xx) material Contracts
relating to any other Product.
(b) There have been delivered to Metromedia true and complete
copies of all of the Contracts set forth on Schedule 3.14 or on any other
Schedule. All of the Contracts are valid and binding upon the Company or
one of the Subsidiaries, as the case may be, in accordance with their terms
subject as to
<PAGE>
23
enforcement, as to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors'
rights generally and to general principles of equity. Neither the Company
nor any of the Subsidiaries is in default in any material respect under any
of such Contracts, nor does any condition exist that with notice or lapse
of time or both would constitute such a material default thereunder. To
the Knowledge of the Company, any of the Subsidiaries or any of the
Stockholders, no other party to any such Contract is in default thereunder
in any material respect nor does any condition exist that with notice or
lapse of time or both would constitute such a material default thereunder.
3.15 Real Estate.
-----------
3.15.1 Ownership of Premises. The Company and its
---------------------
Subsidiaries do not own any real property or any buildings, structures and
other improvements located on any real property (collectively, "Owned Real
Property").
3.15.2 Leased Properties. Except for short-term space leases
-----------------
entered into by the Company or a Subsidiary in connection with producing a
specific Product, Schedule 3.15.2 is a true, correct and complete schedule
of all leases, subleases, licenses and other agreements (collectively, the
"Real Property Leases") under which the Company or any Subsidiary uses or
occupies or has the right to use or occupy, now or in the future, any real
property (the land, buildings and other improvements covered by the Real
Property Leases being herein called the "Leased Real Property"), which
Schedule 3.15 sets forth the date of and parties to each Real Property
Lease, the date of and parties to each amendment, modification and
supplement thereto, the term and renewal terms (whether or not exercised)
thereof
<PAGE>
24
and a brief description of the Leased Real Property covered thereby. The
Company has heretofore delivered to Metromedia true, correct and complete
copies of all Real Property Leases (including all modifications, amendments
and supplements). Each Real Property Lease is a legal, valid, binding and
enforceable obligation of the Company and is in full force and effect,
subject as to enforcement, as to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement
of creditors' rights generally and to general principles of equity. All
rent and other sums and charges payable by the Company or a Subsidiary as
tenant under any Real Property Lease are current, no notice of default or
termination under any Real Property Lease is outstanding, no termination
event or condition or uncured material default on the part of the Company
or the applicable Subsidiary, or to the Knowledge of the Company or the
applicable Subsidiary on the part of the landlord, exists under any Real
Property Lease, and no event has occurred and no condition exists which,
with the giving of notice or the lapse of time or both, would constitute
such a default or termination event or condition on the part of the Company
or the applicable Subsidiary or, to the Knowledge of the Company or the
applicable Subsidiary on the part of the landlord. Except as set forth on
Schedule 3.15.2, to the Knowledge of the Company or the applicable
Subsidiary, none of the Leased Real Property and the Real Property Leases
contravenes any zoning ordinance or other administrative regulation or
violates any restrictive covenant, easement or other agreement to which the
lessee under any such Real Property Lease is bound, the effect of which in
any material respect would interfere with or prevent the continued
<PAGE>
25
use of the Leased Real Property for the purposes for which it is now being
used by the Company or the applicable Subsidiary.
3.15.3 Entire Premises. All of the land, buildings,
---------------
structures and other improvements used by the Company and the Subsidiaries
in the conduct of their business are included in the Leased Real Property
except for land, building, structures and other improvements subject to
short term space leases entered into by the Company or a Subsidiary in
connection with producing a particular item of Product.
3.16 Intellectual Property. Schedule 3.16 sets forth a list of
---------------------
the Company's registered patents, registered trademarks, registered service
marks, registered trade names, registered copyrights and franchises, all
applications for any of the foregoing and all permits, grants and licenses
or other rights running to the Company and any of its Subsidiaries relating
to any of the foregoing that are material to the business of the Company
and its Subsidiaries. Except as set forth on Schedule 3.16, (i) the
Company or one of the Subsidiaries own, or are licensed or otherwise have
the right, to use all registered patents, registered trademarks, registered
service marks, registered trade names, registered copyrights and franchises
set forth on Schedule 3.16, and (ii) the Company's rights in the property
set forth on such list are free and clear of any Lien or other encumbrances
and the Company and the Subsidiaries have not received written notice of
any adversely-held patent, invention, trademark, service mark or trade name
of any other person, or notice of any charge or claim of any person
relating to such intellectual property or any process or confidential
information of the Company and its Subsidiaries and to the Company's
Knowledge there is no basis for any such charge or claim, and (iii) the
Company, the
<PAGE>
26
Subsidiaries and their respective predecessors, if any, have not conducted
business at any time during the period beginning five years prior to the
date hereof under any corporate or partnership, trade or fictitious names
other than as set forth on Schedule 3.16.
3.17 Ownership of Product; Copyrights and Other Rights. The
-------------------------------------------------
Products listed on Schedule 3.17 comprise all of the material Products in
which the Company or any of the Subsidiaries has any right, title, or
interest in or to (either directly or through a joint venture or
partnership). As to each item listed on Schedule 3.17 hereto, the party
holding such interests, if not the Company or a Subsidiary, to the
Knowledge of the Company, has duly recorded its interests in the United
States Copyright Office. All such recordation is listed on Schedule 3.17.
To the Knowledge of the Company, none of the Company's or any Subsidiaries'
right, title or interest in any Product and component parts thereof
violates or infringes upon in any material respect any copyright, right of
privacy, trademark, patent, trade name, performing right or any literary,
dramatic, musical, artistic, personal, private, contract or copyright or
any other right of any Person or contain any libelous or slanderous
material. There is no claim, suit, action or proceeding pending, or to the
Knowledge of the Company or any of the Subsidiaries, threatened against the
Company or any of the Subsidiaries that involves a claim of infringement of
any copyright with respect to any Product listed on Schedule 3.17 and
neither the Company nor any of the Subsidiaries has any Knowledge of any
existing infringement by any other Person of any copyright held by the
Company or the Subsidiaries with respect to any Product.
<PAGE>
27
3.18 Title to Properties. Except as set forth elsewhere in this
-------------------
Agreement or the Schedules hereto, the Company and the Subsidiaries own
outright and have good and marketable title to all of their Properties,
including, without limitation, all of the assets reflected on the Balance
Sheet or currently used in the operation of their businesses (other than
the Leased Real Property) in each case free and clear of any material Lien.
3.19 Liabilities. Except as set forth on Schedule 3.19, as at
-----------
March 31, 1996, the Company and the Subsidiaries did not have any material
direct or indirect indebtedness, liability, claim, loss, damage,
deficiency, obligation or responsibility, known or unknown, fixed or
unfixed, choate or inchoate, liquidated or unliquidated, secured or
unsecured, accrued, absolute, contingent or otherwise, whether or not of a
kind required by generally accepted accounting principles to be set forth
on a financial statement or in the notes thereto ("Liabilities") that were
not fully and adequately reflected or reserved against on the Balance Sheet
dated March 31, 1996 or described on any Schedule or in the notes to the
Audited Financials. Except as set forth on Schedule 3.19 or described on
any Schedule to this Agreement, (x) the Company and the Subsidiaries have
not, except in the ordinary course of business, incurred any material
Liabilities since the Balance Sheet Date and (y) neither the Company nor
any of the Subsidiaries has any Knowledge of any circumstance, condition,
event or arrangement that may hereafter give rise to any Liabilities of the
Company or any of the Subsidiaries or any successor to their businesses
except in the ordinary course of business.
<PAGE>
28
3.20 Employee Benefit Plans. Except as set forth on Schedule
----------------------
3.20, there are no employee benefit plans or arrangements of any type
(whether or not described in section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended and the regulations thereunder ("ERISA"),
and including, without limitation, plans or arrangements providing for
deferred compensation, bonuses, stock options, fringe benefits, cafeteria
plan deferrals, flexible arrangements or other similar plans or
arrangements), under which the Company or any of its Subsidiaries has or in
the future could have, directly or indirectly, any liability with respect
to any current or former employee of the Company, any Subsidiary or any
Commonly Controlled Entity (within the meaning of section 414(b), (c), (m),
(n) or (o) of the Code) ("Benefit Plans").
3.21 Employee Relations. Except with respect to Projects where
------------------
members of the Screen Actors Guild, the Directors Guild of America, the
Writers Guild of America or other union representation for "below the line"
personnel are engaged by the Company or a Subsidiary, no union organizing
efforts have been conducted within the last five years or are now being
conducted. For purposes of this section 3.21, "below the line personnel"
shall mean all persons (other than authors, screenwriters, producers,
directors and actors) engaged by the Company or its Subsidiaries in
connection with the production of a film. Neither the Company nor any of
the Subsidiaries has at any time during the last five years had, nor, to
the Knowledge of the Company nor any of the Subsidiaries, is there now
threatened, a strike, picket, work stoppage, work slowdown or other labor
trouble.
<PAGE>
29
3.22 Insurance. Schedule 3.22 sets forth a list (specifying the
---------
insurer, describing each pending claim thereunder of more than $50,000 and
setting forth the aggregate amounts paid out under each such policy through
the date hereof and the aggregate limit, if any, of the insurer's liability
thereunder) of all policies or binders of fire, liability, product
liability, workmen's compensation, vehicular and other insurance held by or
on behalf of the Company or any of the Subsidiaries. Such policies and
binders are valid and binding in accordance with their terms, are in full
force and effect. Neither the Company nor any of the Subsidiaries is in
default with respect to any provision contained in any such policy or
binder or has failed to give any notice or present any claim under any such
policy or binder in due and timely fashion. There are no outstanding
unpaid claims under any such policy or binder, and neither the Company nor
any of the Subsidiaries has received any notice of cancellation or
non-renewal of any such policy or binder. Neither the Company nor any of
the Subsidiaries has received any notice from any of its insurance carriers
that any insurance premiums will or may be materially increased in the
future or that any insurance coverage listed on Schedule 3.22 will or may
not be available in the future on terms or subject to conditions which
would make renewal thereof onerous.
3.23 Officers, Directors and Key Employees. Schedule 3.23 sets
-------------------------------------
forth (i) the name and the scheduled 1996 total compensation of each
officer and director of the Company and the Subsidiaries, (ii) the name and
scheduled total compensation of each other employee, consultant, agent or
other representative of the Company or any of the Subsidiaries whose
current or committed annual rate of compensation (including bonuses and
commissions) exceeds $150,000, (iii) all wage
<PAGE>
30
and salary increases, bonuses and increases and any other direct or
indirect compensation received by such Persons since December 31, 1995,
(iv) any payments or commitments to pay any severance or termination pay to
any such Persons, and (v) any accrual for, or any commitment or agreement
by the Company or any of the Subsidiaries to pay, such increases, bonuses
or pay. None of such Persons has indicated that he or she will cancel or
otherwise terminate such Person's relationship with the Company or any of
the Subsidiaries.
3.24 Operations of the Company. Except as set forth on Schedule
-------------------------
3.24 or on any other Schedule, since the Balance Sheet Date neither the
Company nor any of the Subsidiaries has:
(i) declared or paid any dividends or declared or made any
other distributions of any kind to its shareholders, or made any direct or
indirect redemption, retirement, purchase or other acquisition of any
shares of its capital stock;
(ii) except for short-term bank borrowings in the ordinary
course of business and except for borrowings with respect to the Project
Beverly Hills Ninja, incurred any indebtedness for borrowed money;
(iii) reduced its cash or short-term investments or their
equivalent, other than to meet cash needs arising in the ordinary course of
business, consistent with past practices and to pay year end employee
bonuses which are set forth on Schedule 3.23;
(iv) waived any material right under any contract or other
agreement of the type required to be set forth on any Schedule;
<PAGE>
31
(v) made any material change in its accounting methods or
practices or made any material change in depreciation or amortization
policies or rates adopted by it;
(vi) materially changed any of its business policies,
including, without limitation, advertising, investment, marketing, pricing,
purchasing, production, personnel, sales, returns, budget or product
acquisition policies, except as specifically set forth in the Company's
Confidential Information Memorandum (dated March 1995), a copy of which was
previously delivered to Metromedia;
(vii) made any loan or advance to any of its shareholders,
officers, directors, employees, consultants, agents or other
representatives (other than travel advances made in the ordinary course of
business for business travel and entertainment expenses), or made any other
loan or advance otherwise than in the ordinary course of business;
(viii) except for the acquisition or disposition of
inventory, or equipment or other Properties in the ordinary course of
business, sold, abandoned or made any other disposition of any of its
Properties or made any acquisition of all or any part of the Properties,
capital stock or business of any other person;
(ix) paid, directly or indirectly, any of its material
Liabilities before the same became due in accordance with its terms or
otherwise than in the ordinary course of business;
(x) terminated or failed to renew, or received any written
threat (that was not subsequently withdrawn) to terminate or fail to renew,
any contract or
<PAGE>
32
other agreement that is or was material to the business of the Company and
the Subsidiaries taken as a whole;
(xi) except with respect to certain transactions among the
Company and its Subsidiaries as set forth on Schedule 3.24, amended its
Articles of Incorporation or By-laws (or comparable instruments) or merged
with or into or consolidated with any other Person, subdivided or in any
way reclassified any shares of its capital stock or changed or agreed to
change in any manner the rights of its outstanding capital stock or the
character of its business; or
(xii) except for the Company's "first look" deal with
Paramount Pictures Corporation, the most recent copy of which and all
material correspondence relating thereto has been provided to Metromedia,
engaged in any other material transaction.
3.25 Potential Conflicts of Interest. No executive officer or
-------------------------------
director of the Company or any of the Subsidiaries, no Stockholder, no
relative or spouse (or relative of such spouse) of any such officer,
director or Stockholder and no entity controlled by one or more of the
foregoing:
(i) owns, directly or indirectly, any interest in (excepting
less than 5% stock holdings for investment purposes in securities of
publicly held and traded companies), or is an officer, director, employee
or consultant of, any Person which is, or is engaged in business as, a
competitor, lessor, lessee, supplier, distributor, sales agent or customer
of the Company or any of the Subsidiaries except as set forth on Schedule
3.25(a);
<PAGE>
33
(ii) except as set forth on Schedule 3.25(b), owns,
directly or indirectly, in whole or in part, any Property that the Company
or any of the Subsidiaries uses in the conduct of its business; or
(iii) except as set forth on Schedule 3.25(c), has any cause
of action or other claim whatsoever against, or owes any amount to, the
Company or any of the Subsidiaries, except for claims in the ordinary
course of business such as for accrued vacation pay, accrued benefits under
employee benefit plans, and similar matters and agreements existing on the
date hereof.
3.26 Premerger Notification. The Company (or its ultimate parent
----------------------
entity) will promptly file notification and report forms with respect to
the Contemplated Transactions in compliance with the HSR Act. Metromedia
will bear the costs of any filing fees required to be paid pursuant to the
HSR Act as a result of Metromedia being deemed an "acquiring person" under
the HSR Act in connection with the transactions contemplated in Section 1
hereof. In the event Metromedia is not deemed an "acquiring person" under
the HSR Act in connection with the transactions contemplated by Section 1
hereof, the person deemed the "acquiring person" shall bear the sole
responsibility for any filing fee under the HSR Act in connection with such
transactions.
3.27 Projections. The projections relating to operations of the
-----------
Company and the Subsidiaries through the fiscal year ending 2003 (the
"Projections"), heretofore delivered by the Company to Metromedia, have
been prepared in good faith on a reasonable basis. The assumptions on
which the Projections are based are stated in Schedule 3.27 and are
consistent with past practices of the Company and the
<PAGE>
34
Subsidiaries and with historical conditions applicable to the business of
the Company and the Subsidiaries. Nothing has come to the attention of the
Company or any of the Subsidiaries to indicate that the Projections or the
assumptions upon which they are based are not reasonable.
3.28 Full Disclosure. All documents, Contracts, instruments,
---------------
certificates, notices, consents, affidavits, letters, telegrams, telexes,
statements, schedules (including Schedules to this Agreement), exhibits
(including Exhibits to this Agreement), the Confidential Information
Memorandum dated March 1995 (the "Confidential Memorandum"), the
Projections through the year ending 2003, and any other papers whatsoever
(collectively, "Documents") delivered by or on behalf of the Stockholders,
the Company or the Subsidiaries in connection with this Agreement and the
Contemplated Transactions are authentic if original or true and correct
copies of the originals. With the exception of the Confidential
Memorandum, no representation or warranty of the Company or the
Stockholders contained in this Agreement or in any of the Schedules, and no
Document furnished by or on behalf of the Stockholders, the Company or the
Subsidiaries to Metromedia pursuant to this Agreement or in connection with
the Contemplated Transactions, contains an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements made, in the context in which made, not
materially false or misleading. Except as otherwise set forth in this
Agreement, there is no material fact that the Stockholders have not
disclosed to Metromedia in writing that materially adversely affects or, so
far as any of the Stockholders can now
<PAGE>
35
foresee, will have a Material Adverse Effect on the Company or any of the
Subsidiaries or the ability of the Stockholders to perform this Agreement.
3.29 Environment Protection. Except as disclosed on
----------------------
Schedule 3.29:
(i) neither the Company nor any of its Subsidiaries is or has
been in violation in any material respect of any applicable Safety and
Environmental Law (as hereinafter defined);
(ii) the Company and its Subsidiaries have all material
Permits required pursuant to Safety and Environmental Laws, such Permits
are in full force and effect, no action or proceeding to revoke, limit or
modify any of such Permits is pending, and the Company and each of its
Subsidiaries is in compliance in all material respects with all terms and
conditions thereof;
(iii) neither the Company nor any of its Subsidiaries has
received any Environmental Claim (as hereinafter defined);
For purposes of this Agreement, the following terms have the
following meanings:
(i) "Environmental Claims" means any notification, whether
direct or indirect, formal or informal, written or oral, pursuant to Safety
and Environmental Laws or principles of common law relating to pollution,
protection of the environment or health and safety, that any of the current
or past operations of the Company or any of its Subsidiaries, or any
by-product thereof, or any of the property currently or formerly owned,
leased or operated by the Company or any of its Subsidiaries, or the
operations or property of any predecessor of the Company or any
<PAGE>
36
of its Subsidiaries is or may be implicated in or subject to any
proceeding, action, investigation, claim, lawsuit, order, agreement or
evaluation by any Governmental Body or any other person.
(ii) "Safety and Environmental Laws" means all federal,
state and local laws and order relating to pollution, protection of the
environment, public or worker health and safety, or the emission,
discharge, release or threatened release of pollutants, contaminants or
industrial, toxic or hazardous substances or wastes into the environment or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants or industrial, toxic or hazardous substances or wastes,
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. section 9601 et seq., the
-- ---
Resource Conservation and Recovery Act, 42 U.S.C. section 6901 et seq., the
-- ---
Toxic Substances Control Act, 15 U.S.C. section 2601 et seq., the Federal
-- ---
Water Pollution Control Act, 33 U.S.C. section 1251 et seq., the Clean Air
-- ---
Act, 42 U.S.C. section 7401 et seq., the Federal Insecticide, Fungicide and
-- ---
Rodenticide Act, 7 U.S.C. section 121 et seq., the Occupational Safety and
-- ---
Health Act, 29 U.S.C. section 651 et seq., the Asbestos Hazard Emergency
-- ---
Response Act, 15 U.S.C. section 2601 et seq., the Safe Drinking Water Act,
-- ---
42 U.S.C. section 300 et seq., the Oil Pollution Act of 1990 and analogous
-- ---
state acts.
<PAGE>
37
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF EACH STOCKHOLDER
Each Stockholder, severally and not jointly, represents and
warrants to Metromedia as follows:
4.1 Title to the Shares. As of the Closing Date, such Stockholder
-------------------
shall own beneficially and of record, free and clear of any Lien, or shall
own of record and have full power and authority to convey free and clear of
any Lien, the Shares set forth opposite such Stockholder's name on Exhibit
A, and, upon delivery of and payment for such Shares as herein provided,
such Stockholder will convey to Metromedia good and valid title thereto,
free and clear of any Lien.
4.2 Authority to Execute and Perform Agreement. Such Stockholder
------------------------------------------
has the full legal right and power and all authority and approvals required
to execute and deliver this Agreement and to perform fully such
Stockholder's obligations hereunder. This Agreement has been duly executed
and delivered by such Stockholder and (assuming the due authorization,
execution and delivery hereof by MPCA Mergerco, the Company and Metromedia)
is a valid and binding obligation of such Stockholder enforceable in
accordance with its terms except as the same may be limited by (insolvency
qualification). Except as set forth on Schedule 4.2, the execution and
delivery by such Stockholder of this Agreement, the consummation of the
Contemplated Transactions and the performance by such Stockholder of this
Agreement in accordance with its terms will not (i) require the approval or
consent of any Governmental Body or the approval or consent of any other
Person; (ii) conflict
<PAGE>
38
with or result in any breach or violation of any of the terms and
conditions of, or constitute (or with notice or lapse of time or both
constitute) a default under, any Law or Order of any Governmental Body
applicable to such Stockholder or to the Shares held by such Stockholder,
or any Contract to which such Stockholder is a party or by or to which such
Stockholder is or the Shares held by such Stockholder are bound or subject;
or (iii) result in the creation of any Lien on the Shares held by such
Stockholder.
4.3 Company's Representations and Warranties. To the Knowledge of
----------------------------------------
the Stockholders, the Company's representations and warranties set forth in
Section 3 are true, correct and complete in all material respects.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF
MPCA MERGERCO AND METROMEDIA
Metromedia and MPCA Mergerco represent and warrant to the
Stockholders and the Company as follows:
5.1 Due Incorporation and Authority. Each of the MPCA Mergerco
-------------------------------
and Metromedia is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and each has all
requisite corporate power and authority to own, lease and operate their
respective Properties and to carry on its business as now being and as
heretofore conducted.
5.2 Authority to Execute and Perform Agreement. Each of MPCA
------------------------------------------
Mergerco and Metromedia has the full legal right and power and all
authority and approvals required to execute and deliver this Agreement and
to perform fully
<PAGE>
39
their respective obligations hereunder. This Agreement has been duly
executed and delivered by each of MPCA Mergerco and Metromedia and
(assuming the due authorization, execution and delivery hereof by the
Stockholders and the Company) is a valid and binding obligation of each of
MPCA Mergerco and Metromedia enforceable in accordance with its terms.
5.3 No Violations. Except as set forth on Schedule 5.3, the
-------------
execution and delivery by MPCA Mergerco and Metromedia of this Agreement,
the consummation of the Contemplated Transactions and the performance by
MPCA Mergerco and Metromedia of this Agreement, in accordance with its
terms will not (i) require the consent, approval, action of, or making any
filing with or giving notice to any Governmental Body or any other Person;
(ii) conflict with or result in any breach or violation of any of the terms
and conditions of, or constitute (or with notice or lapse of time or both
constitute) a default under, the Certificate of Incorporation or By-laws of
MPCA Mergerco or Metromedia, any Law or Order of any Governmental Body
applicable to MPCA Mergerco or Metromedia, or any Contract to which MPCA
Mergerco or Metromedia is a party or by or to which MPCA Mergerco or
Metromedia or any of their Properties is bound or subject; or (iii) result
in the creation of any material Lien on any of the Properties of MPCA
Mergerco, Metromedia or the Surviving Corporation.
5.4 Investment Company Act. Metromedia either (i) is not an
----------------------
"investment company", or to Metromedia's Knowledge a company "controlled"
by, or to Metromedia's Knowledge an "affiliated company" with respect to an
"investment company" required to register under the Investment Company Act
of 1940, as
<PAGE>
40
amended (the "Investment Company Act") or (ii) satisfied all conditions for
an exemption from the Investment Company Act, and accordingly, none of its
subsidiaries is required to be registered under the Investment Company Act.
5.5 Premerger Notification. Metromedia (or its ultimate Parent)
----------------------
will promptly file notification and report forms with respect to the
Contemplated Transactions in compliance with the HSR Act.
5.6 Business of MPCA Mergerco. MPCA Mergerco has not incurred,
-------------------------
directly or indirectly through any subsidiary or otherwise, any liabilities
or obligations, except those incurred in connection with its incorporation
or with the negotiation and the execution, delivery and performance of this
Agreement and the transactions contemplated hereby. MPCA Mergerco has not
engaged, directly or indirectly through any subsidiaries or otherwise, in
any business or activities of any type or kind whatsoever, or entered into
any agreement or arrangements with any Person, and is not subject to or
bound by any obligation or understanding which is not contemplated by this
Agreement.
5.7 Capitalization. The authorized capital stock of MPCA Mergerco
--------------
consists of 1000 shares of common stock, $.01 par value per share, all of
which are validly issued and outstanding, fully paid and nonassessable, and
owned, beneficially and of record, by Metromedia, free and clear of all
Liens. As of the date of this Agreement, there are no outstanding options,
warrants, preemptive or other rights, contracts, commitments, or agreements
by which MPCA Mergerco is or may become obligated to issue any additional
shares of its capital stock or securities convertible into any such shares.
<PAGE>
41
5.8 Reports and Financial Statements. Metromedia has previously
--------------------------------
furnished or otherwise made available to the Company true and complete
copies of all reports on Forms 10-K, 10-Q and 8-K filed by Metromedia and
Metromedia has filed all reports on Forms 10-K, 10-Q and 8-K required to be
filed by Metromedia with the Securities and Exchange Commission since
November 1, 1995. As of their respective dates, such reports did not
contain any untrue statement of material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading
5.9 Status of Metromedia Common Stock to be Issued. Assuming
----------------------------------------------
without investigation that the shares of Company Common Stock at the
Effective Time will be validly authorized, validly issued, fully paid, and
non-assessable, the shares of Metromedia Common Stock to be issued in the
Merger will, at the Effective Time, be validly authorized and, when the
Merger has become effective and the shares of Metromedia Common Stock have
been duly delivered pursuant to the terms of this Agreement, such shares of
Metromedia Common Stock will be validly issued, fully paid and
non-assessable.
ARTICLE 6
COVENANTS AND AGREEMENTS
6.1 Conduct of Business. From the date hereof through the Closing
-------------------
Date, the Stockholders, jointly and severally, agree that they (i) shall
cause the Company and the Subsidiaries to conduct their businesses in the
ordinary course
<PAGE>
42
and, without the prior written consent of Metromedia, not to undertake any
of the actions specified in Section 3.24 unless otherwise disclosed in any
Schedule referred to in Section 3.24 or in connection with an item
disclosed in any such Schedule; and further not to (a) authorize for
issuance, issue, grant, sell, pledge, dispose of or propose to issue,
grant, sell, pledge or dispose of any shares of, or any options, warrants,
commitments, subscriptions or rights of any kind to acquire any shares of,
the capital stock of the Company or any securities convertible into or
exchangeable for shares of stock of any class of the Company or any of its
Subsidiaries; (b) split, combine, subdivide or reclassify any shares of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock
or declare, pay or set aside any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock, or redeem, purchase or otherwise acquire or offer to acquire
any shares of its own capital stock or any of its Subsidiaries or any other
securities thereof or any right, warrants or options to acquire any such
shares or other securities; (c) (1) except for debt (including obligations
in respect of capital leases) not in excess of $50,000 and except for the
existing line of credit listed on Schedule 6.1, create, incur or assume any
short-term debt, long-term debt or obligations in respect of capital
leases; (2) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, indirectly, contingently or otherwise) for
the obligations of any other person except wholly-owned subsidiaries of the
Company, in the ordinary course of business consistent with past practice;
(3) make any capital expenditures or make any loans, advances or capital
contributions to, or investments in, any other
<PAGE>
43
Person (other than customary travel or business or entertainment advances
to employees, representatives, consultants, directors or advisors or
subsidiaries made in the ordinary course of business consistent with past
practice and/or in connection with the consummation of the transactions
contemplated by this Agreement and listed on Schedule 6.1), currently
committed, budgeted capital expenditures and additional capital
expenditures not in excess of $50,000; or (4) incur any material liability
or obligation (absolute, accrued, contingent or otherwise) other than in
the ordinary course of business and consistent with past practice; (d)
except in the ordinary course of business consistent with past practice or
as may be required by local law, sell, transfer, mortgage, or otherwise
dispose of, or encumber, or agree to sell, transfer, mortgage or otherwise
dispose of or encumber, any material assets or properties, real, personal
or mixed; (e) increase in any manner the compensation of any of its
officers; (f) enter into severance, termination or retention agreements,
and terminating any employment agreements, with its officers and key
employees; (g) (except in the ordinary course of business consistent with
past practice) enter into any agreement relating to the production,
financing, acquisition, development or license of motion pictures or
television programming; (h) incur any obligation in excess of $50,000 in
connection with any item of Product to be produced by the Company or its
Subsidiaries; execute any Contract obligating the Company or its
Subsidiaries to pay a minimum guarantee of more than $50,000 for any item
of Product, incur acquisition costs of more than $100,000 for any item of
Product; (i) enter into any "first look" or output Contract with any
Person; and (ii) shall use reasonable commercial efforts to cause the
Company and the Subsidiaries to conduct their businesses in such a manner
<PAGE>
44
so that the representations and warranties contained in Article 3 shall
continue to be true and correct on and as of the Closing Date as if made on
and as of the Closing Date. From the date hereof through the Closing Date,
each Stockholder, severally and not jointly, agrees to conduct such
Stockholder's affairs in such a manner so that the representations and
warranties of such Stockholder contained in Article 4 shall continue to be
true and correct on and as of the Closing Date as if made on and as of the
Closing Date. The Stockholders shall give Metromedia prompt notice of any
event, condition or circumstance occurring from the date hereof through the
Closing Date that would constitute, to their Knowledge, a violation or
breach of any representation or warranty, whether made as of the date
hereof or as of the Closing Date, or that would constitute a violation or
breach of any covenant of any Stockholder contained in this Agreement.
6.2 Performance of Obligations; Copyright. From the date hereof
-------------------------------------
through the Closing Date, the Company and the Subsidiaries agree (i) to
duly observe and perform all material terms and conditions of all material
agreements with respect to the production, development and/or exploitation
of each item of Product and diligently protect and enforce the rights of
the Company or any of the Subsidiaries under all such agreements in a
manner consistent with prudent business practice; provided, however, that
to the extent the Company does not have adequate resources to comply with
the foregoing, it shall promptly inform Metromedia and Metromedia shall, in
it sole discretion, decide whether to pursue the same (if sufficient
resources are not available, then failure to comply shall not be deemed a
breach of this covenant) and (ii) in connection with each item of Product
with respect
<PAGE>
45
to which the Company or any of the Subsidiaries is or becomes the copyright
proprietor thereof or to the extent such interest is obtained by the
Company or any of the Subsidiaries, or the Company or any of the
Subsidiaries otherwise acquires a copyrightable interest in, take any and
all actions reasonably necessary to register the copyright for such item of
Product in the name of the Company or any of the Subsidiaries in conformity
with the laws of the United States; provided, however, that to the extent
the Company does not have adequate resources to comply with the foregoing,
it shall promptly inform Metromedia and Metromedia shall, in it sole
discretion, decide whether to pursue the same (if sufficient resources are
not available, then failure to comply shall not be deemed a breach of this
covenant).
With respect to subsections (i) and (ii) of this Section 6.2 if
sufficient resources are not available to the Company and Metromedia does
not expend its resources in connection with the Company's rights under any
Production Services Agreement or under any item of Product after
notification thereof by Metromedia, such failure shall not be deemed a
breach of this covenant by either of the Company or Metromedia.
6.3 Corporate Examinations and Investigations. Prior to the
-----------------------------------------
Closing Date, the Stockholders agree that Metromedia shall be entitled,
through its employees and representatives, including, without limitation,
any counsel, tax advisors and accountants, to conduct its due diligence
investigation (the "Due Diligence Investigation") and to make such
investigation of the Properties, businesses and operations of the Company
and the Subsidiaries, and such examination of the books, records and
financial condition of the Company and the Subsidiaries, as it
<PAGE>
46
wishes. Any such investigation and examination shall be conducted at
reasonable times and under reasonable circumstances, and the Stockholders
shall, and shall cause the Company and the Subsidiaries to, cooperate fully
therein. No investigation by Metromedia shall diminish or obviate any of
the representations, warranties, covenants or agreements of the
Stockholders contained in this Agreement except as otherwise specifically
set forth herein. In order that Metromedia may have full opportunity to
make such physical, business, accounting and legal review, examination or
investigation as it may wish of the affairs of the Company and the
Subsidiaries, the Stockholders shall make available and shall cause the
Company and the Subsidiaries to make available to the representatives of
Metromedia during such period all such information and copies of such
documents concerning the affairs of the Company and the Subsidiaries as
such representatives may reasonably request, shall permit the
representatives of Metromedia access to the Properties of the Company and
the Subsidiaries and all parts thereof and shall cause their officers,
employees, consultants, agents, accountants and attorneys to cooperate
fully with such representatives in connection with such review and
examination. If this Agreement terminates, (i) Metromedia shall keep
confidential and shall not use in any manner any information or documents
obtained from the Company or the Subsidiaries concerning their Properties,
businesses and operations, unless readily ascertainable from public or
published information, or trade sources, or already known or subsequently
developed by Metromedia independently of any investigation of the Company
or the Subsidiaries or through sources which, to the Knowledge of
Metromedia are not subject to an obligation of confidentiality otherwise
required by
<PAGE>
47
law to be disclosed provided, however, that if required by law to be
disclosed, Metromedia shall give the Company and the Stockholders written
notice of such disclosure and a reasonable opportunity to obtain a
protective order, and (ii) any documents obtained from the Company or the
Subsidiaries and all copies thereof shall be returned.
6.4 Publicity. Except as may be required by the rules and
---------
regulations of the SEC or the American Stock Exchange, the parties agree
that no publicity release or announcement concerning this Agreement or the
Contemplated Transactions shall be made without advance approval thereof by
the other party hereto.
6.5 Expenses. The parties to this Agreement shall, except as
--------
otherwise specifically provided herein, bear their respective expenses
incurred in connection with the preparation, execution and performance of
this Agreement and the Contemplated Transactions, including, without
limitation, all fees and expenses of agents, representatives, counsel and
accountants.
6.6 Indemnification of Brokerage. The Stockholders, jointly and
----------------------------
severally, represent and warrant to Metromedia that there are no brokerage
commissions, finder's fees or similar fees or commissions payable to any
Person (a "Broker") in connection with this Agreement or based on any
agreement, arrangement or understanding with the Company, any of the
Subsidiaries or any of the Stockholders, or any action taken by the
Company, any of the Subsidiaries or any of the Stockholders relating
thereto. The Stockholders agree, jointly and severally, to indemnify and
save Metromedia harmless from any claim or demand for commission
<PAGE>
48
or other compensation by any Broker claiming to have been employed by or on
behalf of the Company, any of the Subsidiaries or any of the Stockholders,
and to bear the cost of legal expenses incurred in defending against any
such claim. Metromedia represents and warrants to the Stockholders that no
Broker has acted on behalf of Metromedia in connection with this Agreement
or the Contemplated Transactions, and that there are no brokerage
commissions, finders' fees or similar fees or commissions payable in
connection therewith based on any agreement, arrangement or understanding
with Metromedia, or any action taken by Metromedia. Metromedia agrees to
indemnify and save the Stockholders harmless from any claim or demand for
commission or other compensation by any Broker claiming to have been
employed by or on behalf of Metromedia, and to bear the cost of legal
expenses incurred in defending against any such claim.
6.7 Related Parties. The Stockholders shall, simultaneously with
---------------
the Closing, pay or cause to be paid to the Company or one of the
Subsidiaries, as the case may be, all amounts owed to the Company or such
Subsidiary and reflected on the Balance Sheet or borrowed from or owed to
the Company or such Subsidiary since the Balance Sheet Date by any of the
Stockholders or any Affiliate of any of the Stockholders. At and as of the
Closing, upon delivery of the consideration pursuant to Section 2.3,
there will be no further obligation of the Company to the Stockholders with
respect to the Existing Note Amount. The Company shall remain liable to
the Stockholders for compensation, reimbursement of expenses, and
obligations under contracts, all listed on Schedule 6.7.
<PAGE>
49
6.8 Further Assurances. Each of the parties shall execute such
------------------
Documents and take such further actions as may be reasonably required or
desirable to carry out the provisions hereof and the Contemplated
Transactions. Each such party shall use its best commercially reasonable
efforts to fulfill or obtain the fulfillment of the conditions to the
Closing set forth in Articles 7 and 8.
6.9 D&O Insurance. Metromedia agrees to maintain insurance
-------------
relating to directors' and officers' liability and cause the Surviving
Corporation to act in accordance with the indemnification provisions of the
Surviving Corporation's by-laws and certificate of incorporation.
6.10 Employee Benefits; Employment Contracts; Indemnification.
--------------------------------------------------------
(a) Following the Effective Time, the Surviving Corporation
will provide generally to officers and employees of the Company employee
benefits, which in the aggregate, are no less favorable than those provided
by Orion Pictures Corporation, a wholly-owned subsidiary of Metromedia.
However, the Surviving Corporation shall have the right to amend, modify,
or terminate any employee benefit plan, program, or arrangement after the
Effective Time, in accordance with the terms and conditions of such plans,
programs or arrangements.
(b) The Surviving Corporation will honor all Company
employment agreements listed on Schedule 6.10 in accordance with the terms
and conditions of such agreement.
6.11 Capital Stock Changes. If, prior to the Effective Time,
---------------------
Metromedia shall effect any stock dividend, stock split, or reverse stock
split of
<PAGE>
50
Metromedia Common Stock, then the shares of Metromedia Common Stock, to be
delivered under this Agreement shall be appropriately and equitably
adjusted to the kind and amount of shares of stock and other securities and
property to which the holders of such shares of Metromedia Common Stock
would have been entitled to receive had such stock or such other security
been issued and outstanding as of the record date for determining
stockholders entitled to participate in such corporate event.
6.12 Company Trademarks. Upon expiration or earlier termination
------------------
of the Employment Agreements referred to in Section 7.7 (if expired or
terminated separately, upon the expiration or termination of the latter
Employment Agreement), the Surviving Corporation agrees to assign to the
Stockholders, jointly, all of the Surviving Corporation's right, title and
interest in and to the trade name and the trademark MOTION PICTURE
CORPORATION OF AMERICA and the design of the mark as reproduced on Exhibit
A hereto (collectively, the Mark), provided, however, that Metromedia and
its Affiliates shall have the irrevocable, perpetual, royalty-free right to
continue to use the Mark throughout the universe on any Company Product (as
such term is defined in the Employment Agreements) existing prior to the
expiration or earlier termination of the Employment Agreements. The
parties agree to execute any and all instruments necessary to effectuate
the assignment referred to herein. The Surviving Corporation agrees that
from the Effective Time until the assignment to the Stockholders as set
forth above, it will not assign, transfer, dispose of, or license the Mark
or any part thereof to any Person except that the Mark
<PAGE>
51
may be transferred to and used by Affiliates on a non-exclusive basis with
the approval of the Stockholders which shall not be unreasonably withheld
or delayed.
6.13 Restricted Stock Plan. Metromedia will adopt a Restricted
---------------------
Stock Plan in the form of Exhibit B hereto and grant the Awards (as defined
therein) on the Adjustment Date. Metromedia will use reasonable efforts to
register the Common Stock underlying the Awards on a Form S-8.
ARTICLE 7
CONDITIONS PRECEDENT TO THE
OBLIGATION OF METROMEDIA TO CLOSE
The obligations of Metromedia to enter into and complete the
Closing are subject, at the option of Metromedia acting in accordance with
the provisions of Section 11 with respect to termination of this Agreement,
to the fulfillment on or prior to the Closing Date of the following
conditions, any one or more of which may be waived by it:
7.1 Representations and Covenants. The representations and
-----------------------------
warranties of the Company and the Stockholders contained in this Agreement
shall be true and correct in all material respects on and as of the Closing
Date with the same force and effect as though made on and as of the Closing
Date. The Company and each of the Stockholders shall have performed and
complied in all material respects with all covenants and agreements
required by this Agreement to be performed or complied with by the Company
or such Stockholder, as the case may be, on or prior to the Closing Date.
The Company and each Stockholder shall have delivered to
<PAGE>
52
Metromedia a certificate, dated the date of the Closing and signed by the
Company or such Stockholder, to the foregoing effect.
7.2 Consents and Approvals. All Required Consents shall have been
----------------------
obtained and be in full force and effect, and Metromedia shall have been
furnished with evidence reasonably satisfactory to it of the granting of
such approvals, authorizations and consents.
7.3 Opinion of Counsel to the Stockholders. Metromedia shall have
--------------------------------------
received the opinion of Loeb & Loeb, LLP, counsel to the Company and the
Stockholders, dated the date of the Closing, addressed to Metromedia, in
the form of Exhibit C.
7.4 Intentionally Omitted.
7.5 FIRPTA Affidavit. Metromedia shall have received an affidavit
----------------
of each Stockholder sworn to under penalty of perjury, setting forth such
Majority Stockholder's name, address and Federal tax identification number
and stating that Stockholder is not a "foreign person" within the meaning
of Section 1445 of the Internal Revenue Code of 1986 (the "Code").
7.6 HSR Act Filing. Any Person required in connection with the
--------------
Contemplated Transactions to file a notification and report form in
compliance with the HSR Act shall have filed such form and the applicable
waiting period with respect to each such form (including any extension
thereof by reason of a request for additional information) shall have
expired or been terminated.
7.7 Employment Agreements. Each Stockholder shall have entered
---------------------
into an Employment Agreement substantially in the form attached to that
<PAGE>
53
certain letter dated as of the date hereof from the Surviving Corporation
to the Stockholders.
7.8 No Claims. There shall be no outstanding Order of any
---------
Governmental Body against or involving the Company or any of the
Subsidiaries and there are no claims pending, or to the Knowledge of the
Company, any of the Subsidiaries or any of the Stockholders, threatened
against or involving the Company or any of the Subsidiaries or any of their
Properties which individually or in the aggregate could have a Material
Adverse Effect or an adverse effect on the Contemplated Transactions.
7.9 Board Approval. The Board of Directors of Metromedia shall
--------------
have approved this Agreement and the Contemplated Transactions.
7.10 Due Diligence. Metromedia shall have completed its legal,
-------------
financial and accounting review of the Company and the subsidiaries and
shall be satisfied with the results of such review.
7.11 No Dissenters' Rights. No holder of any Shares of Company
---------------------
Common Stock shall have objected to the Merger in writing and demanded the
value of their shares pursuant to Section 262 of the Delaware General
Corporation Law.
7.12 Paramount Pictures. The Agreement dated as of November 1,
------------------
1995 between Paramount Pictures Corporation and the Company shall be
executed in a form approved by Metromedia.
<PAGE>
54
ARTICLE 8
CONDITIONS PRECEDENT TO THE
OBLIGATION OF THE STOCKHOLDERS TO CLOSE
The obligation of the Stockholders to enter into and complete the
Closing is subject, at the option of the Stockholders acting in accordance
with the provisions of Section 11 with respect to termination of this
Agreement, to the fulfillment on or prior to the Closing Date of the
following conditions, any one or more of which may be waived by them:
8.1 Representations and Covenants. The representations and
-----------------------------
warranties of Metromedia contained in this Agreement shall be true on and
as of the Closing Date with the same force and effect as though made on and
as of the Closing Date. Metromedia shall have performed and complied with
all covenants and agreements required by this Agreement to be performed or
complied with by it on or prior to the Closing Date. Metromedia shall have
delivered to the Stockholders a certificate, dated the date of the Closing
and signed by an officer of Metromedia, to the foregoing effect.
8.2 Consents and Approvals. All Required Consents shall have been
----------------------
obtained and be in full force and effect and the Company and the
Stockholders shall have been furnished with evidence reasonably
satisfactory to each of them of the granting of such approvals,
authorizations and consents.
8.3 Opinion of Counsel to Metromedia. The Stockholders shall have
--------------------------------
received the opinion of Arnold L. Wadler, General Counsel to Metromedia,
dated the date of the Closing, addressed to the Stockholders, in the form
of Exhibit F.
<PAGE>
55
8.4 HSR Act Filing. Any Person required in connection with the
--------------
Contemplated Transactions to file a notification and report form in
compliance with the HSR Act shall have filed such form and the applicable
waiting period with respect to each such form (including any extension
thereof by reason of a request for additional information) shall have
expired or been terminated.
8.5 Employment Agreements. The Surviving Corporation shall have
---------------------
entered into employment agreements with each of the Stockholders in the
form attached to that certain letter dated as of the date hereof from the
Surviving Corporation to the Stockholders.
8.6 No Claims. There shall be no outstanding Order of any
---------
governmental body against or involving Metromedia and there shall be no
claims pending or to the Knowledge of Metromedia, threatened against or
involving Metromedia which could have an adverse effect on the Contemplated
Transactions.
8.7 Board Approval. The Board of Directors of the Company shall
--------------
have approved this Agreement and the Contemplated Transactions.
8.8 Due Diligence. The Company and the Stockholders shall have
-------------
completed their review of Metromedia and shall be satisfied with the
results of such review.
8.9 The parties shall enter into a Registration Rights Agreement
in the form of Exhibit G hereto.
8.10 No Dissenters' Rights. No holder of any Shares of Company
---------------------
Common Stock shall have objected to the Merger in writing and demanded
<PAGE>
56
the value of their shares pursuant to Section 262 of the Delaware General
Corporation Law.
ARTICLE 9
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES OF THE
STOCKHOLDERS AFTER CLOSING
Notwithstanding any right of Metromedia fully to investigate the
affairs of the Company and the Subsidiaries and notwithstanding any
Knowledge of facts determined or determinable by Metromedia pursuant to
such investigation or right of investigation, Metromedia has the right to
rely fully upon the representations, warranties, covenants and agreements
of the Stockholders contained in this Agreement or in any Documents
delivered pursuant to this Agreement. All such representations,
warranties, covenants and agreements shall survive the execution and
delivery of this Agreement and the Closing hereunder. Except for all
representations and warranties in Article 4, all representations and
warranties of the Stockholders contained in this Agreement shall terminate
and expire (i) on the date 3 years after the Closing Date, with respect to
any General Claim (as defined below) based upon, arising out of or
otherwise in respect of any fact, circumstance, action or proceeding of
which Metromedia shall not have given notice on or prior to such date to
the Stockholders, and (ii) with respect to any Tax Claim ), on the later of
(a) the date upon which the liability to which any such Tax Claim may
relate is barred by all applicable statutes of limitation or (b) the date
upon which any claim for refund or credit related to such
<PAGE>
57
Tax Claim is barred by all applicable statutes of limitations. As used in
this Agreement, the following terms have the following meanings:
(x) "General Claim" means any claim based upon, arising out of or
-------------
otherwise in respect of any inaccuracy in or any breach of any
representation or warranty, of any Stockholder contained in this Agreement
or in any Documents delivered pursuant to this Agreement.
(y) "Tax Claim" shall mean any claim based upon, arising out
---------
of or otherwise in respect of any inaccuracy or any breach of any
representation or warranty contained in Section 3.9.
ARTICLE 10
GENERAL INDEMNIFICATION
10.1 Obligation of the Stockholders to Indemnify.
-------------------------------------------
(a) Subject to the limitations contained in Article 9 and this
Article 10, the Stockholders jointly and severally agree to indemnify,
defend and hold harmless Metromedia (and their respective directors,
officers, employees, Affiliates, parents, partners, shareholders,
successors and assigns) from and against all losses, liabilities, damages,
deficiencies, demands, claims, actions, judgments or causes of action,
assessments, costs or expenses (including, without limitation, interest,
penalties and reasonable attorneys' fees and disbursements) ("Losses")
based upon, arising out of or otherwise in respect of any inaccuracy in or
any breach of any representation, warranty, covenant or agreement of the
Company or the Stockholders contained in this Agreement with the exception
of Article 4.
<PAGE>
58
(b) Each Stockholder agrees to indemnify, defend and hold
harmless Metromedia (and its respective directors, employees, officers,
Affiliates, parents, partners, shareholders, successors and assigns) from
and against all Losses based upon, arising out of or otherwise in respect
of any inaccuracy in or any breach of any representation, warranty,
covenant or agreement of such Stockholder contained in this Agreement.
10.2 Obligation of Metromedia to Indemnify. Metromedia agrees to
-------------------------------------
indemnify, defend and hold harmless the Stockholders from and against all
Losses based upon, arising out of or otherwise in respect of any inaccuracy
in or any breach of any representation, warranty, covenant or agreement of
Metromedia contained in this Agreement.
10.3 Notice and Opportunity to Defend.
--------------------------------
10.3.1 Notice of Asserted Liability. Promptly after receipt
----------------------------
by any party hereto (the "Indemnitee") of notice of any demand, claim or
circumstances which, with the lapse of time, would or might give rise to a
claim or the commencement (or threatened commencement) of any action,
proceeding or investigation (an "Asserted Liability") that may result in a
Loss, the Indemnitee shall give notice thereof (the "Claims Notice") to any
other party (or parties) obligated to provide indemnification pursuant to
Section 10.1 or 10.2 (the "Indemnifying Party"). The Claims Notice shall
describe the Asserted Liability in reasonable detail, and shall indicate
the amount (estimated, if necessary and to the extent feasible) of the Loss
that has been or may be suffered by the Indemnitee.
<PAGE>
59
10.3.2 Opportunity to Defend. Except as otherwise set forth
---------------------
in Section 10.3.3, the Indemnifying Party may elect to compromise or
defend, at its own expense and by its own counsel, any Asserted Liability.
If the Indemnifying Party elects to compromise or defend such Asserted
Liability, it shall within 20 days (or sooner, if the nature of the
Asserted Liability so requires) notify the Indemnitee of its intent to do
so, and the Indemnitee shall cooperate, at the expense of the Indemnifying
Party, in the compromise of, or defense against, such Asserted Liability.
If the Indemnifying Party elects not to compromise or defend the Asserted
Liability, fails to notify the Indemnitee of its election as herein
provided or contests its obligation to indemnify under this Agreement, the
Indemnitee may pay, compromise or defend such Asserted Liability.
Notwithstanding the foregoing, neither the Indemnifying Party nor the
Indemnitee may settle or compromise any claim over the objection of the
other; provided, however, that consent to settlement or compromise shall
-------- -------
not be unreasonably withheld or delayed. In any event, the Indemnitee and
the Indemnifying Party may participate, at their own expense, in the
defense of such Asserted Liability. Notwithstanding the foregoing, any
Indemnitee shall be entitled to employ separate counsel from the
Indemnifying Party if the interests of such Indemnitee may be prejudiced
without such separate counsel (including, without limitation, if one or
more legal defenses may be inconsistent or in conflict with the legal
defenses available to the Indemnifying Party) and the Indemnifying Party
shall entirely and solely bear the reasonable fees and expenses of such
separate counsel. If the Indemnifying Party chooses to defend any claim,
the
<PAGE>
60
Indemnitee shall make available to the Indemnifying Party any books,
records or other documents within its control that are necessary or
appropriate for such defense.
10.3.3 Opportunity to Defend Tax Deficiencies. In the event a
--------------------------------------
claim (a "Tax Deficiency") (including a revenue agent's report or notice of
proposed adjustment) shall be made by the Internal Revenue Service or its
state, local or foreign counterpart, which, if successful, would result in
an obligation on the part of the Stockholders to indemnify Metromedia for
Taxes, Metromedia shall give prompt written notice thereof to Stockholders.
If, within thirty days after the giving of such notice, the Stockholders
notify Metromedia in writing that they wish to question a Tax Deficiency in
administrative proceedings before the Internal Revenue Service or its
state, local or foreign counterpart, then, subject to the following
provisions, Metromedia shall afford to the Stockholders an opportunity in
good faith (and subject to the satisfaction of Metromedia's reasonable
requirements) to participate in such administrative proceeding as to such
Tax Deficiency, provided, however, that in the case of a Tax Deficiency
which will, as a result of any adjustment of tax basis of assets of the
Company and the Subsidiaries or their respective predecessors or Affiliates
or the adjustment, restatement or recharacterization of amounts deducted by
the Company and the Subsidiaries or their respective predecessors or
Affiliates, require the Company and the Subsidiaries to recognize
additional taxable income for any Tax Period following the Effective Time,
Metromedia shall not be obligated to afford the Stockholders an opportunity
to participate in such administrative proceeding as to such Tax Deficiency
unless and until the Stockholders shall have delivered to Metromedia a
current opinion of counsel reasonably acceptable to Metromedia to the
<PAGE>
61
effect that Stockholders' position with respect to the Tax Deficiency is
more likely than not to prevail. Metromedia shall not be obligated to take
a protest with respect to a Tax Deficiency to the appellate levels within
the Internal Revenue Service or its state, local or foreign counterpart, or
to commence litigation in the Tax Court or any other court unless and until
the Stockholders shall have (a) delivered to Metromedia a current opinion
of counsel reasonably acceptable to Metromedia to the effect that the
Stockholders' position with respect to the Tax Deficiency is more likely
than not to prevail, and (b) delivered to Metromedia a certified check
drawn to Metromedia in the amount of the Tax Deficiency where payment of
the Tax Deficiency is required to commence appellate proceedings or
litigation. If the Stockholders fail to satisfy the requirements of the
preceding sentences, Metromedia may settle the Tax Deficiency covered by
the notice for an amount that does not exceed the amount of Taxes set forth
in the original notice to the Stockholders. If Metromedia desires to
settle any Tax Deficiency, it shall give the Stockholders thirty days'
prior written notice of such intention setting forth the terms of such
settlement. Metromedia shall be entitled to settle any Tax Deficiency
covered by such notice after the expiration of said thirty day period
unless in the case of a Tax Deficiency which will, as a result of any
adjustment of Tax basis of assets of the Company and the Subsidiaries or
their respective predecessors or Affiliates or the adjustment, restatement
or recharacterization of amounts deducted by the Company and the
Subsidiaries or their respective predecessors or Affiliates, require the
Company and the Subsidiaries to recognize additional taxable income for any
Tax period following the Effective Time the Stockholders deliver to
Metromedia a current opinion of counsel reasonably
<PAGE>
62
acceptable to Metromedia to the effect that the Stockholders' position with
respect to the Tax Deficiency is more likely than not to prevail. If the
Stockholders shall deliver such an opinion, the Stockholders shall be
entitled to settle such Tax Deficiency without the written consent of
Metromedia unless entering into such a settlement, would, in the reasonable
judgment of Metromedia, have an adverse effect on the business of the
Company or the Subsidiaries.
10.4 Limitation on Claims. In case any event shall occur which
--------------------
would otherwise entitle Metromedia to assert a claim for indemnification
hereunder, no Loss shall be deemed to have been sustained by such party to
the extent of (a) any tax savings realized by such party with respect
thereto in the year in which the indemnification would otherwise be made in
connection with the claim or (b) any proceeds received by such party from
any insurance policies with respect thereto.
10.5 Maximum Exposure. Notwithstanding anything to the contrary
----------------
in Section 10.1(a), (a) Metromedia shall be entitled to indemnification
hereunder only when, and only with respect to amounts by which, the
aggregate of all Losses sustained by it exceeds $500,000 and (b) the
aggregate amount of all Losses subject to indemnification hereunder by the
Stockholders shall not exceed $27,500,000.
10.6 Actual Knowledge. An Indemnifying Party shall not be liable
----------------
under this Article X for a Loss resulting from any event relating to a
breach of any representation, warranty, covenant or agreement if the
Indemnifying Party can establish that the Indemnitee had Knowledge on or
before the Closing Date of such event.
<PAGE>
63
10.7 Option to Pay Indemnity Obligations in Stock. In the event
--------------------------------------------
that any payment of the indemnity obligations of the Stockholders set forth
in Section 10.1 is required to be made, the Stockholders may satisfy such
payment, in whole or in part, by delivering to Metromedia shares of
Metromedia Common Stock acquired by them pursuant to the merger pursuant to
this Agreement, which shares, for such purpose, shall be valued at the
closing price of Metromedia Common Stock, as reported in The Wall Street
--- ---- ------
Journal, on the date such liability is finally determined. The
- -------
Stockholders may satisfy the indemnification obligations set forth in
Section 10.1 by cash, stock, or a combination thereof.
ARTICLE 11
TERMINATION OF AGREEMENT
11.1 Termination. This Agreement may be terminated prior to the
-----------
Closing as follows:
(i) at the election of the Stockholders, if any one or more of
the conditions to the obligation of the Stockholders to close has not been
fulfilled as of the scheduled Closing Date;
(ii) at the election of Metromedia, if any one or more of
the conditions to its respective obligations to close has not been
fulfilled as of the scheduled Closing Date;
(iii) at the election of the Stockholders, if Metromedia has
breached any material representation, warranty, covenant or agreement
contained in this Agreement, which breach cannot be or is not cured by the
Closing Date;
<PAGE>
64
(iv) at the election of Metromedia, if any of the
Stockholders has breached any material representation, warranty, covenant
or agreement contained in this Agreement, which breach cannot be or is not
cured by the Closing Date; or
(v) at the election of Metromedia if Metromedia is not
satisfied with the results of its Due Diligence Investigation;
(vi) at the election of the Stockholders if there is a
Material Adverse Change in the business operations or prospects of
Metromedia at any time on or prior to the Closing Date;
(vii) at the election of Metromedia, if there is a Material
Adverse Change in the business operations or prospects of the Company at
any time on or prior to the Closing Date; or
(viii) by mutual written consent of the Stockholders and
Metromedia.
If this Agreement so terminates, it shall become null and void and
have no further force or effect, except as provided in Section 11.2.
11.2 Survival After Termination. If this Agreement is terminated
--------------------------
in accordance with Section 11.1 and the Contemplated Transactions are not
consummated, this Agreement shall become void and of no further force and
effect, except for (i) the provisions of Section 6.2 relating to the
obligation of Metromedia to keep confidential and not to use certain
information and data obtained by it from the Company or the Subsidiaries
and to return documents to the Company or the Subsidiaries, and (ii) the
provisions of Sections 6.4, 6.5 and 12.2; provided, however, that none of
-------- -------
the parties shall have any liability in respect of a termination of this
<PAGE>
65
Agreement except to the extent that failure to satisfy the conditions of
Article 7 or Article 8, as the case may be, results from the intentional or
willful violation of such party contained in this Agreement.
ARTICLE 12
MISCELLANEOUS
12.1 Certain Definitions.
-------------------
(a) As used in this Agreement, the following terms have the
following meanings:
(i) "Active Preproduction" means, with respect to any item
--------------------
of Product as commencing upon the earlier of (i) eight weeks prior to the
scheduled date on which principal photography with respect to such item of
Product is to commence or (ii) the date that such item of Product has been
"greenlighted" as such term is understood in the motion picture industry.
(ii) "Affiliate" means, with respect to any Person, any
---------
other Person controlling, controlled by or under common control with, or
the parents, spouse, lineal descendants or beneficiaries of, such Person.
(iii) "Budgeted Negative Cost" means, with respect to
----------------------
any item of Product, the amount of the cash budget for such item of Product
including all costs customarily included in connection with the acquisition
of all underlying literary and musical rights with respect to such item of
Product and in connection with the preparation, production and completion
of such item of Product including costs of materials, equipment, physical
properties, personnel and services utilized in
<PAGE>
66
connection with such item of Product, both "above-the-line" and
"below-the-line", any completion guaranty fee, and all other items
customarily included in negative costs, but excluding contingency of up to
10%, production fees and overhead charges payable to the Company or its
Subsidiaries, finance charges and interest expense.
(iv) "Contingent Compensation" means compensation that
-----------------------
is contingent upon and payable only (a) to the extent of the receipt of
revenues from the exploitation of a particular motion picture, video,
television or interactive program or (b) upon the passage of time or the
occurrence of an identified event. Examples of such contingent
compensation include, but are not limited to, deferred cash payments for
rights or services, or gross or net profit or proceed participations.
(v) "Distribution Contract" shall mean any agreement
---------------------
entered into by the Company or any of its Subsidiaries pursuant to which
the Company or any of its Subsidiaries has licensed, leased, assigned or
sold distribution or other exploitation rights to any item of Product in
any media or territory.
(vi) "Knowledge" with respect to the Company or any of
---------
the Subsidiaries means the actual Knowledge, after due inquiry, of any of
the following officers or directors of the Company or any of the
Subsidiaries: Bradley Krevoy, Steven Stabler and Jeffrey Ivers and "Knows"
-----
has a correlative meaning.
(vii) "Person" means any individual, corporation,
------
partnership, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, Governmental Body or other entity.
(viii) "Product" shall mean any motion picture, film or
-------
video tape produced for theatrical, non-theatrical, television or video
release or for release
<PAGE>
67
in any other medium, in each case whether recorded on film, videotape,
cassette, cartridge, disc or on or by any other means, method, process or
device whether now known or hereafter developed, with respect to which the
Company or its Subsidiaries (i) is the initial copyright owner or (ii) has
acquired or has contracted to acquire an equity interest or distribution
rights. The term "item of Product" shall include, without limitation, the
scenario, screenplay or script upon which such Product is based, all of the
properties thereof, tangible and intangible, and whether now in existence
or hereafter to be made or produced, whether or not in possession of the
Company or its Subsidiaries, and all rights therein and thereto, of every
kind and character.
(ix) "Property" or "Properties" means real, personal or
-------- ----------
mixed Property, tangible or intangible.
(b) The following capitalized terms are defined in the
following Sections of this Agreement:
Term Section
- ---- -------
Asserted Liability 10.3.1
Audited Financials 3.7
Balance Sheet 3.7
Balance Sheet Date 3.7
Buyer Preamble
Claims 3.13
Claims Notice 10.3.1
Closing 1.2
<PAGE>
68
Closing Date 1.2
Company Preamble
Contemplated Transactions 3.12
Contracts 3.12
Documents 3.28
General Claim 9(x)
Governmental Body 3.10
HSR Act 3.26
Indemnifying Party 10.3.1
Indemnitee 10.3.1
Interim Financials 3.7
Laws 3.10
Liabilities 3.19
Liens 3.4
Losses 10.1
Material Adverse Effect 3.8
Orders 3.10
Permits 3.11
Projections 3.27
Purchase Price 1.1
Required Consents 3.12
Stockholder Preamble
Shares Preamble
<PAGE>
69
Subsidiaries 3.2
Tax Claim 9(y)
Taxes 3.9
12.2 Consent to Jurisdiction and Service of Process. Any legal
----------------------------------------------
action, suit or proceeding arising out of or relating to this Agreement or
the Contemplated Transactions may be instituted in any federal court of the
Southern District of New York or any state court located in New York
County, State of New York, and each party agrees not to assert, by way of
motion, as a defense or otherwise, in any such action, suit or proceeding,
any claim that it is not subject personally to the jurisdiction of such
court, that the action, suit or proceeding is brought in an inconvenient
forum, that the venue of the action, suit or proceeding is improper or that
this Agreement or the subject matter hereof may not be enforced in or by
such court. Each party further irrevocably submits to the jurisdiction of
such court in any such action, suit or proceeding. Any and all service of
process and any other notice in any such action, suit or proceeding shall
be effective against any party if given personally or by registered or
certified mail, return receipt requested, or by any other means of mail
that requires a signed receipt, postage prepaid, mailed to such party as
herein provided. Nothing herein contained shall be deemed to affect the
right of any party to serve process in any manner permitted by law or to
commence legal proceedings or otherwise proceed against any other party in
any other jurisdiction.
12.3 Notices. Any notice or other communication required or
-------
permitted hereunder shall be in writing and shall be delivered personally,
sent by
<PAGE>
70
facsimile transmission (receipt confirmed) or sent by certified, registered
or express mail, postage prepaid. Any such notice shall be deemed given
when so delivered personally, or sent by facsimile transmission or, if
mailed, five days after the date of deposit in the United States mails, as
follows:
(i) if to Metromedia:
Metromedia International Group, Inc.
c/o Metromedia Company
One Meadowlands Plaza
East Rutherford, New Jersey 07073
Attention: General Counsel
Facsimile: 201-531-2803
(ii) if to the Company or the Stockholders, to:
Motion Picture Corporation of America
1401 Ocean Avenue
Suite 301
Santa Monica, California 90401
Attention: Bradley Krevoy and Steven Stabler
Facsimile: 310-319-9501
with a copy to:
Loeb & Loeb, LLP.
345 Park Avenue
New York, New York 10154
Attention: David S. Schaefer, Esq.
Facsimile: 212-407-4990
Any party may by notice given in accordance with this Section to the other
parties designate another address or Person for receipt of notices
hereunder.
12.4 Entire Agreement. This Agreement (including the Exhibits and
----------------
Schedules) and any collateral agreements executed in connection with the
consummation of the Contemplated Transactions contain the entire agreement
among
<PAGE>
71
the parties with respect to the purchase of the Shares and supersede all
prior agreements, written or oral, with respect thereto.
12.5 Waivers and Amendments; Non-Contractual Remedies;
-------------------------------------------------
Preservation of Remedies. This Agreement may be amended, superseded,
- ------------------------
cancelled, renewed or extended, and the terms hereof may be waived, only by
a written instrument signed by Metromedia and the Stockholders or, in the
case of a waiver, by the party waiving compliance. No delay on the part of
any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any waiver on the part of any party
of any such right, power or privilege, nor any single or partial exercise
of any such right, power or privilege, preclude any further exercise
thereof or the exercise of any other such right, power or privilege. The
rights and remedies herein provided are not exclusive of any rights or
remedies that any party may otherwise have at law or in equity. The rights
and remedies of any party based upon, arising out of or otherwise in
respect of any inaccuracy in or breach of any representation, warranty,
covenant or agreement contained in this Agreement or any Documents
delivered pursuant to this Agreement shall in no way be limited by the fact
that the act, omission, occurrence or other state of facts upon which any
claim of any such inaccuracy or breach is based may also be the subject
matter of any other representation, warranty, covenant or agreement
contained in this Agreement or any Documents delivered pursuant to this
Agreement (or in any other agreement between the parties) as to which there
is no inaccuracy or breach.
<PAGE>
72
12.6 Governing Law. This Agreement shall be governed and
-------------
construed in accordance with the laws of the State of New York applicable
to agreements made and to be performed entirely within such State.
12.7 Binding Effect; No Assignment. This Agreement shall be
-----------------------------
binding upon and inure to the benefit of the parties and their respective
successors and legal representatives. This Agreement is not assignable
except by operation of law, except that Metromedia may assign its rights
hereunder to any of its Affiliates.
12.8 Variations in Pronouns. All pronouns and any variations
----------------------
thereof refer to the masculine, feminine or neuter, singular or plural, as
the context may require.
12.9 Counterparts. This Agreement may be executed by the parties
------------
hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a
number of copies hereof each signed by less than all, but together signed
by all of the parties hereto.
12.10 Exhibits and Schedules. The Exhibits and Schedules are a
----------------------
part of this Agreement as if fully set forth herein. All references herein
to Sections, Exhibits and Schedules shall be deemed references to such
parts of this Agreement, unless the context shall otherwise require.
12.11 Headings. The headings in this Agreement are for reference
--------
only, and shall not affect the interpretation of this Agreement.
12.12 Interpretation. The parties acknowledge and agree that:
--------------
(i)_each party and its counsel reviewed and negotiated the terms and
provisions of this
<PAGE>
73
Agreement and have contributed to its revision; (ii) the rule of
construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this
Agreement; and (iii) the terms and provisions of this Agreement shall be
construed fairly as to all parties hereto, regardless of which party was
generally responsible for the preparation of this Agreement.
12.13 Severability of Provisions. If any provision or any portion
--------------------------
of any provision of this Agreement, or the application of any such
provision or any portion thereof to any Person or circumstance, shall be
held invalid or unenforceable, the remaining portion of such provision and
the remaining provisions of this Agreement, and the application of such
provision or portion of such provision as is held invalid or unenforceable
to Persons or circumstances other than those as to which it is held invalid
or unenforceable, shall not be affected thereby.
<PAGE>
74
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
METROMEDIA INTERNATIONAL GROUP, INC.
By:____________________________________
Name: Silvia Kessel
Title: Senior Vice President
MOTION PICTURE CORPORATION OF AMERICA
By:____________________________________
Name: Bradley Krevoy
Title:
STOCKHOLDERS:
_______________________________________
Name: Bradley R. Krevoy
_______________________________________
Name: Steven Stabler
MPCA MERGER CORP.
By:____________________________________
Name: Silvia Kessel
Title: Senior Vice President
<PAGE>
Exhibit A
OUTSTANDING SHARES OF COMMON STOCK
OF COMPANY
Bradley Krevoy 322,858 Shares
Steven Stabler 223,058 Shares
<PAGE>
Exhibit B
METROMEDIA INTERNATIONAL GROUP, INC./
MOTION PICTURE CORPORATION OF AMERICA
RESTRICTED STOCK PLAN
---------------------
ARTICLE 1.
Purpose
-------
The purpose of the Metromedia International Group, Inc./Motion Picture
Corporation of America Restricted Stock Plan (the "Plan") is to provide a
means through which Metromedia International Group, Inc. ("Metromedia"), a
Delaware corporation, may reward certain key employees of its Motion
Picture Corporation of America subsidiary, a Delaware corporation and
wholly owned subsidiary of Metromedia (the "Company"), upon whom rest the
responsibilities of the successful administration and management of the
Company, and whose contributions to the welfare of the Company are of
importance.
ARTICLE 2.
Definitions
-----------
The following terms shall have the meanings described below when used in
the Plan.
A."Award" or "Restricted Stock Award" shall refer to a restricted stock
award granted under the Plan.
B. "Common Stock" shall mean the Common Stock of Metromedia.
<PAGE>
2
C. "Restricted Period" shall mean the period during which a
Restricted Stock Award is being earned, which, unless otherwise provided
herein, shall be over the vesting period set forth in Article 3, Section B.
ARTICLE 3.
Restricted Stock Awards
-----------------------
A.Grant of Awards. Under the Plan, Awards shall be granted on the
---------------
"Adjustment Date" as such term is defined in the Agreement and Plan of
Merger, dated as of May __, 1996, by and among Metromedia, MPCA Merger
Corp., the Company, Bradley R. Krevoy and Steven Stabler (the "Merger
Agreement"). The number of shares of Common Stock to be awarded on the
Adjustment Date (the "Award Shares") shall be equal to the quotient of
$3,845,000 divided by the Average Closing Price (as defined in the Merger
Agreement). On the Adjustment Date, the following key employees
("Participants") shall receive the following Awards, expressed as a
percentage of Award Shares. The number of Award Shares granted shall be
rounded to the nearest whole share:
<PAGE>
3
Restricted Stock
----------------
Employee Award
-------- -----
(expressed as percentage
of total)
Dean Shapiro .52
Joanna Rees Jones .52
Todd Coe .26
R. J. Murillo .65
Jeremy Klamer .52
Dan Ethridge .26
Jodi Adsin .39
Jeanette Draper .65
Brad Jenkel 32.51
Jeff Ivers 32.51
Bradley Thomas 19.51
Jed Weintrab 11.70
-----
100%
In the event any of the Participants are not employees of the
Company on the Adjustment Date for a reason other than those set forth in
Article B, the Restricted Stock Award shall be deemed granted and
forfeited. In the event of the forfeiture of any Restricted Stock Award,
the shares of Common Stock subject to such forfeited Award shall be divided
59.1406% to Bradley R. Krevoy and 40.8594% to Steven Stabler and delivered
to them forthwith free of any restrictions under the Plan.
B. Vesting. Unless otherwise provided herein, each Restricted
-------
Stock Award shall vest over a three-year period from the date of grant as
follows:
1 year from grant 33 1/3%
2 years from grant 66 2/3%
3 years from grant 100%
Notwithstanding the above vesting schedule, vesting shall be
accelerated to 100% and all restrictions on any Restricted Stock Award of a
Participant under the Plan shall terminate upon any of the following
events:
<PAGE>
4
(i) A demotion without cause in the Participant's Company
job title from the job title held by the Participant at the time of the
grant of the Award; or
(ii) 30 days after receipt of a notice to the Participant
and Metromedia accelerating the vesting and terminating any other
restrictions, which notice is signed by Steven Stabler and Bradley R.
Krevoy in their sole and absolute discretion, and while Steven Stabler and
Bradley R. Krevoy are still employed by the Company; or
(iii) Upon the termination of employment of Bradley R.
Krevoy and Steven Stabler from the Company; or
(iv) Upon the satisfaction of such performance criteria, the
combination of time and performance or such other manner as Metromedia
shall determine; or
(v) Termination of employment by reason of death or
disability.
C. Restrictions. A Restricted Stock Award may not be sold,
------------
assigned, transferred, pledged, hypothecated or otherwise disposed of,
except by will or the laws of descent and distribution, until the Award
shall have vested in accordance with the vesting schedule or the vesting
schedule shall have been accelerated in accordance with Article III,
Section B.
D. Death, Disability and Termination of Employment. Upon
-----------------------------------------------
termination of a Participant's employment prior to the end of the
Restricted Period for any reason, except for disability or death, the
Participant's unvested portion of the Award shall be forfeited, and the
Participant shall have no right with respect to such
<PAGE>
5
Award, and the shares of Common Stock subject thereto shall be delivered to
Krevoy and Stabler in accordance with Article 3, Section A.
Upon termination of a Participant's employment prior to the end
of the Restricted Period by reason of the Participant's disability or
death, vesting shall be accelerated to 100% and all restrictions on such
Participant's Award under the Plan shall terminate.
E. Delivery of Awards.
------------------
(i) At the time of Award each Participant shall receive
three share certificates evidencing ownership of one-third of the shares of
Common Stock subject to the Award which share certificates shall bear the
following legend:
These shares have been issued or transferred subject to a
Restricted Stock Award and are subject to substantial
restrictions, including a prohibition against transfer and a
provision requiring transfer of these shares without payment in
the event of termination of employment of the registered owner
under certain circumstances all as more particularly set forth in
the Metromedia International Group, Inc./Motion Picture
Corporation of America Restricted Stock Plan dated _________,
1996, a copy of which is on file with the Company. Restrictions
lapse effective _________.
(ii) Subject to the provisions of subsection (iii) hereof,
after expiration or acceleration of the vesting schedule and completion of
the Restricted Period, such legended share certificates may be exchanged by
the Participant or, in the case of the death of the Participant, the
Participant's beneficiary, or if none, the person or persons to whom such
Participant's rights under the Award are transferred by will or the laws of
descent and distribution or by Krevoy or Stabler in accord with Article 3,
Section A for share certificates without the legend set forth in (i) above.
(iii) Delivery pursuant to this paragraph E shall be
made in shares of Common Stock except there may be paid in cash the value
of any partial
<PAGE>
6
shares of Common Stock and that part of the total payment determined by the
Company to be necessary to satisfy tax withholding requirements.
F. Unregistered Securities. To the extent that any shares of
-----------------------
Common Stock which are the subject of an Award are not registered under the
Securities Act of 1933, such share certificates shall bear the following
additional legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
neither these securities, nor any interest therein, may be sold,
transferred, pledged or hypothecated without (i) obtaining an
opinion of counsel for this company, at the expense of the holder
hereof, that such sale, transfer, pledge or hypothecation is
exempt from the registration requirements of the Securities Act
of 1933, as amended, or (ii) there being in effect a registration
statement covering the offer and sale of these securities in
accordance with the Securities Act of 1933, as amended.
ARTICLE 4.
General Provisions
------------------
A.Designation of Beneficiary. Subject to adoption of reasonable
--------------------------
rules and regulations, each Participant who shall be granted an Award under
the Plan may designate a beneficiary or beneficiaries and may change such
designation from time to time by filing a written designation of
beneficiaries with Metromedia on a form to be prescribed by it, provided
that no such designation shall be effective unless so filed prior to the
death of such Participant.
B. No Right of Continued Employment. Neither the establishment
--------------------------------
of the Plan, the granting of Awards, nor the payment of any benefits
hereunder nor any action of the Company or of the Board of Directors or
Metromedia shall be held or construed to confer upon any person any legal
right to continue in the employ of
<PAGE>
7
the Company or its subsidiaries, each of which expressly reserves the right
to discharge any employee whenever the interest of any such company in its
sole discretion may so require without liability to such company, except as
to any rights which may be expressly conferred upon such employee under the
Plan.
C. Registration Requirement. If Metromedia determines at any
------------------------
time to register any of its equity securities under the Securities Act of
1933 (or similar statute then in effect), Metromedia, at its expense, will
include among the securities which it then registers all stock or
securities issued in respect thereof, in exchange therefor, or in
replacement thereof.
D. New York Law to Govern. All questions pertaining to the
----------------------
construction, regulation, validity and effect of the provisions of the Plan
shall be determined in accordance with the laws of the State of New York.
E. Payments and Tax Withholding. Each Participant shall
----------------------------
provide Metromedia with a written undertaking for the payment of
withholding taxes when due. The delivery of any shares of Common Stock and
the payment of any amount with respect to fractional shares in respect of
an Award shall not be made until the recipient shall have made satisfactory
arrangements for the payments of any applicable withholding taxes.
ARTICLE 5.
Amendment and Termination
-------------------------
A. Amendments, Suspension or Discontinuance. The Board of Directors of
----------------------------------------
Metromedia may amend, suspend or discontinue the Plan provided, however,
that the Board of Directors of Metromedia may not, without the prior
<PAGE>
8
approval of the stockholders of Metromedia, make any amendment for which
stockholder approval is necessary to comply with any applicable tax or
regulatory requirement, including for these purposes any approval
requirement which is a prerequisite for exemptive relief under
Section 16(b) of the Exchange Act, and provided, further, that no amendment
may adversely affect the rights of any person in connection with an Award
previously granted.
<PAGE>
Exhibit C
Opinion of Counsel to Motion Picture Corporation of America
Opinion of Loeb & Loeb LLP, Counsel to Motion Picture Corporation of
America and Steven Stabler and Bradley Krevoy (the "Stockholders"), shall
cover the following matters, subject to customary exceptions and
limitations:
1. Motion Picture Corporation of America ("MPCA") is a corporation
duly incorporated, validly existing and in good standing under
the laws of the State of Delaware.
2. MPCA has all necessary corporate power and authority and each of
the Stockholders have the authority to execute, deliver and
perform their respective obligations under the Agreement and Plan
of Merger and the execution, delivery and performance (including
consummation of the Merger) by MPCA and each of the Stockholders
of the Agreement and Plan of Merger have been duly authorized by
all necessary action on the part of the Board of Directors and
stockholders of MPCA. The Agreement and Plan of Merger has been
duly executed and delivered by MPCA and each of the Stockholders
and constitutes the legal, valid and binding obligation of MPCA
and each of the Stockholders and constitutes the legal, valid and
binding obligation of MPCA and each of the Stockholders,
enforceable against MPCA and each of the Stockholders in
accordance with its terms [enforceability qualifications].1
3. The execution, delivery and performance by MPCA and each of the
Stockholders of the Agreement and Plan of Merger does not violate
and will not result in a breach of or default under (i) any
provision of its certificate of incorporation or by-laws (ii) any
law or regulation of the State of New York or the United States
or any provision of the General Corporation Law of the State of
Delaware [materiality qualification], (iii) any order, writ,
injunction or decree of which we have knowledge (without
independent investigation) of any court or governmental authority
binding upon MPCA or to which MPCA is subject [materiality
qualification], or (iv) any provision of any Contract set forth
on Schedule 3.14 (a) (ix).
4. Upon the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware in accordance with Section 1.3
of the Agreement and Plan of Merger, the Merger will be effective
in accordance with the terms of the Certificate of Merger.
- --------------------
1/ Enforceab1ility opinion may be covered by opinion delivered by
- - Delaware Counsel.
<PAGE>
Exhibit F
OPINION OF COUNSEL TO METROMEDIA
Opinion of __________, Counsel to Metromedia International Group,
Inc. and MPCA Merger Corp., shall cover the following matters, subject to
customary exceptions and limitations:
1. Metromedia International Group, Inc. ("Metromedia") and MPCA
Merger Corp. ("MPCA Mergerco") are corporations duly incorporated, validly
existing and in good standing under the laws of the State of Delaware.
2. Metromedia and MPCA Mergerco have all necessary corporate
power and authority to execute, deliver and perform their respective
obligations under the Agreement and Plan of Merger and the Notes and the
execution, delivery and performance (including consummation of the Merger)
by Metromedia and MPCA Mergerco of the Agreement and Plan of Merger and the
Notes have been duly authorized by all necessary action on the part of the
Board of Directors and stockholders of MPCA Mergerco and the Board of
Directors of Metromedia. No authorization by the stockholders of
Metromedia is necessary. The Agreement and Plan of Merger and the Notes
have been duly executed and delivered by Metromedia and MPCA Mergerco and
constitutes the legal, valid and binding obligations of Metromedia and MPCA
Mergerco (as applicable), enforceable against Metromedia and MPCA Mergerco
in accordance with their terms [enforceability qualification].1
3. The execution, delivery and performance by Metromedia and
MPCA Mergerco of the Agreement and Plan of Merger and the Notes do not
violate and will not result in a breach of or default under (i) any
provision of its certificate of incorporation or by-laws, (ii) any law or
regulation of the State of New York or the United States or any provision
of the General Corporation Law of the State of Delaware [materiality
qualification], (iii) any order, writ, injunction or decree of which we
have knowledge (without independent investigation) of any court or
governmental authority binding upon Metromedia and MPCA Mergerco or to
which Metromedia and MPCA Mergerco are subject [materiality qualification],
or (iv) any provision of any credit agreement, indenture or similar
agreement to which Metromedia or MPCA Mergerco are a party or to which
Metromedia or MPCA Mergerco are bound.
4. Upon the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware in accordance with Section 1.3
of the Agreement
- --------------------
1/ Enforceab1ility opinion may be covered by opinion delivered by
- - Delaware Counsel.
<PAGE>
2
and Plan of Merger, the Merger will be effective in accordance with the
terms of the Certificate of Merger.
5. The shares of Metromedia Common Stock delivered to the
Stockholders and the [Restricted Stockholders] on the Closing Date are
validly authorized, validly issued, fully paid, and nonassessable, without
any personal liability attaching to the ownership thereof, and will not be
issued in violation of any preemptive rights of stockholders, and the
Stockholders and [Restricted Stockholders] will receive good title to the
shares of Metromedia Common Stock in exchange for Company Common Stock,
respectively, free and clear of all liens, security interests, pledges,
charges, encumbrances, stockholders' agreements, and voting trusts, except
__________.
6. The [maximum number of] shares of Metromedia Common Stock to
be delivered to the Stockholders and the [Restricted Stockholders] on the
Adjustment Date are validly authorized and reserved for issuance and, when
and if issued and delivered on the Adjustment Date in accordance with the
Agreement and Plan of Merger, will be validly issued, fully paid and non-
assessable, without any personal liability attaching to the ownership
thereof, and will not be issued in violation of any preemptive rights of
stockholders; and the Stockholders and [Restricted Stockholders] will
receive good title to the securities purchased by them, respectively, free
and clear of all liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts, except __________.
<PAGE>
Exhibit G
REGISTRATION RIGHTS AGREEMENT
Between
METROMEDIA INTERNATIONAL GROUP, INC..
and
THE STOCKHOLDERS NAMED HEREIN
_____________________________________________________
Common Stock, par value $1.00 per share
____________________________________________________
Dated as of _________, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
1. Registration Under Securities Act, etc. . . . . . . . . . . . . . . . . 1
1.1 Registration on Request . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Piggy-Back Registration . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . 3
1.4 Underwritten Offerings . . . . . . . . . . . . . . . . . . . . . . 6
1.5 Preparation; Reasonable Investigation . . . . . . . . . . . . . . . 7
1.6 Conditions to Obligations of the Company . . . . . . . . . . . . . 8
1.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3. Rule 144 and Rule 144A . . . . . . . . . . . . . . . . . . . . . . . . . 13
4. Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . 13
5. Nominees for Beneficial Owners . . . . . . . . . . . . . . . . . . . . . 13
6. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8. Calculation of Percentage Interests in Registrable Securities . . . . . 14
9. Investment Only . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10. No Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . . . . 15
11. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
12. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
13. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
14. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT ("Agreement"), dated as of
_______________ __, 1996 among Bradley Krevoy ("Krevoy"), Steven Stabler
("Stabler") (collectively, the "Stockholders") and Metromedia International
Group, Inc., a Delaware corporation (the "Company"). Capitalized terms
used herein but not otherwise defined shall have the meanings given them in
Section 2 of this Agreement.
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of
May __, 1996, among the Company, Motion Picture Corporation of America
("MPCA"), MPCA Merger Corp. and the Stockholders, MPCA Merger Corp. merged
with and into MPCA with MPCA being the surviving corporation in the Merger;
WHEREAS, pursuant to the Merger Agreement, the Stockholders
exchanged their shares of common stock, par value $.10 per share, of MPCA
for shares of common stock of Metromedia, par value $1.00 per share; and
WHEREAS, it is a condition precedent to the obligations of the
Stockholders to consummate the transactions contemplated by the Merger
Agreement that the Stockholders and the Company enter into this Agreement.
1. Registration Under Securities Act, etc.
---------------------------------------
1.1 Registration on Request.
-----------------------
(a) Request. At any time, or from time to time, upon
-------
the written request of the holders (the "Initiating Holders") of
Registrable Securities representing 35% of the then outstanding Registrable
Securities that the Company effect the registration under the Securities
Act of all or part of such Initiating Holders' Registrable Securities, the
Company promptly will give written notice of such requested registration
(the "Registration Notice") to the other holders of Registrable Securities
other than the Initiating Holders, and thereupon the Company will use its
best efforts to effect, at the earliest possible date, but in any event
within 30 days of the date of such written request, the registration under
the Securities Act, including by means of a shelf registration pursuant to
Rule 415 under the Securities Act if so requested in such request (but only
if the Company is then eligible to use such a shelf registration), of
(i) the Registrable Securities which the Company has been so requested to
register by such Initiating Holders, and (ii) all other Registrable
Securities which the Company has been requested to register by the holders
thereof (such holders together with the Initiating Holders hereinafter are
referred to as the "Selling Holders") by written request given to the
Company within 10 days after the giving of the Registration Notice by the
Company, all to the extent requisite to permit the disposition of the
Registrable Securities so to be registered.
(b) Registration Statement Form. Registrations under
---------------------------
this Section 1.1 shall be on such appropriate registration form of the
Commission as shall be reasonably selected by the Company in consultation
with the Selling Holders.
<PAGE>
2
(c) Effective Registration Statement. A registration
--------------------------------
requested pursuant to this Section 1.1 shall not be deemed to have been
effected until such time as a registration statement with respect thereto
has become effective and remained effective in compliance with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by such registration statement and all of
such Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set forth
in such registration statement.
(d) Selection of Underwriters. If the Selling Holders
-------------------------
of all Registrable Securities to be covered by a registration so elect, the
offering of such Registrable Securities pursuant to this Section 1.1 shall
be in the form of an underwritten offering. The underwriter or
underwriters of each underwritten offering of the Registrable Securities so
to be registered shall be a firm or firms of nationally recognized standing
selected by all of the Selling Holders of the Registrable Securities to be
included in such registration and shall be reasonably acceptable to the
Company, it being agreed that Donaldson, Lufkin & Jenrette Securities
Corporation is reasonably acceptable to the Company.
(e) Priority in Requested Registration. If the
----------------------------------
managing underwriter of an underwritten offering shall advise the Company
in writing or if the Company determines in good faith based upon the advice
of its financial advisor for any offering which is not underwritten (and in
each such case the Company shall promptly advise each Selling Holder of
Registrable Securities requesting registration of such advice) that, in the
underwriter's or the Company's opinion, as the case may be, the total
number of Registrable Securities requested to be included in such
registration is sufficiently large to materially adversely affect the
success of the offering, to the extent the underwriter or the Company, as
the case may be, determines that certain of the Registrable Securities
requested to be registered by the Selling Holders must be excluded, they
shall be excluded pro rata among each of the Selling Holders requesting
such registration on the basis of the estimated aggregate gross proceeds to
be received by such Selling Holders from the sale of their Registrable
Securities. To the extent Registrable Securities requested to be
registered are excluded from the offering pursuant to the immediately
preceding sentence, the holders of such Registrable Securities shall have
the right to one additional demand registration pursuant to this
Section 1.1.
(f) Limitations on Registration on Request. Notwith-
--------------------------------------
standing anything in this Section 1.1 to the contrary (except as provided
in Section 1.1(f)), in no event will the Company be required to effect, in
the aggregate, more than two registrations pursuant to this Section 1.1 and
the holders of Registrable Securities may not make a demand pursuant to
Section 1.1 if the Company had a registration statement declared effective
on behalf of the holders of Registrable Securities pursuant to Section 1.1
within the prior 9 months.
(g) Expenses. The Company will pay all Registration
--------
Expenses in connection with any registration requested pursuant to this
Section 1.1.
<PAGE>
3
1.2 Piggy-Back Registration.
-----------------------
(a) Right to Include Registrable Securities. Except
---------------------------------------
in connection with exclusive registration rights of a holder of securities
which are not the Registrable Securities, if the Company at any time
proposes to file a registration statement to register any of its securities
under the Securities Act (except for registration on Form S-4 or S-8 or any
successor or similar forms), whether or not for sale for its own account,
it will each such time give prompt written notice to all registered holders
of Registrable Securities of its intention to do so and of such holders'
rights under this Section 1.2. Upon the written request of any such holder
(a "Requesting Holder") (which request shall specify the amount of
Registrable Securities intended to be disposed of by such Requesting
Holder) made as promptly as practicable and in any event within 20 days
after the receipt of any such notice, the Company will use its best efforts
to effect the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register by the
Requesting Holders thereof. No registration effected under this
Section 1.2 shall relieve the Company of its obligation to effect any
registration upon request under Section 1.1.
(b) Priority in Incidental Registrations. If the
------------------------------------
managing underwriter of any underwritten offering shall advise the
Requesting Holders in writing that in its opinion the total amount of
securities including Registrable Securities requested to be included in
such registration would materially adversely affect the success of such
offering then the Company will include in such registration, to the extent
of the number which the Company is so advised can reasonably be expected to
be sold in (or during the time of) such offering, first, all securities
proposed by the Company to be sold for its own account and second, other
securities to be sold by holders including such Registrable Securities
requested to be included in such registration by the Requesting Holders
pursuant to this Agreement, pro rata among all such sellers on the basis of
the estimated aggregate gross proceeds from the sale thereof.
(c) Expenses. The Company will pay all Registration
--------
Expenses in connection with any registration effected pursuant to this
Section 1.2.
1.3 Registration Procedures. If and whenever the Company
-----------------------
is required to effect the registration of any Registrable Securities under
the Securities Act as provided in Sections 1.1 and 1.2, the Company will,
as expeditiously as possible:
(a) prepare and (using its best efforts to do so at
the earliest possible date, but in any event within 30 days of the date of
such written request), file with the Commission the requisite registration
statement to effect such registration and thereafter use its best efforts
to cause such registration statement to become effective (provided that
--------
before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to counsel for the sellers of
Registrable Securities covered by such registration statement, if any,
copies
<PAGE>
4
of all such documents proposed to be filed, which documents will be subject
to the review of such counsel);
(b) prepare and file with the Commission such amend-
ments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Securities covered by
such registration statement until such time as all of soused to be filed,
which documents will be subject to the review of such counsel;
(c) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection thosed to be filed, which documents will be
subject to the review of such counsel;
(d) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection thosed to be filed, which documents will be
subject to the review of such counsel;
(e) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection thosed to be filed, which documents will be
subject to the review of such counsel;
(f) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection thch States of the United States of America
where an exemption is not available and as the sellers of Registrable
Securities covered by such registration statement shall reasonably request,
(y) to keep such registration or qualification in effect for so long as
such registration statement remains in effect, and (z) to take any other
action which may be reasonably necessary or advisable to enable such
sellers to consummate the disposition in such jurisdictions of the
securities to be sold by such sellers, except that the Company shall not
for any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it would not but for the
requirements of this subdivision (iv) be obligated to be so qualified,
subject itself to taxation in any such jurisdiction or to consent to
general service of process in any such jurisdiction;
(g) use its best efforts to cause all Registrable
Securities covered by such registration statement to be registered with or
approved by such other federal or state governmental agencies or
authorities as may be necessary in the opinion of counsel to the Company
and counsel to the seller or sellers of Registrable Securities to enable
the seller or sellers thereof to consummate the disposition of such
Registrable Securities;
<PAGE>
5
(h) use its best efforts to furnish at the effective
date of such registration statement and, if applicable, the date of the
closing under the underwriting agreement, to each seller of Registrable
Securities, and each such seller's underwriters, if any, a signed
counterpart of (x) an opinion of counsel for the Company, dated the
effective date of such registration statement and (y) in connection with an
underwritten offering, a "comfort" letter signed by the independent public
accountants who have certified the Company's financial statements included
or incorporated by reference in such registration statement, covering
substantially the same matters with respect to such registration statement
(and the prospectus included therein) and, in the case of the accountants'
comfort letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' comfort letters delivered to the underwriters
in underwritten public offerings of securities and, in the case of the
accountants' comfort letter, such other financial matters, and, in the case
of the legal opinion, such other legal matters, as the sellers of the
Registrable Securities covered by such registration statement, or the
underwriters, may reasonably request;
(i) promptly notify each seller of Registrable
Securities covered by such registration statement at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, upon discovery that, or upon the happening of any event as
a result of which, the prospectus included in such registration statement,
as then in effect, includes an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, in the light of the circum-
stances under which they were made, and at the request of any such seller
promptly prepare and furnish to it a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances
under which they were made;
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more than
eighteen months, beginning with the first full calendar month after the
effective date of such registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 promulgated thereunder, and promptly furnish to each such seller
of Registrable Securities a copy of any amendment or supplement to such
registration statement or prospectus; and
(k) use its best efforts (a) to list all Registrable
Securities covered by such registration statement on the AMEX or such other
national securities exchange on which Registrable Securities of the same
class and, if applicable, series, covered by such registration statement
are then listed or on the National Association of Securities Dealers
Automated Quotations System, Inc. ("NASDAQ") if
<PAGE>
6
the Registrable Securities are quoted on NASDAQ. The Company may
(i) require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the
Company may from time to time reasonably request in writing and
(ii) require each seller of Registrable Securities to agree to comply with
the Securities Act and the Exchange Act in connection with the registration
and distribution of the Registrable Securities.
Notwithstanding the foregoing, if any such registration or
comparable statement refers to any holder by name or otherwise as the
holder of any securities of the Company and in its sole and exclusive
judgment such holder is or might be deemed to be a controlling person of
the Company, such holder shall have the right to require the insertion
therein of language, in form and substance reasonably satisfactory to such
holder and the Company, to the effect that the holding by such holder of
such securities is not to be construed as a recommendation by such holder
of the investment quality of the Company's securities covered thereby and
that such holding does not imply that such holder will assist in meeting
any future financial requirements of the Company.
Each holder of Registrable Securities agrees by acquisition of
such Registrable Securities that, upon receipt of any notice from the
Company of the happening of any event of the kind described in
subdivision (vii) of this Section 1.3, such holder will forthwith
discontinue such holder's disposition of Registrable Securities pursuant to
the registration statement relating to such Registrable Securities until
such holder's receipt of the copies of the supplemented or amended
prospectus contemplated by subdivision (vii) of this Section 1.3 and, if so
directed by the Company, will promptly deliver to the Company (at the
Company's expense) all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
1.4 Underwritten Offerings
----------------------
(a) Requested Underwritten Offerings. If requested by
--------------------------------
the underwriters for any underwritten offering by holders of Registrable
Securities pursuant to a registration requested under Section 1.1, the
Company will use its best efforts to enter into an underwriting agreement
with such underwriters for such offering, such agreement to be reasonably
satisfactory in form and substance to such holders, the Company and the
underwriters and to contain such representations and warranties by the
Company and such other terms as are generally prevailing in agreements of
that type, including, without limitation, indemnities to the effect and to
the extent provided in Section 1.7. The holders of the Registrable
Securities proposed to be sold by such underwriters will reasonably
cooperate with the Company in the negotiation of the underwriting
agreement. Such holders of Registrable Securities to be sold by such
underwriters shall be parties to such underwriting agreement and may, at
their option, require that any or all of the representations and warranties
by, and the other agreements on the part of, the Company to and for the
benefit of such
<PAGE>
7
underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to
the obligations of such underwriters under such underwriting agreement be
conditions precedent to the obligations of such holders of Registrable
Securities. Any such holder of Registrable Securities shall not be
required to make any representations or warranties to or agreements with
the Company other than representations, warranties or agreements regarding
such holder, such holder's Registrable Securities and such holder's
intended method of distribution or any other representations required by
applicable law.
(b) Incidental Underwritten Offerings. If the Company
---------------------------------
proposes to register any of its securities under the Securities Act as
contemplated by Section 1.2 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any
Requesting Holder of Registrable Securities and subject to the provisions
of Section 1.2(b), use its best efforts to arrange for such underwriters to
include all the Registrable Securities to be offered and sold by such
Requesting Holder among the securities of the Company to be distributed by
such underwriters. The holders of Registrable Securities to be distributed
by such underwriters shall be parties to the underwriting agreement between
the Company and such underwriters and may, at their option, require that
any or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to
the obligations of such underwriters under such underwriting agreement be
conditions precedent to the obligations of such holders of Registrable
Securities. Any such Requesting Holder of Registrable Securities shall not
be required to make any representations or warranties to or agreements with
the Company or the underwriters other than representations, warranties or
agreements regarding such Requesting Holder, such Requesting Holder's
Registrable Securities and such Requesting Holder's intended method of
distribution or any other representations required by applicable law.
(c) If, in connection with any underwritten offering
of Registrable Securities, any seller of Registrable Securities disapproves
of the terms of any such underwriting, it may elect to withdraw therefrom
by written notice to the Company and the underwriter, delivered at least
fifteen (15) days prior to the effective date of the registration statement
effecting the registration of such Registrable Securities. Any Registrable
Securities excluded or withdrawn from such underwriting shall be withdrawn
from the registration.
1.5 Preparation; Reasonable Investigation. In connection
-------------------------------------
with the preparation and filing of each registration statement under the
Securities Act pursuant to this Agreement, the Company (i) shall give a
representative holder designated in writing to the Company by the holders
of all of the Registrable Securities registered under such registration
statement (the "Representative"), such holders' underwriters, if any, and
counsel and accountants designated by the Representative the opportunity to
participate in the preparation of such registration statement, each
prospectus included therein or filed with the Commission, and each
<PAGE>
8
amendment thereof or supplement thereto, (ii) shall give each of them such
reasonable access to its books and records and such opportunities to
discuss the business of the Company with its officers and the independent
public accountants who have certified its financial statements as shall be
necessary, in the opinion of the Representative and such underwriters or
such counsel or accountants, to conduct a reasonable investigation within
the meaning of the Securities Act and (iii) shall promptly notify the
Representative and its counsel of any stop order issued or threatened by
the Commission and promptly take all reasonable actions required to prevent
the entry of such stop order or to remove it if entered.
1.6 Conditions to Obligations of the Company. It shall be
----------------------------------------
a condition precedent to the obligation of the Company to take any action
pursuant to this Agreement in respect of the shares of Common Stock which
are to be registered at the request of any Stockholder that such
Stockholder shall furnish to the Company such information regarding the
securities held by such Stockholder and the intended method of disposition
thereof as the Company shall reasonably request and as shall be required in
connection with the action taken by the Company.
Notwithstanding any provision in this Agreement to the contrary,
if the Board of Directors of the Company determines in its reasonable
judgment, at the time it receives a Registration Notice, that (i) there
shall be an adverse effect on a then contemplated public offering of the
Company's securities, (ii) the registration and offering would interfere
with any material financing, acquisition, corporate reorganization or other
material corporate transaction or development involving the Company that is
pending or imminent, (iii) the disclosures that would be required to be
made by the Company in connection with such registration would be
materially harmful to the Company because of transactions then being
considered by, or other events then concerning, the Company, or
(iv) registration at the time would require the inclusion of pro forma or
other information, which requirement the Company is reasonably unable to
comply with without incurring material expense, and the Company promptly
gives each Stockholder, in the case of any registration statement referred
to in Section 1.1, notice of that determination (it being understood,
however, that in any such event, the Company shall use all reasonable
efforts to minimize the length of the postponement), then the Company may
defer the filing of the registration statement which is required to effect
any registration pursuant to this Section 1.6 for a reasonable period of
time, but not in excess of 180 calendar days; provided, that the Company
--------
may not exercise the holdback rights set forth in this Section 1.6 more
frequently than every 2 months. If the Company shall so postpone the
filing of a registration statement, the Initiating Stockholders, in the
case of any registration statement referred to in Section 1.3, shall have
the right to withdraw their Registration Notice by giving written notice to
the Company within 30 days after the receipt of the notice of the
postponement and, in the event of the withdrawal, the Registration Notice
that was withdrawn shall not be deemed to have been made.
<PAGE>
9
1.7 Indemnification.
---------------
(a) Indemnification by the Company. The Company will, and
------------------------------
hereby does, indemnify and hold harmless, in the case of any registration
statement filed pursuant to Section 1.1 or 1.2, each seller of any Registrable
Securities covered by such registration statement and each other Person who
participates as an underwriter in the offering or sale of such securities and
each other Person, if any, who controls such seller or any such underwriter
within the meaning of the Securities Act, and their respective directors,
officers, partners, shareholders, employees, agents, representatives and
affiliates against any losses, claims, damages or liabilities to which such
seller or underwriter or any such director, officer, partner, shareholder,
employee, agent, representative, affiliate or controlling person may become
subject under the Securities Act or otherwise arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances in which they were made not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and the Company will reimburse each such seller or underwriter and
each such director, officer, partner, shareholder, employee, affiliate, agent,
representative and controlling Person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding; provided, that the Company
--------
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company through an instrument duly executed by or on behalf of such
seller or underwriter, as the case may be, specifically stating that it is for
use in the preparation thereof. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of any such seller
or any such director, officer, employee, affiliate, partner, agent,
representative or controlling person and shall survive the transfer of such
securities by such seller.
(b) Indemnification by the Sellers. As a condition to
------------------------------
including any Registrable Securities in any registration statement, the Company
shall have received an undertaking satisfactory to it from the prospective
seller of such Registrable Securities, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in subdivision (a) of this
Section 1.7) the Company, and each director, officer, employee, agent,
representative and shareholder of the Company and each other Person, if any, who
participates as an underwriter in the offering or sale of such securities and
each other Person who controls the Company or any such underwriter within the
meaning of the Securities Act, with respect to any untrue
<PAGE>
10
statement or alleged untrue statement of a material fact contained in or any
omission or alleged omission to state therein a material fact in any such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, if such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company through an instrument duly executed by or on behalf of such seller
specifically stating that it is for use in the preparation of such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement. Such indemnity shall remain in full force and effect,
regardless of any investigation made by or on behalf of the Company or any such
director, officer, employee, shareholder or controlling Person and shall survive
the transfer of such securities by such seller.
(c) Notices of Claims, etc. Promptly after receipt by an
-----------------------
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section 1.7,
such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any indemnified party to
-------- -------
give notice as provided herein shall not relieve the indemnifying party of its
obligations under the preceding subdivisions of this Section 1.7, except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party
the indemnifying party shall be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified to
the extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
-------- -------
that if the indemnified party reasonably believes it is advisable for it to be
represented by separate counsel because there exists a conflict of interest
between its interests and those of the indemnifying party with respect to such
claim, or there exist defenses available to such indemnified party which may not
be available to the indemnifying party, or if the indemnifying party shall fail
to assume responsibility for such defense, the indemnified party may retain
counsel satisfactory to it and the indemnifying party shall pay all fees and
expenses of such counsel. No indemnifying party shall be liable for any
settlement of any action or proceeding effected without its written consent,
which consent shall not be unreasonably withheld or delayed. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation or which requires action other than the payment of money by the
indemnifying party. Each indemnified party shall furnish such information
regarding itself or the claim in question as an indemnifying party may
reasonably request in writing and as shall be reasonably requested in connection
with the defense of such claim and litigation resulting therefrom.
<PAGE>
11
(d) Contribution. If the indemnification provided for in
------------
this Section 1.7 shall for any reason be held by a court of competent
jurisdiction to be unavailable to an indemnified party under subparagraph (a) or
(b) hereof in respect of any loss, claim, damage or liability, or any action in
respect thereof, then, in lieu of the amount paid or payable under
subparagraph (a) or (b) hereof, the indemnified party and the indemnifying party
under subparagraph (a) or (b) hereof shall contribute to the aggregate losses,
claims, damages and liabilities (including legal or other expenses reasonably
incurred in connection with investigating the same), (i) in such proportion as
is appropriate to reflect the relative fault of the Company and the prospective
sellers of Registrable Securities covered by the registration statement in
connection with the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable considerations (the relative fault of the Company and such prospective
sellers to be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or such prospective sellers and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission)
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as shall be appropriate to reflect the
relative benefits received by the Company and such prospective sellers from the
offering of the securities covered by such registration statement. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation. Such prospective sellers'
obligations to contribute as provided in this subparagraph (d) are several in
proportion to the relative value of their respective Registrable Securities
covered by such registration statement and not joint. In addition, no Person
shall be obligated to contribute hereunder any amounts in payment for any
settlement of any action or claim effected without such Person's consent, which
consent shall not be unreasonably withheld or delayed.
(e) Other Indemnification. Indemnification and
---------------------
contribution similar to that specified in the preceding subdivisions of this
Section 1.7 (with appropriate modifications) shall be given by the Company and
each seller of Registrable Securities with respect to any required registration
or other qualification of securities under any federal or state law, rule or
regulation of any governmental authority other than the Securities Act.
(f) Indemnification Payments. The indemnification and
------------------------
contribution required by this Section 1.7 shall be made by prompt periodic
payments of the amount thereof during the course of the investigation or
defense, as and when bills are received or expense, loss, damage or liability is
incurred.
2. Definitions. As used herein, unless the context otherwise
-----------
requires, the following terms have the following respective meanings:
"AMEX" means the American Stock Exchange.
----
<PAGE>
12
"Commission" means the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
Reference to a particular section of the Securities Exchange Act of 1934, as
amended, shall include a reference to the comparable section, if any, of any
such successor federal statute.
"Initiating Holder" is defined in Section 1.1.
-----------------
"Person" means any individual, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
government (or an agency, department or political subdivision thereof) or other
entity of any kind.
"Registrable Securities" means (i) the Shares, (ii) any other
----------------------
shares or Common Stock owned by any Stockholder and (iii) any Related
Registrable Securities. As to any particular Registrable Securities, once
issued such securities shall cease to be Registrable Securities when (a) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (b) they shall have
been distributed to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act, (c) they shall have been otherwise transferred, and
new certificates for them not bearing a legend restricting further transfer
shall have been delivered by the Company and subsequent public distribution of
them shall not, in the opinion of counsel to the holders (or in the opinion of
counsel to the Company, which opinion is reasonably satisfactory to the
holders), require registration of them under the Securities Act, or (d) they
shall have ceased to be outstanding. All references to percentages of
Registrable Securities shall be calculated pursuant to Section 8.
"Registration Expenses" means all costs, fees and expenses
---------------------
incident to the Company's performance of or compliance with Section 1,
including, without limitation, all registration, filing and NASD fees, all fees
and expenses of complying with securities or blue sky laws, all printing
expenses, and delivery expenses, the fees and disbursements of counsel for the
Company and of its independent public accountants, and any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities (excluding any underwriting discounts or commissions or transfer
taxes with respect to the Registrable Securities and the fees and disbursements
of one counsel and one accountant for the holders of the Registered Securities).
"Registration Notice" is defined in Section 1.1.
-------------------
"Related Registrable Securities" means any securities of the
------------------------------
Company issued or issuable with respect to the Shares by way of a dividend or
stock
<PAGE>
13
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise.
"Requesting Holder" is defined in Section 1.2.
-----------------
"Securities Act" means the Securities Act of 1933, or any
--------------
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act of 1933 shall include a reference to
the comparable section, if any, of any such successor federal statute.
"Selling Holder" is defined in Section 1.1.
--------------
"Shares" means the Common Stock to be received by the
------
Stockholders pursuant to the Merger Agreement.
3. Rule 144 and Rule 144A. The Company shall take all actions
----------------------
reasonably necessary to enable holders of Registrable Securities to sell such
securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 under the Securities Act, as such
Rule may be amended from time to time, (b) Rule 144A under the Securities Act,
as such Rule may be amended from time to time, or (c) any similar rules or
regulations hereafter adopted by the Commission, including, without limiting the
generality of the foregoing, filing on a timely basis all reports required to be
filed by the Exchange Act. Upon the request of any holder of Registrable
Securities, the Company will deliver to such holder a written statement as to
whether it has complied with such requirements.
4. Amendments and Waivers. This Agreement may be amended with the
----------------------
written consent of the Company and the holders of 60% of the Registrable
Securities and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company shall
have obtained the written consent to such amendment, action or omission to act,
of the holder or holders of at least 60% of the Registrable Securities affected
by such amendment, action or omission to act. Each holder of any Registrable
Securities at the time or thereafter outstanding shall be bound by any consent
authorized by this Section 4, whether or not such Registrable Securities shall
have been marked to indicate such consent.
5. Nominees for Beneficial Owners. In the event that any
------------------------------
Registrable Securities are held by a nominee for the beneficial owner thereof,
the beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the holder of such Registrable Securities for purposes of
any request, consent, waiver or other action by any holder or holders of
Registrable Securities pursuant to this Agreement or any determination of any
number or percentage of shares of Registrable Securities held by any holder or
holders of Registrable Securities contemplated by this Agreement. If the
beneficial owner of any Registrable Securities
<PAGE>
14
so elects, the Company may require assurances reasonably satisfactory to it of
such owner's beneficial ownership of such Registrable Securities.
6. Notices. All notices, demands and other communications provided
-------
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telex, telegram,
telecopier, reputable courier service or personal delivery to the following
addresses (or at such other address for a party as shall be specified by like
notice):
(i) if to any of the Stockholders,
Motion Picture Corporation of America
1401 Ocean Avenue
Suite 301
Santa Monica, California 90401
Telecopy: (310) 319-9501
(ii) if to the Company, to
Metromedia International Group, Inc.
c/o Metromedia Company
One Meadowlands Plaza
East Rutherford, New Jersey 07073
Attn: General Counsel
Telecopy: (201) 531-2803
All such notices and communications shall be deemed to have been duly given:
when delivered by hand, if personally delivered; one business day after being
sent by reputable courier service; five business days after being deposited in
the mail, postage prepaid, if mailed; when answered back, if telexed; and when
receipt is acknowledged, if telecopied.
7. Assignment. This Agreement shall be binding upon and inure to
----------
the benefit of and be enforceable by the parties hereto and, with respect to the
Company, its respective successors and assigns and, with respect to the
Stockholders, any holder of any Registrable Securities, subject to the
provisions respecting the minimum numbers of percentages of shares of
Registrable Securities required in order to be entitled to certain rights, or to
take certain actions, contained herein.
8. Calculation of Percentage Interests in Registrable Securities.
-------------------------------------------------------------
For purposes of this Agreement, all references to a percentage of the
Registrable Securities shall be calculated based upon the total number of shares
of Common Stock included in the definition of the Registrable Securities
outstanding at the time such calculation is made.
9. Investment Only. Each Stockholder hereby represents and warrants
---------------
to the Company that he has acquired the Shares for investment only, his own
<PAGE>
15
account and not for resale or distribution. Each Stockholder further
acknowledges that the Shares are being issued pursuant to an exemption from
registration under the Securities Act and agrees not to sell or otherwise
dispose of the Shares in any transaction which, in the reasonable opinion of
Company's counsel, would be in violation of the Securities Act. The
Stockholders each acknowledge that a legend appears on the certificates for the
Shares reflecting the foregoing restriction and each of the Exchanging Holders
hereby consents to the Company's maintaining "stop transfer" instructions with
its transfer agent with respect thereto.
10. No Inconsistent Agreements. The Company will not hereafter enter
--------------------------
into any agreement with respect to its securities which is inconsistent with the
rights granted to the holders of Registrable Securities in this Agreement.
11. Remedies. Each holder of Registrable Securities, in addition to
--------
being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
12. Severability. In the event that any one or more of the
------------
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended and understood that all of the rights and
privileges of the Exchanging Holders shall be enforceable to the fullest extent
permitted by law.
13. Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
14. Descriptive Headings. The descriptive headings of the several
--------------------
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
15. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
-------------
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY
WITHIN SUCH STATE.
<PAGE>
16
16. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
METROMEDIA INTERNATIONAL GROUP, INC.
By:___________________________________________
Name:
Title:
__________________________________________
Bradley Krevoy
__________________________________________
Steven Stabler
Exhibit 5
[PAUL, WEISS, RIFKIND, WHARTON & GARRISON]
373-3000
June 27, 1996
Metromedia International Group, Inc.
945 East Paces Ferry Road
Suite 2210
Atlanta, Georgia 30326
Metromedia International Group, Inc.
Registration Statement on Form S-3
Registration No. 333-03353
---------------------------------------
Ladies and Gentlemen:
In connection with the above-captioned Registration Statement
(the "Registration Statement"), filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the "Act"),
and the Rules and Regulations promulgated thereunder (the "Rules"), we have
been requested by Metromedia International Group, Inc., a Delaware
corporation (the "Company"), to furnish our opinion as to the legality of
17,250,000 shares (the "Shares") offered by the Company (including up to
2,250,000 shares issuable by the Company upon exercise of the Underwriters'
over-allotment option) of the Company's Common
<PAGE>
Metromedia International Group, Inc. 2
Stock, par value $1.00 per share (the "Common Stock"), registered for sale
thereunder.
In connection with the furnishing of this opinion, we have
reviewed the Registration Statement (including all amendments thereto), the
form of the Underwriting Agreement included as Exhibit 1.1 to the
Registration Statement (the "Underwriting Agreement"), originals, or copies
certified or otherwise identified to our satisfaction, of the Company's
Restated Certificate of Incorporation and Restated By-laws, each as in
effect on the date hereof, and records of certain of the Company's
corporate proceedings. We have also examined and relied upon
representations as to factual matters contained in certificates of officers
of the Company, and have made such other investigations of fact and law and
have examined and relied upon the originals, or copies certified or
otherwise identified to our satisfaction, of such documents, records,
certificates or other instruments, and upon such factual information
otherwise supplied to us, as in our judgment are necessary or appropriate
to render the opinion expressed below. In addition, we have assumed,
without independent investigation, the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the
conformity of original documents to all documents submitted to us as
certified, photostatic, reproduced or conformed copies, the authenticity of
all such latter documents and the legal capacity of all individuals who
have executed any of the documents.
<PAGE>
Metromedia International Group, Inc. 3
Based upon the foregoing, we are of the opinion that the Shares,
when issued, delivered and paid for as contemplated in the Registration
Statement and the Underwriting Agreement, will be duly authorized, validly
issued, fully paid and nonassessable.
Our opinion expressed above is limited to the General Corporation
Law of the State of Delaware. Please be advised that no member of this
firm is admitted to practice in the State of Delaware. Our opinion is
rendered only with respect to laws and the rules, regulations and orders
thereunder, which are currently in effect.
We hereby consent to use of this opinion as an Exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" contained in the Prospectus included in the Registration
Statement. In giving this consent, we do not thereby admit that we come
within the category of persons whose consent is required by the Act or the
Rules.
Very truly yours,
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
