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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
Commission File Number 1-5706
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METROMEDIA INTERNATIONAL GROUP, INC.
(Exact name of registrant, as specified in its charter)
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DELAWARE 58-0971455
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
ONE MEADOWLANDS PLAZA, EAST RUTHERFORD, NEW JERSEY 07073-2137
(Address and zip code of principal executive offices)
(201) 531-8000
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common stock, $1.00 par value American Stock Exchange
Pacific Stock Exchange
7.25% Cumulative Convertible Preferred Stock American Stock Exchange
Pacific Stock Exchange
</TABLE>
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes/X/ No/ /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K.
The aggregate market value of voting stock of the registrant held by
nonaffiliates of the registrant at March 24, 1998 computed by reference to the
last reported sale price of the Common Stock on the composite tape on such date
was $733,380,000.
The number of shares of Common Stock outstanding as of March 24, 1998 was
68,978,294.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement to be used in connection with the
Registrant's 1998 Annual Meeting of Stockholders are incorporated by reference
into Part III of this Annual Report on Form 10-K.
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<PAGE>
PART I
ITEM 1. BUSINESS
METROMEDIA INTERNATIONAL GROUP, INC.
Metromedia International Group, Inc. ("MMG" or "the Company") is a global
communications and media company engaged in the development and operation of a
variety of communications businesses, including cable television, AM/FM radio
broadcasting, paging, cellular telecommunications, international toll calling,
fixed telephony and trunked mobile radio, in Eastern Europe, the republics of
the former Soviet Union, (the "FSU") and the People's Republic of China
("China") and other selected emerging markets, through its Communications Group
( the "Communications Group").
The Communications Group's investments in communication businesses are made in
two primary geographic areas: Eastern Europe and the FSU, and China. In Eastern
Europe and the FSU, the Communications Group generally owns 50% or more of the
operating Joint Ventures ("Joint Ventures") in which it invests. Currently,
legal restrictions in China prohibit foreign participation in the operations or
ownership in the telecommunications sector. The Communications Group's China
Joint Ventures invest in network construction and development of telephony
networks for China United Telecommunications Incorporated ("China Unicom"). The
completed networks are operated by China Unicom. The China Joint Ventures
receive payments from China Unicom based upon distributable cash flow generated
by the networks, for a cooperation period of 15-25 years for each expansion
phase financed and developed. These payments are in return for the Joint Venture
providing financing, technical advice, consulting and other services.
Hereinafter, all references to the Communications Group's Joint Ventures relate
to the operating Joint Ventures in Eastern Europe and the FSU and the
Communications Group's Joint Ventures in China. Statistical data regarding
subscribers, population, etc. for the Joint Ventures in China relate to the
telephony networks of China Unicom.
During 1997, the Company's Communications Group experienced significant growth.
For example, aggregate subscribers to the Communications Group's Joint Ventures'
various services at the 1997 fiscal year-end was 318,826, representing a growth
of approximately 164% over the 1996 fiscal year-end total of 120,596
subscribers. The Communications Group's financial results for December 31
include the Communications Group's Joint Ventures for the 12 months ending
September 30th.
The Company also owns Snapper, Inc. ("Snapper"), which is a wholly-owned
subsidiary. The Company owned Snapper prior to the November 1 Merger (as defined
below) and the subsequent shift in the Company's business focus to a global
communications and media company. Snapper manufactures
Snapper-Registered Trademark- brand premium-priced power lawnmowers, lawn
tractors, garden tillers, snowthrowers and related parts and accessories.
In November 1995, following the consummation of the November 1 Merger, the
Company publicly announced that it was actively exploring the sale of Snapper
and as a result, for accounting purposes, Snapper was classified as an asset
held for sale and the results of operations for Snapper were not consolidated
with the Company's consolidated results of operations for the period from
November 1, 1995 through October 31, 1996. The Company has decided not to
continue to pursue its previously adopted plan to dispose of Snapper and will
actively manage Snapper to maximize its long-term value. Since November 1, 1996,
the Company has included Snapper's operating results in the consolidated results
of operations of the Company. (see "Business-Snapper").
On July 10, 1997, the Company completed the Entertainment Group Sale (as defined
below), and anticipates completing the sale of Landmark Theatre Group, Inc.
("Landmark"), in April 1998. In addition, the Company owns approximately 39% of
the outstanding common stock of RDM Sports Group, Inc. ("RDM"). On August 29,
1997, RDM and certain of its affiliates filed a voluntary bankruptcy petition
under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court of
the Northern District of Georgia. On February 18, 1998, the Office of the United
States Trustee filed a motion to appoint a
1
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ITEM 1. BUSINESS (CONTINUED)
chapter 11 trustee in the United States Bankruptcy Court for the Northern
Division of Georgia. RDM and its affiliates subsequently filed a motion to
convert the chapter 11 cases to cases under chapter 7 of the Bankruptcy Code. On
February 19, 1998, the bankruptcy court granted the United States Trustee's
motion and ordered that a chapter 11 trustee be appointed. On February 25, 1998,
each of the Company's designees on RDM's Board of Directors submitted a letter
of resignation. The chapter 11 trustee is in the process of selling all of its
assets to satisfy its obligations to its creditors and the Company believes that
its equity interest will not be entitled to receive any distributions.
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 merger of Orion
Pictures Corporation ("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
(collectively, the "November 1 Merger"), the Company changed its name from "The
Actava Group Inc." to "Metromedia International Group, Inc." The Company's
principal executive offices are located at One Meadowlands Plaza, East
Rutherford, New Jersey 07073-2137, telephone: (201) 531-8000.
Certain statements set forth below under this caption constitute
"Forward-Looking Statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). See "Special Note
Regarding Forward-Looking Statements" on page 49.
DESCRIPTION OF BUSINESS GROUPS
COMMUNICATIONS GROUP
The Communications Group was founded in 1990 to take advantage of the rapidly
growing demand for modern communications services in Eastern Europe and the FSU,
China and other selected emerging markets and launched its first operating
system in 1992. At December 31, 1997, the Communications Group owned interests
in and participated with partners in the management of Joint Ventures that had
44 operational systems, consisting of 9 cable television systems, 15 AM/FM radio
broadcasting stations, 11 paging systems, 1 international toll calling service,
5 trunked mobile radio systems, 2 GSM cellular telephone systems and 1 Joint
Venture that is building out an operational GSM system and providing financing,
technical assistance and consulting services to the local system operator. In
addition, the Communications Group has interests in and participates with
partners in the management of Joint Ventures that, as of December 31, 1997, had
4 pre-operational systems, consisting of 1 cable television system, 1 wireless
local loop service provider and 2 companies participating in the construction
and development of local telephone networks in China for up to 1 million lines.
The cable system launched operations in January 1998 and the Company believes
that the other three systems will be launched during 1998. The Communications
Group generally owns approximately 50% or more of the Joint Ventures in which it
invests. The Company's objective is to establish the Communications Group as a
major multiple-market provider of modern communications services in Eastern
Europe and the FSU, China and other selected emerging markets.
The Communications Group's Joint Ventures experienced significant growth in
1997. Total subscribers at the end of the 1997 fiscal year-end was 318,826
compared with 120,596 at fiscal year-end 1996, which represents an increase of
approximately 164%. The Company's financial results for December 31 include the
Group's Joint Ventures for the 12 months ending September 30th. Total combined
revenues reported by the Communications Group's consolidated and unconsolidated
Joint Ventures for the years ended December 31, 1997, 1996 and 1995 were $91.2
million, $57.2 million, and $23.9 million, respectively. The Communications
Group invested approximately $104.7 million, $52.2 million and $21.1 million
during the
2
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ITEM 1. BUSINESS (CONTINUED)
years ended December 31, 1997, 1996 and 1995, respectively, in the construction
and development of its consolidated and unconsolidated Joint Ventures'
communications networks and broadcasting stations.
The following chart summarizes operating statistics by service type of both the
licensed but pre-operational and operational systems constructed by the
Communications Group's Joint Ventures:
<TABLE>
<CAPTION>
TARGET
MARKETS POPULATION/
OPERATIONAL HOUSEHOLDS
AT (MM)(A) AGGREGATE
PRE-OPERATIONAL DECEMBER AT SUBSCRIBERS AT
MARKETS AT 31, DECEMBER 31, DECEMBER 31,
DECEMBER 31, ----------- ------------- ----------------
COMMUNICATIONS SERVICE 1997 1997 1996 1997 1996 1997 1996
- ---------------------------------------- --------------- ---- ---- ------- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Cable Television........................ 1(b) 9 9 9.5 9.5 225,525 69,118
AM/FM Radio Broadcasting................ -- 15 6 10.7 9.9 n/a n/a
Paging(c)............................... -- 11 9 89.5 89.5 57,831 44,836
Telephony:
Cellular Telecommunications............. -- 3(d) -- 13.5 13.4 21,842 n/a
International Toll Calling(e)........... -- 1 1 5.5 5.5 n/a n/a
Trunked Mobile Radio(f)................. -- 5 4 56.2 56.2 13,628 6,642
Fixed Telephony(g)...................... 3 -- -- 41.8(h) 40.8 -- --
--
---- ---- ------- -------
4 44 29 318,826 120,596
--
--
---- ---- ------- -------
---- ---- ------- -------
</TABLE>
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(a) Covers both pre-operational markets and operational markets. Target
population is provided for paging, telephony other than fixed telephony and
trunked mobile radio systems, and target households are provided for cable
television systems, radio stations and fixed telephony.
(b) The Communications Group owns 45% of a wireless cable television Joint
Venture in St. Petersburg, Russia that began operations in January 1998.
(c) Target population for the Communications Group's paging Joint Ventures
includes the total population in the jurisdictions where such Joint Ventures
are licensed to provide services. In many markets, however, the
Communications Group's paging system currently only covers the capital city
and is expanding into additional cities.
(d) The Communications Group's operational systems include its Joint Venture
operating a GSM system in Latvia and Georgia and its Joint Venture in Ningbo
City, China, which is participating in the build-out of an operational GSM
system and providing financing, technical assistance and consulting services
to the systems' operators.
(e) Provides international toll calling services between Georgia and the rest of
the world and is the only Intelsat-designated representative in Georgia to
provide such services.
(f) Target population for the Communications Group's trunked mobile radio
systems includes total population in the jurisdictions where such Joint
Ventures are licensed to provide services. In many markets, the
Communications Group's systems are currently only operational in major
cities.
(g) The Communications Group owns 54% interests in two pre-operational Joint
Ventures in China that are participating in the construction and development
of a local telephone network for up to 1 million lines and a 50% interest in
a pre-operational Joint Venture in Kazakstan that is licensed to provide
wireless local loop telephone services throughout Kazakstan.
(h) Indicates population of Sichuan Province and City of Chongqing in China,
where the Communications Group is participating in the construction of a
local network, and Kazakstan where the Communications Group's Joint Venture
is licensed to operate.
3
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ITEM 1. BUSINESS (CONTINUED)
BUSINESS STRATEGY
The Communication's Group's markets generally have large populations, with high
density and strong economic potential, but lack reliable and efficient
communications services. The Communications Group believes that most of these
markets have a growing number of persons who desire and can afford high quality
communications services. The Communications Group has assembled a management
team consisting of executives who have significant experience in the
communications services industry and in operating businesses in developing
markets. This management team believes that the Communications Group's systems
can be constructed with relatively low capital investments and focuses on
markets where the Company can provide multiple communications services. The
Company believes that the establishment of a far-reaching communications
infrastructure is crucial to the development of the economies of these
countries, and such development will, in turn, contribute to the growth of the
Communications Group.
The Communications Group believes that the performance of its Joint Ventures has
demonstrated that there is significant demand for its services in its license
areas. While the Communications Group's operating systems have experienced rapid
growth to date, many of the systems are still in early stages of rolling out
their services, and therefore, the Communications Group believes it will
significantly increase its subscriber and customer bases as these systems
mature. In addition, as an early entrant in many markets, the Communications
Group believes that it has developed a reputation for providing quality service
and has formed important relationships with local entities. As a result, the
Company believes it is well positioned to capitalize on opportunities to provide
additional communications services in its markets as new licenses are awarded.
In addition to its existing projects and licenses, the Communications Group
continues to explore a number of investment opportunities in wireless telephony
systems in certain markets in Eastern Europe, including Romania, the FSU,
including Kazakstan, China and other selected emerging markets, and has
installed test systems in certain of these markets. The Communications Group
believes that its wireless local loop telephony technology is a high quality and
cost effective alternative to the existing, often antiquated and overloaded
telephone systems in these markets. The Communications Group also believes that
its system has a competitive advantage in these markets because the equipment
can be installed quickly at a competitive price, as compared to alternative
wireline providers which often take several years to provide telephone service.
In addition, unlike certain other existing wireless telephony systems in the
Communications Group's target markets, the equipment utilized by the
Communications Group includes digital, high-speed technology, which can be used
for high-speed facsimile and data transmission, including Internet access.
The Communications Group's objective is to become the leading multiple-market
provider of communications services in Eastern Europe and the FSU, China and
other selected emerging markets. The Communications Group intends to achieve its
objective and expand its subscriber and customer bases, as well as its revenues
and cash flow, by pursuing the following strategies:
UTILIZE LOW COST WIRELESS TECHNOLOGIES THAT ALLOW FOR RAPID BUILD-OUT. The use
of wireless technologies has allowed and will continue to allow the
Communications Group to build-out its existing and future license areas faster
and at a lower cost than the construction of comparable wired networks. Many
markets where the Communications Group has or is pursuing wireless licenses have
limitations on wireline construction above ground and/or underground.
COMPLETE BUILD-OUT OF EXISTING LICENSE AREAS. Since its formation in 1990, the
Communications Group has been investing in Joint Ventures to obtain
communications licenses in certain emerging markets. During the years ended
December 31, 1997, 1996 and 1995, the Communications Group invested
approximately $104.7 million, $52.2 million and $21.1 million, respectively, in
the construction and
4
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ITEM 1. BUSINESS (CONTINUED)
development of its consolidated and unconsolidated Joint Ventures'
communications networks and broadcast stations in existing license areas.
AGGRESSIVELY GROW THE SUBSCRIBER AND ADVERTISER BASE IN EXISTING LICENSE
AREAS. The Communications Group's existing license areas, in the aggregate,
represent a large potential revenue base. The Communications Group is
aggressively marketing its services in these areas and is experiencing
significant increases in its subscriber count and advertising base. The
Communications Group believes it will continue to add subscribers by (i)
targeting each demographic in its markets with customized communications
services, (ii) cross-marketing and bundling communications services to existing
customers, (iii) providing technologically-advanced services and a high level of
customer service, (iv) providing new and targeted programming on its radio
stations to increase advertising revenue, and (v) opportunistically acquiring
additional existing systems in its service areas and in other strategic areas to
increase its subscriber base.
PURSUE ADDITIONAL OPPORTUNITIES IN EXISTING MARKETS. The Communications Group
is pursuing opportunities to provide additional communications services in
regions in which it currently operates. For example, in 1997, the Communications
Group launched cellular telecommunications services in Latvia where it already
provides cable television, paging and radio broadcasting services, and
commercial cellular telecommunications services and radio broadcasting in
Georgia, where it already provides cable television, paging and international
toll calling. This strategy enables the Communications Group to (i) leverage its
existing infrastructure and brand loyalty, (ii) capitalize on marketing
opportunities afforded by bundling its services, and (iii) build brand loyalty
and awareness. The Communications Group believes that it has several competitive
advantages that will enable it to obtain additional licenses and/or agreements
in these markets, including (i) established relationships with local strategic
joint venture partners and local government, (ii) a proven track record of
handling and operating quality systems, and (iii) a fundamental understanding of
the regions' political, economic and cultural climate.
TAKE ADVANTAGE OF ECONOMIES OF SCALE. The Communications Group is actively
pursuing acquisitions and building new systems which enable it to link its
existing networks and take advantage of roaming between its systems. Such
acquisitions also allow the Communications Group to increase efficiencies
through economies of scale. In January 1998, the Communications Group entered
into a definitive agreement to purchase 50% of Mobile Telecom, the largest
provider of paging services in the Russian Federation. The inclusion of Mobile
Telecom in the Communication Group's paging group will provide customers of each
of its paging Joint Ventures significantly greater roaming ability and will
enable the Communications Group to make larger volume equipment purchases which
should translate into lower prices and lower costs for its paging Joint
Ventures.
INVEST IN NEW MARKETS. The Communications Group is actively pursuing
investments in Joint Ventures to obtain new licenses and/or agreements for
wireless communications services in new markets. The Company is targeting
emerging markets with strong economic potential which lack adequate
communications services. In evaluating whether to enter a new market, the
Communications Group assesses, among other factors, the (i) potential demand for
the Communications Group's services and the availability of competitive
services, (ii) strength of local partners, and (iii) political, social and
economic climate. The Communications Group has identified several attractive
opportunities in Eastern Europe and the Pacific Rim. For example, in 1997, the
Communications Group's Joint Ventures began to provide paging services in
Austria and radio broadcasting in Prague, Czech Republic and in Berlin, Germany.
In addition, in February 1997, MITI acquired Asian American Telecommunications
("AAT"), a company which owns interests and participates in the management of
Joint Ventures with agreements to construct and provide financing for cellular
and wired telephony networks in certain provinces in China.
5
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ITEM 1. BUSINESS (CONTINUED)
CABLE TELEVISION
OVERVIEW. The Communications Group commenced offering cable television services
in 1992 with the launch by its Joint Ventures' Kosmos TV in Moscow, Russia
("Kosmos"), and Baltcom TV in Riga, Latvia ("Baltcom"). The Communications Group
currently has interests in Joint Ventures which offer cable television services
in 9 markets in Eastern Europe and the FSU that reported 225,525 subscribers at
December 31, 1997, an increase of approximately 226% from 69,118 subscribers at
December 31, 1996. In addition, the Communications Group has a 45% interest in a
Joint Venture which launched commercial cable television service in St.
Petersburg, Russia in January 1998. The Communications Group believes that there
is a growing demand for multi-channel television services in each of the markets
where its Joint Ventures are operating, which demand is being driven by several
factors including: (i) the lack of quality television and alternative
entertainment options in these markets; (ii) the growing demand for Western-
style entertainment programming; and (iii) the increase in disposable income in
each market, which in turn increases the demand for entertainment services.
TECHNOLOGY. Each of the Communications Group's cable television Joint Ventures
utilizes two distribution technologies: microwave multipoint distribution system
("MMDS") and wireline cable. In some markets, a hybrid combination of MMDS and
wireline cable is employed where MMDS is used to deliver programming directly to
customers' homes as well as to act as a backbone to deliver programming to
wireline cable networks for further distribution to the customer. The
Communications Group believes that MMDS is an attractive technology to utilize
for the delivery of multi-channel television services in these markets because
(i) the initial construction costs of a MMDS system generally are significantly
lower than wireline cable or direct-to-home ("DTH") satellite transmission, (ii)
the time required to construct a wireless cable network is significantly less
than the time required to build a standard wireline cable television network
covering a comparably-sized service area, (iii) the high communications tower
typically utilized by the MMDS network combined with the high density of
multi-family dwelling units in these markets gives the MMDS networks very high
line of sight ("LOS") penetration, (iv) the wide bandwidth of the spectrum
typically licensed by each of the Company's Joint Ventures gives each system the
ability to broadcast a wide variety of attractive international and localized
programming, and (v) MMDS is a highly effective means to distribute programming
to wireline cable headends eliminating the need for much of the satellite
receiving equipment at each headend.
In each MMDS system operated by the Communications Group's Joint Ventures,
multichannel signals are broadcast in all directions from a transmission tower
which, in the case of such Joint Ventures' systems, is typically the highest
structure in the city and, as a result, has very high LOS penetration.
Specialized compact receiving antenna systems, installed by the Communications
Group on building rooftops as part of the system or to mini-headends in wireline
systems, receive the multiple channel signals transmitted by the transmission
tower. The signal is then transmitted to each subscriber through a coaxial
cabling system within the building or wireline system. In each city where the
Communications Group provides or expects to provide service, a substantial
percentage of the population (e.g., approximately 90% in Moscow) lives in large,
multi-dwelling apartment buildings. This infrastructure significantly reduces
installation costs and eases penetration of cable television services into a
city because a single MMDS receiving location can bring service to numerous
apartment buildings or wireline cable networks housing a large number of people.
In order to take advantage of such benefits, in many areas, the Company is
wiring buildings and/or neighborhoods so that it can serve all of the residents
in the area through one microwave receiving location. Subscribers to the
Company's premium tiered services typically utilize a set-top converter which
descrambles the signal and are also used as channel selectors. The Company
generally utilizes the same equipment across all of its cable television
systems, which enables it to realize purchasing efficiencies in the build-out of
its networks.
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ITEM 1. BUSINESS (CONTINUED)
While the Communications Group's cable television systems are generally a
leading provider of multi-channel television services in each of its markets, in
many markets there are several small undercapitalized wireline competitors. The
Communications Group's Joint Ventures in Bucharest, Romania and Chisinau,
Moldova have each acquired existing wireline systems and are in the process of
integrating them into their present systems. The Communications Group believes
that there are additional acquisition/consolidation opportunities in several of
its markets and will pursue the acquisition of select competitors on an
opportunistic basis.
PROGRAMMING. The Communications Group believes that programming is a critical
component in building successful cable television systems. The Communications
Group currently offers a wide variety of programming including English, French,
German and Russian programming, some of which is dubbed or subtitled into the
local language. In order to maximize penetration and revenues per subscriber,
the cable television Joint Ventures generally offer multiple tiers of service
including, at a minimum, a "lifeline" service, a "basic" service and a "premium"
service. The lifeline service generally provides programming of local off-air
channels and an additional two to four channels such as MTV-Europe, Eurosport,
NBC-Europe, VH-1, Cartoon Network, CNN International, SKY News and Discovery
Channel. The basic and premium services generally include the channels which
constitute the lifeline service, as well as an additional number of satellite
channels and a movie channel that offers recent and classic movies. The content
of each programming tier varies from market to market, but generally includes
channels such as MTV, Eurosport, NBC Super Channel, Bloomberg TV, Cartoon
Network/TNT, BBC World, CNN, SKY News and Discovery Channel. Each tier also
offers localized programming.
One of the Communications Group's Joint Ventures offers "pay-per-view" movies in
one of its markets and the Communications Group plans to add similar services to
its program lineups in certain of its other markets. The subscriber pays for
"pay-per-view" services in advance, and the intelligent decoders that the Joint
Venture uses automatically deduct the purchase of a particular service. In
addition, one of the Communications Group's Joint Ventures has created a movie
channel, "TV21," consisting of U.S. and European films dubbed into Russian
language which distributes this channel to most of the Communications Group's
other cable television Joint Ventures. Centralized dubbing and distribution of
this movie channel have enabled the Communications Group to avoid the cost of
separately creating a similar movie channel in its other markets.
MARKETING. While each cable television Joint Venture initially targets its
cable television services toward foreign national households, embassies, foreign
commercial establishments and international and local hotels, each system offers
multiple tiers, at least one of which is targeted toward, and generally within
the economic reach of, a substantial and growing percentage of the local
population in each market. The Communications Group offers several tiers of
programming in each market and strives to price the lowest tier at a level that
is affordable to a large percentage of the population and that generally
compares in price to alternative entertainment products. The Communications
Group believes that a growing number of subscribers to local broadcast services
will demand the superior quality programming and increased viewing choices
offered by its cable television service. Upon launching a particular system, the
Communications Group uses a combination of event sponsorships, billboard, radio
and broadcast television advertising to increase awareness in the marketplace
about its services.
COMPETITION. Each of the Communications Group's cable television systems
competes with off-the-air broadcast television stations. In addition, in many of
its cable television markets there are several existing wireline cable
television providers which are generally undercapitalized, small, local
companies that provide limited programming to subscribers in limited service
areas. In many of its cable television markets, the Communications Group
competes with providers of DTH programming services, which offer subscribers
programming directly from satellite transponders. The Communications Group
believes that it has significant competitive advantages over DTH providers in
its lower cost and its ability to offer localized programming.
7
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ITEM 1. BUSINESS (CONTINUED)
AM/FM RADIO BROADCASTING
OVERVIEW. The Communications Group entered the radio broadcasting business in
Eastern Europe through the acquisition of Radio Juventus in Hungary in 1994.
Today, the Company is a leading operator of radio stations in Eastern Europe and
the FSU and owns and operates, through Joint Ventures, 15 radio stations. During
1997, the Communications Group acquired interests in additional Joint Ventures
operating radio stations in Prague, Czech Republic; Berlin, Germany; Tbilisi,
Georgia and Vladivostok, Russian Federation and a Joint Venture operating a
radio network in Estonia. In addition, the Communications Group entered into a
definitive agreement to purchase an additional 25% of its Joint Venture
operating two radio stations in St. Petersburg, Russia.
The Communications Group's radio broadcasting strategy is generally to acquire
underdeveloped properties (i.e., stations with insignificant ratings and little
or no positive cash flow) at attractive valuations. The Communications Group
then installs experienced radio management to improve performance through
increased marketing and focused programming. Management utilizes its programming
expertise to tailor specifically the programming of each station utilizing
sophisticated research techniques to identify opportunities within each market,
and programs its stations to provide complete coverage of a demographic or
format type. This strategy allows each station to deliver highly effective
access to a target demographic and capture a higher percentage of the radio
advertising audience share.
PROGRAMMING. Programming in each of the Communications Group's AM and FM
markets is designed to appeal to the particular interests of a specific
demographic group in such markets. The Communications Group's radio programming
formats generally consist of popular music from the United States, Western
Europe and the local region. News is delivered by local announcers in the
language appropriate to the region, and announcements and commercials are
locally produced. By developing a strong listenership base comprised of a
specific demographic group in each of its markets, the Communications Group
believes it will be able to attract advertisers seeking to reach these
listeners. The Communications Group believes that the technical programming and
marketing expertise that it provides to its Joint Ventures enhances the
performance of the Joint Ventures' radio stations.
MARKETING. Radio station programming is generally targeted towards that segment
which the Communications Group believes to be the most affluent within the
25-to-55-year-old demographic in each of its radio markets. Each station's
format is intended to appeal to the particular listening interests of this
consumer group in its market. This focus is intended to enable each Joint
Venture to present to advertisers with the most desirable market for the
advertiser's 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.
COMPETITION. While the Communications Group's radio stations are generally
leaders in each of their respective markets, they compete in each market with
stations currently in operation or anticipated to be in service shortly. Other
media businesses, including broadcast television, cable television, newspapers,
magazines and billboard advertising also compete with the Communications Group's
radio stations for advertising revenues.
PAGING
OVERVIEW. The Communications Group commenced offering radio paging services in
1994 with the launch of paging networks serving the countries of Estonia and
Romania. Paging systems are useful as a means for one-way business/personal
communications without the need for a recipient to access a telephone network,
8
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
which in many of the Communications Group's markets is often overloaded or
unavailable. At December 31, 1997, the Communications Group's paging Joint
Ventures were licensed to offer paging services in markets containing
approximately 89.5 million persons. The Communications Group's Joint Ventures
generally provide service in the capital or major cities in these countries and
is currently expanding the services of such operations to cover additional
areas. The Communications Group believes that these Joint Ventures are leading
providers of paging services in their respective markets with, as of December
31, 1997, an aggregate of 57,831 subscribers, representing an increase of
approximately 29% from 44,836 subscribers at December 31, 1996.
In January 1998, the Communications Group signed a definitive agreement to
purchase 50% of Mobile Telecom, the largest provider of paging services in the
Russian Federation. Mobile Telecom currently provides paging services in Moscow,
St. Petersburg and many other cities in the Russian Federation and has obtained
frequency and operating authority for more than 90 other of the largest cities
in Russia. The acquisition of Mobile Telecom will enable the Communications
Group to expand the roaming capability of the customers of its other paging
Joint Ventures. The inclusion of Mobile Telecom in the Communications Group will
also enable the Communications Group to make larger volume equipment purchases
which should translate into lower prices and lower costs for its other paging
Joint Ventures.
Management believes that its paging Joint Ventures will continue to experience
rapid subscriber growth due to (i) the low landline telephone penetration that
characterizes each of its markets, (ii) the rapid increase in the number of
individuals, corporations and other organizations desiring communication
services that offer substantial mobility, accessibility and the ability to
receive timely information, and (iii) the continued economic growth in these
markets, which is expected to make paging services relatively more affordable to
the general population, and (iv) introduction of calling party pays service in
Austria, Romania, Estonia and Latvia.
The Communications Group offers several types of pagers. However, substantially
all of the Communications Group's subscribers choose alphanumeric pagers, which
emit a variety of tones and display as many as 63 characters. Subscribers may
also purchase additional services, such as paging priority, group calls and
other options. In 1998, the Communications Group is launching calling party pays
service. Calling party pays service is designed to reach a younger demographic
by providing a pager for little or no monthly fee. The Communications Group
receives a fee from the local provider for each call made to the pager. The
Communications Group provides a choice of pagers, which are typically purchased
by the subscriber or leased for a small monthly fee. The Communications Group
also provides 24-hour operator service with operators who are capable of taking
and sending messages in several languages.
TECHNOLOGY. Paging is a one-way wireless messaging technology which uses an
assigned frequency and a specific pager identifier to contact a paging customer
within a geographic service area. Each customer who subscribes to a paging
service is assigned a specific pager number. Transmitters broadcast the
appropriate signal or message to the subscriber's pager, which has been preset
to monitor a designated radio frequency. Each pager has a unique number
identifier, a "cap code," which allows it to pick up only those messages sent to
that pager. The pager signals the subscriber through an audible beeping signal
or an inaudible vibration and displays the message on the subscriber's pager.
Depending on the market, the Joint Ventures offer alphanumeric pagers which have
Latin and/or Cyrillic (Slavic language) character display.
The effective signal coverage area of a paging transmitter typically encompasses
a radius of between 15 and 20 miles from each transmitter site. Obstructions,
whether natural, such as mountains, or man-made, such as large buildings, can
interfere with the signal. Multiple transmitters are often used to cover large
geographic areas, metropolitan areas containing tall buildings or areas with
mountainous terrain.
9
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ITEM 1. BUSINESS (CONTINUED)
Each of the Communications Group's paging Joint Ventures uses either terrestrial
radio frequency ("Rf") control links that originate from one broadcast
transmitter which is controlled by a local paging terminal and broadcast to each
of the transmitters, or a satellite uplink which is controlled by the paging
terminal, and which transmits to a satellite and downlinks to a receiving dish
adjacent to each of the transmitters. Once a message is received by each
transmitter in a simulcast market, each transmitter in turn broadcasts the
paging information using the paging broadcast frequency. The Rf control link
frequency is different from the paging broadcast frequency. For non-contiguous
regional coverage, either telephone lines or microwave communication links are
used in lieu of an Rf control link or satellite link.
MARKETING. Paging services are targeted toward people who spend a significant
amount of time outside of their offices, have a need for mobility or are
business people without ready access to telephones. The Communications Group
targets its paging systems primarily to local businesses, the police, the
military and expatriates. Paging provides an affordable way for local businesses
to communicate with employees in the field and with their customers. Subscribers
are charged a monthly fee which entitles a subscriber to receive an unlimited
number of pages each month.
COMPETITION. The Communications Group believes that its Joint Ventures are
leading providers of paging services in each of their respective markets. In
some of the Communications Group's paging markets, however, the Communications
Group has experienced and expects to continue to experience competition from
existing small, local, paging operators who have limited areas of coverage, and
from, in a few cases, paging operators established by Western European and U.S.
investors with substantial experience in paging. The Communications Group
believes it competes effectively with these companies because of, among other
things, its high quality and reliable 24-hour service. The Communications Group
does not have or expect to have exclusive franchises with respect to its paging
operations and may therefore face more significant competition in its markets in
the future from highly capitalized entities seeking to provide similar services.
TELEPHONY
The Communications Group's telephony line of business consists of cellular
telecommunications, international toll calling, trunked mobile radio and fixed
telephony.
CELLULAR TELECOMMUNICATIONS
OVERVIEW. The Communications Group owns a 21% interest in Baltcom GSM which
operates a nationwide cellular telecommunications system in Latvia. The
Communications Group also owns a 34% interest in Magticom, a Joint Venture that
operates cellular telecommunications systems in certain cities in Georgia and is
licensed to provide nationwide services. Western Wireless International Inc.
("Western Wireless"), a leading U.S. cellular provider, is a partner in each of
these Joint Ventures. The Communications Group believes that there is a large
demand for cellular telephone service in each of Latvia and Georgia due to the
limited supply and poor quality of wireline telephone service in these markets
as well as the rapidly growing demand for the mobility offered by cellular
telephony service. Landline telephone penetration is approximately 25% in Latvia
and 9% in Georgia. The demand for reliable and mobile telephone service is
increasing rapidly and the pace is expected to continue as commerce in these
regions continues to experience rapid growth.
In June 1997, the Communications Group's Latvian GSM Joint Venture, Baltcom GSM
entered into certain agreements with the European Bank for Reconstruction and
Development ("EBRD") pursuant to which the EBRD agreed to lend up to $23.0
million to Baltcom GSM in order to finance its system build-out and operations.
Baltcom GSM's ability to borrow under these agreements is conditioned upon
reaching certain gross revenue targets. The loan has an interest rate equal to
the 3-month LIBOR plus 4%
10
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ITEM 1. BUSINESS (CONTINUED)
per annum, with interest payable quarterly. The principal amount must be repaid
in installments starting in March 2002 with final maturity in December 2006. The
shareholders of Baltcom GSM were required to provide $20.0 million to Baltcom
GSM as a condition precedent to EBRD funding the loan. In addition, the
Communications Group and Western Wireless agreed to provide or cause one of the
shareholders of Baltcom GSM to provide an additional $7.0 million in funding to
Baltcom GSM if requested by EBRD.
As part of the financing, the EBRD was also provided a 5% interest in the joint
venture which it can put back to Baltcom GSM at certain dates in the future at a
multiple of Baltcom GSM's earnings before interest, taxes, depreciation and
amortization ("EBITDA"), not to exceed $6.0 million. The Company and Western
Wireless have guaranteed the obligation of Baltcom GSM to pay such amount. All
of the shareholders of Baltcom GSM, including MITI, pledged their respective
shares to the EBRD as security for repayment of the loan. As of December 31,
1997, Baltcom GSM borrowed $15.0 million from the EBRD. Under the ERBD
agreements, amounts payable to the Communications Group are subordinated to
amounts payable to the ERBD.
In April 1997, the Communications Group's Georgian GSM Joint Venture, Magticom,
entered into a financing agreement with Motorola, Inc. ("Motorola") pursuant to
which Motorola agreed to finance 75% of the equipment, software and services it
provides to Magticom up to an amount equal to $15.0 million. Interest on the
financed amount accrues at 6-month LIBOR plus 5% per annum, with interest
payable semi-annually. Repayment of principal with respect to each drawdown
commences twenty-one months after such drawdown with the final payment being due
60 months after such drawdown. All drawdowns must be made within 3 years of the
initial drawdown date. Magticom is obligated to provide Motorola with a security
interest in the equipment provided by Motorola to the extent permitted by
applicable law. As additional security for the financing, the Company has
guaranteed Magticom's repayment obligation to Motorola.
The Communications Group and Western Wireless have funded the balance of the
financing to Magticom through a combination of debt and equity. Repayment of
indebtedness owned to such partners is subordinated to Motorola.
In addition, through AAT, the Communications Group has entered into a Joint
Venture agreement (the "Ningbo JV Agreement") with Ningbo United
Telecommunications Investment Co., Ltd. (the "Ningbo JV") and the Ningbo JV has
entered into a Network System Cooperation Contract with China Unicom (the
"Network System Cooperation Contract") to (i) finance and assist China Unicom in
the construction of an advanced GSM cellular telephone network and (ii) provide
consulting and management support services to China Unicom in its operation of
such network within the City of Ningbo, China. This system, which has an initial
capacity of up to 50,000 subscribers, commenced operations in May 1997. The
Communications Group's Joint Venture is entitled to 73% of the distributed cash
flow, as defined in the Network System Cooperation Contract, from the network
for a 15-year period.
TECHNOLOGY. The Communications Group's cellular telephone networks in Latvia
and Georgia operate on the GSM standard. GSM is the standard for cellular
service throughout Western Europe, which allows the Communications Group's
customers to roam throughout the region. GSM's mobility is a significant
competitive advantage compared to competing Advanced Mobile Phone System
("AMPS") services which cannot offer roaming service in most neighboring
countries in Europe, with the exception of Russia, or Nordic Mobile Telephone
("NMT") services which are based on what the Communications Group believes is an
older and less reliable technology.
MARKETING. The Communications Group targets its cellular telephony services
toward the rapidly growing number of individuals, corporations and other
organizations with a need for mobility, ready access to a high quality voice
transmission service and the ability to conduct business outside of the
workplace or
11
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
home. The Communications Group sells cellular phones at a small mark-up to cost.
This pass-through strategy encourages quick market penetration and early
acceptance of cellular telephony as a desirable alternative to fixed land-based
telephony systems.
Management believes that its cellular systems will benefit from several
competitive advantages in each of its markets. The Communications Group intends
to market its cellular telephony service to customers of its existing cable
television and paging services in both Latvia and Georgia. The Communications
Group believes that this database of names will be useful in marketing its
cellular telephony services, as these are customers who have already exhibited
an interest in modern communications services. In addition, these Joint Ventures
intend to market these systems by providing a comprehensive set of packages with
different service features which permit the subscriber to choose the package
that most closely fits his or her needs.
COMPETITION. Baltcom GSM's primary competitor in Latvia is Latvia Mobile
Telecom ("LMT"). LMT commenced service in 1995 and currently has approximately
20,000 subscribers. LMT operates a second system using the older, less efficient
NMT technology that the Communications Group believes will pose less of a
competitive threat than LMT's GSM system. The Communications Group believes that
its primary competitors in Georgia will be Geocell, a Georgian-Turkish Joint
Venture using a GSM system as well as an existing smaller provider of cellular
telephony services which uses the AMPS technology in its network.
While the availability of fixed telephone systems in China is limited in
capacity, the fact that these systems exist and are operated by governmental
authorities means that they are a source of competition for China Unicom's
proposed wireless and fixed telephony operations. In addition, one-way paging
service may be a competitive alternative which is adequate for those who do not
need a two-way service, or it may be a service that reduces wireless telephony
usage among wireless telephony subscribers.
The Communications Group also faces competition from the primary provider of
telephony services in each of its markets, which are the national telephone
systems. However, given the low telephony penetration rates in Latvia and
Georgia and the underdeveloped landline telephone system infrastructure, the
Communications Group believes that cellular telephony provides an attractive
alternative to customers who need fast, reliable and quality telephone service.
INTERNATIONAL TOLL CALLING
OVERVIEW. The Communications Group owns approximately 30% of Telecom Georgia.
Telecom Georgia handles all international calls inbound to and outbound from the
Republic of Georgia. Telecom Georgia has interconnect arrangements with several
international long distance carriers such as Sprint and Telespazio. For every
international call made to the Republic of Georgia, a payment is due to Telecom
Georgia by the interconnect carrier and for every call made from the Republic of
Georgia to another country, Telecom Georgia charges its subscribers and pays a
destination fee to the interconnect carrier.
Since Telecom Georgia commenced operations, long distance traffic in and out of
Georgia has increased dramatically as Telecom Georgia has expanded the number of
available international telephone lines. Incoming call traffic increased from
approximately 200,000 minutes per month in 1993 to the current rate of
approximately 1 million minutes per month, and outgoing call traffic increased
from approximately 100,000 minutes per month in 1993 to the current rate of
approximately 230,000 minutes. Telecom Georgia has instituted several marketing
programs in order to maintain this growth.
COMPETITION. The Communications Group does not currently face any competition
in the international long distance business in Georgia, as Telecom Georgia is
the only entity licensed to handle international call traffic in and out of
Georgia. There can be no assurance that there will not be a competitor in the
future.
12
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
TRUNKED MOBILE RADIO
OVERVIEW. The Communications Group currently owns interests in Joint Ventures
which operate 5 trunked mobile radio services in Europe and Kazakstan, servicing
an aggregate of 13,628 subscribers at December 31, 1997 which is an increase of
approximately 105% from 6,642 subscribers at December 31, 1996. Trunked mobile
radio systems are commonly used by construction teams, security services, taxi
companies, service organizations and other groups with a need for significant
internal communications. Trunked mobile radio allows such users to communicate
with members of a closed user group without incurring the expense or delay of
the public switched telephone network, and also provides the ability to provide
dispatch service (i.e., one sender communicating to a large number of users on
the same network). In many cases, the Communications Group's trunked mobile
radio systems are also connected to the public switched telephone network thus
providing some or all of the users the flexibility of communicating outside the
closed user group. The Communications Group believes that lower costs and the
ability to provide dispatch services affords trunked mobile radio significant
advantages over cellular telephony or the public switched telephone network in
fleet applications.
COMPETITION. The Communications Group is a leading provider of trunked mobile
radio in its markets although it faces competition from other trunked mobile
radio service providers and from private networks in all of the markets in which
it operates. Trunked mobile radio also faces competition from cellular
providers, especially for users who need access to the public switched telephone
network for most of their needs, pagers for users who need only one-way
communication and private branch exchanges, where users do not need mobile
communications.
FIXED TELEPHONY
OVERVIEW. The Communications Group is currently exploring a number of
investment opportunities in wireless local loop telephony systems in certain
countries in Eastern Europe and the FSU and other selected emerging markets and
has installed test systems in certain of these markets. The Communications Group
believes that the proposed wireless local loop telephony technology it is using
is a time and cost effective means of improving the communications
infrastructure in such markets. The current telephone systems in these markets
may be antiquated and/or overloaded, and consumers in these markets often must
wait several years to obtain telephone service.
The Company believes that wireless local loop technology is a rapid and cost
effective method to increase the number of subscribers to local telephone
services. Wireless local loop telephony systems can provide telephone access to
a large number of apartment dwellers through a single microwave transceiver
installed on their building. This microwave transceiver sends signals to and
from a receiver located adjacent to a central office of the public switched
telephone network where the signal is routed from or into such network. This
system eliminates the need to build fixed wireline infrastructure between the
central office and the subscribers' building, thus reducing the time and expense
involved in expanding telephone service to customers.
In 1997, the Communications Group's 50% joint venture in Kazakstan, Instaphone,
was licensed to provide wireless local loop telephone services throughout that
country. In order to provide such service, Instaphone has been allocated
frequencies in the 2.3 to 2.5 GHz band in Almaty, the largest city in Kazakstan.
The Communications Group is currently constructing the system necessary to
provide service and negotiating an agreement for interconnection with the local
public switched telephone system. The Communications Group expects Instaphone to
launch commercial service in 1998. The Communications Group has created several
other Joint Ventures that are currently exploring the opportunities to provide
wireless local loop services.
13
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
In addition, the Company plans to take advantage of wired telephony
opportunities from time to time. For example, the Communications Group, through
AAT, has entered into joint venture agreements with China Huaneng Technology
Development Corporation in Sichuan Province ("Sichuan JV") and in the city of
Chongqing ("Chongqing JV") to (i) assist China Unicom in the development and
construction of advanced telecommunications systems in the Sichuan Province and
the city of Chongqing, China and (ii) provide telephone consulting and financing
services to China Unicom within Sichuan Province and the city of Chongqing. With
a population of over 110 million and a telephone penetration rate estimated at
less than 2%, the Sichuan Province and the city of Chongqing projects provide a
large potential market for AAT's investments and services. The project involves
a 25-year period of cooperation between the Communications Group's Joint Venture
and China Unicom for the development of a wired local telephone network in the
Sichuan Province and the city of Chongqing with an initial capacity of 50,000
lines. For its services, the Communications Group's Joint Venture is entitled to
78% of the distributable cash flow, defined in the agreement between China
Unicom and the Sichuan JV, from the network for a 25-year period for each phase
of the network developed.
COMPETITION. While the existing wireline telephone systems in Eastern Europe
and the FSU are often antiquated and provide inferior quality service, the fact
that the network infrastructure is already in place means that it is a source of
competition for the Communications Group's proposed wireless telephony
operations. The Communications Group does not have or expect to have exclusive
franchises with respect to its wireless telephony operations and may therefore
face more significant competition in the future from highly capitalized entities
seeking to provide services similar to or competitive with the Communications
Group's services in its markets.
While the availability of fixed telephone systems in China is limited in
capacity, the fact that these systems exist and are operated by governmental
authorities means that they are a source of competition for China Unicom's
proposed wireless and fixed 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.
In certain markets, cellular telephone operators exist and represent a
competitive alternative to the Communications Group's proposed wireless local
loop telephony 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 service area. However, while cellular telephony enables
a subscriber to move from one place in a city to another while using the
service, wireless local loop telephony is intended to provide fixed telephone
services which can be deployed as rapidly as cellular telephony but at a lower
cost per line. This lower cost makes wireless local loop telephony a more
attractive telephony alternative to a large portion of the populations in the
Communications Group's markets that do not require mobile communications. In
addition, because the wireless local loop technology which the Communications
Group is using operates at 64 kilobits per second, it can be used for high speed
facsimile and data transmission, including Internet access.
LICENSES
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 be able to obtain all
necessary approvals to operate additional cable television, wireless telephony
or paging systems or radio broadcasting stations in any of the markets in which
it is seeking to establish additional businesses.
The licenses pursuant to which the Communications Group's businesses operate are
issued for limited periods, including certain licenses which are renewable
annually. Certain of these licenses expire over the
14
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ITEM 1. BUSINESS (CONTINUED)
next several years. One of the licenses held by the Communications Group has
expired, although the Communications Group has been permitted to continue
operations while the reissuance is pending. The Communications Group has applied
for a renewal and expects a new license to be issued. Five other licenses held
or used by the Communications Group will expire during 1998, including the
license for Radio Juventus, the Company's radio operation in Hungary. The
failure of such licenses to be renewed may have a material adverse effect on the
Company's results of operations. Additionally, certain of the licenses pursuant
to which the Communications Group's businesses operate contain network build-out
milestone clauses. The failure to satisfy such milestones could result in the
loss of such licenses which may have a material adverse effect on the
Communications Group.
In the case of the licenses other than Radio Juventus, the Company's Joint
Ventures will apply for renewals of their licenses. While there can be no
assurance that these four licenses will be renewed, based on past experience,
the Communications Group expects to obtain such renewals. In the case of Radio
Juventus, the Communications Group plans to cause the venture to participate in
a competitive tender for a regional broadcasting license to cover Budapest and
certain other areas in Hungary. The Company believes that Radio Juventus'
prospects for winning such tender, which will be determined by the strength of
its bid in the tender in comparison to the bids of other participants in the
tender, are good.
JOINT VENTURE OWNERSHIP STRUCTURES/LIQUIDITY ARRANGEMENTS
The following table summarizes the Communications Group's Joint Ventures and
subsidiaries at December 31, 1997, as well as the amounts contributed, amounts
loaned net of repayments and total amounts invested in such Joint Ventures and
subsidiaries at December 31, 1997 (in thousands).
<TABLE>
<CAPTION>
AMOUNT TOTAL INVESTMENT
CONTRIBUTED TO AMOUNT LOANED TO IN
COMPANY JOINT VENTURE/ JOINT VENTURE/ JOINT VENTURE/
JOINT VENTURE (1) OWNERSHIP % SUBSIDIARY SUBSIDIARY SUBSIDIARY (8)
- ------------------------------------------- --------------- --------------- ----------------- ------------------
<S> <C> <C> <C> <C>
CABLE TELEVISION
Romsat Cable TV (Bucharest, Romania) (2) 97% $ 612 $ 6,055 $ 6,667
(11).....................................
Viginta (Vilnius, Lithuania) (2)........... 55% 397 2,363 2,760
Kosmos TV (Moscow, Russia)................. 50% 1,093 10,053 11,146
Baltcom TV (Riga, Latvia).................. 50% 819 11,811 12,630
Ayety TV (Tbilisi, Georgia)................ 49% 779 7,025 7,804
Kamalak TV (Tashkent, Uzbekistan).......... 50% 655 3,137 3,792
Sun TV (Chisinau, Moldova)................. 50% 400 5,835 6,235
Alma TV (Almaty, Kazakstan)................ 50% 222 3,547 3,769
Cosmos TV (Minsk, Belarus)................. 50% 400 2,844 3,244
Teleplus (St. Petersburg, Russia) (4)...... 45% 990 103 1,093
</TABLE>
15
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ITEM 1. BUSINESS (CONTINUED)
<TABLE>
<CAPTION>
AMOUNT TOTAL INVESTMENT
CONTRIBUTED TO AMOUNT LOANED TO IN
COMPANY JOINT VENTURE/ JOINT VENTURE/ JOINT VENTURE/
JOINT VENTURE (1) OWNERSHIP % SUBSIDIARY SUBSIDIARY SUBSIDIARY (8)
- ------------------------------------------- --------------- --------------- ----------------- ------------------
<S> <C> <C> <C> <C>
PAGING
Baltcom Paging (Tallinn, Estonia) (2)...... 85% $ 3,715 $ 1,380 $ 5,095
CNM (Romania) (2).......................... 54% 490 4,409 4,899
Paging One Services (Austria) (2).......... 100% 1,036 5,673 6,709
Baltcom Plus (Riga, Latvia)................ 50% 250 2,776 3,026
Paging One (Tbilisi, Georgia).............. 45% 250 1,329 1,579
Raduga Poisk (Nizhny Novgorod, Russia)..... 45% 330 48 378
PT Page (St. Petersburg, Russia)........... 40% 1,102 -- 1,102
Kazpage (Kazakstan) (9).................... 26-41% 520 343 863
Kamalak Paging (Tashkent, Samarkand, 50% 180 1,809 1,989
Bukhara and Andijan, Uzbekistan).........
Alma Page (Almaty and Ust-Kamenogorsk, 50% -- 2,161 2,161
Kazakstan)...............................
Paging Ajara (Batumi, Georgia)............. 35% 43 233 276
RADIO BROADCASTING
Radio Juventus (Budapest, Hungary) (2)..... 100% 8,107 -- 8,107
SAC (Moscow, Russia) (2)................... 83% 631 3,011 3,642
Radio Skonto (Riga, Latvia) (2)............ 55% 302 252 554
Radio One (Prague, Czech Republic) (2)..... 80% 627 213 840
NewsTalk Radio (Berlin,Germany) (2)........ 70% 2,758 1,203 3,961
Radio Vladivostok, (Vladivostok, Russia) 51% 170 -- 170
(10).....................................
Country Radio (Prague, Czech Republic) 85% 2,040 -- 2,040
(10).....................................
Radio Georgia (Tbilisi, Georgia) (10)...... 51% 222 -- 222
Eldoradio (formerly Radio Katusha)(St. 50% 464 930 1,394
Petersburg, Russia) (5)..................
Radio Nika (Socci, Russia)................. 51% 260 43 303
AS Trio LSL (Tallinn, Estonia) (5)......... 49% 1,572 -- 1,572
INTERNATIONAL TOLL CALLING
Telecom Georgia (Tbilisi, Georgia)......... 30% 2,554 -- 2,554
TRUNKED MOBILE RADIO
Protocall Ventures, Ltd. (2) (3)........... 56% 2,550 10,725 13,275
Spectrum (Kazakstan) (12).................. 31% 36 724 760
CELLULAR TELECOMMUNICATIONS
Baltcom GSM (Latvia)....................... 21% 13,483 -- 13,483
Magticom (Tbilisi, Georgia)................ 34% 7,890 -- 7,890
Ningbo Ya Mei Communications (Ningbo City, 41% 9,444 19,306 28,750
China) (6)...............................
FIXED TELEPHONY
Sichuan Tai Li Feng Telecommunications, Co. 54% 11,087 -- 11,087
(Sichuan Province, China) (4) (7)........
Chongqing Tai Le Feng Telecommunication, 54% 7,439 -- 7,439
Co.
(Chongqing City, China) (4) (7)..........
Instaphone (Kazakstan) (4)................. 50% 4 680 684
------- -------- --------
TOTAL................................ $ 85,923 $ 110,021 $ 195,944
------- -------- --------
------- -------- --------
</TABLE>
- ------------------------
(1) Each parenthetical notes the area of operations for each operational Joint
Venture or the area for which each pre-operational Joint Venture is
licensed.
16
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ITEM 1. BUSINESS (CONTINUED)
(2) Results of operations are consolidated with the Company's financial
statements.
(3) The Communications Group owns its trunked mobile radio ventures through
Protocall, in which it has a 56% ownership interest. Through Protocall, the
Communications Group owns interests in (i) Belgium Trunking (24%), which
provides services in Brussels and Flanders, Belgium, (ii) Radiomovel
Telecommunicacoes (36%), which provides services in Portugal, (iii)
Teletrunk Spain (17-48% depending on the joint venture), which provides
services through 4 Joint Ventures in Madrid, Valencia, Aragon and Catalonia,
Spain and (iv) Spectrum (31%), which operates in Almaty and Aryran,
Kazakstan. A portion of the Communications Group's interest in Spectrum is
held directly. The above amounts include $36,050 contributed to Spectrum
directly by the Company. In March 1998, the Communications Group increased
its ownership of Belgium Trunking to 50%.
(4) Pre-operational systems as of December 31, 1997. In January 1998, Teleplus
began to provide cable television services in St. Petersburg, Russia.
(5) Eldoradio includes two radio stations operating in St. Petersburg, Russia
and AS Trio LSL includes four operating in various cities throughout
Estonia. In December 1997, the Communications Group entered into a
definitive agreement to purchase an additional 25% of Eldoradio, increasing
its ownership percentage to 75%.
(6) Ningbo Ya Mei Communications is participating in the build-out of an
operational GSM system in Ningbo City, China, and providing financing,
technical assistance and consulting services to the systems operator.
(7) Sichuan Tai Li Feng Telecommunications, Co. and Chongqing Tai Le Feng
Telecommunication, Co. are pre-operational Joint Ventures that are
participating in the construction and development of a local telephone
network in the Sichuan Province and the City of Chongqing, China.
(8) The total investment does not include any incurred losses.
(9) Kazpage is comprised of a service entity and 10 paging Joint Ventures that
provide services in Kazakstan. The Company's interest in the Joint Ventures
ranges from 26% to 41% and its interest in the service entity is 51%.
Amounts described as loaned in the above table represent loans to the
service entity which in turn funds the Joint Ventures.
(10) The investment in these Joint Ventures were made in the quarter ended
December 31, 1997. The Joint Ventures' results of operations will be
consolidated with the Company's financial statements in the quarter ended
March 31, 1998.
(11) In March 1998, the Communications Group increased its ownership of Romsat
to 100%.
(12) In March 1998, Spectrum and its shareholders, including the Communications
Group, entered into a subscription agreement with the European Bank for
Reconstruction and Development ("EBRD") and the Fund New Europe ("FNE")
pursuant to which the EBRD will purchase 30% and FNE 3% of the shares of
Spectrum in return for making equity contributions to Spectrum of $181,800
and $18,200, respectively. In connection with such investment, the EBRD has
agreed to make a loan of up to $2,000,000 to Spectrum. The closing of the
share purchase and loan are subject to the satisfaction of the conditions
precident set forth in the subscription agreement.
Generally, the Communications Group owns 50% or more 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 China, the Communications Group's Joint Ventures
enter into a network system cooperation contract where the Joint Ventures are
responsible for financing, providing technical advice on the construction and
management consulting services on the operation of the relevant networks. In
some cases, the Communications Group
17
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
owns or acquires interests in entities (including competitors) that are already
licensed and are providing service. Joint Ventures' 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 its board of directors, or in certain cases,
by its shareholders. In most cases, an equal number of directors or managers of
the Joint Venture are selected by the Communications Group and its local
partner. In other cases, a different number of directors or managers of the
Joint Venture may be selected by the Communications Group on the basis of its
percentage ownership interest.
In many cases, the credit agreement pursuant to which the Company loans funds to
a Joint Venture provides the Company with the right to appoint the general
manager of the Joint Venture and to approve unilaterally the annual business
plan of the Joint Venture. These rights continue so long as amounts are
outstanding under the credit agreement. In other cases, such rights may also
exist by reason of the Company's percentage ownership interest in the Joint
Venture or under the terms of the Joint Venture's governing instruments.
The Communications Group's Joint Ventures in Eastern Europe and the FSU are
limited liability entities which are generally permitted to enter into
contracts, acquire property and assume and undertake obligations in their own
names. Because these Joint Ventures are limited liability companies, the Joint
Ventures' equity holders have limited liability to the extent of their
investment. Under the Joint Venture agreements, each of the Communications Group
and the local Joint Venture partner is obligated to make initial capital
contributions to the Joint Venture. In general, a local Joint Venture partner
does not have the resources to make cash contributions to the Joint Venture. In
such cases, the Company has established or plans to establish an agreement with
the Joint Venture whereby, in addition to cash contributions by the Company,
both the Company and the local partner make in-kind contributions (usually
communications equipment in the case of the Company and frequencies, space on
transmitting towers and office space in the case of the local partner), and the
Joint Venture partner signs a credit agreement with the Company pursuant to
which the Company loans the Joint Venture certain funds. Typically, such credit
agreements provide for interest payments to the Company at rates ranging
generally from prime to prime plus 6% and for payment of principal and interest
from 90% of the Joint Venture's available cash flow. Prior to repayment of its
credit agreement, the Joint Ventures are significantly limited or prohibited
from distributing profits to its shareholders. As of December 31, 1997, the
Company had obligations to fund (i) an additional $149,000 to the equity of its
Joint Ventures in Eastern Europe and the FSU (or to complete the payment of
shares purchased by the Company) and (ii) up to an additional $19.0 million with
respect to the various credit lines the Company has extended to its Joint
Ventures in Eastern Europe and the FSU. The Company's funding commitments under
such credit lines are contingent upon its approval of the Joint Ventures'
business plans. To the extent that the Company does not approve a Joint
Venture's business plan, the Company is not required to provide funds to such
Joint Venture under the credit line. The distributions (including profits) from
the Joint Venture to the Company and the local partner are made on a pro rata
basis in accordance with their respective ownership interests.
In addition to loaning funds to the Joint Ventures, the Communications Group
often provides certain services to many of the Joint Ventures for a fee. The
Communications Group often does not require start-up Joint Ventures to reimburse
it for certain services that it provides such as engineering advice, assistance
in locating programming, and assistance in ordering equipment. As each Joint
Venture grows, the Communications Group institutes various payment mechanisms to
have the Joint Venture reimburse it for services where they are provided. The
failure of the Communications Group to obtain reimbursement of such services
will not have a material impact on the Company's results of operations.
Under existing legislation in certain of the Communications Group's markets,
distributions from a Joint Venture to its partners is subject to taxation. The
laws in the Communications Group's markets vary
18
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
markedly with respect to the tax treatment of distributions to Joint Venture
partners and such laws have also recently been revised significantly in many of
the Communications Group's markets. There can be no assurance that such laws
will not continue to undergo major changes in the future which could have a
significant negative impact on the Company and its operations.
SNAPPER
GENERAL. Snapper manufactures Snapper-Registered Trademark- brand power lawn
and garden equipment for sale to both residential and commercial customers. The
residential equipment includes self-propelled and push-type walk behind
lawnmowers, rear engine riding lawnmowers, garden tractors, zero turn radius
lawn equipment, garden tillers, snow throwers and related parts and accessories.
The commercial mowing equipment and mid-mount commercial equipment includes
commercial quality self-propelled walk-behind lawnmowers and wide area and
front-mount zero turn radius lawn equipment.
Snapper products are premium-priced, generally selling at retail from $300 to
$10,500. Snapper sells and supports directly a 5,000-dealer network for the
distribution of its products. Snapper also sells its products through foreign
distributors and offers a limited selection of residential walk-behind
lawnmowers and rear-engine riding lawnmowers through approximately 250 Home
Depot locations.
A large percentage of the residential sales of lawn and garden equipment are
made during a 17-week period from early spring to mid-summer. Although some
sales are made to the dealers and distributors prior to this period, the largest
volume of sales is made during this time. The majority of revenues during the
late fall and winter periods are related to snow thrower shipments. Snapper has
an agreement with a financial institution which makes floor-plan financing for
Snapper products available to dealers. This agreement provides financing for
dealer inventories and accelerates cash flow to Snapper. Under the terms of this
agreement, a default in payment by one of the dealers on the program is
non-recourse to Snapper. If there is a default by a dealer Snapper is obligated
to repurchase any equipment recovered from the dealership that is new and
unused. At December 31, 1997 there was approximately $65.7 million outstanding
under this floor-plan financing arrangement. The Company has guaranteed
Snapper's payment obligations under this arrangement.
Snapper also makes available, through General Electric Credit Corporation, a
retail customer revolving credit plan. This credit plan allows consumers to pay
for Snapper products over time. Consumers also receive Snapper credit cards
which can be used to purchase additional Snapper products.
Snapper manufactures its products in McDonough, Georgia at facilities totaling
approximately 1.0 million square feet. Excluding engines and tires, Snapper
manufactures a substantial portion of the component parts to its products. Most
of the parts and material for Snapper's products are commercially available from
a number of sources.
During the three years ended December 31, 1997, Snapper spent an average of $4.4
million per year for research and development. Although it holds several design
and mechanical patents, Snapper is not dependent upon such patents, nor does it
believe that patents play an important role in its business. Snapper does
believe, however, that the registered trademark "Snapper-Registered Trademark-"
is an important asset in its business. Snapper walk-behind mowers are subject to
Consumer Product Safety Commission safety standards and are designed and
manufactured in accordance therewith.
The lawn and garden industry is highly competitive with the competition based
upon price, image, quality, and service. Although no one company dominates the
market, the Company believes that Snapper is a significant manufacturer of lawn
and garden products. A large number of companies manufacture and distribute
products that compete with Snapper's, including The Toro Company, Lawn-Boy (a
product of
19
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
The Toro Company), Sears, Roebuck and Co., Deere and Company, Ariens Company,
Honda Corporation, Murray Ohio Manufacturing, American Yard Products, Inc., MTD
Products, Inc. and Simplicity Manufacturing, Inc.
INVESTMENT IN RDM
In December 1994, the Company acquired 19,169,000 shares of RDM common stock,
representing approximately 39% of the outstanding shares of RDM common stock as
of the date thereof, in exchange for all of the issued and outstanding capital
stock of four of its wholly owned subsidiaries (the "Exchange Transaction"). At
the time of the Exchange Transaction, RDM, a New York Stock Exchange ("NYSE")
listed company, through its operating subsidiaries, was a leading manufacturer
of fitness equipment and toy products in the United States.
In connection with the Exchange Transaction, the Company, RDM and certain
officers of RDM entered into a shareholders agreement, pursuant to which, among
other things, the Company obtained the right to designate four individuals to
serve on RDM's Board of Directors, subject to certain reductions.
In June 1997, RDM entered into a $100.0 million revolving credit facility (the
"RDM Credit Facility") with a syndicate of lenders led by Foothill Capital
Corporation (the "Lender") and used a portion of the proceeds of such facility
to refinance its existing credit facility. In order to induce the Lender to
extend the entire amount of the RDM Credit Facility, Metromedia Company
("Metromedia"), a company controlled by John Kluge, the Chairman of the Board of
Directors of the Company and Stuart Subotnick, the Chief Executive Officer of
the Company provided the Lender with a $15.0 million letter of credit (the
"Metromedia Letter of Credit") that could be drawn by the Lender (i) upon five
days notice, if RDM defaulted in any payment of principal or interest or
breached any other convenant or agreement in the RDM Credit Facility and as a
result of such other default the lenders accelerated the amounts outstanding
under the RDM Credit Facility, subject, in each such case, to customary grace
periods, or (ii) immediately, upon the bankruptcy or insolvency of RDM. In
consideration for the Metromedia Letter of Credit, RDM issued to Metromedia
10-year warrants to acquire 3,000,000 shares of RDM common stock, exercisable
after 90 days from the date of issuance at an exercise price of $.50 per share
(the "RDM Warrants"). In accordance with the terms of the agreement entered into
in connection with the RDM Credit Facility, Metromedia offered the Company the
opportunity to substitute its Letter of Credit for the Metromedia Letter of
Credit and to receive the RDM Warrants. On July 10, 1997, the Company's Board of
Directors elected to substitute its Letter of Credit ("Letter of Credit") for
the Metromedia Letter of Credit and the RDM Warrants were assigned to the
Company.
On August 22, 1997, RDM announced that it had failed to make the August 15, 1997
interest payment due on its subordinated debentures and that it had no present
ability to make such payment. As a result, on August 22, 1997, the Lender
declared an Event of Default (as defined under the RDM Credit Facility) and
accelerated all amounts outstanding under such facility. On August 29, 1997, RDM
and certain of its affiliates each subsequently filed voluntary petitions for
relief under chapter 11 of the Bankruptcy Code. Since the commencement of their
respective chapter 11 cases, RDM and its affiliates have proceeded with the
liquidation of their assets and properties and have discontinued ongoing
business operations. As of August 22, 1997, the closing price per share of RDM
common stock was $.50 and the quoted market value of the Company's investment in
RDM was approximately $9.6 million. As a result RDM's financial difficulties and
uncertainties, the NYSE halted trading in the shares of RDM common stock and the
Company believes that it will not receive any compensation for its equity
interest.
After the commencement of the chapter 11 cases, the Lender drew the entire
amount of the Letter of Credit. Consequently, the Company will become subrogated
to the Lender's secured claims against the Company in an amount equal to the
drawing under the Letter of Credit, following payment in full of the
20
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
Lender. The Company intends to vigorously pursue its subrogation claims in the
chapter 11 cases. However, it is uncertain whether the Company will succeed in
any such subrogation claims or that RDM's remaining assets will be sufficient to
pay any such subrogations claims.
On February 18, 1998, the Office of the United States Trustee filed a motion to
appoint a chapter 11 trustee in the United States Bankruptcy Court for the
Northern Division of Georgia. RDM and its affiliates subsequently filed a motion
to convert the chapter 11 cases to cases under chapter 7 of the Bankruptcy Code.
On February 19, 1998, the bankruptcy court granted the United States Trustee's
motion and ordered that a chapter 11 trustee be appointed. The bankruptcy court
also ordered that the chapter 11 cases not convert to cases under chapter 7 of
the Bankruptcy Code. On February 25, 1998, each of the Company's designees on
RDM's Board of Directors submitted a letter of resignation.
THE ENTERTAINMENT GROUP SALE
On July 10, 1997, the Company consummated the sale (the "Entertainment Group
Sale") of substantially all of the assets of its Entertainment Group, consisting
of Orion Pictures Corporation ("Orion"), Samuel Goldwyn Company ("Goldwyn") and
Motion Picture Corporation of America ("MPCA") (and their respective
subsidiaries), including its feature film and television library of over 2,200
titles, to P&F Acquisition Corp., the parent company of Metro-Goldwyn-Mayer, for
a gross consideration of $573.0 million. The Company had operated the
Entertainment Group since the November 1 Merger. The Company used $296.4 million
of the proceeds from the Entertainment Group Sale to repay all amounts
outstanding under the Entertainment Group's credit facilities and certain other
indebtedness of the Entertainment Group and $140.0 million of such proceeds to
repay all of its outstanding debentures.
LANDMARK SALE
On December 17, 1997, the Company entered into an agreement (the "Landmark
Agreement") with Silver Cinemas, Inc. ("Silver Cinemas"), pursuant to which the
Company sold to Silver Cinemas (the "Landmark Sale") all of the assets, except
cash and certain of the liabilities of Landmark, for an aggregate cash purchase
price of approximately $62.5 million. The Company anticipates that the Landmark
Sale will be consummated in April 1998.
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 affected materially nor is it expected to affect materially 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 1997 and are not
expected to be material in future years.
The Company has agreed to indemnify a former subsidiary of the Company for
certain obligations, liabilities and costs incurred by the subsidiary arising
out of environmental conditions existing on or prior to the date on which the
subsidiary was sold by the Company 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 year ended December 31, 1997. As of December 31, 1997, the Company
had a remaining reserve of approximately $1.1 million to cover its obligations
to its former subsidiary. During 1996, the Company was notified by certain
potentially responsible parties at a superfund site in Michigan that the former
subsidiary may also be a potentially responsible party at the superfund site.
The former subsidiary's liability, if any, has not been determined, but the
Company believes that such liability will not be material.
21
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
The Company, through a wholly owned subsidiary, owns approximately 17 acres of
real property located in Opelika, Alabama (the "Opelika Property"). The Opelika
Property was formerly owned by Diversified Products Corporation ("DP"), a former
subsidiary of the Company that 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. The Opelika Property was transferred to the Company's wholly
owned subsidiary in connection with the sale of the Company's former sporting
goods subsidiary. In connection with such sale, the Company entered into an
environmental indemnity agreement (the "Environmental Indemnity Agreement")
under which the Company is obligated for costs and liabilities resulting from
the presence on or migration of regulated materials from the Opelika Property.
The Company's obligations under the Environmental Indemnity Agreement with
respect to the Opelika Property are not limited. The Environmental 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")
advised the Company 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. In 1997, the Company received the consulting firm's report. The
Company has conducted a grading and capping in accordance with the remediation
plan and has reported to ADEM that the work was completed and the Company will
undertake to monitor the property on a quarterly basis. The Company believes
that its reserves of approximately $1.6 million will be adequate to cover all
further costs of remediation.
EMPLOYEES
As of March 9, 1998, the Company through its subsidiaries had approximately
1,300 regular employees. Of which, approximately 700 employees were represented
by unions under collective bargaining agreements. In general, the Company
believes that its employee relations are good.
SEGMENT AND GEOGRAPHIC DATA
Business segment data and information regarding the Company's foreign revenues
by country area are included in notes 2, 3 and 14 to the Notes to Consolidated
Financial Statements included in Item 8 hereof.
22
<PAGE>
ITEM 2. PROPERTIES
The following table contains a list of the Company's principal properties:
<TABLE>
<CAPTION>
NUMBER OF
------------------------
<S> <C> <C> <C>
DESCRIPTION OWNED LEASED LOCATION
- -------------------------------------------------------------- ----------- ----------- --------------------------------
THE COMMUNICATIONS GROUP:
Office space -- 1 Stamford, Connecticut
Office space -- 1 Moscow, Russia
Office space -- 1 Vienna, Austria
Office space -- 2 New York, New York
Office space -- 1 Beijing, People's Republic of
China
GENERAL CORPORATE:
Office space -- 1 East Rutherford, New Jersey
SNAPPER:
Manufacturing plant 1 -- McDonough, Georgia
Distribution facility -- 2 McDonough, Georgia
Distribution facility -- 1 Dallas, Texas
Distribution facility -- 1 Greenville, Ohio
Distribution facility -- 1 Reno, Nevada
</TABLE>
The Company's management believes that the facilities listed above are generally
adequate and satisfactory for their present usage and are generally well
utilized.
23
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
FUQUA INDUSTRIES, INC. SHAREHOLDER LITIGATION
In re Fuqua Industries, Inc. Shareholder Litigation, Del. Ch., Consolidated C.A.
No. 11974. Plaintiff Virginia Abrams filed this purported class and derivative
action in the Delaware Court of Chancery (the "Court") on February 22, 1991
against Fuqua Industries, Inc. ("Fuqua"), Intermark, Inc. ("Intermark"), the
then-current directors of Fuqua and certain past members of the board of
directors. The action challenged certain transactions which were alleged to be
part of a plan to change control of the board of Fuqua from J.B. Fuqua to
Intermark and sought a judgment against defendants in the amount of $15.7
million, other unspecified money damages, an accounting, declaratory relief and
an injunction prohibiting any business combination between Fuqua and Intermark
in the absence of approval by a majority of Fuqua's disinterested shareholders.
Subsequently, two similar actions, styled Behrens v. Fuqua Industries, Inc. et
al.. Del. Ch., C.A. No. 11988 and Freberg v. Fuqua Industries, Inc. et al. Del.
Ch., C.A. No. 11989 were filed with the Court. On May 1, 1991, the Court ordered
all of the foregoing actions consolidated. On October 7, 1991, all defendants
moved to dismiss the complaint. Plaintiffs thereafter took three depositions
during the next three years.
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. After the motion was briefed, oral argument was held
on November 6, 1996. On May 13, 1997, the Court issued a decision on defendants'
motion to dismiss, The Court dismissed all of plaintiffs' class claims and
dismissed all of plaintiffs' derivative claims except for the claims that Fuqua
board members (i) entered into an agreement pursuant to which Triton Group, Inc.
(which was subsequently merged into Intermark, "Triton") was exempted from 8
Del. C. 203 and (ii) undertook a program pursuant to which 4.9 million shares of
Fuqua common stock were repurchased, allegedly both in furtherance of an
entrenchment plan. On January 16, 1998, the Court entered an order implementing
the May 13, 1997 decision. The order also dismissed one of the defendants from
the case with prejudice and dismissed three other defendants without waiver of
any rights plaintiffs might have to reassert the claims if the opinion were to
be vacated or reversed on appeal.
On February 5, 1998, the plaintiffs filed a consolidated third amended
derivative complaint and named as defendants Messrs. J.B. Fuqua, Klamon,
Sanders, Scott, Warner and Zellars. The Complaint alleged that defendants (i)
entered into an agreement pursuant to which Triton was exempted from 8 Del. C.
203 and (2) undertook a program pursuant to which 4.9 million shares of Fuqua
common stock were repurchased, both allegedly in furtherance of an entrenchment
plan. For their relief, plaintiffs seek damages and an accounting of profits
improperly obtained by defendants.
On March 9, 1998, defendants Klamon, Sanders, Zellars, Scott and Warner filed
their answers denying each of the substantive allegations of wrongdoing
contained in the third amended complaint. The Company filed its answer the same
day, submitting itself to the jurisdiction of the Court for a proper resolution
of the claims purported to be set forth by the plaintiffs. On March 10, 1998,
defendant J.B. Fuqua filed his answer denying each of the substantive
allegations of wrongdoing contained in the third amended complaint.
MICHAEL SHORES V. SAMUEL GOLDWYN COMPANY, ET AL.
On May 20, 1996, SHORES V. SAMUEL GOLDWYN COMPANY, ET AL., Case No. BC 150360,
was filed in the Superior Court of the State of California as a purported class
action lawsuit. Plaintiff Michael Shores alleged that, in connection with the
Goldwyn Merger, Goldwyn's directors and majority shareholder breached their
fiduciary duties to the public shareholders of Goldwyn. Plaintiff subsequently
added, in an amended
24
<PAGE>
ITEM 3. LEGAL PROCEEDINGS (CONTINUED)
complaint, an allegation that the Company aided and abetted the other
defendants' fiduciary breaches. The Company successfully demurred to the amended
complaint on the ground that it did not state a cause of action against the
Company, and plaintiff was given an opportunity to replead. Plaintiff filed a
second amended complaint and alleged, in addition to his other claims, that the
Company negligently misrepresented and/or omitted material facts in the
Company's prospectus issued for the Goldwyn Merger. The Company again
successfully demurred to the second amended complaint, and the court refused to
allow the plaintiff another opportunity to replead the aiding and abetting claim
against the Company, but the plaintiff may replead the negligent
misrepresentation claim. The plaintiff has repleaded the third amended complaint
alleging only the negligent misrepresentation claim. The Company believes it has
meritorious defenses and is vigorously defending such action.
SAMUEL GOLDWYN, JR. V. METRO-GOLDWYN-MAYER INC., ET AL.
On October 29, 1997, Samuel Goldwyn, Jr., the former chairman of Goldwyn, filed
SAMUEL GOLDWYN, JR. V. METRO-GOLDWYN-MAYER INC., ET AL., Case No. BC 180290, in
Superior Court of the State of California, alleging that the Company
fraudulently induced him and the Samuel Goldwyn, Jr. Family Trust (the "Trust")
to enter into various agreements in connection with the Goldwyn Merger; breached
an agreement to guarantee the performance of Goldwyn Entertainment Company's
obligations to the Trust; and is using, without permission, the "Samuel Goldwyn"
trademark. The complaint also alleges that the Company and other defendants
breached Mr. Goldwyn's employment agreement and fiduciary duties owed to him and
the Trust, both before and after the sale of Goldwyn Entertainment Company to
Metro-Goldwyn-Mayer Inc. The Company had demurred on the plaintiff's complaint.
The Company believes it has meritorious defenses and is vigorously defending
such action.
SYDNEY H. SAPOWITZ AND SID SAPSOWITZ & ASSOCIATES, INC. V. JOHN W. KLUGE, STUART
SUBOTNICK, METROMEDIA INTERNATIONAL GROUP, ET AL.
On June 30, 1997, the plaintiffs in SYDNEY H. SAPSOWITZ AND SID SAPSOWITZ &
ASSOCIATES, INC. V. JOHN W. KLUGE, STUART SUBOTNICK, METROMEDIA INTERNATIONAL
GROUP, INC., ORION PICTURES CORPORATION, LEONARD WHITE, ET AL. filed a lawsuit
in Superior Court of the State of California alleging $28.7 million in damages
from the breach of an agreement to pay a finder's fee in connection with the
Entertainment Group Sale. The Company believes it has meritorious defenses and
is vigorously defending such action.
ANTHONY NICHOLAS GEORGIOU, ET AL. V. MOBIL EXPLORATION AND PRODUCING SERVICES,
INC., METROMEDIA INTERNATIONAL TELECOMMUNICATIONS, INC., ET AL.
On January 14, 1998, Anthony Nicholas Georgiou, et al. v. Mobil Exploration and
Producing Services, Inc., Metromedia International Telecommunications, Inc., et
al., Civil Action No. H-98-0098, was filed in the United States District Court
for the Southern District of Texas. Plaintiffs claim that MITI conspired against
and tortiously interfered with plaintiffs' potential contracts involving certain
oil exploration and production contracts in Siberia and telecommunications
contracts in the Russian Federation. Plaintiffs are claiming damages, for which
all defendants could be held jointly and severally liable, of an amount in
excess of $395.0 million. On or about February 27, 1998 MITI filed its answer
denying each of the substantive allegations of wrongdoing contained in the
complaint. The Company believes that it has meritorious defenses and is
vigorously defending this action.
INDEMNIFICATION AGREEMENTS
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
25
<PAGE>
ITEM 3. LEGAL PROCEEDINGS (CONTINUED)
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders, through the
solicitation of proxies or otherwise, during the fourth quarter of the year
ended December 31, 1997.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company and certain executive officers of the
Communications Group and their respective ages and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
John W. Kluge................... 83 Chairman
Stuart Subotnick................ 56 Vice Chairman, President and Chief Executive Officer
Silvia Kessel................... 47 Executive Vice President, Chief Financial Officer and Treasurer
Arnold L. Wadler................ 54 Executive Vice President, General Counsel and Secretary
Robert A. Maresca............... 63 Senior Vice President
Vincent D. Sasso, Jr............ 39 Vice President
METROMEDIA INTERNATIONAL TELECOMMUNICATIONS
INC.:
Carl C. Brazell................. 56 Co-President
Richard J. Sherwin.............. 55 Co-President
William Manning................. 41 Senior Vice President and Chief Financial Officer
METROMEDIA CHINA
CORPORATION ("MCC"):
Max E. Bobbitt.................. 52 President and Chief Executive Officer
Mark Hauf....................... 49 Executive Vice President and Chief Operating Officer
G. Mont Williams................ 53 Senior Vice President and Chief Technical Officer
SNAPPER, INC.:
Robin G. Chamberlain............ 38 President and Chief Executive Officer
J. Roddy Wells.................. 38 Senior Vice President and Chief Financial Officer
</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 the Company since
the consummation of the November 1 Merger and served as Chairman of the Board of
Orion from 1992 until the Entertainment Group Sale. In addition, Mr. Kluge has
served as Chairman and President of Metromedia and its predecessor-in-interest,
Metromedia, Inc. for over six years. Mr. Kluge is also a director of Metromedia
Fiber Network, Inc., Occidental Petroleum Corporation and Conair Corporation.
Mr. Kluge is Chairman of the Company's Executive Committee and is a member of
the Nominating Committee.
Mr. Subotnick has served as Vice Chairman of the Board of Directors since the
consummation of the November 1 Merger and as President and Chief Executive
Officer of the Company since December, 1996.
26
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED)
In addition, Mr. Subotnick served as Vice Chairman of the Board of Orion from
November, 1992 until the Entertainment Group Sale. Mr. Subotnick has served as
Executive Vice President of Metromedia Company and its predecessor-in-interest,
Metromedia, Inc., for over six years. Mr. Subotnick is also Chairman of the
Board of Directors of Big City Radio, Inc., and also is a director of Metromedia
Fiber Network, Inc., Carnival Cruise Lines, Inc., and, was a director of RDM
from February 28, 1997 to February 25, 1998. Mr. Subotnick is a member of the
Executive Committee of the Company.
Ms. Kessel has served as Executive Vice President, Chief Financial Officer and
Treasurer since August 29, 1996 and, from November 1, 1995 until that date, as
Senior Vice President, Chief Financial Officer and Treasurer of the Company. In
addition, Ms. Kessel served as Executive Vice President of Orion from January,
1993 until the Entertainment Group Sale, 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 Orion from
June 1991 to November 1992 and Managing Director of Kluge & Company (and its
predecessor) from April 1990 to January 1994. Ms. Kessel is also a director of
Metromedia Fiber Network, Inc. and Big City Radio, Inc. and was a director of
RDM from February 28, 1997 to February 25, 1998. Ms. Kessel is a member of the
Nominating Committee of the Company.
Mr. Wadler has served as Executive Vice President, General Counsel and Secretary
since August 29, 1996 and, from November 1, 1995 until that date, as Senior Vice
President, General Counsel and Secretary of the Company. In addition, Mr. Wadler
served as a Director of Orion from 1991 until the Entertainment Group Sale and
as Senior Vice President, Secretary and General Counsel of Metromedia for over
six years. Mr. Wadler is also a director of Metromedia Fiber Network, Inc. and
Big City Radio, Inc. Mr. Wadler is Chairman of the Nominating Committee of the
Company.
Mr. Maresca has served as a Senior Vice President of the Company since November
1, 1995 and has served as a Senior Vice President-Finance of Metromedia for over
six years.
Mr. Sasso has served as the Company's Vice President of Financial Reporting
since July 1996. Prior to that time, Mr. Sasso served in a number of positions
at KPMG Peat Marwick LLP from November 1984 to July 1996, including partner from
July 1994 to June 1996.
Mr. Brazell has served as Co-President and Director of MITI and a predecessor
company since 1993. Prior to that time, 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 was a founder of
the predecessor company, International, Telcell, Inc., since October 1990. Prior
to that time, Mr. Sherwin served as the Chief Operating Officer of Graphic
Scanning Corp., a leading operator of cellular telephone, radio paging and
wireless cable television in the United States. Prior to his role at Graphic
Scanning Corp., he served in a number of marketing and sales positions with IBM.
Mr. Sherwin has served as Chairman of the Board and a director of the Personal
Communications Industry Association.
Mr. Manning has served as Senior Vice President and Chief Financial Officer of
MITI since 1992. Prior to joining MITI, Mr. Manning was Vice President and Chief
Financial Officer of the Sillerman Companies, a group of companies primarily
focused on the radio broadcasting industry. He has also held a variety of
management positions in companies such as CBS, Inc. and Control Data
Corporation.
Mr. Bobbitt has served as President and Chief Executive Officer of AAT since
January 1996 and of MCC since March 1, 1997. In January 1995, Mr. Bobbitt
retired from ALLTEL Corporation, a leading telecommunications and information
services company. During his twenty-four career with ALLTEL
27
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED)
Corporation, Mr. Bobbitt served as a director and held various positions
including President and Chief Operating Officer, Executive Vice President and
Chief Financial Officer. He currently serves as a director of WorldCom, Inc., an
international telecommunications and information services company.
Mr. Hauf joined MCC in September 1996 as Senior Vice President and Chief
Information Officer. He became Executive Vice President and Chief Operating
Officer in July 1997. He was Vice President and Chief Information Officer for
Universal Oil Products from March 1995 to September 1996. He was a founding
partner and Chief Information Officer of Multimedia Sales Agent, Inc. from
September 1993 to March 1995. He held several positions with Wisconsin Bell from
1968 to 1988 and joined Ameritech from 1988 to 1993 and served as Vice
President-Information Technology Services.
Mr. Williams joined MCC in August 1996 as Senior Vice President and Chief
Technology Officer. He was self employed as a Senior Telecommunications
Consultant from 1992 to August 1996. He served as Vice President of Business
Development and other positions for Ameritech from 1988 to 1992. He served as
Vice President of Business Development and other positions with Sprint from 1982
to 1988.
Ms. Chamberlain joined Snapper in 1989. Ms. Chamberlain has served as President
and Chief Executive Officer of the Company since December 1996, prior to that
Ms. Chamberlain was Vice President and Chief Financial Officer of Snapper and
has also served as Vice President and Treasurer, Controller and Assistant
Controller of Snapper.
Mr. Wells joined Snapper in 1995. Mr. Wells has served as Vice President and
Chief Financial Officer of the Company since 1997 and prior to that served as
Controller. Mr. Wells served in a number of positions including Senior
Accounting and Financial Systems Manager of Southeast Paper Manufacturing
Company from 1987 to 1995.
28
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
Since November 2, 1995, the Common Stock has been listed and traded on the
American Stock Exchange and the Pacific Stock Exchange (the "AMEX" and "PSE",
respectively) 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 as reported by the AMEX.
<TABLE>
<CAPTION>
MARKET PRICE OF COMMON STOCK
----------------------------------------
1997 1996
------------------ ------------------
QUARTERS ENDED HIGH LOW HIGH LOW
- ----------------------------------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
March 31......................................................... $11 7/8 $ 9 3/16 $14 1/4 $11 1/2
June 30.......................................................... 13 1/16 7 7/16 16 5/8 12 1/4
September 30..................................................... 12 7/8 10 7/8 12 1/2 9 1/2
December 31...................................................... 14 1/4 8 3/4 12 1/8 8 7/8
</TABLE>
Holders of Common Stock are entitled to such dividends as may be declared by the
Company's Board of Directors and paid out of funds legally available for the
payment of dividends. The Company 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 on the Common Stock in the foreseeable future. The Company
intends to retain earnings to finance the development and expansion of its
businesses. The decision of the Board of Directors as to whether or not to pay
cash dividends in the future will depend upon a number of factors, including the
Company's future earnings, capital requirements, financial condition and the
existence or absence of any contractual limitations on the payment of dividends.
The Company's ability to pay dividends is limited because the Company operates
as a holding company, conducting its operations solely through its subsidiaries.
Certain of the Company's subsidiaries' existing credit arrangements contain, and
it is expected that their future arrangements will similarly contain,
substantial restrictions on dividend payments to the Company by such
subsidiaries. See Item 7-- "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
As of March 24, 1998, there were approximately 7,403 record holders of Common
Stock. The last reported sales price for the Common Stock on such date was
$14 7/16 per share as reported by the AMEX.
29
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY
YEARS ENDED DECEMBER 31, 28,
------------------------------------- -----------------------
<S> <C> <C> <C> <C> <C>
1997 1996(1) 1995(2) 1995 1994
----------- ----------- ----------- ---------- -----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues (3)........................................ $ 204,328 $ 36,592 $ 5,158 $ 3,545 $ 51
Equity in losses of Joint Ventures.................. (13,221) (11,079) (7,981) (2,257) (777)
Loss from continuing operations (3) (4)............. (130,901) (72,146) (36,265) (19,141) (7,334)
Income (loss) from discontinued operations (3)...... 234,036 (38,592) (344,329) (50,270) (125,196)
Loss from extraordinary items (5)................... (14,692) (4,505) (32,382) -- --
Net income (loss)................................... $ 88,443 $ (115,243) $ (412,976) $ (69,411) $ (132,530)
Income (loss) per common share--Basic (6):
Continuing operations............................. $ (2.02) $ (1.33) $ (1.48) $ (0.95) $ (0.43)
Discontinued operations........................... 3.50 (0.71) (14.03) (2.48) (7.28)
Extraordinary items............................... (0.22) (0.08) (1.32) -- --
Net income (loss)................................. $ 1.26 $ (2.12) $ (16.83) $ (3.43) $ (7.71)
Ratio of earnings to fixed charges (7).............. n/a n/a n/a n/a n/a
Weighted average common shares outstanding.......... 66,961 54,293 24,541 20,246 17,188
Dividends per common share.......................... -- -- -- -- --
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets (8).................................... $ 789,272 $ 513,118 $ 328,600 $ 40,282 $ 54,440
Notes and subordinated debt......................... 79,416 190,754 171,004 24,948 9,999
</TABLE>
- ------------------------
(1) The consolidated financial statements for the year ended December 31, 1996
include two months (November and December 1996) of the results of operations
of Snapper.
(2) The consolidated financial statements for the year ended December 31, 1995
include operations for Actava and Sterling from November 1, 1995 and two
months for Orion (January and February 1995) that were included in the
February 28, 1995 consolidated financial statements. The net loss for the
two month duplicate period was $11.4 million.
(3) On July 10, 1997, the Company completed the Entertainment Group Sale and
anticipates completing the Landmark Sale in April 1998. These transactions
have been treated as discontinuances of business segments and, accordingly,
the Company's consolidated financial statements reflect the results of
operations of the Entertainment Group and Landmark as discontinued segments.
(4) Included in the year ended December 31, 1997 are equity in losses and
writedown of investment in RDM of $45.1 million.
(5) For each of the years ended December 31, 1997, 1996 and 1995, the
extraordinary items reflect the loss on the repayment of debt in each
period.
(6) The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" and has restated all prior period earnings per share as
required.
(7) For purposes of this computation, earnings are defined as pre-tax earnings
or loss from continuing operations of the Company plus (i) its
majority-owned subsidiaries, whether or not consolidated, (ii) its
proportionate share of any fifty-percent-owned Joint Ventures, and (iii) any
income received from less-than-fifty-percent-owned Joint Ventures. Fixed
charges are the sum of (i) interest costs, (ii) amortization of deferred
financing costs, premium and debt discounts, (iii) the portion of operating
lease rental expense that is representative of the interest factor (deemed
to be one-third) and (iv) dividends on preferred stock. The ratio of
earnings to fixed charges of the Company was less
30
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
than 1.00 for each of the years ended December 31, 1997, 1996 and 1995 and
for the years ended February 28, 1995 and 1994; thus, earnings available for
fixed charges were inadequate to cover fixed charges for such periods. The
deficiencies in earnings to fixed charges for the years ended December 31,
1997, 1996 and 1995 and for the years ended February 28, 1995 and 1994 were
$142.5 million, $66.5 million, $33.0 million, $18.4 million and $7.3
million, respectively.
(8) Total assets include the net assets of the Entertainment Group and Landmark.
The net assets (liabilities) of the Entertainment Group at December 31, 1996
and 1995 and February 28, 1995 and 1994 were $11.0 million, $12.1 million,
($8.5 million) and $41.8 million, respectively. The revenues of the
Entertainment Group for the years ended December 31, 1996 and 1995 and
February 28, 1995 and 1994 were $135.6 million, $133.8 million, $191.2
million and $175.7 million, respectively. At December 31, 1997 and 1996, the
net assets of Landmark, which was acquired on July 2, 1996, were $46.8
million and $46.5 million, respectively. The revenues of Landmark for the
period July 2, 1996 to December 31, 1996 were $29.6 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes thereto and the "Business"
section included as Item 1 herein.
GENERAL
On July 10, 1997 the Company completed the Entertainment Group Sale, and
anticipates completing the sale of Landmark Theatre Group, Inc. ("Landmark") in
April 1998 (see Notes 5 and 6 of the Notes to Consolidated Financial
Statements). Both transactions have been recorded as a sale of a business
segment and, accordingly the consolidated balance sheets reflect the net assets
of the discontinued segments. In addition, the consolidated statements of
operations reflect the results of these operations as discontinued segments.
The continuing business activities of the Company consist of two business
segments: (i) the development and operation of communications businesses in
Eastern Europe and the FSU, China and other selected emerging markets, which
include cable television, paging services, radio broadcasting and various types
of telephony services; and (ii) the manufacture of lawn and garden products
through Snapper.
On November 1, 1995, Orion, MITI, the Company and Sterling consummated the
November 1 Merger. In connection with the November 1 Merger, the Company changed
its name from "The Actava Group Inc." to "Metromedia International Group, Inc."
For financial reporting purposes only, Orion and MITI have been deemed to be the
joint acquirers of Actava and Sterling. The acquisition of Actava and Sterling
was 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 Merger are the combined financial statements of Orion
and MITI, rather than of 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 1995, the Company adopted a formal plan to dispose of
Snapper and, as a result, Snapper was classified as an asset held for sale and
the results of its operations were not included in the consolidated results of
operations of the Company from November 1, 1995 to October 31, 1996.
Subsequently, the Company announced its intention to actively manage Snapper to
maximize its long term value to the Company. The operations of Snapper are
included in the accompanying consolidated financial statements as of November 1,
1996.
31
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
In addition, as of April 1, 1997, for financial statement reporting purposes,
the Company no longer qualifies to treat its investment in RDM as a discontinued
operation and the Company has included in its results of operations the
Company's share of the earnings and losses of RDM. On August 29, 1997, RDM and
certain of its affiliates filed voluntary bankruptcy petitions under chapter 11
of the Bankruptcy Code in the United States Bankruptcy Court for the Northern
District of Georgia. On February 18, 1998, the Office of the United States
Trustee filed a motion to appoint a chapter 11 trustee in the United States
Bankruptcy Court for the Northern Division of Georgia. RDM and its affiliates
subsequently filed a motion to convert the chapter 11 cases to cases under
chapter 7 of the Bankruptcy Code. On February 19,1998, the bankruptcy court
granted the United States Trustee's motion and ordered that a chapter 11 trustee
be appointed. The bankruptcy court also ordered that the chapter 11 cases not
convert to cases under chapter 7 of the Bankruptcy Code. On February 25, 1998,
each of the Company's designees on RDM's Board of Directors submitted a letter
of resignation. The Company does not believe it will be entitled to any
distributions from its equity interest in RDM.
COMMUNICATIONS GROUP
The Company, through the Communications Group, is the owner of various interests
in Joint Ventures that are currently in operation or planning to commence
operations in Eastern Europe, the FSU, China and other selected emerging
markets.
The Communications Group's Joint Ventures currently offer cable television,
AM/FM radio broadcasting, paging, cellular telecommunications, international
toll calling, fixed telephony and trunked mobile radio. The Communications
Group's Joint Ventures' partners are principally governmental agencies or
ministries.
The Communications Group's investments in communications businesses are made in
two primary geographic areas in Eastern Europe and the FSU, and in China. In
Eastern Europe and the FSU, the Communications Group generally owns 50% or more
of the operating Joint Ventures in which it invests. Currently, legal
restrictions in China prohibit foreign ownership and operation in the
telecommunications sector. The Communications Group's China Joint Ventures
invest in network construction and development of telephony networks for China
United Telecommunications Incorporated ("China Unicom"). The completed networks
are operated by China Unicom. The China Joint Ventures receive payments from
China Unicom based on revenues and profits generated by the networks in return
for their providing financing, technical advice and consulting and other
services. Hereinafter, all references to the Communications Group Joint Ventures
relate to the operating Joint Ventures in Eastern Europe and the FSU and the
Communications Group's Joint Ventures in China. Statistical data regarding
subscribers, population, etc. for the Joint Ventures in China relate to the
telephony networks of China Unicom.
The Company's financial statements consolidate the accounts and results of
operations of only 11 of the Communications Group's 44 operating Joint Ventures
at December 31, 1997. Investments in other companies and Joint Ventures which
are not majority owned, or which the Communications Group does not control, but
which the Communications Group exercises significant influence, have been
accounted for using the equity method. Investments of the Communications Group
or its consolidated subsidiaries over which significant influence is not
exercised are carried under the cost method. See Notes 2 and 3 to the "Notes to
Consolidated Financial Statements" of the Company for the year ended December
31, 1997, for these Joint Ventures and their summary financial information.
32
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
SNAPPER
Snapper manufacturers Snapper-Registered Trademark- brand premium-priced power
lawnmowers, lawn tractors, garden tillers, snowthrowers and related parts and
accessories. The lawnmowers include rear engine riding mowers, front-engine
riding mowers or lawn tractors, and self-propelled and push-type walk-behind
mowers. Snapper also manufactures a line of commercial lawn and turf equipment
under the Snapper brand. Snapper provides lawn and garden products through
distribution channels to domestic and foreign retail markets.
The following table sets forth the operating results for the years ended
December 31, 1997, 1996 and 1995 of the Company's Communications Group and lawn
and garden products segments. Financial information summarizing the results of
operations of Snapper, which was classified as an asset held for sale on
November 1, 1995 to October 31, 1996, is presented in Note 8 to the "Notes to
Consolidated Financial Statements."
33
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
SEGMENT INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS TABLE
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Communications Group:
Revenues................................................................. $ 21,252 $ 14,047 $ 5,158
Cost of sales and operating expenses..................................... (2,549) (1,558) --
Selling, general and administrative...................................... (68,936) (38,129) (26,991)
Depreciation and amortization............................................ (9,749) (6,403) (2,101)
----------- ----------- -----------
Operating loss....................................................... (59,982) (32,043) (23,934)
----------- ----------- -----------
Equity in losses of Joint Ventures....................................... (13,221) (11,079) (7,981)
Minority interest........................................................ 8,893 666 188
----------- ----------- -----------
(64,310) (42,456) (31,727)
Snapper:
Revenues................................................................. 183,076 22,545 --
Cost of sales and operating expenses..................................... (123,995) (20,700) --
Selling, general and administrative...................................... (67,354) (9,954) --
Depreciation and amortization............................................ (6,973) (1,256) --
----------- ----------- -----------
Operating loss....................................................... (15,246) (9,365) --
----------- ----------- -----------
Corporate Headquarters and Eliminations:
Revenues................................................................. -- -- --
Cost of sales and operating expenses..................................... -- -- --
Selling, general and administrative...................................... (5,549) (9,355) (1,109)
Depreciation and amortization............................................ (12) (18) --
----------- ----------- -----------
Operating loss....................................................... (5,561) (9,373) (1,109)
----------- ----------- -----------
Consolidated-Continuing Operations:
Revenues................................................................. 204,328 36,592 5,158
Cost of sales and operating expenses..................................... (126,544) (22,257) --
Selling, general and administrative...................................... (141,839) (57,439) (28,100)
Depreciation and amortization............................................ (16,734) (7,677) (2,101)
----------- ----------- -----------
Operating loss....................................................... (80,789) (50,781) (25,043)
Interest expense........................................................... (20,922) (19,090) (5,935)
Interest income............................................................ 14,967 8,552 2,506
Income tax benefit (expense)............................................... 5,227 (414) --
Equity in losses of Joint Ventures......................................... (13,221) (11,079) (7,981)
Equity in losses of and writedown of investment in RDM..................... (45,056) -- --
Minority interest.......................................................... 8,893 666 188
Discontinued operations.................................................... 234,036 (38,592) (344,329)
Extraordinary items........................................................ (14,692) (4,505) (32,382)
----------- ----------- -----------
Net income (loss).......................................................... $ 88,443 $ (115,243) $ (412,976)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
34
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
MMG CONSOLIDATED-RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
For the year ended December 31, 1997, net income was $88.4 million as compared
to a net loss of $115.2 million for the prior year.
The net income in 1997 includes the gain on the Entertainment Group Sale of
$266.3 million and losses from discontinued operations of $32.3 million, an
extraordinary loss of $14.7 million relating to the early extinguishment of debt
and a further writedown of the Company's investment in RDM amounting to $45.1
million. The 1996 loss from discontinued operations and extraordinary loss are
attributable to the writedown of the Company's investment in RDM to its net
realizable value, the loss from operations of the Entertainment Group, income
from operations of Landmark and the loss associated with the refinancing of the
Entertainment Group debt facility as part of the acquisition of Goldwyn and MPCA
in July 1996. In addition, net income in 1997 and net loss in 1996 included
equity in losses of the Communications Group's Joint Ventures of $13.2 million
and $11.1 million, respectively.
Operating loss increased to $80.8 million for the year ended December 31, 1997
from $50.8 million for the year ended December 31, 1996. The increase in
operating loss reflects the $5.9 million increase in Snapper's operating loss in
1997, compared to the period of November 1, 1996 to December 31, 1996 and
increases in selling, general and administrative costs due principally to the
continued growth of the Communications Group.
Interest expense increased $1.8 million to $20.9 million in 1997, primarily due
to the inclusion of interest from the Snapper credit facility partially offset
by the repayment of the outstanding debentures in August 1997 at corporate
headquarters. The average interest rate on average debt outstanding of $143.0
million and $174.2 million in 1997 and 1996, respectively was 14.6% and 11.0%,
respectively.
Interest income increased $6.4 million to $15.0 million in 1997, principally
from investment of funds at corporate headquarters from the preferred stock
offering in September 1997 and increased interest income resulting from
increased borrowings under the Communications Group's credit facilities with its
Joint Ventures for their operating and investing cash requirements.
The income tax benefit for continuing operations in 1997 was principally the
result of the utilization of the current year operating loss to offset the gain
of the Entertainment Group Sale.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
During the year ended December 31, 1996, the Company reported a loss from
continuing operations of $72.1 million, a loss from discontinued operations of
$38.6 million and an extraordinary loss on extinguishment of debt of $4.5
million, resulting in a net loss of $115.2 million. This compares to a loss from
continuing operations of $36.3 million, a loss from discontinued operations of
$344.3 million and a loss on extinguishment of debt of $32.4 million, resulting
in a net loss of $413.0 million for the year ended December 31, 1995. The loss
from continuing operations increased by $35.8 million primarily as a result of
increases in the operating losses at the Communications Group, corporate
overhead and the consolidation of Snapper losses as of November 1, 1996.
The 1996 loss from discontinued operations and extraordinary item loss were
attributable to the writedown of the Company's investment in RDM to its net
realizable value, the loss from operations of the Entertainment Group, income
from operations of Landmark and the loss associated with the refinancing of the
Entertainment Group debt facility as part of the Goldwyn and MPCA acquisitions
in July 1996.
35
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The 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 and the loss from operations of the
Entertainment Group.
The extraordinary loss relating to the early extinguishment of debt in 1995 was
a result of the repayment and termination of certain Entertainment Group debt,
which was refinanced with funds provided under the Old Orion Credit Facility (as
defined in Note 4 to the Consolidated Financial Statements) and a non-interest
bearing promissory note from the Company, and to the charge-off of the
unamortized discount associated with such obligations.
Interest expense increased $13.2 million in 1996. This increase in interest
expense was primarily due to the interest on the debt at corporate headquarters
for twelve months in 1996 as compared to two months in 1995, which was partially
offset by the reduction in interest expense for the Communications Group since
the Company funds its operations. The average interest rates on average debt
outstanding of $174.2 million and $65.4 million in 1996 and 1995, respectively
were 11.0% and 8.8%, respectively.
Interest income increased $6.0 million principally as a result of funds invested
at corporate headquarters from of the common stock offering in July 1996 and
increased interest resulting from increased borrowings under the Communications
Group's credit facilities with its Joint Ventures for their operating and
investing cash requirements.
COMMUNICATIONS GROUP-RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES
Revenues increased to $21.3 million in 1997 from $14.0 million in 1996. Revenues
of unconsolidated Joint Ventures in 1997 and 1996 appear in Notes 2 and 3 to the
"Notes to Consolidated Financial Statements." The growth in revenue of the
consolidated Joint Ventures has resulted primarily from an increase in radio
operations in Moscow and cable operations in Romania. Revenue from radio
operations increased to $13.5 million in 1997 from $9.4 million in 1996. Cable
television revenues increased by $1.7 million in 1997 from $170,000 in 1996.
Radio paging services generated revenues of $3.3 million for 1997 as compared to
$2.9 million for 1996. Management fees and licensing fees decreased to $1.2
million for 1997 from $1.8 million in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $30.8 million or 81%
in 1997 as compared to 1996. Approximately 50% of the increase relates to the
expansion of operations in China including the dissolution of a Joint Venture
and non-cash compensation expenses. The remaining increase relates to additional
expenses associated with the increase in the number of Joint Ventures and the
need for the Communications Group to support and assist the operations of the
Joint Ventures as well as additional staffing at the radio broadcasting
stations, cable television operations and radio paging operations.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased to $9.7 million in 1997 from
$6.4 million in 1996. The increase was primarily a result of the amortization of
goodwill in connection with the acquisition of AAT.
36
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
EQUITY IN LOSSES OF JOINT VENTURES
The Communications Group accounts for the majority of its Joint Ventures under
the equity method of accounting since it generally does not exercise control.
Under the equity method of accounting, the Communications Group 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 generally only its
proportionate share of income or losses of the Joint Ventures in its statement
of operations. The losses recorded in 1997 and 1996 represent the Communications
Group's equity in the losses of the Joint Ventures for the twelve months ended
September 30, 1997 and 1996, respectively. Equity in the losses of the Joint
Ventures by the Communications Group are generally reflected according to the
level of ownership of the Joint Venture by the Communications Group until such
Joint Venture's contributed capital has been fully depleted. Subsequently, the
Communications Group recognizes the full amount of losses generated by the Joint
Venture since the Communications Group is generally the sole funding source of
the Joint Ventures.
EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET UNION
Revenues generated by unconsolidated Joint Ventures were $70.4 million in 1997,
compared to $44.8 million in 1996. The Communications Group recognized equity in
losses of its Joint Ventures of approximately $11.8 million in 1997, compared to
$11.1 million in 1996.
The increase in losses of the Joint Ventures of $700,000 from 1996 to 1997 is
attributable to (i) the commencement of operations of the Communications Group's
Georgian GSM venture which increased the loss by $900,000, (ii) increased equity
losses of the Latvian GSM venture of $1.5 million, and (iii) increased equity
losses of Protocall's trunked mobile radio ventures and the cable ventures in
Latvia and Moldova of $1.0 million, $1.5 million and $900,000, respectively,
which losses were partially offset by increases in the equity results of $1.7
million and $3.4 million of the operations of the Communications Group's cable
venture in Moscow and telephony venture in Georgia.
CHINA
Equity in losses of the Communications Group's Joint Ventures in China, amounted
to $1.4 million in 1997. The loss is attributable to the Communications Group's
Ningbo JV, which commenced operations May 1997.
MINORITY INTEREST
Losses allocable to minority interests increased to $8.9 million in 1997 from
$666,000 in 1996. The increase principally represents the inclusion of losses
allocable to the minority shareholders of MCC.
37
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995.
REVENUES
Revenues of consolidated Joint Ventures increased to $14.0 million in 1996 from
$5.2 million in 1995. Revenues of unconsolidated Joint Ventures for calendar
1996 and 1995 appear in Note 2 to the Consolidated Financial Statements. This
growth resulted primarily from an increase in radio broadcasting operations in
Hungary, paging service operations in Romania and an increase in management and
licensing fees. Revenue from radio operations increased to $9.4 million in 1996
from $3.9 million in 1995. Radio paging services generated revenues of $2.9
million in 1996, as compared to $700,000 in 1995. Management fees and licensing
fees increased to $1.8 million in 1996 from $600,000 in 1995. In 1995, the
Communications Group 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 1995 consolidated statement of operations reflects nine
months of operations, as compared to twelve months in 1996. Had the
Communications Group applied this method from October 1, 1994, the net effect on
the results of operations would not have been material.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $11.1 million or 41%,
in 1996 as compared to 1995. This increase resulted principally from the hiring
of additional staff, additional expenses associated with the increase in the
number of Joint Ventures, and the need for the Communications Group to support
and assist the operations of the Joint Ventures and additional staffing at the
radio broadcasting stations and radio paging operations.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased to $6.4 million in 1996. The
increase was attributable principally to the amortization of goodwill in
connection with the November 1 Merger.
EQUITY IN LOSSES OF JOINT VENTURES
EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET UNION
The Communications Group accounts for the majority of its Joint Ventures under
the equity method of accounting since it generally does not exercise control.
Under the equity method of accounting, the Communications Group 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 generally only its
proportionate share of income or losses of the Joint Ventures in its statement
of operations. The losses recorded in 1996 and 1995 represent the Communications
Group's equity in the losses of the Joint Ventures for the twelve months ended
September 30, 1996 and 1995, respectively. Equity in the losses of the Joint
Ventures by the Communications Group are generally reflected according to the
level of ownership of the Joint Venture by the Communications Group until such
Joint Venture's contributed capital has been fully depleted. Subsequently, the
Communications Group recognizes the full amount of losses generated by the Joint
Venture since the Communications Group is generally the sole funding source of
the Joint Ventures.
Revenues generated by unconsolidated Joint Ventures were $44.8 million in 1996,
compared to $19.3 million in 1995. The Communications Group recognized equity in
losses of its Joint Ventures of approximately $11.1 million in 1996, compared to
$8.0 million in 1995.
38
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The increase in losses of the Joint Ventures of $3.1 million from 1995 to 1996
was partially attributable to the acquisition during 1996 of Protocall Ventures,
Ltd., which included five trunked mobile radio Joint Ventures and increased the
losses by $600,000. Further, a loss of $500,000 was incurred in connection with
the expansion of radio broadcasting operations. The Communications Group's
paging ventures in Estonia and Riga and its cable television venture in Tblisi
were responsible for $600,000, $900,000 and $1.0 million, respectively, of the
increased loss. These losses were attributable to increased costs associated
with promotional discount campaigns at the paging ventures, which resulted
ultimately in increased subscribers, and a writedown of older receivable
balances at the cable television venture. Losses were partially offset by an
increase in equity in income of $1.2 million realized at the Communications
Group's telephony venture in Tblisi.
MINORITY INTEREST
Losses allocable to minority interest increased to $666,000 in 1996. The
increase principally represented the inclusion of losses allocable to the
minority shareholders of Protocall Ventures.
ANALYSIS OF COMBINED RESULTS OF OPERATIONS
EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET UNION
The Company is providing as supplemental information the following analysis of
combined revenues and operating income (loss) for its consolidated and
unconsolidated Joint Ventures in Eastern Europe and the FSU. The Company
believes that an analysis of combined operating results provides a meaningful
presentation of the performance of its investments. Note 2 to the Consolidated
Financial Statements provides a listing of the Company's ownership percentages
in each of its unconsolidated Joint Ventures.
Total revenues for the Communications Group's cable television, paging, radio
broadcasting, cellular telecommunications, international toll calling and
trunked mobile radio businesses were $89.8 million, $57.2 million and $23.9
million in 1997, 1996 and 1995, respectively. The annual percentage increase in
revenues were 57% and 139% from 1996 to 1997 and from 1995 to 1996,
respectively. Combined operating income (loss) for all of the Communication
Groups businesses were $604,000, ($4.9) million and ($6.6) million in 1997, 1996
and 1995, respectively.
Cable television revenues were $23.3 million, $15.2 million and $8.1 million in
1997, 1996 and 1995, respectively. This represents annual percentage increases
in revenues of 53% and 88% from 1996 to 1997 and 1995 to 1996, respectively.
Total subscribers increased from 37,900 in 1995 to 69,118 in 1996 and 225,525 in
1997. Combined operating losses for cable television were $6.8 million, $6.0
million and $4.2 million in 1997, 1996 and 1995, respectively. Included in
operating losses in 1997, 1996 and 1995 were depreciation and amortization
charges of $9.6 million, $6.0 million and $2.9 million, respectively.
Subscriber growth and revenue increases during 1996 were the result of
implementing a new strategy, by which buildings were wired in advance and
targeted for a lower priced, broader based program package. This strategy was
implemented in Riga, Lativa and Tashkent, Uzbekistan which had increased
revenues of approximately $2.3 million and $918,000, respectively. In 1997, this
strategy was expanded to all cable ventures, and this coupled with acquisitions
of systems in Romania and Moldova contributed to the subscriber growth and
revenues increases at the operations in Tashkent, Uzbekistan, Kishinev, Moldova
and Almaty, Kazakstan, each of which had revenue increases of $1.5 million, $1.2
million and $1.4 million, respectively. The increases in operating results
reflect the favorable relationship between certain fixed operating costs and the
increase in subscribers, combined with costs savings achieved through economies
of scale resulting in contract re-negotiation with programmers and other
suppliers.
39
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Paging revenues were $13.0 million, $10.9 million and $3.8 million in 1997, 1996
and 1995, respectively. This represents annual percentage increases in revenues
of 19% and 187% from 1996 to 1997 and 1995 to 1996, respectively. Total
subscribers increased from 14,460 in 1995 to 44,836 in 1996 and 57,831 in 1997.
Combined operating losses for paging were $3.9 million, $943,000 and $635,000 in
1997, 1996 and 1995, respectively. Included in operating losses in 1997, 1996
and 1995 were depreciation and amortization charges of $1.6 million, $1.6
million and $600,000, respectively.
Increased paging revenue during 1996 is partially attributable to the expansion
of the paging operation in Tashkent, Uzbekistan, into several cities in
Uzbekistan to provide a wider coverage area than its competitors. This resulted
in a revenue increase of approximately $1.5 million. Other increases in revenue
in 1996 of approximately $826,000 and $1.3 million were achieved at the paging
operations in Tallin, Estonia and Riga, Latvia. During 1997, increases in
revenue of approximately $738,000 and $635,000 achieved at paging operations in
Nizhny Novgorod, Russia and Tashkent, Uzbekistan, respectively, were primarily
attributable for the overall growth. Increases in the operating income for
existing Joint Ventures in 1997 were offset by the operating losses of $2.9
million for the start up of the Austrian paging operations.
Radio broadcasting revenues were $16.0 million, $10.9 million and $4.8 million
in 1997, 1996 and 1995, respectively. This represents annual percentage
increases in revenues of 47% and 127% from 1996 to 1997 and 1995 to 1996,
respectively. Combined operating income (loss) for radio broadcasting was $4.2
million, $279,000 and ($1.5) million in 1997, 1996 and 1995, respectively.
Included in operating income (loss) in 1997, 1996 and 1995 were depreciation and
amortization charges of $699,000, $257,000 and $402,000, respectively.
The revenue growth is due to increases in the number of advertising spots
purchased and increases in the price of the advertising spots. The ability to
sell increased spots at a higher rate is dependent on audience ratings. The
Company has increased its audience share through the use of market research to
determine programming formats and marketing strategies including employing
United States trained sales managers. Specifically, during 1997 this business
strategy resulted in revenue increases of $2.0 million and $1.1 million for
radio operations in Moscow, Russia and St. Petersburg, Russia, respectively. In
addition, the acquisition during 1997 of a four station radio group in Estonia
contributed approximately $744,000 to the revenue increase. In 1996, revenue at
the radio operations in Hungary increased from 1995 by $5.4 million. The steady
increase in operating income from 1995 to 1996 and 1997 is a result of the
increases in revenue growth and is reflective of management's philosophy to
continually develop existing audience share and revenue base offset by the
effects of start-up costs associated with new stations acquired in both 1996 and
1997.
Telephony revenues were $37.5 million, $20.2 million and $7.2 million in 1997,
1996 and 1995, respectively. This represents annual percentage increases in
revenue of 86% and 181% from 1996 to 1997 and 1995 to 1996, respectively. Total
subscribers increased from 6,642 to 24,057 from 1996 to 1997. International toll
calling revenues were $30.9 million, $19.2 million and $7.2 million in 1997,
1996 and 1995, respectively. The Company commenced its trunked mobile radio
operations in 1996 and revenues were $4.0 million and $1.0 million in 1997 and
1996. Cellular telecommunications operations commenced in 1997 and had revenues
of $2.6 million. Combined operating income (loss) for telephony was $7.2
million, $1.7 million and ($292,000) in 1997, 1996 and 1995, respectively.
Included in operating income (loss) for 1997, 1996 and 1995 were depreciation
and amortization charges of $4.6 million, $1.1 million and $465,000,
respectively. Operating income (loss) from international toll calling operations
was $17.2 million, $3.1 million and ($292,000) in 1997, 1996 and 1995. Trunked
mobile radio's operating losses were $3.3 million and $1.4 million in 1997 and
1996, respectively, and operating losses for cellular telecommunications in 1997
were $6.7 million. The increase in international toll calling revenue is
directly attributable to increases in both the incoming and
40
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
outgoing minute stream at the Joint Venture in Tblisi, Georgia, which handles
all international calls inbound to and outbound from the Republic of Georgia.
Increased trunked mobile radio revenue was primarily due to an increase of
approximately $2.5 million realized at the Portugal operations. The improvement
in operating results from 1995 to 1996 and 1997 is the result of the Telecom
Georgia international toll calling operating income offset by effect of start up
GSM operations in Latvia and Georgia.
FOREIGN CURRENCY
The Communications Group's strategy is to minimize its foreign currency risk. To
the extent possible, in countries that have experienced high rates of inflation,
the Communications Group bills and collects all revenues in U.S. dollars or an
equivalent local currency amount adjusted on a monthly basis for exchange rate
fluctuations. The Communications Group's Joint Ventures are generally permitted
to maintain U.S. dollar accounts to service their U.S. dollar denominated credit
lines, thereby reducing foreign currency risk. As the Communications Group and
its Joint Ventures expand their operations and become more dependent on
local-currency based transactions, the Communications Group expects that its
foreign currency exposure will increase. The Communications Group currently does
not hedge against exchange rate risk and therefore could be subject in the
future to declines in exchange rates between the time a Joint Venture receives
its funds in local currencies and the time it distributes such funds in U.S.
dollars to the Communications Group.
SNAPPER-RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
In order to enhance comparability, the following discussion of Snapper's results
of operations includes pro forma information for 1996 and gives effect as if
Snapper had been included in the Company's results of operations on January 1,
1996. The results of operations for the year ended December 31, 1997 and the pro
forma results of operations for the year ended December 31, 1996 are as follows
(in thousands):
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues............................................................ $ 183,076 $ 153,168
Cost of sales and operating expense................................. (123,995) (130,598)
Selling, general and administrative................................. (67,354) (42,602)
Depreciation and amortization....................................... (6,973) (7,266)
----------- -----------
Operating loss.................................................... $ (15,246) $ (27,298)
----------- -----------
----------- -----------
</TABLE>
REVENUES
Snapper's 1997 revenues were $183.1 million compared to $153.2 million in 1996.
In 1997, Snapper completed the implementation of its program to sell products
directly to its dealers. In implementing this program to restructure its
distribution network, Snapper repurchased certain distributor inventory which
resulted in sales reductions of $25.4 million in 1997 and $24.5 million in 1996.
Sales of lawn and garden power equipment contributed to the majority of the
revenues for the two periods. During 1997, lawn and garden equipment sales were
much lower than anticipated due to unseasonably cold weather in April and May,
and due to the impact of lower distributor sales than expected due to the
repurchase of distributor inventories. During the last quarter of 1997, Snapper
sold older lawn and garden equipment repurchased from the distributors at
reduced prices. In addition, mild winter weather during the fourth quarter of
1997
41
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
negatively impacted sales of snow throwers. In order to manage the levels of
field inventories in 1996, the factory produced at reduced levels compared to
prior years. This reduction adversely impacted sales, but did result in a
decrease in inventory levels.
Gross profit was $59.1 million and $22.6 million for 1997 and 1996,
respectively. Although higher sales margins were obtained from the distribution
network restructuring the low profit results were caused by lower than
anticipated sales as noted above. The profit results in 1996 were the result of
lower sales volumes resulting in reduced plant efficiency.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $67.4 million in 1997,
compared to $42.6 million in 1996. In addition to normal selling, general and
administrative expenses, the 1997 expenses reflect additional television
commercial expenditures to assist Snapper dealers during the distributor network
restructuring. In 1997 and 1996, Snapper also incurred acquisition expenses
related to the repurchase of inventory from nine and eighteen distributorships
during the periods respectively.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expenses were $7.0 million and $7.3 million for
1997 and 1996, respectively. Depreciation and amortization expenses reflected
the depreciation of Snapper's property, plant, and equipment as well as the
amortization of the goodwill associated with the acquisition of Snapper.
OPERATING LOSS
Snapper experienced operating losses of $15.2 million and $27.3 million during
1997 and 1996, respectively. The loss incurred in 1997 was the result of lower
sales primarily due to unseasonably cool weather in April and May and milder
winter weather during the fourth quarter, in addition to the repurchase of
distributor inventories during the year. The loss incurred in 1996 was the
result of reduced production levels and the repurchase of distributor
inventories during the year.
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY
MMG is a holding company and, accordingly, does not generate cash flows. The
Communications Group is dependent on MMG for significant capital infusions to
fund its operations and make acquisitions, as well as to fulfill its commitments
to make capital contributions and loans to its Joint Ventures. Such funding
requirements are based on the anticipated funding needs of its Joint Ventures
and certain acquisitions committed to by the Company. Future capital
requirements of the Communications Group, including future acquisitions, will
depend on available funding from the Company and on the ability of the
Communications Group's Joint Ventures to generate positive cash flows. Snapper
is restricted under covenants contained in its credit agreement from making
dividend payments or advances to MMG and the Company has periodically funded the
short-term working capital needs of Snapper. The Company, at its discretion, can
make dividend payments on its 7 1/4% Cumulative Convertible Preferred Stock in
either cash or Common Stock. If the Company were to elect to pay the dividend in
cash, the annual cash requirement would be $15.0 million.
Since each of the Communications Group's Joint Ventures operates businesses,
such as cable television, fixed telephony, paging and cellular
telecommunications, that are capital intensive and require significant capital
investment in order to construct and develop operational systems and market its
services, the
42
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Company will require in addition to its cash on hand and the proceeds from the
sale of Landmark, additional financing in order to satisfy its on-going working
capital requirements and to achieve its long-term business strategies. Such
additional capital may be provided through the public or private sale of equity
or debt securities of the Company or by separate equity or debt financings by
the Communications Group or certain companies of the Communications Group. No
assurance can be given that such additional financing will be available to the
Company on acceptable terms, if at all. If adequate additional funds are not
available, the Company may be required to curtail significantly its long-term
business objectives and the Company's results from operations may be materially
and adversely affected. The Company believes that its cash on hand, together
with the net proceeds from the sale of Landmark, will be sufficient to fund the
Company's working capital requirements for the remainder of 1998.
Management believes that its long-term liquidity needs will be satisfied through
a combination of the Company's successful implementation and execution of its
growth strategy to become a global communications and media company and the
Communications Group's Joint Ventures achieving positive operating results and
cash flows through revenue and subscriber growth and control of operating
expenses.
As the Communications Group is in the early stages of development, the Company
expects to generate significant consolidated net losses for the foreseeable
future as the Communications Group continues to build out its facilities and
market its services.
COMMUNICATIONS GROUP
The Communications Group has invested significantly (in cash or equipment
through capital contributions, loans and management assistance and training) in
its Joint Ventures. The Communications Group has also incurred significant
expenses in identifying, negotiating and pursuing new wireless
telecommunications opportunities in selected emerging markets. The
Communications Group and virtually 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.
EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET UNION
The cable television, paging, fixed wireless loop telephony, GSM and
international toll calling businesses in the aggregate are capital intensive.
The Communications Group generally provides the primary source of funding for
its Joint Ventures both for working capital and capital expenditures, with the
exception of its GSM Joint Ventures. The GSM Joint Ventures have been funded to
date on a pro-rata basis by western sponsors, and the Communications Group has
funded its pro rata share of the GSM Joint Venture obligations. The
Communications Group has and continues to have discussions with vendors,
commercial lenders and international financial institutions to provide funding
for the GSM Joint Ventures. The Communications Group's Joint Venture agreements
generally provide for the initial contribution of cash or assets by the Joint
Venture partners, and for the provision of a line of credit from the
Communications Group to the Joint Venture. Under a typical arrangement, the
Communications Group'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. The Communications
Group's contribution is generally cash and equipment, but may consist of other
specific assets as required by the applicable Joint Venture agreement.
Credit agreements between the Joint Ventures and the Communications Group are
intended to provide such Joint Ventures with sufficient funds for operations and
equipment purchases. The credit agreements generally provide for interest to
accrue at rates ranging from the prime rate to the prime rate plus 6% and for
payment of principal and interest from 90% of the Joint Venture's available cash
flow, as defined, prior
43
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
to any distributions of dividends to the Communications Group or its Joint
Venture partners. The credit agreements also often provide the Communications
Group 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
December 31, 1997, the Communications Group was committed to provide funding
under the various charter fund agreements and credit lines in an aggregate
amount of approximately $102.8 million, of which $19.2 million remained
unfunded. The Communications Group's funding commitments under a credit
agreement are contingent upon its approval of the Joint Venture's business plan.
The Communications Group 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, the Communications Group may terminate or
revise its commitment to fund under the credit agreements.
The Communications Group's consolidated and unconsolidated Joint Ventures'
ability to generate positive operating results is dependent upon their ability
to attract subscribers to their systems, their ability to control operating
expenses and the sale of commercial advertising time. Management's current plans
with respect to the Joint Ventures are to increase subscriber and advertiser
bases and thereby operating revenues by developing a broader band of programming
packages for wireless cable and radio broadcasting and by 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 the Communications Group 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 assisting Joint Ventures in
developing management information systems and automated customer care and
service systems. No assurances can be given that such initiatives will be
successful or if successful, will result in such reductions. Additionally, if
the Joint Ventures do become profitable and generate sufficient cash flows in
the future, there can be no assurance that the Joint Ventures will pay dividends
or will return capital at any time.
CHINA
The Sichuan JV and the Chongqing JV are parties to a Network System Cooperation
Contract dated May 1996, with China Unicom (the "Sichuan Network System
Cooperation Contract"). The Sichuan Network System Cooperation Contract provides
for a 25-year period of cooperation between the Sichuan JV and the Chongqing JV
and China Unicom for the development of a local telephone network (the "PSTN
Network") in the Sichuan Province (such project is referred to herein as the
"Sichuan Project") with an initial capacity of 50,000 lines ("Phase 1") and with
China Unicom projecting growth of up to 1,000,000 lines in the Sichuan Province
within the next five years ("Phase 2"). In accordance with the terms of the
Sichuan Network System Cooperation Contract, the Sichuan JV and the Chonqing JV
are responsible for providing the initial capital to develop Phase 1 of the PSTN
Network (including payments for imported equipment) while China Unicom is
responsible for the construction of Phase 1 and operation, management and
maintenance of the PSTN Network in the Sichuan Province and the City of
Chongqing. The Sichuan JV and the Chongqing JV will provide financing,
consulting and management support services to China Unicom for the construction
and operation of the PSTN Network in exchange for a service and support fee
equal to 78% of distributable cash flow from the PSTN Network for a 25-year
period for each phase of the PSTN Network developed, payable semi-annually.
44
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
In connection with MCC's investments in the Sichuan JV and the Chongqing JV, the
Joint Ventures have entered into a Phase 1 loan with Northern Telecom
Communications ("Nortel") for $20.0 million to finance the purchase of Nortel
equipment for the Sichuan Province and City of Chongqing Phase 1 project. The
Company, has secured the Phase 1 loan repayment with a $20.0 million letter of
credit. Nortel has the right to draw down on the $20.0 million letter of credit
for amounts due Nortel by the Sichuan JV and the Chongqing JV if a Phase 2
contract has not been entered into with Nortel to expand the 50,000 lines in
Phase 1 project to at least 150,000 lines within one year from the date of the
Phase 1 contract with Nortel.
If the Phase 2 contract is entered into with Nortel, Sichuan JV and Chongqing JV
plan to enter into a long-term loan facility with Nortel for $100.0 million to
repay the Phase 1 loan and to finance Phase 2 and subsequent phases to expand
the telecommunications network in Sichuan Province and City of Chongqing. No
assurance can be given that Sichuan JV and Chongqing JV will be successful in
executing the long-term loan facility with Nortel. Accordingly, the Company
through the letter of credit may become obligated to finance up to $20.0 million
of the Phase 1 project for the Sichuan JV and Chongqing JV.
The estimated budget for Phase 1 of the Sichuan Project is approximately RMB 242
million or $29.5 million in the Sichuan Province and approximately RMB 242
million or $29.5 million in the City of Chongqing.
Ningbo Telecommunications has assigned to the Ningbo JV its Network System
Cooperation Contract with China Unicom which provides for the development of a
GSM telecommunications network (the "GSM Network") in the City of Ningbo with a
capacity of 50,000 lines (the "Ningbo Project"). In accordance with the terms of
the Network System Cooperation Contract, the Ningbo JV is responsible for
providing the initial capital to develop the Ningbo Project of the GSM Network
while China Unicom is responsible for the construction of the GSM Network and
operation, management and maintenance of the GSM Network in the City of Ningbo.
The Ningbo JV will provide financing, consulting and management support services
to China Unicom for the construction and operation of the GSM Network in
exchange for 73% of the distributable cash flow from the GSM Network for a
15-year period.
The total estimated budget for the Ningbo Project is approximately RMB 247
million or $29.7 million.
The ability of the Communications Group and its Joint Ventures to establish
profitable operations is also subject to significant political, economic and
social risks inherent in doing business in emerging markets such as Eastern
Europe and the FSU and China. These include matters arising out of government
policies, economic conditions, imposition of or changes to taxes or other
similar charges by governmental bodies, exchange rate fluctuations and controls,
civil disturbances, deprivation or unenforceablility of contractual rights, and
taking of property without fair compensation.
For the year ended December 31, 1997, the Communications Group's primary source
of funds was from the Company in the form of non-interest bearing intercompany
loans.
Until the Communications Group's operations generate positive cash flow, the
Communications Group will require significant capital to fund its operations,
and to make capital contributions and loans to its Joint Ventures. The
Communications Group relies on the Company to provide the financing for these
activities. The Company believes that as more of the Communications Group's
Joint Ventures commence operations and reduce their dependence on the
Communications Group for funding, the Communications Group will be able to
finance its own operations and commitments from its operating cash flow and will
be able to attract its own financing from third parties. There can be no
assurance, however, that additional capital in the form of debt or equity will
be available to the Communications Group at all or on terms and conditions that
are acceptable to the Communications Group or the Company, and as a result, the
Communications Group will continue to depend upon the Company for its financing
needs.
45
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
SNAPPER
Snapper's liquidity is generated from operations and borrowings. On November 26,
1996, Snapper entered into a credit agreement (the "Snapper Credit Agreement")
with AmSouth pursuant to which AmSouth agreed to make available to Snapper a
revolving line of credit up to $55.0 million, (the "Snapper Revolver"). The
Snapper Revolver was to terminate on January 1, 1999 and is guaranteed by the
Company. The Snapper Revolver contains covenants regarding minimum quarterly
cash flow and equity requirements.
On April 30, 1997, Snapper completed a $10.0 million working capital facility
("Working Capital Facility") with AmSouth. The $10.0 million Working Capital
Facility provided AmSouth with (i) PARI PASSU collateral interest in all of
Snapper's assets (including rights under a Make-Whole and Pledge Agreement made
by Metromedia in favor of AmSouth in connection with the Snapper Revolver)and
(ii) accrued interest on borrowings at AmSouth's floating prime rate (same
borrowing rate as the Snapper Revolver) The Working Capital Facility was due and
payable on October 1, 1997. As additional consideration for AmSouth making this
new facility available, Snapper provided to AmSouth the joint and several
guarantees of Messrs. Kluge and Subotnick, Chairman of the Board of MMG and Vice
Chairman, President and Chief Executive Officer of MMG, respectively, on the
$10.0 million Working Capital Facility. The Company repaid Snapper's Working
Capital Facility on October 1, 1997. During the months of August and September,
MMG loaned Snapper a total of $10.0 million to meet working capital and
distributor repurchase proceeds.
On November 12, 1997, Snapper amended and restated the Snapper Credit Agreement
to increase the amount of the revolving line of credit from $55.0 million to
$80.0 million. The Snapper Revolver bears interest at an applicable margin above
the prime rate (up to 1.5%) or a LIBOR rate (up to 4.0%), and matures on January
1, 2000. The Snapper Revolver continues to be guaranteed by the Company, as well
as, Messrs. Kluge and Subotnick up to $10.0 million. The Snapper Credit
Agreement, as amended, continues to contain certain financial covenants
regarding minimum tangible net worth and satisfying certain quarterly cash flow
requirements.
46
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
At December 31, 1997, Snapper was not in compliance with the financial
convenants under the Snapper Revolver. The Company and AmSouth amended the
Snapper Credit Agreement to provide for (i) a reduction in the amount of the
line of credit from $80.0 million to $55.0 million as of July 1, 1998 and (ii) a
reduction in the finished goods advance rate from 80% to 70% as of July 1, 1998
and 50% as of December 31, 1998. As part of the amendment to the Snapper Credit
Agreement, AmSouth waived the covenant defaults as of December 31, 1997.
Furthermore, the amendment replaced the existing 1998 financial covenants with
covenants reflecting Snapper's anticipated cash flow and equity changes based on
the seasonality of the business.
Snapper has entered into various long-term manufacturing and purchase agreements
with certain vendors for the purchase of manufactured products and raw
materials. As of December 31, 1997, noncancelable commitments under these
agreements amounted to approximately $25.0 million.
Snapper has an agreement with a financial institution which makes available
floor-plan financing to distributors and dealers of Snapper products. This
agreement provides financing for dealer inventories and accelerates Snapper's
cash flow. Under the terms of the agreement, a default in payment by a dealer is
nonrecourse to Snapper. However, Snapper is obligated to repurchase any new and
unused equipment recovered from the dealer. At December 31, 1997, there was
approximately $65.7 million outstanding under this floor-plan financing
arrangement. The Company has guaranteed Snapper's payment obligations under this
agreement.
Management of the Company believes that Snapper's available cash on hand, the
cash flow generated by operating activities, borrowings from the Snapper
Revolver and, on an as needed basis, short-term working capital funding from the
Company will provide sufficient funds for Snapper to meet its obligations and
capital requirements.
YEAR 2000 SYSTEM MODIFICATIONS
The Company is currently working to resolve the potential impact of the Year
2000 on the processing of date-sensitive information and network systems. The
Year 2000 problem is the result of computer programs being written using two
digits (rather than four) to define the Year 2000, which could result in
miscalculations or system failures. The Company evaluates the costs associated
with modifying and testing its systems for the Year 2000. The Company expects to
make some of the necessary modifications through its ongoing investment in
system upgrades. The Company is not yet able to estimate the incremental costs
of the Year 2000 conversion effort, but such costs will be expensed as incurred.
The incremental costs to date have not been material. If the Company, its Joint
Ventures and projects where it does not have a controlling management interest,
customers or vendors are unable to resolve such processing issues in a timely
manner, it could result in a material financial risk. Accordingly, the Company
plans to devote the necessary resources to resolve all significant Year 2000
issues.
MMG CONSOLIDATED
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash used in operations for the year ended December 31, 1997 was $118.6 million,
an increase in cash used in operations of $58.8 million from the prior year.
47
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Net income (loss) includes significant non-cash items including the gain from
the Entertainment Group Sale, operating loss of discontinued operations, equity
in losses and writedown of investment in RDM, losses on early extinguishment of
debt, depreciation, amortization, equity in losses of Joint Ventures and losses
allocable to minority interests. Excluding the gain from the Entertainment Group
Sale of $266.3 million in 1997, non-cash items increased to $117.0 million from
$64.1 million in 1996. This increase was principally attributable to the
increase in depreciation and amortization associated with the consolidation of
Snapper, losses from discontinued operations and the equity losses and writedown
of the Company's investment in RDM, partially offset by losses allocable to
AAT's minority owners. Changes in assets and liabilities, net of the effect of
acquisitions, decreased cash flows for 1997 and 1996 by $57.8 million and $8.7
million, respectively.
The decrease in cash flows in 1997 resulted from the increased losses in the
Communications Group's operations due to the start-up nature of these operations
and increases in selling, general and administrative expenses to support the
increase in the number of Joint Ventures and the inclusion of Snapper's
operating losses in 1997. The increase in operating assets principally reflects
increases in inventory of Snapper's products.
CASH FLOWS FROM INVESTING ACTIVITIES
Cash provided by investing activities in 1997 was $70.2 million, compared to
cash used in investing activities of $26.8 million in the prior year. The
principal reason for the increase in cash provided by investing activities was
the net proceeds from the Entertainment Group Sale of $276.6 million. Cash used
in investments in and advances to Joint Ventures and additions to property,
plant and equipment were $69.8 million and $10.5 million, respectively, in 1997
as compared to $41.0 million and $5.1 million, respectively in 1996. In
addition, the Communications Group utilized $16.8 million of funds net of cash
acquired in acquisitions in 1997.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash provided by financing activities was $88.7 million in 1997, as compared to
$155.5 million in 1996. The current year includes the proceeds from the issuance
of 4,140,000 shares of 7 1/4% Cumulative Convertible Preferred Stock of $199.4
million compared to 1996 which includes proceeds of $190.6 million from the
issuance of 18,400,000 shares of common stock. Of the $156.8 million of payments
in 1997 in notes and subordinated debt, $155.0 million relates to payment on the
Company's debentures. Of the $81.5 million of payments in 1996 on notes and
subordinated debt, $28.8 million was the repayment of a revolving credit
agreement by the Company.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash used in operations in 1996 was $59.9 million, compared to cash used in
operations of $23.8 million in 1995.
The 1996 net loss of $115.2 million includes losses on discontinued operations
of $38.6 million and a loss on early extinguishment of debt of $4.5 million. The
1995 net loss of $413.0 million includes losses on discontinued operations of
$344.3 million and a loss on early extinguishment of debt of $32.4 million. The
1996 loss from continuing operations, was $72.1 million compared to a $36.3
million loss in 1995.
48
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Losses from continuing operations include significant non-cash items of
depreciation, amortization and equity in losses of Joint Ventures. Non-cash
items increased $10.7 million, from $10.3 million in 1995 to $21.0 million in
1996. The increase in non-cash items principally relates to increased
depreciation and amortization related to the November 1 Merger and an increase
in equity losses of the Communications Group's Joint Ventures.
Net changes in assets and liabilities decreased cash flows from operations in
1996 and 1995 by $8.7 million and increased cash flows from operations by $2.1
million, respectively. After adjusting net losses for discontinued operations,
extraordinary items, non-cash items and net changes in assets and liabilities,
the Company utilized $59.9 million of cash in operations in 1996, compared to
$23.8 million in 1995.
The increase in cash utilized in 1996 generally resulted from the increased
losses in the Communications Group's consolidated and equity Joint Ventures due
to the start-up nature of these operations and increases in selling, general and
administrative expenses at the Communications Group and corporate headquarters.
Net interest expense increased principally due to a full year of interest
expense from debt at corporate headquarters.
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used in investing activities amounted to $26.8 million for 1996. During
1996, the Company collected $5.4 million from the proceeds from sale of
short-term investments and paid $41.0 million, $5.1 million and $7.6 million for
investments in and advances to Joint Ventures and additions to property, plant
and equipment and acquisitions by the Communications Group, respectively. In
1995, the Company collected $45.3 million on a note receivable and had net cash
acquired in the November 1 Merger of $66.7 million. In 1995, the Company
invested $21.9 million to fund existing as well as new Joint Ventures.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash provided by financing activities was $155.5 million for 1996, compared to
cash used in financing activities of $41.1 million in 1995. The principal reason
for the increase of $196.6 million in 1996 was the completion of a public
offering pursuant to which the Company issued 18,400,000 shares of Common Stock,
the proceeds of which, net of transaction costs, was $190.6 million. Of the
$52.6 million in additions to long-term debt, $46.4 million resulted from
borrowings under Snapper's new credit facility. Of the $81.6 million payments of
long-term debt, $28.8 million was the repayment of a revolving credit agreement
by MMG, payments by MMG of notes and debentures of $7.6 million and Snapper's
payment of $38.6 million on its previous credit facility.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company will be required to provide both quantitative and qualitative
disclosures about market risk in its December 31, 1998 Annual Report on Form
10-K.
SPECIAL NOTE REGARDING FOWARD-LOOKING STATEMENTS
Certain statements in this Form 10-K including, without limitation, statements
under "Item 1" Business, "Item 3" Legal Proceedings and "Item 7" Management's
Discussion and Analysis of Financial Condition and Results of Operations
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Certain, but not necessarily all, of such
forward-looking statements can be identified by the use of forward-looking
terminology, such as "believes," "expects," "may," "will," "should" or
"anticipates" or
49
<PAGE>
SPECIAL NOTE REGARDING FOWARD-LOOKING STATEMENTS (CONTINUED)
the negative thereof or other variations thereon or comparable terminology, or
by discussions of strategy that involves risks and uncertainties. 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; competition from other communications
companies, which may affect the Company's ability to generate revenues;
political, social and economic conditions and laws, rules and regulations,
particularly in Eastern Europe and the FSU, China and selected 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 and the FSU, China 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 FSU, China and other selected emerging markets; which may affect the
Company's results of operations; exchange rate fluctuations; license renewals
for the Company's communications investments in Eastern Europe and the FSU,
China and other selected emerging markets; the loss of any significant
customers; changes in business strategy or development plans; quality of
management; availability of qualified personnel; changes in or the failure to
comply with government regulation; and other factors referenced herein. The
Company does not undertake, and specifically declines, any obligations to
release publicly the results of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required under this item are
included in Item 14 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
50
<PAGE>
PART III
The information called for by this PART III (Items 10, 11, 12 and 13) is not set
forth herein because the Company intends to file with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
ended December 31, 1997, the Proxy Statement for the 1998 Annual Meeting of
Stockholders, except that certain of the information regarding the Company's
executive officers called for by Item 10 has been included in Part I of this
Annual Report on Form 10-K under the caption "Executive Officers of the
Company." Such information to be included in the Proxy Statement is hereby
incorporated into these Items 10, 11, 12 and 13 by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (a)(2) Financial Statements and Schedules
The financial statements and schedules listed in the accompanying Index to
Financial Statements are filed as part of this Annual Report on Form 10-K.
(a)(3) Exhibits
The exhibits listed in the accompanying Exhibit Index are filed as part of this
Annual Report on Form 10-K.
(b) Current Reports on Form 8-K
The following Current Report on Form 8-K was filed during the fourth quarter of
1997:
(i) On December 18, 1997, the Company filed a Current Report on Form 8-K to
report that the Company had entered into an agreement on December 17, 1997
with Silver Cinemas, Inc., pursuant to which the Company agreed to sell to
Silver Cinemas, Inc. all of the assets excluding cash and certain of the
liabilities of its subsidiary, Landmark Theatre Group.
51
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
METROMEDIA INTERNATIONAL GROUP, INC.
By: /s/ SILVIA KESSEL
-----------------------------------------
Silvia Kessel
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND TREASURER
</TABLE>
Dated: March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ JOHN W. KLUGE Chairman of the Board
- ------------------------------ March 31, 1998
John W. Kluge
Vice Chairman of the Board,
/s/ STUART SUBOTNICK President and Chief
- ------------------------------ Executive Officer March 31, 1998
Stuart Subotnick (Principal Executive
Officer)
Executive Vice President,
/s/ SILVIA KESSEL Chief Financial Officer
- ------------------------------ and Director (Principal March 31, 1998
Silvia Kessel Financial Officer)
/s/ ARNOLD L. WADLER Executive Vice President,
- ------------------------------ General Counsel, March 31, 1998
Arnold L. Wadler Secretary and Director
/s/ ROBERT A. MARESCA Senior Vice President
- ------------------------------ (Principal Accounting March 31, 1998
Robert A. Maresca Officer)
/s/ JOHN P. IMLAY, JR. Director
- ------------------------------ March 31, 1998
John P. Imlay, Jr.
/s/ CLARK A. JOHNSON Director
- ------------------------------ March 31, 1998
Clark A. Johnson
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ RICHARD J. SHERWIN Director
- ------------------------------ March 31, 1998
Richard J. Sherwin
/s/ LEONARD WHITE Director
- ------------------------------ March 31, 1998
Leonard White
/s/ CARL E. SANDERS Director
- ------------------------------ March 31, 1998
Carl E. Sanders
</TABLE>
53
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report..................................... F-2
Consolidated Statements of Operations for the years ended
December 31, 1997,
1996 and 1995.................................................. F-3
Consolidated Balance Sheets as of December 31, 1997 and 1996..... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1997,
1996 and 1995.................................................. F-5
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1997,
1996 and 1995.................................................. F-6
Consolidated Statements of Comprehensive Income (Loss) for the
years ended December 31, 1997, 1996 and 1995................... F-7
Notes to Consolidated Financial Statements....................... F-8
Consolidated Financial Statement Schedules:
I. Condensed Financial Information of Registrant............ S-1
II. Valuation and Qualifying Accounts........................ S-5
</TABLE>
All other schedules have been omitted either as inapplicable or not required
under the Instructions contained in Regulation S-X or because the information is
included in the Consolidated Financial Statements or the Notes thereto listed
above.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
METROMEDIA INTERNATIONAL GROUP, INC.:
We have audited the accompanying consolidated financial statements of Metromedia
International Group, Inc. and subsidiaries as listed in the accompanying index.
In connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedules as listed in the accompanying
index. These consolidated financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Metromedia
International Group, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
KPMG Peat Marwick LLP
New York, New York
March 20, 1998
F-2
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues.............................................................. $ 204,328 $ 36,592 $ 5,158
Cost and expenses:
Cost of sales and operating expenses................................ 126,544 22,257 --
Selling, general and administrative................................. 141,839 57,439 28,100
Depreciation and amortization....................................... 16,734 7,677 2,101
--------- --------- ---------
Operating loss........................................................ (80,789) (50,781) (25,043)
Interest expense...................................................... 20,922 19,090 5,935
Interest income....................................................... 14,967 8,552 2,506
--------- --------- ---------
Interest expense, net............................................... 5,955 10,538 3,429
Loss before income tax benefit (expense), equity in losses of
investees, minority interest, discontinued operations and
extraordinary items................................................. (86,744) (61,319) (28,472)
Income tax benefit (expense).......................................... 5,227 (414) --
Equity in losses of Joint Ventures.................................... (13,221) (11,079) (7,981)
Equity in losses of and writedown of investment in RDM Sports Group,
Inc. ............................................................... (45,056) -- --
Minority interest, including $8,332 attributable to Metromedia China
Corporation for the year ended December 31, 1997.................... 8,893 666 188
--------- --------- ---------
Loss from continuing operations....................................... (130,901) (72,146) (36,265)
Discontinued operations:
Gain on disposal and (loss) on assets held for sale................. 266,294 (16,305) (293,570)
Loss from discontinued operations................................... (32,258) (22,287) (50,759)
--------- --------- ---------
Income (loss) before extraordinary items.............................. 103,135 (110,738) (380,594)
Extraordinary items:
Loss and equity in loss on early extinguishment of debt............. (14,692) (4,505) (32,382)
--------- --------- ---------
Net income (loss)..................................................... 88,443 (115,243) (412,976)
Cumulative convertible preferred stock dividend requirement........... (4,336) -- --
--------- --------- ---------
Net income (loss) attributable to common stockholders................. $ 84,107 $(115,243) $(412,976)
--------- --------- ---------
--------- --------- ---------
Weighted average of number of common shares--Basic:................... 66,961 54,293 24,541
--------- --------- ---------
--------- --------- ---------
Income (loss) per common share--Basic:
Continuing operations............................................... $ (2.02) $ (1.33) $ (1.48)
Discontinued operations............................................. $ 3.50 $ (0.71) $ (14.03)
Extraordinary items................................................. $ (0.22) $ (0.08) $ (1.32)
Net income (loss)................................................... $ 1.26 $ (2.12) $ (16.83)
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents........................................................... $ 129,661 $ 89,400
Short-term investments.............................................................. 100,000 --
Accounts receivable:
Snapper, net...................................................................... 26,494 36,843
Other, net........................................................................ 5,190 3,444
Inventories......................................................................... 96,436 54,404
Other assets........................................................................ 4,021 3,777
------------ ------------
Total current assets............................................................ 361,802 187,868
Investments in and advances to Joint Ventures:
Eastern Europe and the Republics of the Former Soviet Union......................... 86,442 64,727
China............................................................................... 45,851 720
Net assets of discontinued operations:
Entertainment Group................................................................. -- 10,972
Landmark Theatre Group, Inc......................................................... 48,531 46,502
Asset held for sale-RDM Sports Group, Inc............................................. -- 31,150
Property, plant and equipment, net of accumulated depreciation........................ 44,010 35,458
Intangible assets, less accumulated amortization...................................... 200,120 126,643
Other assets.......................................................................... 2,516 9,078
------------ ------------
Total assets.................................................................. $ 789,272 $ 513,118
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable.................................................................... $ 30,036 $ 19,384
Accrued expenses.................................................................... 76,897 79,177
Current portion of long-term debt................................................... 21,478 17,544
------------ ------------
Total current liabilities....................................................... 128,411 116,105
Long-term debt........................................................................ 57,938 173,210
Other long-term liabilities........................................................... 8,225 3,590
------------ ------------
Total liabilities............................................................... 194,574 292,905
------------ ------------
Minority interest..................................................................... 34,016 531
Commitments and contingencies
Stockholders' equity:
7 1/4% Cumulative Convertible Preferred Stock....................................... 207,000 --
Common Stock, $1.00 par value, 68,390,800 and 66,153,439 issued and outstanding at
December 31, 1997 and 1996, respectively.......................................... 68,391 66,153
Paid-in surplus..................................................................... 1,007,272 959,558
Restricted stock.................................................................... -- (2,645)
Accumulated deficit................................................................. (718,615) (803,349)
Accumulated other comprehensive loss................................................ (3,366) (35)
------------ ------------
Total stockholders' equity...................................................... 560,682 219,682
------------ ------------
Total liabilities and stockholders' equity.................................... $ 789,272 $ 513,118
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Operating activities:
Net income (loss).............................................................. $ 88,443 $(115,243) $(412,976)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
(Gain) on disposal and loss on assets held for sale............................ (266,294) 16,305 293,570
Loss from discontinued operations.............................................. 32,258 22,287 50,759
Loss and equity in loss on early extinguishment of debt........................ 14,692 -- --
Losses on early extinguishment of debt of discontinued operations.............. -- 4,505 32,382
Equity in losses and writedown of investment in RDM Sports Group, Inc.......... 45,056 -- --
Equity in losses of Joint Ventures............................................. 13,221 11,079 7,981
Depreciation and amortization.................................................. 16,734 7,677 2,101
Minority interest.............................................................. (8,893) (666) (188)
Other.......................................................................... 3,922 2,881 434
Changes in operating assets and liabilities, net of effect of acquisitions
and consolidation of Snapper:
(Increase) decrease in accounts receivable..................................... 10,443 (909) (581)
Increase in inventories........................................................ (41,137) (2,473) (224)
(Increase) decrease in other assets............................................ 1,691 (5,700) (1,072)
Increase (decrease) in accounts payable and accrued expenses................... (29,681) 1,335 3,833
Other operating activities, net................................................ 900 (968) 159
--------- --------- ---------
Cash used in operations........................................................ (118,645) (59,890) (23,822)
--------- --------- ---------
Investing activities:
Proceeds from Metromedia Company notes receivable.............................. -- -- 45,320
Investments in and advances to Joint Ventures.................................. (69,841) (40,999) (21,949)
Distributions from Joint Ventures.............................................. 5,630 3,438 784
Purchase of short-term investments............................................. (100,000) -- --
Net proceeds from Entertainment Group Sale..................................... 276,607 -- --
Investment in RDM Sports Group, Inc............................................ (15,000) -- --
Proceeds from sale of short-term investments................................... -- 5,366 --
Cash paid for acquisitions and additional equity in subsidiaries............... (13,101) (2,545) --
Cash acquired in acquisitions.................................................. 1,076 7,588 66,702
Acquisition of AAT............................................................. (4,750) -- --
Additions to property, plant and equipment..................................... (10,451) (5,081) (2,324)
Other investing activities, net................................................ 78 5,400 (4,200)
--------- --------- ---------
Cash provided by (used in) investing activities................................ 70,248 (26,833) 84,333
--------- --------- ---------
Financing activities:
Proceeds from issuance of long-term debt....................................... 30,124 52,594 77,916
Proceeds from issuance of stock related to public stock offerings.............. 199,442 190,604 --
Payments on notes and subordinated debt........................................ (156,771) (81,522) (48,858)
Proceeds from issuance of common stock related to incentive plans.............. 18,153 972 2,282
Preferred stock dividends paid................................................. (3,709) -- --
Due to (from) discontinued operations.......................................... 1,419 (7,130) (72,877)
Other financing activities, net................................................ -- -- 399
--------- --------- ---------
Cash provided by (used in) financing activities.......................... 88,658 155,518 (41,138)
--------- --------- ---------
Net increase in cash and cash equivalents........................................ 40,261 68,795 19,373
Cash and cash equivalents at beginning of year................................... 89,400 20,605 1,232
--------- --------- ---------
Cash and cash equivalents at end of year......................................... $ 129,661 $ 89,400 $ 20,605
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
7 1/4% CUMULATIVE
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ACCUMULATED
------------------- ------------------- OTHER
NUMBER OF NUMBER OF PAID-IN RESTRICTED ACCUMULATED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT SURPLUS STOCK DEFICIT INCOME (LOSS) TOTAL
--------- -------- ---------- ------- ---------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, February
28, 1995.......... -- $ -- 20,934,898 $20,935 $ 289,229 $-- $(310,138) $ 184 $ 210
November 1 Merger:
Issuance of stock
related to the
acquisition of
Actava and
Sterling........ -- -- 17,974,155 17,974 316,791 -- -- -- 334,765
Issuance of stock
in exchange for
MetProductions
and Met
International... -- -- 3,530,314 3,530 33,538 -- -- -- 37,068
Valuation of
Actava and MITI
options......... -- -- -- -- 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
Issuance of stock
related to
incentive plans... -- -- 174,371 175 2,589 -- -- -- 2,764
Other comprehensive
income............ -- -- -- -- -- -- -- 399 399
Net loss............ -- -- -- -- -- -- (412,976) -- (412,976)
--------- -------- ---------- ------- ---------- ---------- ----------- ------------- ---------
Balances, December
31, 1995.......... -- -- 42,613,738 42,614 728,747 -- (688,106) 583 83,838
Issuance of stock
related to public
offering, net..... -- -- 18,400,000 18,400 172,204 -- -- -- 190,604
Issuance of stock
related to the
acquisitions of
the Samuel Goldwyn
Company and Motion
Picture
Corporation of
America........... -- -- 4,715,869 4,716 54,610 -- -- -- 59,326
Issuance of stock
related to
incentive plans... -- -- 423,832 423 3,997 (3,174) -- -- 1,246
Amortization of
restricted
stock............. -- -- -- -- -- 529 -- -- 529
Other comprehensive
loss.............. -- -- -- -- -- -- -- (618) (618)
Net loss............ -- -- -- -- -- -- (115,243) -- (115,243)
--------- -------- ---------- ------- ---------- ---------- ----------- ------------- ---------
Balances, December
31, 1996.......... -- -- 66,153,439 66,153 959,558 (2,645) (803,349) (35) 219,682
Issuance of stock
related to public
offering, net..... 4,140,000 207,000 -- -- (7,558) -- -- -- 199,442
Increase in equity
resulting from
issuance of stock
by subsidiary..... -- -- -- -- 35,957 -- -- -- 35,957
Issuance of stock
related to
acquisition of a
minority interest
of a subsidiary... -- -- 250,000 250 2,719 -- -- -- 2,969
Issuance of stock
related to
incentive plans... -- -- 1,987,361 1,988 16,596 -- -- -- 18,584
Dividends on 7 1/4%
cumulative
convertible
preferred stock... -- -- -- -- -- -- (3,709) -- (3,709)
Amortization of
restricted
stock............. -- -- -- -- -- 2,645 -- -- 2,645
Other comprehensive
loss.............. -- -- -- -- -- -- -- (3,331) (3,331)
Net income.......... -- -- -- -- -- -- 88,443 -- 88,443
--------- -------- ---------- ------- ---------- ---------- ----------- ------------- ---------
Balances, December
31, 1997.......... 4,140,000 $207,000 68,390,800 $68,391 $1,007,272 $-- $(718,615) $(3,366) $ 560,682
--------- -------- ---------- ------- ---------- ---------- ----------- ------------- ---------
--------- -------- ---------- ------- ---------- ---------- ----------- ------------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- ----------- -----------
Net income (loss)............................................................ $ 88,443 $ (115,243) $ (412,976)
--------- ----------- -----------
Other comprehensive income, net of tax:
Foreign currency translation adjustment.................................. (2,526) (618) 399
Minimum pension liability................................................ (805) -- --
--------- ----------- -----------
Other comprehensive income (loss)............................................ (3,331) (618) 399
--------- ----------- -----------
Comprehensive income (loss).................................................. $ 85,112 $ (115,861) $ (412,577)
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Metromedia International Group, Inc. ("MMG" or the "Company") and its
wholly-owned subsidiaries, Metromedia International Telecommunications, Inc.
("MITI" or the "Communications Group") and Snapper Inc. ("Snapper") as of
November 1, 1996 (see notes 7 and 8). All significant intercompany transactions
and accounts have been eliminated.
On July 10, 1997, the Company completed the sale of substantially all of its
entertainment assets (the "Entertainment Group Sale") (see note 5). The
transaction has been recorded as a discontinuance of a business segment, and
accordingly the consolidated balance sheet at December 31, 1996 reflects the net
assets of the discontinued segment. The consolidated statements of operations
reflect the results of operations through May 2, 1997, the date of the execution
of the definitive agreement relating to the Entertainment Group Sale, of the
discontinued segment. The Company recorded a gain on the sale of the
discontinued segment on July 10, 1997 (see note 5).
In addition, the Company anticipates completing the sale of Landmark Theatre
Group ("Landmark") in April 1998 (see note 6). Accordingly, Landmark has been
recorded as a discontinuance of a business segment, and the consolidated balance
sheets at December 31, 1997 and 1996 reflect the net assets of the discontinued
segment. The consolidated statements of operations reflect Landmark's results of
operations through November 12, 1997, the date the Company adopted the plan to
dispose of Landmark, as a discontinued operation.
As of April 1, 1997, for financial statement reporting purposes, the Company no
longer qualified to treat its investment in RDM Sports Group, Inc. ("RDM") as a
discontinued operation and the Company has included in its results of continuing
operations the Company's share of the earnings and losses of RDM. On August 29,
1997, RDM and certain of its affiliates filed a voluntary bankruptcy petition
under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court
for the Northern District of Georgia (see note 9).
DIFFERENT FISCAL YEAR ENDS
The Company reports on the basis of a December 31 year end. In connection with
the November 1 Merger discussed in note 7, Orion Pictures Corporation ("Orion")
and MITI, for accounting purposes only, were deemed to be the joint acquirers 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 November
1 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.
F-8
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DESCRIPTION OF THE BUSINESS
COMMUNICATIONS GROUP
The Company, through the Communications Group, is the owner of various interests
in joint ventures ("Joint Ventures") that are currently in operation or planning
to commence operations in Eastern Europe, the republics of the former Soviet
Union, the People's Republic of China ("China") and other selected emerging
markets. The Communications Group's Joint Ventures in Eastern Europe and Central
Asia currently offer cable television, AM/FM radio broadcasting, paging,
cellular telecommunications, international toll calling and trunked mobile
radio. The Communications Group's Joint Ventures in China provide financing,
technical assistance and consulting services for telecommunication projects. The
Communications Group develops communications business in heavily populated
areas, primarily in countries that lack reliable and efficient communications
services. The Communications Group strategy is to gain early entry into its
target markets in order to capitalize on the increasing demand for quality
modern communications systems. In general, the Communications Group strives to
achieve its goal to become a major multiple-market provider of communications
systems and, accordingly, targets markets where its system can be constructed
without a significant capital investment and where it can cross-market its
service.
SNAPPER
Snapper manufacturers Snapper-Registered Trademark- brand premium-priced power
lawnmowers, lawn tractors, garden tillers, snow throwers and related parts and
accessories. The lawnmowers include rear engine riding mowers, front engine
riding mowers or lawn tractors, and self-propelled and push-type walk-behind
mowers. Snapper also manufactures a line of commercial lawn and turf equipment
under the Snapper brand. Snapper provides lawn and garden products through
distribution channels to domestic and foreign retail markets.
A large percentage of the residential sales of lawn and garden equipment are
made during a 17-week period from early spring to mid-summer. Although some
sales are made to the dealers and distributors prior to this period, the largest
volume of sales is made during this time. The majority of revenues during the
late fall and winter periods are related to snow thrower shipments.
LIQUIDITY
MMG is a holding company, and accordingly, does not generate cash flows. The
Communications Group is dependent on MMG for significant capital infusions to
fund its operations, its commitments to make capital contributions and loans to
its Joint Ventures and any acquisitions. Such funding requirements are based on
the anticipated funding needs of its Joint Ventures and certain acquisitions
committed to by the Company. Future capital requirements of the Communications
Group, including future acquisitions, will depend on available funding from the
Company or alternative sources of financing and on the ability of the
Communications Group's Joint Ventures to generate positive cash flows. In
addition, Snapper is restricted under covenants contained in its credit
agreement from making dividend payments or advances to MMG.
In the near-term, the Company intends to satisfy its working capital and capital
commitments with available cash on hand and the proceeds from the sale of
Landmark (see note 6). However, the Communications Group's businesses in the
aggregate are capital intensive and require the investment of significant
amounts of capital in order to construct and develop operational systems and
market its
F-9
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
services. As a result, the Company will require additional financing in order to
satisfy its on-going working capital, acquisition and expansion requirements and
to achieve its long-term business strategies. Such additional capital may be
provided through the public or private sale of equity or debt securities of the
Company or by separate equity or debt financings by the Communications Group or
certain companies of the Communications Group. No assurance can be given that
additional financing will be available to the Company on acceptable terms, if at
all. If adequate additional funds are not available, the Company may be required
to curtail significantly its long-term business objectives and the Company's
results from operations may be materially and adversely affected.
Management believes that its long term liquidity needs will be satisfied through
a combination of the Company's successful implementation and execution of its
growth strategy to become a global communications and media company and the
Communications Group's Joint Ventures achieving positive operating results and
cash flows through revenue and subscriber growth and control of operating
expenses.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash equivalents consists of highly liquid instruments with maturities of three
months or less at the time of purchase.
INVESTMENTS
EQUITY METHOD INVESTMENTS
Investments in other companies and Joint Ventures which are not majority owned,
or which the Company does not control but in which it 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 are adjusted by the Company's share of
undistributed earnings or losses of the Joint Venture. 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 Venture.
During the year ended December 31, 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 1995 consolidated 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. For the years ended
December 31, 1997 and 1996, the results of operations reflect twelve months of
activity based upon a September 30 fiscal year end of these subsidiaries.
DEBT AND EQUITY SECURITY INVESTMENTS
The Company classifies its investments in debt and equity securities in one of
three categories: trading, available-for-sale, or held-to-maturity. Trading
securities are bought and held principally for the purpose of
F-10
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
selling them in the near term. Held-to-maturity securities are those securities
in which the Company has the ability and intent to hold the securities until
maturity. All other securities not classified as trading or held-to-maturity are
classified as available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized gains and losses, net of tax, reported in
stockholders' 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.
Management determines the appropriate classification of investments as trading,
held-to-maturity or available-for-sale at the time of purchase and reevaluates
such designation as of each balance sheet date. At December 31, 1997 and 1996,
the Company did not have any debt and equity security investments.
INVENTORIES
Lawn and garden equipment inventories and pager, telephony and cable inventories
are stated at the lower of cost or market. Lawn and garden equipment inventories
are valued utilizing the last-in, first-out (LIFO) method. Pager, telephony and
cable inventories are calculated on the weighted-average method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and are depreciated over
their expected useful lives. Generally, depreciation is provided on the
straight-line method for financial reporting purposes. Leasehold improvements
are amortized using the straight-line method over the life of the improvements
or the life of the lease, whichever is shorter.
INTANGIBLE ASSETS
Intangible assets are stated at historical cost, net of accumulated
amortization. Intangibles such as broadcasting licenses and frequency rights are
amortized over periods of 20 to 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.
Management continuously monitors and evaluates the realizability of recorded
intangibles to determine whether their carrying values have been impaired. In
evaluating the value and future benefits of intangible assets, their carrying
amount is compared to management's best estimate of undiscounted future cash
flows over the remaining amortization period. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. The
Company believes that the carrying value of recorded intangibles is not
impaired.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets and certain identifiable intangibles are reviewed by the
Company for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount to
undiscounted future net cash flows expected to be generated by the asset. If
such assets are
F-11
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
REVENUE RECOGNITION
COMMUNICATIONS GROUP
The Communications Group 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 Communications Group and its Joint Ventures' radio
operations recognize advertising revenue when commercials are broadcast.
SNAPPER
Sales are recognized when the products are shipped to distributors or dealers.
Provision for estimated warranty costs is recorded at the time of sale and
periodically adjusted to reflect actual experience.
BARTER TRANSACTIONS
In connection with its AM/FM radio broadcasting business, 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.
RESEARCH AND DEVELOPMENT AND ADVERTISING COSTS
Research and development and advertising costs are expensed as incurred.
SELF-INSURANCE
The Company is self-insured for workers' compensation, health, automobile,
product and general liability costs for its lawn and garden operation and for
certain former subsidiaries. The self-insurance claim liability is determined
based on claims filed and an estimate of claims incurred but not yet reported.
MINORITY INTERESTS
Recognition of minority interests' share of losses of consolidated subsidiaries
is limited to the amount of such minority interests' allocable portion of the
common equity of those consolidated subsidiaries.
INCOME TAXES
The Company accounts for deferred income taxes using the asset and liability
method of accounting. Under the asset and 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. Valuation allowances are
established when necessary to
F-12
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reduce deferred tax assets to the amounts expected to be realized. Deferred tax
assets and liabilities are measured using rates expected to be in effect when
those assets and liabilities are recovered or settled. 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.
STOCK OPTION PLANS
Prior to January 1, 1996, the Company accounted for its stock option plans in
accordance with the provisions of Accounting Principles Board Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS 123 also allows entities to continue to apply the provisions
of APB 25 and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years as if
the fair-value-based method defined in SFAS 123 had been applied. The Company
has elected to continue to apply the provisions of APB 25 and provide the pro
forma disclosure requirements of SFAS 123.
PENSION AND OTHER POSTRETIREMENT PLANS
Snapper has a defined benefit pension plan covering substantially all of its
collective bargaining unit employees. The benefits are based on years of service
multiplied by a fixed dollar amount and the employee's compensation during the
five years before retirement. The cost of this program is funded currently.
Snapper also sponsors a defined benefit health care plan for substantially all
of its retirees and employees. Snapper measures the costs of its obligation
based on its best estimate. The net periodic costs are recognized as employees
render the services necessary to earn postretirement benefits.
FOREIGN CURRENCY TRANSLATION
The statutory accounts of the Company's consolidated foreign subsidiaries and
Joint Ventures are maintained in accordance with local accounting regulations
and are stated in local currencies. Local statements are translated into U.S.
generally accepted accounting principles and U.S. dollars in accordance with
Statement of Financial Accounting Standards No. 52 ("SFAS 52"), "Accounting for
Foreign Currency Translation".
Under SFAS 52, foreign currency assets and liabilities are generally translated
using the exchange rates in effect at the balance sheet date. Results of
operations are generally translated using the average exchange rates prevailing
throughout the year. The effects of exchange rate fluctuations on translating
foreign currency assets and liabilities into U.S. dollars are accumulated as
part of the foreign currency translation adjustment in 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
F-13
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. Transaction differences resulting from the use of these
different rates are included in the accompanying consolidated statements of
operations. Such differences amounted to $714,000, $255,000 and $54,000 for the
years ended December 31, 1997, 1996 and 1995, respectively, and were immaterial
to the Company's results of operations for each of the periods presented. In
addition, translation differences resulting from the effect of exchange rate
changes on cash and cash equivalents were immaterial and are not reflected in
the Company's consolidated statements of cash flows for each of the periods
presented.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is required to disclose 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 rates 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. Certain financial instruments and all
non-financial instruments are excluded from the disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value to the Company.
The following methods and assumptions were used in estimating the fair value
disclosures for financial instruments:
CASH AND CASH EQUIVALENTS, RECEIVABLES, SHORT-TERM INVESTMENTS, NOTES RECEIVABLE
AND ACCOUNTS PAYABLE
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, short-term investments, current receivables, notes
receivable and accounts payable approximate fair values.
DEBT AND EQUITY SECURITY INVESTMENTS
For debt and equity security 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.
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 4 for the fair
values of long-term debt.
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
F-14
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
liabilities and disclosure of the contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Estimates are used when accounting for the
allowance for doubtful accounts, inventory obsolescence, long-lived assets,
intangible assets, product warranty expenses, self-insured workers' compensation
and product liability claims, depreciation and amortization, employee benefit
plans, income taxes and contingencies, among others. The Company reviews all
significant estimates affecting its consolidated financial statements on a
recurring basis and records the effect of any necessary adjustment prior to
their publication. Uncertainties with respect to such estimates and assumptions
are inherent in the preparation of the Company's consolidated financial
statements; accordingly, it is possible that actual results could differ from
those estimates and changes to estimates could occur in the near term.
NEW ACCOUNTING DISCLOSURES
EARNINGS PER SHARE OF COMMON STOCK
In February 1997, Statement of Financial Accounting Standards No. 128 ("SFAS
128"), "Earnings per Share" was issued, which specifies the computation,
presentation and disclosure requirements for earnings per share ("EPS"). SFAS
128 is effective for financial statements for both interim and annual periods
ending after December 15, 1997. All prior period EPS data has been restated to
conform with SFAS 128. SFAS 128 replaces the presentation of primary and fully
diluted EPS with basic and diluted EPS.
Basic EPS excludes all dilutive securities. It is based upon the weighted
average number of common shares outstanding during the period. Diluted EPS
reflects the potential dilution that would occur if securities to issue common
stock were exercised or converted into common stock. In calculating diluted EPS,
no potential shares of common stock are to be included in the computation when a
loss from continuing operations available to common stockholders exists. For the
interim periods in 1997 and 1996 and the years ended December 31, 1997, 1996 and
1995 the Company had losses from continuing operations.
The computation of basic EPS for the years ended December 31, 1997, 1996 and
1995 is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
LOSS SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ --------------- -----------
<S> <C> <C> <C>
1997:
Loss from continuing operations.......................................... $ (130,901)
Less: Preferred stock dividend requirement............................... 4,336
------------
Loss from continuing operations attributable to common stockholders...... $ (135,237) 66,961 $ (2.02)
------------ ------ -----------
------------ ------ -----------
1996:
Loss from continuing operations.......................................... $ (72,146) 54,293 $ (1.33)
------------ ------ -----------
------------ ------ -----------
1995:
Loss from continuing operations.......................................... $ (36,265) 24,541 $ (1.48)
------------ ------ -----------
------------ ------ -----------
</TABLE>
The Company had for the years ended December 31, 1997, 1996 and 1995,
potentially dilutive shares of common stock of 19,673,000, 6,381,000 and
3,665,000, respectively (see note 11).
F-15
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
In June 1997, Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income" was issued and established standards for
reporting and disclosure of comprehensive income. Reclassification of financial
statements for earlier periods presented for comparative purposes is required
under SFAS 130. As SFAS 130 only requires additional disclosures in the
Company's consolidated financial statements, its adoption did not have any
impact on the Company's consolidated financial position or results of
operations.
BUSINESS SEGMENT DISCLOSURES
In June 1997, Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information" was issued
and established standards for the reporting of information about operating
segments and requires the reporting of selected information about operating
segments. Reclassification of segment information for earlier periods presented
for comparative purposes is required under SFAS 131. The adoption of SFAS 131
did not result in significant changes to the Company's presentation of financial
data by business segment.
2. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES-EASTERN EUROPE AND THE
REPUBLICS OF THE FORMER SOVIET UNION
The Communications Group records its investments in other companies and Joint
Ventures which are less than majority-owned, or which the Company does not
control but in which it exercises significant influences at cost, net of 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 prime rate to prime rate plus 6%. 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. The Communications
Group has entered into charter fund and credit agreements with its Joint
Ventures to provide up to $102.8 million in funding of which $19.2 million
remains available at December 31, 1997. The Communications Group funding
commitments are contingent on its approval of the Joint Ventures' business
plans.
F-16
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES-EASTERN EUROPE AND THE
REPUBLICS OF THE FORMER SOVIET UNION (CONTINUED)
At December 31, 1997 and 1996 the Communications Group's unconsolidated
investments in Joint Ventures in Eastern Europe and the republics of the former
Soviet Union, at cost, net of adjustments for its equity in earnings or losses,
were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR VENTURE YEAR OPERATIONS
NAME 1997 1996 OWNERSHIP % FORMED COMMENCED
- ---------------------------------------------- --------- --------- ------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
CABLE TELEVISION
Kosmos TV, Moscow, Russia (5)................. $ (123) $ 759 50% 1991 1992
Baltcom TV, Riga Latvia....................... 6,093 8,513 50% 1991 1992
Ayety TV, Tbilisi, Georgia.................... 3,732 4,691 49% 1991 1993
Kamalak TV, Tashkent, Uzbekistan.............. 3,078 4,240 50% 1992 1993
Sun TV, Chisinau, Moldova..................... 4,671 3,590 50% 1993 1994
Cosmos TV, Minsk, Belarus (3)................. 2,135 1,980 50% 1993 1996
Alma TV, Almaty, Kazakstan.................... 2,372 1,869 50% 1994 1995
TV-21, Riga, Latvia........................... 458 -- 48% 1996 1997
--------- ---------
22,416 25,642
--------- ---------
PAGING
Baltcom Paging, Tallinn, Estonia (1).......... -- 3,154 85% 1992 1993
Baltcom Plus, Riga, Latvia.................... 1,232 1,711 50% 1994 1995
Paging One, Tbilisi, Georgia.................. 1,037 829 45% 1993 1994
Raduga Poisk, Nizhny Novgorod, Russia......... 549 450 45% 1993 1994
PT Page, St. Petersburg, Russia............... 1,006 963 40% 1994 1995
Paging Ajara, Batumi, Georgia (3)............. 277 256 35% 1996 1997
Kazpage, Kazakstan (2) (3).................... 864 350 26-41 % 1996 1997
Kamalak Paging, Tashkent, Uzbekistan.......... 1,989 1,791 50% 1992 1993
Alma Page, Almaty, Kazakstan.................. 2,161 971 50% 1994 1995
--------- ---------
9,115 10,475
--------- ---------
RADIO BROADCASTING
Eldoradio (formerly Radio Katusha),
St. Petersburg, Russia........................ 971 435 50% 1993 1995
Radio Nika, Socci, Russia..................... 337 361 51% 1995 1995
AS Trio LSL, Tallinn, Estonia................. 1,593 -- 49% 1997 1997
--------- ---------
2,901 796
--------- ---------
</TABLE>
F-17
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES-EASTERN EUROPE AND THE
REPUBLICS OF THE FORMER SOVIET UNION (CONTINUED)
<TABLE>
<CAPTION>
YEAR VENTURE YEAR OPERATIONS
NAME 1997 1996 OWNERSHIP % FORMED COMMENCED
- ---------------------------------------------- --------- --------- ------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
INTERNATIONAL TOLL CALLING
Telecom Georgia, Tbilisi, Georgia............. 6,080 2,704 30% 1994 1994
--------- ---------
CELLULAR TELECOMMUNICATIONS
Baltcom GSM, Latvia (3)....................... 11,996 7,874 21% 1996 1997
Magticom, Tbilisi, Georgia (3)................ 6,951 2,450 34% 1996 1997
--------- ---------
18,947 10,324
--------- ---------
TRUNKED MOBILE RADIO
Trunked mobile radio ventures................. 5,390 2,049
--------- ---------
PRE-OPERATIONAL (4)
Teleplus, St. Petersburg, Russia.............. 1,093 554 45% 1996
Telephony related ventures and equipment...... 9,003 8,992
Other......................................... 11,497 3,191
--------- ---------
21,593 12,737
--------- ---------
Total......................................... $ 86,442 $ 64,727
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) In July 1997, the Communications Group purchased an additional 54% of Estcom
Sweden, the parent company of Baltcom Paging, increasing the ownership of
Estcom Sweden and Baltcom Paging to 100% and 85%, respectively.
(2) Kazpage is comprised of a service entity and 10 paging Joint Ventures. The
Company's interest in the paging Joint Ventures ranges from 26% to 41% and
its interest in the service entity is 51%.
(3) Included in pre-operational at December 31, 1996.
(4) At December 31, 1997 and 1996 included in pre-operational Joint Ventures are
amounts for entities whose Joint Venture agreements are not yet finalized
and amounts expended for equipment for future wireless local loop projects.
(5) The Communications Group has a continuing obligation to fund Kosmos TV under
the credit agreement.
F-18
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES-EASTERN EUROPE AND THE
REPUBLICS OF THE FORMER SOVIET UNION (CONTINUED)
Summarized combined balance sheet financial information as of September 30, 1997
and 1996 and combined statement of operations financial information for the
years ended September 30, 1997, 1996 and 1995 accounted for under the equity
method that have commenced operations as of the dates indicated are as follows
(in thousands):
COMBINED INFORMATION OF UNCONSOLIDATED JOINT VENTURES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Assets:
Current assets........................................................................... $ 30,563 $ 16,073
Investments in wireless systems and equipment............................................ 84,875 38,447
Other assets............................................................................. 9,758 3,100
---------- ---------
Total assets......................................................................... $ 125,196 $ 57,620
---------- ---------
---------- ---------
Liabilities and Joint Ventures' Equity (Deficit):
Current liabilities...................................................................... $ 28,280 $ 18,544
Amount payable under MITI credit facility................................................ 50,692 41,055
Other long-term liabilities.............................................................. 49,232 6,043
---------- ---------
128,204 65,642
Joint Ventures' equity (deficit)......................................................... (3,008) (8,022)
---------- ---------
Total liabilities and Joint Ventures' equity (deficit)............................... $ 125,196 $ 57,620
---------- ---------
---------- ---------
</TABLE>
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ----------
<S> <C> <C> <C>
Revenue........................................................................ $ 70,418 $ 44,800 $ 19,344
Expenses:
Cost of service.............................................................. 17,619 15,490 9,993
Selling, general and administrative.......................................... 35,860 25,381 11,746
Depreciation and amortization................................................ 14,348 8,039 3,917
Other........................................................................ 30 1,674 --
--------- ---------- ----------
Total expenses........................................................... 67,857 50,584 25,656
--------- ---------- ----------
Operating income (loss)........................................................ 2,561 (5,784) (6,312)
Interest expense............................................................... (6,339) (3,883) (1,960)
Other loss..................................................................... (2,689) (391) (1,920)
Foreign currency transactions.................................................. (2,757) (425) (203)
--------- ---------- ----------
Net loss....................................................................... $ (9,224) $ (10,483) $ (10,395)
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
F-19
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES-EASTERN EUROPE AND THE
REPUBLICS OF THE FORMER SOVIET UNION (CONTINUED)
Financial information for Joint Ventures which are not yet operational is not
included in the above summary.
The following tables represent summary financial information for all operating
entities being grouped as indicated as of and for the years ended December 31,
1997, 1996 and 1995 (in thousands, except subscribers):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------------------------------
CABLE RADIO CELLULAR INTERNATIONAL TRUNKED
TELEVISION PAGING BROADCASTING TELECOMMUNICATIONS TOLL CALLING MOBILE RADIO
---------- -------- ------------- ------------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
COMBINED (2)
Revenues......................... $ 23,314 $ 12,999 $ 16,015 $ 2,587 $30,866 $ 4,004
Depreciation and amortization.... 9,648 1,630 699 2,380 1,287 981
Operating income (loss) before
taxes.......................... (6,831) (3,905) 4,182 (6,761) 17,244 (3,325)
Interest income.................. 9 70 152 12 31 22
Interest expense................. 4,146 1,483 469 1,046 382 460
Net income (loss)................ (12,529) (6,516) 1,477 (8,129) 14,030 (3,886)
Assets........................... 36,618 18,001 16,637 53,495 27,558 10,821
Capital expenditures............. 9,667 2,838 739 42,276 8,331 2,560
Contributions to Joint
Ventures (3)................... 16,949 9,208 8,750 11,051 21 8,869
Subscribers (unaudited).......... 225,525 57,831 n/a 10,429 n/a 13,628
CONSOLIDATED SUBSIDIARIES AND
JOINT VENTURES
Revenues......................... $ 1,902 $ 3,318 $ 13,549 $-- $-- $ 598
Depreciation and amortization.... 791 790 607 -- -- 89
Operating income (loss) before
taxes.......................... (1,953) (4,084) 3,935 -- -- 145
Interest income.................. 5 66 146 -- -- 22
Interest expense................. 577 683 387 -- -- --
Net income (loss)................ (2,654) (5,198) 1,356 -- -- 167
Assets........................... 8,148 8,132 15,073 -- -- 6,581
Capital expenditures............. 1,423 1,895 238 -- -- --
UNCONSOLIDATED JOINT VENTURES
Revenues......................... $ 21,412 $ 9,681 $ 2,466 $ 2,587 $30,866 $ 3,406
Depreciation and amortization.... 8,857 840 92 2,380 1,287 892
Operating income (loss) before
taxes.......................... (4,878) 179 247 (6,761) 17,244 (3,470)
Interest income.................. 4 4 6 12 31 --
Interest expense................. 3,569 800 82 1,046 382 460
Net income (loss)................ (9,875) (1,318) 121 (8,129) 14,030 (4,053)
Assets........................... 28,470 9,869 1,564 53,495 27,558 4,240
Capital expenditures............. 8,244 943 501 42,276 8,331 2,560
Net investment in Joint
Ventures....................... 22,416 9,115 2,901 18,947 6,080 5,390
MITI equity in income (losses) of
unconsolidated investees....... (10,609) (1,460) 81 (2,416) 4,209 (1,601)
<CAPTION>
TOTAL
--------
<S> <C>
COMBINED (2)
Revenues......................... $ 89,785
Depreciation and amortization.... 16,625
Operating income (loss) before
taxes.......................... 604
Interest income.................. 296
Interest expense................. 7,986
Net income (loss)................ (15,553)
Assets........................... 163,130
Capital expenditures............. 66,411
Contributions to Joint
Ventures (3)................... 54,848
Subscribers (unaudited).......... 307,413
CONSOLIDATED SUBSIDIARIES AND
JOINT VENTURES
Revenues......................... $ 19,367(1)
Depreciation and amortization.... 2,277
Operating income (loss) before
taxes.......................... (1,957)(1)
Interest income.................. 239
Interest expense................. 1,647
Net income (loss)................ (6,329)(1)
Assets........................... 37,934
Capital expenditures............. 3,556
UNCONSOLIDATED JOINT VENTURES
Revenues......................... $ 70,418
Depreciation and amortization.... 14,348
Operating income (loss) before
taxes.......................... 2,561
Interest income.................. 57
Interest expense................. 6,339
Net income (loss)................ (9,224)
Assets........................... 125,196
Capital expenditures............. 62,855
Net investment in Joint
Ventures....................... 64,849
MITI equity in income (losses) of
unconsolidated investees....... (11,796)
</TABLE>
F-20
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES-EASTERN EUROPE AND THE
REPUBLICS OF THE FORMER SOVIET UNION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------------------
CABLE RADIO INTERNATIONAL TRUNKED
TELEVISION PAGING BROADCASTING TOLL CALLING MOBILE RADIO TOTAL
----------- --------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
COMBINED(2)
Revenues........................................ $ 15,243 $ 10,864 $ 10,899 $ 19,177 $ 1,030 $ 57,213
Depreciation and amortization................... 5,964 1,645 257 617 493 8,976
Operating income (loss) before taxes............ (5,990) (943) 279 3,122 (1,409) (4,941)
Interest income................................. -- 84 90 -- -- 174
Interest expense................................ 2,685 1,039 434 65 223 4,446
Net income (loss)............................... (9,170) (2,896) (681) 2,997 (1,690) (11,440)
Assets.......................................... 27,238 12,829 4,125 13,815 8,345 66,352
Capital expenditures............................ 7,944 3,439 789 2,096 -- 14,268
Contributions to Joint Ventures (3)............. 15,822 9,616 2,510 -- 4,718 32,666
Subscribers (unaudited)......................... 69,118 44,836 n/a n/a 6,642 120,596
CONSOLIDATED SUBSIDIARIES AND JOINT VENTURES
Revenues........................................ $ 170 $ 2,880 $ 9,363 $ -- $ -- $ 12,413(1)
Depreciation and amortization................... 302 461 174 -- -- 937
Operating income (loss) before taxes............ (832) (427) 2,102 -- -- 843(1)
Interest income................................. -- 81 90 -- -- 171
Interest expense................................ 116 270 177 -- -- 563
Net income (loss)............................... (1,216) (1,209) 1,468 -- -- (957)(1)
Assets.......................................... 2,017 3,232 3,483 -- -- 8,732
Capital expenditures............................ 1,813 443 555 -- -- 2,811
UNCONSOLIDATED JOINT VENTURES
Revenues........................................ $ 15,073 $ 7,984 $ 1,536 $ 19,177 $ 1,030 $ 44,800
Depreciation and amortization................... 5,662 1,184 83 617 493 8,039
Operating income (loss) before taxes............ (5,158) (516) (1,823) 3,122 (1,409) (5,784)
Interest income................................. -- 3 -- -- -- 3
Interest expense................................ 2,569 769 257 65 223 3,883
Net income (loss)............................... (7,954) (1,687) (2,149) 2,997 (1,690) (10,483)
Assets.......................................... 25,221 9,597 642 13,815 8,345 57,620
Capital expenditures............................ 6,131 2,996 234 2,096 -- 11,457
Net investment in Joint Ventures................ 23,662 9,869 796 2,704 2,049 39,080
MITI equity in income (losses) of unconsolidated
investees..................................... (7,355) (1,876) (2,152) 899 (595) (11,079)
</TABLE>
F-21
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES-EASTERN EUROPE AND THE
REPUBLICS OF THE FORMER SOVIET UNION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------
CABLE RADIO INTERNATIONAL
TELEVISION PAGING BROADCASTING TOLL CALLING TOTAL
----------- --------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
COMBINED (2)
Revenues................................................... $ 8,105 $ 3,821 $ 4,797 $ 7,190 $ 23,913
Depreciation and amortization.............................. 2,946 602 402 465 4,415
Operating income (loss) before taxes....................... (4,153) (635) (1,492) (292) (6,572)
Interest income............................................ -- 9 13 -- 22
Interest expense........................................... 1,599 456 366 -- 2,421
Net income (loss).......................................... (6,880) (1,337) (1,886) (1,018) (11,121)
Assets..................................................... 20,666 7,954 8,246 14,757 51,623
Capital expenditures....................................... 8,985 2,715 218 9,740 21,658
Contributions to Joint Ventures............................ 12,549 4,533 1,655 898 19,635
Subscribers (unaudited).................................... 37,900 14,460 n/a n/a 52,360
CONSOLIDATED SUBSIDIARIES AND JOINT VENTURES
Revenues................................................... $ -- $ 690 $ 3,879 $ -- $ 4,569(1)
Depreciation and amortization.............................. -- 132 366 -- 498
Operating income (loss) before taxes....................... -- (23) (237) -- (260) (1)
Interest income............................................ -- 9 13 -- 22
Interest expense........................................... -- 161 300 -- 461
Net income (loss).......................................... -- (228) (498) -- (726) (1)
Assets..................................................... -- 2,398 7,999 -- 10,397
Capital expenditures....................................... -- 40 172 -- 212
UNCONSOLIDATED JOINT VENTURES
Revenues................................................... $ 8,105 $ 3,131 $ 918 $ 7,190 $ 19,344
Depreciation and amortization.............................. 2,946 470 36 465 3,917
Operating income (loss) before taxes....................... (4,153) (612) (1,255) (292) (6,312)
Interest income............................................ -- -- -- -- --
Interest expense........................................... 1,599 295 66 -- 1,960
Net income (loss).......................................... (6,880) (1,109) (1,388) (1,018) (10,395)
Assets..................................................... 20,666 5,556 247 14,757 41,226
Capital expenditures....................................... 8,985 2,675 46 9,740 21,446
Net investment in Joint Ventures........................... 20,536 6,036 1,174 2,078 29,824
MITI equity in income (losses) of unconsolidated
investees................................................ (5,834) (454) (1,388) (305) (7,981)
</TABLE>
- ------------------------
(1) Does not reflect the Communications Group's and Protocall's headquarter's
revenue and selling, general and administrative expenses for the years ended
December 31, 1997, 1996 and 1995, respectively.
(2) On September 30, 1996, the Communications Group purchased an additional 32%
of SAC/Radio 7, increasing the ownership percentage to 83% and acquiring
control of its business. Accordingly, this investment is accounted for on a
consolidated basis from this date forward and its results are reflected as
such in the above tables. Results of operations for the year ended September
30, 1996 and prior are included with the unconsolidated Joint Ventures.
(3) In 1997, the Communications Group made investments of $2,599 in Fixed
Telephony. In 1996, investments of $10,361 and $9,189 were made in Cellular
Telecommunications and Fixed Telephony, respectively. In 1995, investments
of $448 and $999 were made in Trunked Mobile Radio and Fixed Telephony,
respectively.
F-22
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES-EASTERN EUROPE AND THE
REPUBLICS OF THE FORMER SOVIET UNION (CONTINUED)
The Communication Group's trunked mobile radio Joint Ventures are owned through
its 56% ownership interest in Protocall Ventures. In October 1997, Protocall
increased its ownership percentages in its Spanish Joint Ventures from 6%-16% to
17%-48%.
In December 1997, the Communications Group completed the purchase of 85% of
Country Radio, a Joint Venture operating radio stations in Prague, Czech
Republic and in January 1998, the Communications Group signed a definitive
agreement to purchase 50% of a paging company in the Russian Federation.
3. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES-CHINA
In February, 1997, Metromedia China Corporation ("MCC") a subsidiary of the
Company with telephony interests in China, acquired Asian American
Telecommunications Corporation ("AAT") pursuant to a Business Combination
Agreement (the "BCA") in which MCC and AAT agreed to combine their businesses
and operations. Pursuant to the BCA, each AAT shareholder and warrant holder
exchanged (i) one share of AAT common stock (the "AAT Common Stock") for one
share of MCC Common Stock, par value $.01 per share ("MCC Common Stock"), (ii)
one warrant to acquire one share of AAT Common Stock at an exercise price of
$4.00 per share for one warrant to acquire one share of MCC Common Stock at an
exercise price of $4.00 per share and (iii) one warrant to acquire one share of
AAT Common Stock at an exercise price of $6.00 per share for one warrant to
acquire one share of MCC Common Stock at an exercise price of $6.00 per share.
AAT is engaged in the development and construction of communication services in
China. The transaction was accounted for as a purchase, with MCC as the
acquiring entity.
As a condition to the closing of the BCA, MITI purchased from MCC, for an
aggregate purchase price of $10.0 million, 3,000,000 share of MCC Class A Common
Stock, par value $.01 per share (the "MCC Class A Common Stock") and warrants to
purchase an additional 1,250,000 shares of MCC Class A Common Stock, at an
exercise price of $6.00 per share. Shares of MCC Class A Common Stock are
identical to shares of MCC Common Stock except that they are entitled, when
owned by MITI, to three votes per share on all matters voted upon by MCC's
stockholders and to vote as a separate class to elect six of the ten members to
MCC's Board of Directors. The securities received by the Communications Group
are not registered under the Securities Act, but have certain demand and
piggyback registration rights as provided in the stock purchase agreement. As a
result of the transaction MITI owned 56.5% of MCC's outstanding common stock
with 79.6% voting rights. Subsequently, additional shares were purchased from a
minority shareholder, increasing the ownership percentage to 58.4% with 80.4% of
the voting rights.
The purchase price of the AAT transaction was determined to be $86.0 million.
The excess of the purchase price over the fair value of the net tangible assets
acquired was $69.0 million. This has been recorded as goodwill and is being
amortized on a straight-line basis over 25 years. The amortization of such
goodwill for the year ended December 31, 1997 was approximately $2.3 million.
The purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Current assets..................................... $ 46
Property, plant and equipment...................... 279
Investments in Joint Ventures...................... 18,950
Goodwill........................................... 68,975
Current liabilities................................ (2,202)
Other liabilities.................................. (5)
---------
Purchase price................................... $ 86,043
---------
---------
</TABLE>
F-23
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES-CHINA (CONTINUED)
The difference between the Company's investment balance of $18.6 million in MCC
prior to the acquisition of AAT and 56.52% of the net equity of MCC subsequent
to the acquisition of AAT of $53.7 million was recorded as an increase to
paid-in surplus of $35.1 million in the consolidated statements of stockholders'
equity.
At December 31, 1997 and 1996, the Company's investments in the Joint Ventures
in China, at cost, net of adjustments for its equity in earnings or losses, were
as follows:
<TABLE>
<CAPTION>
MCC YEAR YEAR
OWNERSHIP VENTURE OPERATIONS
NAME 1997 1996 % FORMED COMMENCED
- ---------------------------------------- ------- ----------- ------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Sichuan Tai Li Feng
Telecommunications Co., Ltd.
("Sichuan JV")........................ $10,946 $ -- (1) 92% 1996 Pre-operational
Chongqing Tai Le Feng Telecommunications
Co., Ltd.
("Chongqing JV")...................... 7,425 -- 92% 1997 Pre-operational
Ningbo Ya Mei
Telecommunications Co., Ltd.
("Ningbo JV")......................... 27,480 -- (1) 70% 1996 1997
Beijing Metromedia-Jinfeng
Communications
Technology Development Co. Ltd.
("Golden Cellular JV")................ -- 720 60% 1996
------- -----------
$45,851 $ 720
------- -----------
------- -----------
</TABLE>
- ------------------------
(1) AAT was acquired on February 28, 1997 and had net investments at predecessor
cost of $10.5 million and $3.7 million in Sichuan JV and Ningbo JV,
respectively, as of December 31, 1996.
The Joint Ventures participate in project cooperation contracts with China
United Telecommunications Incorporated ("China Unicom") that entitle the Joint
Ventures to certain percentages of the projects' distributable cash flows. The
Joint Ventures amortize the contributions to these cooperation contracts over
the cooperation periods of benefit (15 to 25 years).
(A) SICHUAN JV
On May 21, 1996, AAT entered into a Joint Venture Agreement with China Huaneng
Technology Development Corp. ("CHTD") for the purpose of establishing Sichuan
Tai Li Feng Telecommunications Co., Ltd. ("Sichuan JV"). Also on May 21, 1996,
Sichuan JV entered into a Network Systems Cooperation Contract (the "STLF
Contract") with China Unicom. The STLF Contract provides for the establishment
of a network of 50,000 local telephone lines in the Sichuan Province (the
"Sichuan Network"), approximately 350 kilometers of secondary class fiber
optical toll lines between Chengdu and Chongqing cities. This initial phase has
a contractual term of twenty-five years. Subsequent phases are projected to
expand the Sichuan Network to more than 1,000,000 lines of local telephone
network and expand the intra-provincial long distance toll lines.
Under the STLF Contract, China Unicom will be responsible for the construction
and operation of the Sichuan Network, while Sichuan JV will provide financing
and consulting services for the project.
F-24
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES-CHINA (CONTINUED)
Distributable Cash Flows, as defined in the STLF Contract, are to be distributed
22% to China Unicom and 78% to Sichuan JV for a twenty-five year period for each
phase. Sichuan JV holds title to all assets constructed, except for gateway
switches and long distance transmission facilities. On the tenth anniversary of
the completion of the Sichuan Network's initial phase, the assets will transfer
from Sichuan JV to China Unicom. The Joint Venture considers the cost of these
fixed assets to be part of its contribution to the STLF Contract.
The total amount to be invested in Sichuan JV is $29.5 million with equity
contributions from its shareholders amounting to $12.0 million. AAT is required
to make capital contributions to Sichuan JV of $11.4 million, representing 95%
of the Sichuan JV's equity. CHTD is required to contribute $600,000,
representing 5% of the Sichuan JV's equity. The remaining investment will be in
the form of $17.5 million of loan from AAT and Northern Telecom Communications
("Nortel"), the manufacturer of the equipment for construction of the network.
Ownership in the Sichuan JV is 92% by AAT and 8% by CHTD.
AAT also has a consulting contract with CHTD for assistance with operations in
China. Under the contract, the Company is obligated to pay an annual fee of RMB
15.0 million (U.S. $1.8 million) at December 31, 1997 exchange rates. During
1997 and 1996, AAT paid CHTD approximately $1.8 million and $914,000,
respectively, under the agreement.
(B) CHONGQING JV
In May 1997, China established the City of Chongqing as a separate municipal
government from the Province of Sichuan. On September 9, 1997, AAT entered into
a Joint Venture Agreement with CHTD for the purpose of establishing Chongqing
Tai Le Feng Telecommunication Co., Ltd. ("Chongqing JV"). Sichuan JV and
Chongqing JV entered into an agreement whereby the Chongqing JV assumed the
rights and obligations of the Sichuan JV under the STLF contract as it relates
to the financing and consulting services for the Sichuan Network that is
constructed by China Unicom within the City of Chongqing.
The total amount to be invested in Chongqing JV is $29.5 million with equity
contributions from its shareholders amounting to $14.8 million. AAT is required
to make capital contributions of $14.1 million representing 95% of the Chongqing
JV's equity. CHTD is required to contribute $740,000 representing 5% of the
Chongqing JV's equity. The remaining investment in Chongqing JV will be in the
form of $14.7 million of loans from AAT and Nortel. Ownership in the Chongqing
JV is 92% by AAT and 8% by CHTD.
(C) NINGBO JV
AAT entered into a Joint Venture Agreement with Ningbo United Telecommunications
Investment Co., Ltd. ("NUT") on September 17, 1996 for the purpose of
establishing Ningbo Ya Mei Telecommunications Co., Ltd ("Ningbo JV"). Ningbo JV
is engaged in the development of a GSM telecommunications project in the City of
Ningbo, Zhejiang Province, for China Unicom. This project entailed construction
of a mobile communications network with a capacity for 50,000 subscribers. China
Unicom is the operator of the network, and Ningbo JV provides financing and
consulting services to China Unicom.
NUT assigned Ningbo JV the rights and obligations received by NUT under a
Network System Cooperation Contract (the "NUT Contract") with China Unicom,
including the right to expand the project to a capacity of 50,000 subscribers.
NUT has also agreed to assign the rights of first refusal on additional
telecommunications projects to Ningbo JV in the event such rights are granted to
NUT by China Unicom. Distributable Cash Flows, as defined in the NUT Contract
are to be distributed 27% to China Unicom and 73% to Ningbo JV for a 15 year
period for each phase. Under the NUT Contract, Ningbo JV will own 70%
F-25
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES-CHINA (CONTINUED)
of all assets constructed. Ningbo JV's ownership of these assets will transfer
to China Unicom as Ningbo JV's project investment is returned. The Ningbo JV
considers the cost of these assets to be part of its contribution to the NUT
Contract.
Under the terms of the Ningbo JV, AAT provided $8.3 million of capital
contributions, representing 70% of Ningbo JV's equity. NUT provided $3.6 million
of capital contributions to Ningbo JV, representing 30% of Ningbo JV's equity.
The Ningbo JV arranged loans with AAT, manufacturers of the equipment for the
project and banks in the amount of $17.8 million.
As of December 31, 1997, AAT had long-term loans to Ningbo JV in the amount of
$19.3 million. A substantial portion of these loans was to refinance previous
loans from manufacturers. These loans bear interest at 10% per annum.
The following table represents summary financial information for the Joint
Ventures and their related projects in China as of and for the year ended
December 31, 1997 (in thousands, except subscribers):
<TABLE>
<CAPTION>
NINGBO SICHUAN CHONGQING
JV JV JV TOTAL
----------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
Revenues...................................................... $ 1,422 $ -- $ -- $ 1,422
Depreciation and amortization................................. 1,154 25 -- 1,179
Operating income (loss)....................................... 56 (223) (20) (187)
Interest income (expense) net................................. (1,870) 70 5 (1,795)
Net loss...................................................... (1,814) (153) (15) (1,982)
Assets........................................................ 36,605 11,899 7,901 56,405
Net investment in project..................................... 32,669 8,815 3,791 45,275
AAT equity in loss of Joint Venture........................... (1,270) (141) (14) (1,425)
</TABLE>
Ningbo JV records revenue from the China Unicom project based on amounts of
revenues and profits reported to it by China Unicom through September 30, 1997.
For the period ended September 30, 1997 revenues were $2.8 million and net
income was $1.8 million.
(D) GOLDEN CELLULAR JV
The Company is in the process of dissolving Beijing Metromedia-Jinfeng
Communications Technology Development Co. Ltd. ("Golden Cellular JV"), a Joint
Venture created in March 1996, with Golden Cellular Communication Co., Ltd.
("GCC") for the purpose of developing, manufacturing, assembling and servicing
of wireless telecommunications equipment, central telephone terminals and
subscriber telephone terminals equipment and networks using Airspan
Communications Corporation (an equipment manufacturer) technology in China.
GCC and Metromedia China Telephony Limited ("MCTL") entered into a settlement
contract on March 3, 1998 which provides the terms for dissolution of the Golden
Cellular JV.
MCTL has agreed to reimburse GCC $876,000 for certain development expenses
incurred by GCC and assign to GCC all of MCTL's rights to the assets of the
Golden Cellular JV, valued at approximately $720,000.
Certain equipment imported to China by MCTL will be transferred out of China.
MCTL will be solely responsible for the costs of shipping the equipment out of
China.
F-26
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES-CHINA (CONTINUED)
The Company has recorded $1.5 million, as the estimated cost to dissolve the
Golden Cellular JV which is included in operating expenses in the consolidated
statements of operations.
4. LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
MMG (EXCLUDING COMMUNICATIONS GROUP, ENTERTAINMENT GROUP AND SNAPPER)
6 1/2% Convertible Debentures due 2002, net of unamortized discount of $15,261............ $ -- $ 59,739
9 1/2% Debentures due 1998, net of unamortized discount of $86............................ -- 59,398
9 7/1% Senior Debentures due 1997, net of unamortized premium of $38...................... -- 15,038
10% Debentures due 1999................................................................... -- 5,467
MPCA Acquisition Notes Payable due 1997................................................... -- 1,179
Other..................................................................................... 1,410 1,805
---------- ----------
1,410 142,626
---------- ----------
ENTERTAINMENT GROUP
Notes payable to banks under Credit, Security and Guaranty Agreements..................... -- 247,500
Other guarantees and contracts payable, net of unamortized discounts of $2,699............ -- 15,033
---------- ----------
-- 262,533
---------- ----------
COMMUNICATIONS GROUP
Hungarian Foreign Trade Bank.............................................................. -- 246
---------- ----------
-- 246
---------- ----------
SNAPPER
Snapper Revolver.......................................................................... 75,359 46,419
Industrial Development Bonds.............................................................. 1,024 1,050
---------- ----------
76,383 47,469
---------- ----------
Capital lease obligations, interest rates of 7% to 13%.................................... 1,623 6,185
---------- ----------
Long-term debt including discontinued operations........................................ 79,416 459,059
Long-term debt, attributable to discontinued operations................................. -- (268,305)
Current portion......................................................................... (21,478) (17,544)
---------- ----------
Long-term debt........................................................................ $ 57,938 $ 173,210
---------- ----------
---------- ----------
</TABLE>
Aggregate annual repayments of long-term debt over the next five years and
thereafter are as follows (in thousands):
<TABLE>
<S> <C>
1998............................................... $ 21,478
1999............................................... 818
2000............................................... 55,249
2001............................................... 1,091
2002............................................... 92
Thereafter......................................... 688
</TABLE>
F-27
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
MMG (EXCLUDING COMMUNICATIONS GROUP, ENTERTAINMENT GROUP AND SNAPPER)
In connection with the Entertainment Group Sale (see note 5), the Company repaid
all of its outstanding debentures. During August 1997, the Company repaid its
9 1/2% Subordinated Debentures, 10% Subordinated Debentures and 6 1/2%
Convertible Subordinated Debentures. In connection with the repayment of its
outstanding debentures, the Company expensed certain unamortized discounts
associated with the debentures and recognized an extraordinary loss of $13.6
million on the extinguishment of the debt.
The 9 7/8% Senior Subordinated Debentures were paid in March 1997.
ENTERTAINMENT GROUP
On July 10, 1997, in connection with the Entertainment Group Sale (see note 5),
the Entertainment Group Credit Facility, as defined below was repaid.
On July 2, 1996, the Entertainment Group entered into a credit agreement with
Chase Bank as agent for a syndicate of lenders, pursuant to which the lenders
provided to the Entertainment Group and its subsidiaries a $300 million credit
facility (the "Entertainment Group Credit Facility"). The $300 million facility
consisted 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"). Proceeds from the Term
Loan and $24.0 million of the Revolving Credit Facility were used to refinance
the existing indebtedness of Orion (the "Old Orion Credit Facility"), Goldwyn
and MPCA (as defined in note 10). In connection with the refinancing of the Old
Orion Credit Facility, the Entertainment Group expensed the deferred financing
costs associated with the Old Orion Credit Facility and recorded an
extraordinary loss of approximately $4.5 million in 1996.
At the November 1 Merger date (see note 7), proceeds from the Old Orion Credit
Facility as well as amounts advanced from MMG under a subordinated promissory
note, were used 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, the Entertainment Group 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
in 1995.
COMMUNICATIONS GROUP
A loan from the Hungarian Foreign Trade Bank, which bore interest at 34.5%, was
repaid in 1997.
Included in interest expense for the years ended December 31, 1996 and 1995 are
$107,000 and $3.8 million, respectively, of interest on amounts due to
Metromedia Company ("Metromedia"), an affiliate of the Company.
SNAPPER
On November 26, 1996, Snapper entered into a credit agreement (the "Snapper
Credit Agreement") with AmSouth Bank of Alabama ("AmSouth"), pursuant to which
AmSouth had agreed to make available to Snapper a revolving line of credit up to
$55.0 million, upon the terms and subject to conditions contained in the Snapper
Credit Agreement (the "Snapper Revolver") for a period ending on January 1, 1999
(the "Snapper Revolver Termination Date"). The Snapper Revolver is guaranteed by
the Company.
Interest under the Snapper Revolver is payable at Snapper's option at a rate
equal to either (i) prime plus .5% (from November 26, 1996 through May 25, 1997)
and prime plus 1.5% (from May 26, 1997 to the
F-28
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
Snapper Revolver Termination Date) and (ii) LIBOR (as defined in the Snapper
Credit Agreement) plus 2.5% (from November 26, 1996 through May 25, 1997) and
LIBOR plus 3.5% (from May 26, 1997 to the Snapper Revolver Termination Date).
The Snapper Revolver contains customary covenants, including delivery of certain
monthly, quarterly and annual financial information, delivery of budgets and
other information related to Snapper, limitations on Snapper's ability to (i)
sell, transfer, lease (including sale-leaseback) or otherwise dispose of all or
any material portion of its assets or merge with any person; (ii) acquire an
equity interest in another business; (iii) enter into any contracts, leases,
sales or other transactions with any division or an affiliate of Snapper,
without the prior written consent of AmSouth; (iv) declare or pay any dividends
or make any distributions upon any of its stock or directly or indirectly apply
any of its assets to the redemption, retirement, purchase or other acquisition
of its stock; (v) make any payments to the Company on a subordinated promissory
note issued by Snapper to the Company at any time (a) an Event of Default (as
defined in the Snapper Credit Agreement) exists or would result because of such
payment, (b) there would be less than $10 million available to Snapper under the
terms of the Snapper Credit Agreement, (c) a single payment would exceed $3
million, (d) prior to January 1, 1998, and (e) such payment would occur more
frequently than quarterly after January 1, 1998; (vi) make loans, issue
additional indebtedness or make any guarantees. In addition, Snapper is required
to maintain at all times as of the last day of each month a specified net worth.
The Snapper Credit Agreement is secured by a first priority security interest in
all of Snapper's assets and properties and is also entitled to the benefit of a
replenishable $1.0 million cash collateral account, which was initially funded
by Snapper. Under the Snapper Credit Agreement, AmSouth may draw upon amounts in
the cash collateral account to satisfy any payment defaults by Snapper and
Messrs. Kluge and Subotnick, Chairman of the Board of MMG and Vice Chairman,
President and Chief Executive Officer of MMG, respectively, are obligated to
replenish such account any time amounts are so withdrawn up to the entire amount
of the Snapper Revolver.
Under the Snapper Credit Agreement, the following events, among others, each
constitute an "Event of Default": (i) breach of any representation or warranty,
certification or certain covenants made by Snapper or any due observance or
performance to be observed or performed by Snapper; (ii) failure to pay within 5
days after payment is due; and (iii) a "change of control" shall occur. For
purposes of the Snapper Credit Agreement, "change of control" means (i) a change
of ownership of Snapper that results in the Company not owning at least 80% of
all the outstanding stock of Snapper, (ii) a change of ownership of the Company
that results in (a) Messrs. Kluge and Subotnick not having beneficial ownership
or common voting power of at least 15% of the common voting power of the
Company, (b) any person having more common voting power than Messrs. Kluge and
Subotnick, or (c) any person other than Messrs. Kluge and Subotnick for any
reason obtaining the right to appoint a majority of the board of directors of
the Company.
At December 31, 1996, Snapper was not in compliance with certain of these
covenants. The Company and AmSouth amended the Snapper Credit Agreement to
provide for (i) an annual administrative fee to be paid on December 31, 1997,
(ii) an increase in Snapper's borrowing rates as of December 31, 1997 (from
prime rate to prime rate plus 1.50% and from LIBOR plus 2.50% to LIBOR plus
4.00%), and (iii) an increase in Snapper's commitment fee as of December 31,
1997 from .50% per annum to .75% per annum. As part of the amendment to the
Snapper Credit Agreement AmSouth waived: (i) the covenant defaults as of
December 31, 1996, (ii) the $250,000 semi-annual administrative fee requirement
which was set to commence on May 26, 1997 and (iii) the mandatory borrowing rate
and commitment fee increase that was to occur on May 26, 1997. Furthermore, the
amendment replaced certain existing financial covenants with
F-29
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
covenants on minimum quarterly cash flow and equity requirements, as defined. In
addition, the Company and AmSouth agreed to a $10.0 million credit facility.
On April 30, 1997, Snapper closed a $10.0 million working capital facility
("Working Capital Facility") with AmSouth which amended Snapper's existing $55.0
million facility. The Working Capital Facility (i) provided AmSouth with a PARI
PASSU collateral interest in all of Snapper's assets (including rights under a
Make-Whole and Pledge Agreement made by Metromedia in favor of AmSouth in
connection with the Snapper Revolver), (ii) accrue interest on borrowings at
AmSouth's floating prime rate (same borrowing rate as the Snapper Revolver), and
(iii) was due and payable on October 1, 1997. On October 1, 1997, the Company
repaid the $10.0 million Working Capital Facility.
On November 12, 1997, Snapper amended and restated the Snapper Credit Agreement
to increase the amount of the revolving line of credit from $55.0 million to
$80.0 million. The Snapper Revolver bears interest at an applicable margin above
the prime rate (up to 1.5%) or a LIBOR rate (up to 4.0%). The Snapper Revolver
matures on January 1, 2000. The Snapper Revolver continues to be guaranteed by
the Company and Messrs. Kluge and Subotnick have agreed to guarantee $10.0
million of the Snapper Revolver. The Snapper Credit Agreement, as amended,
continues to contain certain financial covenants regarding maintaining minimum
tangible net worth and satisfying certain quarterly cash flow requirements.
At December 31, 1997, Snapper was not in compliance with the financial covenants
under the Snapper Revolver. The Company and AmSouth amended the Snapper Credit
Agreement to provide for (i) a reduction in the amount of the line of credit
from $80.0 million to $55.0 million as of July 1, 1998 and (ii) a reduction in
the finished goods advance rate from 80% to 70% as of July 1, 1998 and a further
reduction to 50% on December 31, 1998. As a part of the amendment to the Snapper
Credit Agreement, AmSouth waived the covenant defaults as of December 31, 1997.
Furthermore, the amendment replaced the existing 1998 financial covenants with
covenants reflecting Snapper's anticipated cash flow and equity changes based on
the seasonality of the business.
It is assumed that the carrying value of Snapper's bank debt approximates its
face value because it is a floating rate instrument.
Snapper has industrial development bonds with certain municipalities. The
industrial development bonds mature in 1999 and 2001, and their interest rates
range from 62% to 75% of the prime rate.
5. THE ENTERTAINMENT GROUP SALE
On July 10, 1997, the Company sold the stock of Orion, including substantially
all of the assets of its entertainment group (the "Entertainment Group"),
consisting of Orion, Goldwyn Entertainment Company ("Goldwyn") and Motion
Picture Corporation of America ("MPCA") (and their respective subsidiaries)
which included a feature film and television library of over 2,200 titles to P&F
Acquisition Corp. ("P&F"), the parent company of Metro-Goldwyn-Mayer Inc.
("MGM") for a gross consideration of $573.0 million of which $296.4 million of
the proceeds from the Entertainment Group Sale was used to repay amounts
outstanding under the Entertainment Group's credit facilities and certain other
indebtedness of the Entertainment Group.
F-30
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. THE ENTERTAINMENT GROUP SALE (CONTINUED)
The net gain on sale reflected in the consolidated statement of operations for
the year ended December 31, 1997 is as follows (in thousands):
<TABLE>
<S> <C>
Net proceeds...................................................... $ 276,607
Net liabilities of Entertainment Group at May 2, 1997............. 22,089
Transaction costs................................................. (6,000)
Income taxes...................................................... (26,402)
---------
Gain on Entertainment Group Sale.................................. $ 266,294
---------
---------
</TABLE>
The Entertainment Group's revenues for the period January 1, 1997 to May 2, 1997
and the years ended December 31, 1996 and 1995 were $41.7 million, $135.6
million and $133.8 million, respectively. The Entertainment Group's loss from
operations for the period January 1, 1997 to May 2, 1997 and the years ended
December 31, 1996 and 1995 were $32.2 million, $23.4 million and $50.8 million,
respectively. Loss from operations for the period January 1, 1997 to May 2, 1997
and the years ended December 31, 1996 and 1995 include income tax expense
(benefit) of ($3.2) million, $1.0 million and $767,000, respectively.
Net assets of the Entertainment Group at December 31, 1996 were as follows (in
thousands):
<TABLE>
<S> <C>
Current assets................................................... $ 101,883
Non-current assets............................................... 327,698
Current liabilities.............................................. (119,314)
Non-current liabilities.......................................... (299,295)
---------
Net assets................................................... $ 10,972
---------
---------
</TABLE>
The following pro forma information illustrates the effect of (1) the
Entertainment Group Sale, (2) the repayment of MMG's outstanding subordinated
debentures (see note 4), (3) the acquisition of AAT (see note 3) and (4) the
sale of Landmark (see note 6) on revenues, loss from continuing operations and
loss from continuing operations per share for the years ended December 31, 1997
and 1996. The pro forma information assumes (1) the Entertainment Group Sale,
(2) the repayment of MMG's outstanding subordinated debentures and (3) the
acquisition of AAT and (4) the sale of Landmark occurred at the beginning of
each period. It also assumes Snapper was included in the consolidated results of
operations at the beginning of 1996 (in thousands, except per share amounts).
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenues............................................................ $ 204,328 $ 167,215
----------- -----------
----------- -----------
Loss from continuing operations..................................... (123,015) (97,308)
----------- -----------
----------- -----------
Loss from continuing operations per share........................... $ (1.84) $ (1.79)
----------- -----------
----------- -----------
</TABLE>
6. SALE OF LANDMARK THEATRE GROUP
On December 17, 1997, the Company entered into an agreement (the "Landmark
Agreement") with Silver Cinemas, Inc. ("Silver Cinemas"), pursuant to which the
Company will sell to Silver Cinemas (the "Landmark Sale") all of the assets,
except cash and certain of the liabilities of Landmark, for an aggregate cash
purchase price of approximately $62.5 million. The Company anticipates that the
Landmark Sale will be consummated in April 1998. The Landmark Sale has been
recorded as a discontinuance of a business
F-31
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SALE OF LANDMARK THEATRE GROUP (CONTINUED)
segment in the accompanying consolidated financial statements. The Company
expects to record a gain on the sale of the discontinued segment.
The net assets of Landmark at December 31, 1997, November 12, 1997, the date the
Company adopted a plan to dispose of Landmark, and December 31, 1996 were as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 12, DECEMBER 31,
1997 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current assets..................... $ 793 $ 906 $ 796
Non-current assets................. 57,183 57,523 58,719
Current liabilities................ (6,286) (4,738) (7,496)
Non-current liabilities............ (4,922) (5,160) (5,517)
------------ ------------ ------------
Net assets....................... $ 46,768 $ 48,531 $ 46,502
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Landmark's revenues and income (loss) from operations for the period January 1,
1997 to November 12, 1997 and for the period July 2, 1996 (date of acquisition
of Landmark) to December 31, 1996 were $48.7 million, ($108,000), $29.6 million
and $1.2 million, respectively. Loss from operations for the period January 1,
1997 to November 12, 1997 includes income taxes of $408,000.
7. THE NOVEMBER 1 MERGER
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. The Merger Agreement provided for, among other things,
the simultaneous mergers of each of Orion and MITI with and into OPC Merger
Corp. and MITI Merger Corp., the Company's recently-formed subsidiaries, and the
merger of Sterling with and into the Company (the "November 1 Merger"). In
connection with the November 1 Merger, the Company changed its name from The
Actava Group Inc. to Metromedia International Group, Inc.
Upon consummation of the November 1 Merger, all of the outstanding shares of the
common stock, par value $.25 per share of Orion (the "Orion Common Stock"), the
common stock, par value $.001 per share, of MITI (the "MITI Common Stock") and
the common stock, par value $.001 per share, of Sterling (the "Sterling Common
Stock") were exchanged for shares of the Company's common stock, par value $1.00
per share, pursuant to exchange ratios contained in the Merger Agreement.
Pursuant to such ratios, holders of Orion Common Stock received .57143 shares of
the Company's common stock for each share of Orion Common Stock (resulting in
the issuance of 11,428,600 shares of common stock to the holders of Orion Common
Stock), holders of MITI Common Stock received 5.54937 shares of the Company's
common stock for each share of MITI Common Stock (resulting in the issuance of
9,523,817 shares of the Company's common stock to the holders of MITI Common
Stock) and holders of Sterling Common Stock received .04309 shares of the
Company's common stock for each share of Sterling Common Stock (resulting in the
issuance of 483,254 shares of the Company's common stock to the holders of
Sterling Common Stock).
In addition, pursuant to the terms of a contribution agreement dated as of
November 1, 1995 among the Company and two affiliates of Metromedia,
MetProductions, Inc. ("MetProductions") and Met International, Inc. ("Met
International"), MetProductions and Met International contributed to the Company
an aggregate of $37,068,303 consisting of (i) interests in a partnership and
(ii) the principal amount of indebtedness of Orion and its affiliate, and
indebtedness of an affiliate of MITI, owed to MetProductions
F-32
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. THE NOVEMBER 1 MERGER (CONTINUED)
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 November 1 Merger, there were
17,490,901 shares of the Company's common stock outstanding. As a result of the
consummation of the November 1 Merger 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 November 1 Merger and the
transactions contemplated by the contribution agreement, Metromedia and its
affiliates (the "Metromedia Holders") collectively held 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 the Metromedia Holders' common control of Orion and MITI
prior to consummation of the November 1 Merger, their combination pursuant to
the November 1 Merger was accounted for as a combination of entities under
common control. Orion was deemed to be the acquirer 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 November 1 Merger.
For accounting purposes only, Orion and MITI were deemed to be the joint
acquirers of Actava and Sterling. The acquisition of Actava and Sterling has
been accounted for as a reverse acquisition. As a result of the reverse
acquisition, the historical financial statements of the Company for periods
prior to the November 1 Merger 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 (see notes 1 and 8). In addition, the Company's investment in RDM was
deemed to be a non-strategic asset (see note 9).
At December 31, 1995, Snapper was recorded in an amount equal to the sum of
estimated cash flows from the operations of Snapper plus the anticipated
proceeds from the sale of Snapper which amounted to $79.2 million. The excess of
the purchase price allocated to Snapper in the November 1 Merger over the
expected estimated cash flows from the operations and sale of Snapper in the
amount of $293.6 million for the year ended December 31, 1995 has been reflected
in the accompanying consolidated statement of operations as a loss on disposal
of a discontinued operation. No income tax benefits were recognized in
connection with this loss on disposal because of the Company's losses from
continuing operations and net operating loss carryforwards.
The purchase price of Actava, Sterling and MITI minority interests, exclusive of
transaction costs, amounted to $438.9 million at November 1, 1995. The excess
purchase price over the net fair value of assets acquired amounted to $404.0
million at November 1, 1995, before the write-off of Snapper goodwill of $293.6
million.
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 MMG.
F-33
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. THE NOVEMBER 1 MERGER (CONTINUED)
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 $55.0 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 were repaid on November 1,
1995.
8. SNAPPER, INC.
In connection with the November 1 Merger (see note 7), Snapper was classified as
an asset held for sale. Subsequently, the Company announced its intention not to
continue to pursue its previously adopted plan to dispose of Snapper and to
actively manage Snapper. Snapper has been included in the consolidated financial
statements as of November 1, 1996. The allocation of the November 1, 1996
carrying value of Snapper, $73.8 million, which included an intercompany
receivable of $23.8 million, is as follows (in thousands):
<TABLE>
<S> <C>
Cash...................................................... $ 7,395
Accounts receivable....................................... 36,544
Inventories............................................... 51,707
Property, plant and equipment............................. 29,118
Other assets.............................................. 773
Accounts payable and accrued expenses..................... (25,693)
Debt...................................................... (40,059)
Other liabilities......................................... (3,200)
---------
Excess of assets over liabilities......................... 56,585
Carrying value at November 1, 1996........................ 73,800
---------
Excess of carrying value over fair value of net assets.... $ 17,215
---------
---------
</TABLE>
The excess of the carrying value over fair value of net assets is reflected in
the accompanying consolidated financial statements as goodwill and is being
amortized over 25 years.
The following table summarizes the operating results of Snapper for the ten
months ended October 31, 1996 and for the period November 1, 1995 to December
31, 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Revenue............................................................... $ 130,623 $ 14,385
Operating expenses.................................................... 148,556 34,646
---------- ----------
Operating loss........................................................ (17,933) (20,261)
Interest expense...................................................... (6,859) (1,213)
Other income (expenses)............................................... 1,210 (259)
---------- ----------
Loss before income taxes.............................................. (23,582) (21,733)
Income taxes.......................................................... -- --
---------- ----------
Net loss.............................................................. $ (23,582) $ (21,733)
---------- ----------
---------- ----------
</TABLE>
As part of Snapper's transition to the dealer-direct business, Snapper had from
time to time reacquired the inventories and less frequently had purchased the
accounts receivable of distributors it had canceled. The
F-34
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SNAPPER, INC. (CONTINUED)
purchase of inventories is recorded by reducing sales for the amount credited to
accounts receivable from the canceled distributor and recording the repurchased
inventory at the lower of cost or market. During 1997, 1996 and 1995, 9, 18 and
7 distributors were canceled, respectively. Inventories purchased (and/or
credited to the account of canceled distributors) under such arrangements
amounted to (in thousands):
<TABLE>
<CAPTION>
TEN MONTHS
TWO MONTHS ENDED TWO MONTHS
YEAR ENDED ENDED OCTOBER 31, ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 1996 DECEMBER 31, 1995
----------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Inventories........................... $ 25,405 $ 3,117 $ 21,376 $ 4,596
Decrease in gross profit.............. 8,383 2,106 5,967 1,245
</TABLE>
9. INVESTMENT IN RDM
In connection with the November 1 Merger, RDM was classified as an asset held
for sale and the Company excluded its equity in earnings and losses of RDM from
its results of operations. At November 1, 1995, the Company recorded its
investment in RDM to reflect the anticipated proceeds from its sale. During
1996, the Company reduced the carrying value of its investment in RDM to its
then estimated net realizable value of $31.2 million and the writedown of $16.3
million was reflected as a loss from discontinued operations in the 1996
consolidated statement of operations.
On April 1, 1997, for financial statement reporting purposes, the Company no
longer qualified to treat its investment in RDM as a discontinued operation.
Since April 1, 1997, the Company recorded in its results of operations in 1997 a
reduction in the carrying value of its investment in RDM of $18.0 million and
its share of the expected net loss of RDM of $8.2 million.
On June 20, 1997 RDM entered into a $100.0 million revolving and term credit
facility (the "RDM Credit Facility"). The RDM Credit Facility was guaranteed by
a letter of credit in the amount of $15.0 million in favor of the lenders
thereunder ( the "Lenders"), which was obtained by Metromedia Company, and could
not be drawn until five days after a payment default and fifteen days after
Non-Payment Default (as defined under the RDM Credit Facility). In consideration
of providing the letters of credit, Metromedia was granted warrants to purchase
3 million shares of RDM Common Stock (approximately 5% of RDM) ("RDM Warrants")
at an exercise price of $.50 per share. The RDM Warrants have a ten year term
and are exercisable beginning September 19, 1997. In accordance with the terms
of the agreement entered into in connection with the RDM Credit Facility,
Metromedia offered the Company the opportunity to substitute its letter of
credit for Metromedia's letter of credit and to receive the RDM Warrants. On
July 10, 1997, the Company's Board of Directors elected to substitute its letter
of credit for Metromedia's letter of credit and the RDM Warrants were assigned
to the Company.
On August 22, 1997, RDM announced that it had failed to make the August 15, 1997
interest payment due on its subordinated debentures and that it had no present
ability to make such a payment. As a result of the foregoing, on August 22,
1997, the Lender declared an Event of Default, as defined under the RDM Credit
Facility and accelerated all amounts outstanding under such facility. On August
28, 1997, an involuntary bankruptcy petition was filed against a subsidiary of
RDM in Federal bankruptcy court in Montgomery, Alabama. RDM and certain of its
affiliates each subsequently filed voluntary petitions for relief under chapter
11 of the Bankruptcy Code. Since the commencement of their respective chapter 11
cases, RDM and its affiliates have proceeded with the liquidation of their
assets and properties and discontinued ongoing business operations. The Company
does not currently anticipate that it will receive any distributions on account
of its RDM common stock or RDM Warrants. The Company has recorded in
F-35
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INVESTMENT IN RDM (CONTINUED)
its results of operations in 1997 a further reduction in the carrying value of
RDM of $4.9 million and a loss of $15.0 million on the letter of credit
guarantee.
After the commencement of RDM's and its affiliates' chapter 11 cases, the Lender
drew upon the entire amount of the Letter of Credit. Consequently, the Company
will become subrogated to the Lender's secured claims against the Company in an
amount equal to the drawing under the Letter of Credit following payment in full
of the Lender. The Company intends to vigorously pursue its subrogation claims
in the chapter 11 cases. However, it is uncertain what recovery the Company will
obtain in respect of such subrogation claims.
On February 18, 1998 the Office of the United States Trustee filed a motion to
appoint a chapter 11 trustee in the United States Bankruptcy Court for the
Northern Division of Georgia. RDM and its affiliates subsequently filed a motion
to convert the chapter 11 cases to cases under chapter 7 of the Bankruptcy Code.
On February 19, 1998, the bankruptcy court granted the United States Trustee's
motion and ordered that a chapter 11 trustee be appointed. On February 25, 1998,
each of the Company's designees on RDM's Board of Directors submitted a letter
of resignation.
10. ENTERTAINMENT GROUP ACQUISITIONS
On July 2, 1996, the Company consummated the acquisition (the "Goldwyn Company
Merger") of the Samuel Goldwyn Company ("Goldwyn Company") by merging the
Company's newly formed subsidiary, SGC Merger Corp., into Goldwyn Company. Upon
consummation of the Goldwyn Company Merger, Goldwyn was renamed Goldwyn
Entertainment Company. Holders of common stock received .3335 shares of the
Company's common stock (the "Common Stock") for each share of Goldwyn Company
Common Stock in accordance with a formula set forth in the Agreement and Plan of
Merger relating to the Goldwyn Company Merger (the "Goldwyn Company Merger
Agreement"). Pursuant to the Goldwyn Company Merger, the Company issued
3,130,277 shares of common stock.
The purchase price, including the value of existing Goldwyn Company stock
options and transaction costs related to the Goldwyn Company Merger, was
approximately $43.8 million.
Also on July 2, 1996, the Company consummated the acquisition (the "MPCA
Merger", together with the Goldwyn Company Merger, the "July 2 Mergers") of
Motion Picture Corporation of America ("MPCA") by merging the Company's recently
formed subsidiary, MPCA Merger Corp., with MPCA. In connection with the MPCA
Merger, the Company (i) issued 1,585,592 shares of common stock to MPCA's sole
stockholders, and (ii) paid such stockholders approximately $1.2 million in
additional consideration, consisting of promissory notes. The purchase price,
including transaction costs, related to the acquisition of MPCA was
approximately $21.9 million.
The excess of the purchase price over the net fair value of liabilities assumed
in the July 2 Mergers amounted to $125.4 million.
Following the consummation of the July 2 Mergers, the Company contributed its
interests in Goldwyn and MPCA to Orion, with Goldwyn and MPCA becoming
wholly-owned subsidiaries of Orion. Orion, Goldwyn and MPCA were collectively
referred to as the Entertainment Group (see notes 4 and 5). The July 2 Mergers
were recorded in accordance with the purchase method of accounting for business
combinations. The purchase price to acquire both Goldwyn and MPCA were allocated
to the net assets acquired according to management's estimate of their
respective fair values and the results of those purchased businesses have been
included in the accompanying consolidated financial statements from July 2,
1996, the date of acquisition (see notes 4 and 5).
F-36
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCKHOLDERS' EQUITY
PREFERRED STOCK
There are 70,000,000 shares of Preferred Stock authorized and 4,140,000 shares
were outstanding as of December 31, 1997.
On September 16, 1997 the Company completed a public offering of 4,140,000
shares of $1.00 par value, 7 1/4% cumulative convertible preferred stock
("Preferred Stock") with a liquidation preference of $50 per share, generating
net proceeds of approximately $199.4 million. Dividends on the Preferred Stock
are cumulative from the date of issuance and payable quarterly, in arrears,
commencing on December 15, 1997. The Company may make any payments due on the
Preferred Stock, including dividend payments and redemptions (i) in cash; (ii)
issuance of the Company's common stock or (iii) through a combination thereof.
The Preferred Stock is convertible at the option of the holder at any time,
unless previously redeemed, into the Company's common stock, at a conversion
price of $15.00 per share (equivalent to a conversion rate of 3 1/3 shares of
common stock for each share of Preferred Stock), subject to adjustment under
certain conditions.
The Preferred Stock is redeemable at any time on or after September 15, 2000, in
whole or in part, at the option of the Company, initially at a price of $52.5375
and thereafter at prices declining to $50.00 per share on or after September 15,
2007, plus in each case all accrued and unpaid dividends to the redemption date.
Upon any Change of Control (as defined in the certificate of designation of the
Preferred Stock (the "Certificate of Designation")), each holder of Preferred
Stock shall, in the event that the market value at such time is less than the
conversion price of $15.00, have a one-time option to convert the Preferred
Stock into the Company's common stock at a conversion price equal to the greater
of (i) the Market Value, as of the Change of Control Date (as defined in the
Certificate of Designation) and (ii) $8.00. In lieu of issuing shares of the
Company's common stock, the Company may, at its option, make a cash payment
equal to the Market Value of the Company's common stock otherwise issuable.
COMMON STOCK
On July 2, 1996, the Company completed a public offering of 18,400,000 shares of
common stock, generating net proceeds of approximately $190.6 million.
On August 29, 1996, the Company increased the number of authorized shares of
common stock from 110,000,000 to 400,000,000. At December 31, 1997, 1996 and
1995 there were 68,390,800, 66,153,439 and 42,613,738 shares issued and
outstanding, respectively.
As part of the MPCA Merger, the Company issued 256,504 shares of restricted
common stock to certain employees. The common stock was to vest on a pro-rata
basis over a three year period ending in July 1999. The total market value of
the shares at the time of issuance was treated as unearned compensation and was
charged to expense over the vesting period. Unearned compensation charged to
expense for the period ended December 31, 1997 and 1996 was $352,000 and,
$529,000, respectively. In connection with the Entertainment Group Sale, the
256,504 shares of restricted common stock became fully vested. The cost of $2.3
million associated with the vesting of the restricted common stock was recorded
as a reduction to the Entertainment Group Sale gain.
F-37
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCKHOLDERS' EQUITY (CONTINUED)
At December 31, 1997, the Company has reserved for future issuance shares of
Common Stock in connection with the stock option plans and Preferred Stock
listed below:
<TABLE>
<S> <C>
Stock option plans...................................... 10,037,180
Preferred Stock......................................... 13,800,000
---------
23,837,180
---------
---------
</TABLE>
STOCK OPTION PLANS
On August 29, 1996, the stockholders of MMG approved the Metromedia
International Group, Inc. 1996 Incentive Stock Option Plan (the "MMG Plan"). The
aggregate number of shares of common stock that may be the subject of awards
under the MMG Plan is 8,000,000. The maximum number of shares which may be the
subject of awards to any one grantee under the MMG Plan may not exceed 250,000
in the aggregate. The MMG Plan provides for the issuance of incentive stock
options, nonqualified stock options and stock appreciation rights in tandem with
the stock options. Incentive stock options may not be issued at a per share
price less than the market value at the date of grant. Nonqualified stock
options may be issued at prices and on terms determined in the case of each
stock option grant. Stock options and stock appreciation rights may be granted
for terms of up to but not exceeding ten years and vest and become fully
exercisable after four years from the date of grant. At December 31, 1997 there
were 3,804,387 additional shares available for grant under the MMG Plan.
Following the November 1 Merger, options granted pursuant to each of the MITI
stock option plan and the Actava stock option plans and, following the Goldwyn
Merger, the Goldwyn stock option plans were converted into stock options
exercisable for common stock of MMG in accordance with their respective exchange
ratios.
The per share weighted-average fair value of stock options granted during 1997
and 1996 was $4.33 and $7.36 on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions: expected
volatility of 50% in 1997 and 49% in 1996, expected dividend yield of zero
percent, risk-free interest rate of 5.5% in 1997 and 5.2% in 1996 and an
expected life of 4 years in 1997 and 7 years in 1996.
The Company applies APB 25 in recording the value of stock options granted
pursuant to its plans. No compensation cost has been recognized for stock
options granted under the MMG Plan for the years ended December 31, 1997 and
1996 and for the year ended December 31, 1996 compensation expense of $153,000
has been recorded for stock options under the MITI stock option plan in the
consolidated statements of operations. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
123, the Company's net income (loss) would have (decreased) increased to the pro
forma amounts indicated below (in thousands, except per share amount):
<TABLE>
<CAPTION>
1997 1996
--------- -----------
<S> <C> <C>
Net income (loss) attributable to common stockholders:
As reported......................................................... $ 84,107 $ (115,243)
Pro forma........................................................... $ 75,925 $ (118,966)
Income (loss) per common share--Basic:
As reported......................................................... $ 1.26 $ (2.12)
Pro forma........................................................... $ 1.13 $ (2.19)
</TABLE>
F-38
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCKHOLDERS' EQUITY (CONTINUED)
Pro forma net income reflects only options granted under the MMG Plan in 1997
and 1996 and the MITI stock option plan in 1996. MITI and Actava stock options
granted prior to the November 1 Merger were recorded at fair value. In addition,
Goldwyn stock options granted prior to the Goldwyn Company Merger, were recorded
at fair value and included in the Goldwyn purchase price.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
----------- -------------
<S> <C> <C>
Balance at December 31, 1995..................................... 1,863,000 $ 4.81
Transfer of Goldwyn options in acquisition....................... 202,000 $ 23.33
Options granted.................................................. 2,945,000 $ 12.63
Options exercised................................................ (167,000) $ 7.46
Options forfeited................................................ (264,000) $ 13.03
-----------
Balance at December 31, 1996..................................... 4,579,000 $ 10.09
Options granted.................................................. 6,629,000 $ 8.75
Options exercised................................................ (2,333,000) $ 9.23
Options forfeited................................................ (234,000) $ 10.22
Options canceled................................................. (2,768,000) $ 12.75
-----------
Balance at December 31, 1997..................................... 5,873,000 $ 7.66
-----------
-----------
</TABLE>
At December 31, 1997 the range of exercise prices and the weighted-average
remaining contractual lives of outstanding options was $1.08-$56.22 and 8.5
years, respectively.
In addition to the MMG Plan, at December 31, 1997, there were 360,000 shares
that may be the subject of awards under other existing stock option plans.
At December 31, 1997 and 1996, the number of stock options exercisable was
2,573,000 excluding any effects of accelerated vesting, and 2,031,000,
respectively, and the weighted-average exercise price of these options was $6.99
and $7.92, respectively.
On March 26, 1997 the Board of Directors approved the cancellation and
reissuance of all stock options previously granted pursuant to the MMG Plan at
an exercise price of $9.31, the fair market value of MMG Common Stock at such
date. In addition, on March 26, 1997, the Board of Directors authorized the
grant of approximately 1,900,000 stock options at an exercise price of $9.31
under the MMG Plan.
On April 18, 1997, two officers of the Company were granted stock options, not
pursuant to any plan, to purchase 1,000,000 shares each of Common Stock at a
purchase price of $7.44 per share, the fair market value of the Common Stock at
such date. The stock options vest and become fully exercisable four years from
the date of grant.
The MMG Plan provides that upon a sale of "substantially all" of the Company's
assets, all unvested outstanding options to acquire the Common Stock under such
plan would vest and become immediately exerciseable. In connection with the
Entertainment Group Sale, the Company's Compensation Committee determined that
the Entertainment Group Sale constituted a sale of "substantially all" of the
Company's assets for purposes of the MMG Plan, thereby accelerating the vesting
of all options outstanding under such plan. As of December 31, 1997, 2,328,489
options had been issued to the directors, officers and certain employees of the
Company, Landmark and the Communications Group, and remain outstanding under the
MMG Plan and 1,526,632 of such options had not vested. All such options are
exercisable at a
F-39
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCKHOLDERS' EQUITY (CONTINUED)
price equal to $9.31 per share. All of the directors of the Company have agreed
to waive the accelerated vesting of their options and the Company is in the
process of obtaining waivers from the remaining officers and employees of the
Company and Communications Group.
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 stock options granted
under this plan and had granted 20,000 options thereunder.
12. INCOME TAXES
The Company files a consolidated Federal income tax return with all of its 80%
or greater owned subsidiaries. A consolidated subsidiary group in which the
Company owns less than 80% files a separate Federal income tax return. The
Company and such subsidiary group calculate their respective tax liabilities on
a separate return basis.
Income tax expense (benefit) for the years ended December 31, 1997, 1996 and
1995 consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Federal....................... $(9,935) $ -- $ --
State and local............... 1,982 -- --
Foreign....................... 914 414 --
------- ------- -------
Current....................... (7,039) 414 --
Deferred...................... 1,812 -- --
------- ------- -------
$(5,227) $ 414 $ --
------- ------- -------
------- ------- -------
</TABLE>
The provision for income taxes for the years ended December 31, 1997, 1996 and
1995 applies to continuing operations.
The federal income tax portion of the provision for income taxes includes the
benefit of state income taxes provided.
The Company had pre-tax losses from foreign operations of $23.2 million, $4.4
million and $1.9 million for the years ended December 31, 1997, 1996 and 1995,
respectively. Pre-tax losses from domestic operations were $112.9 million, $67.3
million and $34.4 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
State and local income tax expense for the year ended December 31, 1997 includes
an estimate for franchise and other state tax levies required in jurisdictions
which do not permit the utilization of the Company's net operating loss
carryforwards to mitigate such taxes. Foreign tax expense for the years ended
December 31, 1997 and 1996 reflects estimates of withholding and remittance
taxes.
F-40
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES (CONTINUED)
The temporary differences and carryforwards which give rise to deferred tax
assets and (liabilities) at December 31, 1997 and 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net operating loss carryforward......................................................... $ 65,261 $ 61,803
Allowance for doubtful accounts......................................................... 3,842 3,911
Capital loss carryforward............................................................... -- 6,292
Reserves for self-insurance............................................................. 10,464 10,415
Investment in equity investee........................................................... 28,425 12,325
Purchase of safe harbor lease investment................................................ (6,628) (7,903)
Minimum tax credit (AMT) carryforward................................................... 13,036 8,805
Other reserves.......................................................................... 10,604 10,770
Other................................................................................... (117) (4,905)
----------- -----------
Subtotal before valuation allowance..................................................... 124,887 101,513
Valuation allowance..................................................................... (124,887) (101,513)
----------- -----------
Deferred taxes.......................................................................... $ -- $ --
----------- -----------
----------- -----------
</TABLE>
The net change in the total valuation allowance for the years ended December 31,
1997, 1996 and 1995 was an increase of $23.4 million, $18.3 million, and $79.4
million, respectively.
The Company's income tax expense (benefit) for the years ended December 31,
1997, 1996 and 1995, differs from the expense (benefit) that would have resulted
from applying the federal statutory rates during those periods to income (loss)
before income tax expense (benefit). The reasons for these differences are
explained in the following table (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Benefit based upon federal statutory rate of 35%.............................. $ (47,645) $ (25,106) $ (12,693)
Foreign taxes in excess of federal credit..................................... 914 414 --
Amortization of goodwill...................................................... 1,729 1,492 --
Foreign operations............................................................ 8,126 1,548 656
Change in valuation allowance................................................. 17,370 11,330 9,645
Equity in losses of Joint Ventures............................................ 7,616 10,690 2,377
Minority interest of consolidated subsidiaries................................ (3,112) (233) (66)
Impact of alternative minimum tax............................................. 7,452 -- --
Other, net.................................................................... 2,323 279 81
---------- ---------- ----------
Income tax expense (benefit).................................................. $ (5,227) $ 414 $ --
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
At December 31, 1997 the Company had available net operating loss carryforwards
and unused minimum tax credits of approximately $186.5 million and $13.0
million, respectively, which can reduce future federal income taxes. These
carryforwards and credits begin to expire in 2008. The minimum tax credit may be
carried forward indefinitely to offset regular tax in certain circumstances.
The use by the Company of the pre-November 1, 1995 net operating loss
carryforwards reported by Actava and MITI ("the Pre-November 1 Losses") (and the
subsidiaries included in their respective affiliated groups of corporations
which filed consolidated Federal income tax returns with Actava and MITI as the
parent corporations) are subject to certain limitations as a result of the
November 1 Merger, respectively.
F-41
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES (CONTINUED)
Under Section 382 of the Internal Revenue Code, annual limitations generally
apply to the use of the Pre-November 1 Losses by the Company. The annual
limitations on the use of the Pre-November 1 Losses of Actava and MITI by the
Company approximate $18.3 million and $10.0 million per year, respectively. To
the extent Pre-November 1 Losses equal to the annual limitation with respect to
Actava and MITI are not used in any year, the unused amount is generally
available to be carried forward and used to increase the applicable limitation
in the succeeding year.
The use of Pre-November 1 Losses of MITI is also separately limited by the
income and gains recognized by the corporations that were members of MITI
affiliated group. Under proposed Treasury regulations, such Pre-November 1
Losses of any such former members of such group, are usable on an aggregate
basis to the extent of the income and gains of such former members of such
group.
As a result of the November 1 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. To the extent all of the Actava
intangibles are eliminated, when the Pre-November 1 Losses are utilized they
will reduce income tax expense.
13. EMPLOYEE BENEFIT PLANS
The Communications Group and Snapper have defined contribution plans which
provide for discretionary annual contributions covering substantially all of
their employees. Participating employees can defer receipt of up to 15% of their
compensation, subject to certain limitations. The Communications Group matches
50% of the amounts contributed by plan participants up to 6% of their
compensation. Snapper's employer match is determined each year, and was 50% of
the first 6% of compensation contributed by each participant for the year ended
December 31, 1997 and the period November 1, 1996 to December 31, 1996. The
contribution expense for the years ended December 31, 1997, 1996 and 1995 was
$527,000, $375,000, $124,000, respectively.
In addition, Snapper has a profit sharing plan covering substantially all
non-bargaining unit employees. Contributions are made at the discretion of
management. No profit sharing amounts were approved by management for the years
ended December 31, 1997 and 1996.
Prior to the November 1 Merger, Actava had a noncontributory defined benefit
plan which was "qualified" under Federal tax law and covered substantially all
of 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 November 1
Merger (see note 7), the Company froze the Actava noncontributory defined
benefit plan and the Actava nonqualified supplemental retirement plan effective
as of December 31, 1995. Employees no longer accumulate benefits under these
plans.
In connection with the November 1 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. During 1997, certain actuarial assumptions
F-42
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. EMPLOYEE BENEFIT PLANS (CONTINUED)
relating to the qualified pension plan, were revised which resulted in an
additional minimum liability of $805,000, net of tax.
Snapper sponsors a defined benefit pension plan which covers substantially all
bargaining unit employees. Benefits are based upon the employee's years of
service multiplied by fixed dollar amounts. Snapper's funding policy is to
contribute annually such amounts as are necessary to provide assets sufficient
to meet the benefits to be paid to the plan's members and keep the plan
actuarially sound.
In addition, Snapper provides a group medical plan and life insurance coverage
for certain employees subsequent to retirement. The plans have been funded on a
pay-as-you-go (cash) basis. The plans are contributory, with retiree
contributions adjusted annually, and contain other cost-sharing features such as
deductibles, coinsurance, and life-time maximums. The plan accounting
anticipates future cost-sharing changes that are consistent with Snapper's
expressed intent to increase the retiree contribution rate annually for the
expected medical trend rate for that year. The coordination of benefits with
Medicare uses a supplemental, or exclusion of benefits approach. Snapper funds
the excess of the cost of benefits under the plans over the participants'
contributions as the costs are incurred.
The net periodic pension cost and net periodic post-retirement benefit cost
(income) for the years ended December 31, 1997 and 1996 amounts to $61,000,
($90,000), $128,000 and ($104,000), respectively. Snapper's defined benefit
plan's projected benefit obligation and fair value of plan assets at December
31, 1997 and 1996 were $6.7 million, $7.2 million, $5.4 million and $6.7
million, respectively. Accrued post-retirement benefit cost at December 31, 1997
and 1996 was $3.0 million and $3.1 million, respectively. Disclosures regarding
the funded status of the plan have not been included herein because they are not
material to the Company's consolidated financial statements at December 31, 1997
and 1996.
F-43
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. BUSINESS SEGMENT DATA
The business activities of the Company constitute two business segments (see
note 1, Description of the Business) and are set forth in the following table
(in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
COMMUNICATIONS GROUP CONSOLIDATED:
Revenues................................................................... $ 21,252 $ 14,047 $ 5,158
Direct operating costs..................................................... (71,485) (39,687) (26,991)
Depreciation and amortization.............................................. (9,749) (6,403) (2,101)
---------- ----------- -----------
Operating loss........................................................... (59,982) (32,043) (23,934)
Interest expense........................................................... (2,164) (356) (3,727)
Interest income............................................................ 6,820 4,448 2,506
Equity in losses of Joint Ventures......................................... (13,221) (11,079) (7,981)
Minority interest.......................................................... 8,893 666 188
---------- ----------- -----------
Loss before income tax benefit (expense)................................. (59,654) (38,364) (32,948)
---------- ----------- -----------
Assets at year end......................................................... 346,437 195,005 161,089
Capital expenditures....................................................... $ 4,832 $ 3,829 $ 2,324
---------- ----------- -----------
---------- ----------- -----------
SNAPPER (1):
Revenues................................................................... $ 183,076 $ 22,545 $ --
Direct operating costs..................................................... (191,349) (30,654) --
Depreciation and amortization.............................................. (6,973) (1,256) --
---------- ----------- -----------
Operating loss........................................................... (15,246) (9,365) --
Interest expense........................................................... (13,142) (1,432) --
Interest income............................................................ 375 115 --
---------- ----------- -----------
Loss before income tax benefit (expense)................................. (28,013) (10,682) --
---------- ----------- -----------
Assets at year end......................................................... 167,858 140,327 --
Capital expenditures....................................................... $ 5,619 $ 1,252 $ --
---------- ----------- -----------
---------- ----------- -----------
OTHER:
Revenues................................................................... $ -- $ -- $ --
Direct operating costs..................................................... (5,549) (9,355) (1,109)
Depreciation and amortization.............................................. (12) (18) --
---------- ----------- -----------
Operating loss........................................................... (5,561) (9,373) (1,109)
Interest expense........................................................... (5,616) (17,302) (2,208)
Interest income............................................................ 7,772 3,989 --
Equity in losses of and writedown of RDM................................... (45,056) -- --
---------- ----------- -----------
Loss before income tax benefit (expense)................................. (48,461) (22,686) (3,317)
---------- ----------- -----------
Assets at year end including discontinued operations and eliminations...... $ 274,977 $ 177,786 $ 167,511
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
F-44
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. BUSINESS SEGMENT DATA (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
CONSOLIDATED:
Revenues................................................................... $ 204,328 $ 36,592 $ 5,158
Direct operating costs..................................................... (268,383) (79,696) (28,100)
Depreciation and amortization.............................................. (16,734) (7,677) (2,101)
---------- ----------- -----------
Operating loss........................................................... (80,789) (50,781) (25,043)
Interest expense........................................................... (20,922) (19,090) (5,935)
Interest income............................................................ 14,967 8,552 2,506
Equity in losses of Joint Ventures......................................... (13,221) (11,079) (7,981)
Equity in losses and writedown of RDM...................................... (45,056) -- --
Minority interest.......................................................... 8,893 666 188
---------- ----------- -----------
Loss before income tax benefit (expense)................................. (136,128) (71,732) (36,265)
Income tax benefit (expense)............................................... 5,227 (414) --
---------- ----------- -----------
Loss from continuing operations.......................................... (130,901) (72,146) (36,265)
Discontinued operations.................................................... 234,036 (38,592) (344,329)
Extraordinary items........................................................ (14,692) (4,505) (32,382)
---------- ----------- -----------
Net income (loss)........................................................ $ 88,443 $ (115,243) $ (412,976)
---------- ----------- -----------
---------- ----------- -----------
Assets at year end......................................................... 789,272 513,118 328,600
Capital expenditures....................................................... $ 10,451 $ 5,081 $ 2,324
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
- ------------------------
(1) Represents operations from November 1, 1996 to December 31, 1997.
F-45
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. BUSINESS SEGMENT DATA (CONTINUED)
Information about the Communications Group's operations in different geographic
locations for 1997, 1996 and 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- -----------------------
COUNTRY ASSETS REVENUES ASSETS REVENUES ASSETS REVENUES
- ----------------------------------------------------- ---------- --------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
AUSTRIA.............................................. $ 6,710 $ 179 $ 1,696 $ -- $ 25 $ --
BELARUS.............................................. 2,135 -- 1,981 -- 918 --
CZECH REPUBLIC....................................... 2,986 220 283 -- -- --
ESTONIA.............................................. 4,943 667 3,154 -- 2,585 --
GEORGIA.............................................. 18,911 -- 11,043 -- 6,437 --
GERMANY.............................................. 5,038 36 -- -- -- --
HUNGARY.............................................. 8,154 8,477 10,251 9,214 10,773 3,879
INDONESIA............................................ 20 -- 235 -- -- --
KAZAKSTAN............................................ 6,840 -- 3,274 -- 1,318 --
LATVIA............................................... 19,786 -- 18,558 -- 8,395 --
LITHUANIA............................................ 2,375 296 1,557 69 81 --
MOLDOVA.............................................. 4,673 -- 3,590 -- 1,613 --
PEOPLES REPUBLIC OF CHINA............................ 117,591 -- 5,026 -- 841 --
PORTUGAL............................................. 6,581 598 -- -- -- --
ROMANIA.............................................. 9,412 4,079 4,791 2,981 3,778 690
RUSSIA............................................... 4,601 3,406 4,742 60 7,669 --
UNITED KINGDOM....................................... 11,463 543 9,435 52 448 --
UNITED STATES........................................ 109,050 2,751 109,257 1,671 112,399 589
UZBEKISTAN........................................... 5,168 -- 6,132 -- 3,809 --
---------- --------- ---------- --------- ---------- -----------
$ 346,437 $ 21,252 $ 195,005 $ 14,047 $ 161,089 $ 5,158
---------- --------- ---------- --------- ---------- -----------
---------- --------- ---------- --------- ---------- -----------
</TABLE>
The revenues and assets by the Communications Group's lines of business are
disclosed in notes 2 and 3.
All remaining revenues and assets relate to operations in the United States.
15. OTHER CONSOLIDATED FINANCIAL STATEMENT INFORMATION
SHORT-TERM INVESTMENTS
Short-term investments consist of repurchase agreements, which have maturities
of less than six months.
ACCOUNTS RECEIVABLE
The total allowance for doubtful accounts at December 31, 1997 and 1996 was $2.6
million and $1.7 million, respectively.
F-46
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. OTHER CONSOLIDATED FINANCIAL STATEMENT INFORMATION (CONTINUED)
INVENTORIES
Inventories consist of the following as of December 31, 1997 and 1996 (in
thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Lawn and garden equipment:
Raw materials......................................................... $ 11,031 $ 18,733
Finished goods........................................................ 84,523 35,113
--------- ---------
95,554 53,846
Less: LIFO reserve.................................................... 1,306 291
--------- ---------
94,248 53,555
--------- ---------
Telecommunications:
Pagers................................................................ 1,083 635
Telephony............................................................. 425 --
Cable................................................................. 680 214
--------- ---------
2,188 849
--------- ---------
$ 96,436 $ 54,404
--------- ---------
--------- ---------
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1997 and 1996 consists of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Land................................................................... $ 871 $ 863
Buildings and improvements............................................. 6,565 6,355
Machinery and equipment................................................ 46,259 31,188
Leasehold improvements................................................. 840 387
---------- ---------
54,535 38,793
Less: Accumulated depreciation and amortization........................ (10,525) (3,335)
---------- ---------
$ 44,010 $ 35,458
---------- ---------
---------- ---------
</TABLE>
F-47
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. OTHER CONSOLIDATED FINANCIAL STATEMENT INFORMATION (CONTINUED)
ACCRUED EXPENSES
Accrued expenses at December 31, 1997 and 1996 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accrued salaries and wages.............................................. $ 4,737 $ 2,565
Accrued taxes........................................................... 2,842 15,339
Accrued interest........................................................ 1,727 6,066
Self-insurance claims payable........................................... 29,507 29,833
Accrued warranty costs.................................................. 4,293 4,317
Other................................................................... 33,791 21,057
--------- ---------
$ 76,897 $ 79,177
--------- ---------
--------- ---------
</TABLE>
RESEARCH AND DEVELOPMENT AND ADVERTISING COSTS
Research and development costs for the year ended December 31, 1997 and the
period November 1, 1996 to December 31, 1996 were $3.8 million and $930,000,
respectively. The Company's advertising costs for the years ended December 31,
1997, 1996 and 1995 were $19.8 million, $4.5 million and $114,000, respectively.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The accumulated other comprehensive income (loss) at December 31, 1997, 1996 and
1995 is as follows (in thousands):
<TABLE>
<CAPTION>
FOREIGN
CURRENCY MINIMUM ACCUMULATED OTHER
TRANSLATION PENSION COMPREHENSIVE
ADJUSTMENTS LIABILITY INCOME (LOSS)
----------- ----------- ------------------
<S> <C> <C> <C>
Balances, February 28, 1995..................... $ 184 $ -- $ 184
Current-period change........................... 399 -- 399
----------- ----- -------
Balances, December 31, 1995..................... 583 -- 583
Current-period change........................... (618) -- (618)
----------- ----- -------
Balances, December 31, 1996..................... (35) -- (35)
Current-period change........................... (2,526) (805) (3,331)
----------- ----- -------
Balances, December 31, 1997..................... $ (2,561) $ (805) $ (3,366)
----------- ----- -------
----------- ----- -------
</TABLE>
F-48
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. OTHER CONSOLIDATED FINANCIAL STATEMENT INFORMATION (CONTINUED)
TAX EFFECTS ALLOCATED TO EACH COMPONENT OF OTHER COMPREHENSIVE INCOME (LOSS)
The tax effects allocated to each component of other comprehensive income (loss)
for the years ended December 31, 1997, 1996 and 1995 is as follows (in
thousands):
<TABLE>
<CAPTION>
TAX
PRE-TAX (EXPENSE) NET-OF-TAX
AMOUNT BENEFIT AMOUNT
--------- ----------- -----------
<S> <C> <C> <C>
Year ended December 31, 1997:
Foreign currency translation adjustments.................... $ (3,939) $ 1,378 $ (2,561)
Minimum pension liability................................... (1,238) 433 (805)
--------- ----------- -----------
Other comprehensive loss.................................... $ (5,177) $ 1,811 $ (3,366)
--------- ----------- -----------
--------- ----------- -----------
Year ended December 31, 1996:
Foreign currency translation adjustments.................... $ (951) $ 333 $ (618)
--------- ----------- -----------
Other comprehensive loss.................................... $ (951) $ 333 $ (618)
--------- ----------- -----------
--------- ----------- -----------
Year ended December 31, 1995:
Foreign currency translation adjustments.................... $ 614 $ (215) $ 399
--------- ----------- -----------
Other comprehensive income.................................. $ 614 $ (215) $ 399
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Supplemental disclosure of cash flow information for the years ended December
31, 1997, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash paid during the year for:
Interest...................................................... $ 22,434 $ 15,545 $ 2,670
--------- --------- ---------
--------- --------- ---------
Taxes......................................................... $ 26,200 $ -- $ 33
--------- --------- ---------
--------- --------- ---------
</TABLE>
Supplemental schedule of non-cash investing and financing activities for the
years ended December 31, 1997, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Acquisition of businesses:
Fair value of assets acquired............................ $ -- $ -- $ 282,296
Fair value of liabilities assumed........................ -- -- 232,734
---------- ---------- ----------
Net value................................................ $ -- $ -- $ 49,562
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-49
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. OTHER CONSOLIDATED FINANCIAL STATEMENT INFORMATION (CONTINUED)
In connection with acquisition of Motion Picture Corporation of America in 1996,
the Company issued debt of $1.2 million and restricted common stock valued at
$3.2 million.
See note 8 regarding the consolidation of Snapper.
See note 3 regarding the acquisition of AAT.
Interest expense includes amortization of debt discount of $1.7 million, $2.6
million and $434,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
16. COMMITMENTS AND CONTINGENT LIABILITIES
COMMITMENTS
The Company is obligated under various operating and capital leases. Total rent
expense amounted to $4.7 million, $1.3 million and $908,000 million for the
years ended December 31, 1997, 1996 and 1995, respectively. Plant, property and
equipment included capital leases of $2.4 million and $676,000 and related
accumulated amortization of $548,000 and $318,000 at December 31, 1997 and 1996,
respectively.
Minimum rental commitments under noncancellable leases are set forth in the
following table (in thousands):
<TABLE>
<CAPTION>
YEAR CAPITAL LEASES OPERATING LEASES
- ------------------------------------------------------------ --------------- ----------------
<S> <C> <C>
1998........................................................ $ 821 $ 3,423
1999........................................................ 778 2,860
2000........................................................ 183 2,057
2001........................................................ 14 1,668
2002........................................................ 6 601
Thereafter.................................................. -- 48
------ -------
Total....................................................... 1,802 $ 10,657
-------
-------
Less: amount representing interest.......................... (179)
------
Present value of future minimum lease payments.............. $ 1,623
------
------
</TABLE>
Certain of the Company's subsidiaries have employment contracts with various
officers, with remaining terms of up to 2 years, at amounts approximating their
current levels of compensation. The Company's remaining aggregate commitment at
December 31, 1997 under such contracts is approximately $4.1 million.
The Company pays a management fee to Metromedia for certain general and
administrative services provided by Metromedia personnel. Such management fee
amounted to $3.3 million and $1.5 million for the years ended December 31, 1997
and 1996, respectively, and $250,000 for the period November 1, 1995 to December
31, 1995. The management fee commitment for the year ended December 31, 1998 is
$3.5 million.
F-50
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Snapper has entered into various long-term manufacturing and purchase agreements
with certain vendors for the purchase of manufactured products and raw
materials. As of December 31, 1997, noncancelable commitments under these
agreements amounted to approximately $25.0 million.
Snapper has an agreement with a financial institution which makes available
floor-plan financing to distributors and dealers of Snapper products. This
agreement provides financing for dealer inventories and accelerates Snapper's
cash flow. Under the terms of the agreement, a default in payment by a dealer is
nonrecourse to Snapper. However, Snapper is obligated to repurchase any new and
unused equipment recovered from the dealer. At December 31, 1997, there was
approximately $65.7 million outstanding under this floor-plan financing
arrangement. The Company guarantees the payment obligation of Snapper under this
agreement.
CONTINGENCIES
RISKS ASSOCIATED WITH THE COMMUNICATIONS GROUP'S INVESTMENTS
The ability of the Communications Group and its Joint Ventures to establish
profitable operations is subject to among other things, significant political,
economic and social risks inherent in doing business in Eastern Europe, the
republics of the former Soviet Union, and China. These include potential risks
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.
The Company 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 may have a material adverse effect on the
Company's prospective projects in the country. The Russian Federation has
periodically proposed legislation that would limit the ownership percentage that
foreign companies can have in communications businesses. While such proposed
legislation has not been made into law, it is possible that such legislation
could be enacted in Russia and/or that other countries in Eastern Europe and the
republics of the former Soviet Union may enact similar legislation which could
have a material adverse effect on the business, operations, financial condition
or prospects of the Company. Such legislation could be similar to United States
federal law which limits the foreign ownership in entities owning broadcasting
licenses. Similarly, China's laws and regulations restrict and prohibit foreign
companies or Joint Ventures in which they participate from providing telephony
service to customers in China and generally limit the role that foreign
companies or their Joint Ventures may play in the telecommunications industry.
As a result, a Communications Group affiliate that has invested in China must
structure its transactions as a provider of telephony equipment and technical
support services as opposed to a direct provider of such services. In addition,
there is no way of predicting whether additional 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 Joint 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
F-51
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
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.
The Communications Group's strategy is to minimize its foreign currency risk. To
the extent possible, in countries that have experienced high rates of inflation,
the Communications Group bills and collects all revenues in U.S. dollars or an
equivalent local currency amount adjusted on a monthly basis for exchange rate
fluctuations. The Communications Group's Joint Ventures are generally permitted
to maintain U.S. dollar accounts to service their U.S. dollar denominated credit
lines, thereby reducing foreign currency risk. As the Communications Group and
its Joint Ventures expand their operations and become more dependent on local
currency based transactions, the Communications Group expects that its foreign
currency exposure will increase. The Communications Group does not hedge against
foreign exchange rate risks at the current time and therefore could be subject
in the future to any declines in exchange rates between the time a Joint Venture
receives its funds in local currencies and the time it distributed such funds in
U.S. dollars to the Communications Group.
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. One of the licenses held by the Communications Group has expired,
although the Communications Group has been permitted to continue operations
while the reissuance is pending. The Communications Group has applied for a
renewal and expects a new license to be issued. Five other licenses held or used
by the Communications Group will expire during 1998, including the license for
Radio Juventus, the Company's radio operation in Hungary. The failure of such
licenses to be renewed may have a material adverse effect on the Company's
results of operations. Additionally, certain of the licenses pursuant to which
the Communications Group's businesses operate contain network build-out
milestone clauses. The failure to satisfy such milestones could result in the
loss of such licenses which may have a material adverse effect on the
Communications Group.
In the case of the licenses other than Radio Juventus, the Company's Joint
Ventures will apply for renewals of their licenses. While there can be no
assurance that these four licenses will be renewed, based on past experience,
the Communications Group expects to obtain such renewals. In the case of Radio
Juventus, the Communications Group plans to cause the venture to participate in
a competitive tender for a regional broadcasting license to cover Budapest and
certain other areas in Hungary. The Company believes that Radio Juventus'
prospects for winning such tender, which will be determined by the strength of
its bid in the tender in comparison to the bids of other participants in the
tender, are good.
CREDIT CONCENTRATIONS
The Communications Group's trade receivables do not represent significant
concentrations of credit risk at December 31, 1997, due to the wide variety of
customers/subscribers and markets into which the Company's services are sold and
their dispersion across many geographic areas.
No single customer represents a significant concentration of credit risk for
Snapper at December 31, 1997 and 1996.
FINANCIAL GUARANTEES
In connection with MCC's investments in the Sichuan JV and the Chongqing JV, the
Joint Ventures have entered into a Loan for the initial phase ("Phase 1 Loan")
with Nortel for $20.0 million to finance the purchase of Nortel equipment for
the Sichuan Province and City of Chongqing initial phase ("Phase 1
F-52
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Project"). The Company, has secured the Phase 1 Loan repayment with a $20.0
million letter of credit. Nortel has the right to draw down on the $20.0 million
letter of credit for amounts due Nortel by the Sichuan JV and the Chongqing JV
if a contract for a second phase ("Phase 2 Contract") has not been entered into
with Nortel to expand the 50,000 lines in the Phase 1 Project to at least
150,000 lines within one year from the date of the contract for the initial
phase with Nortel.
If the Phase 2 Contract is entered into with Nortel, Sichuan JV and Chongqing JV
plan to enter into a long-term loan facility with Nortel for $100.0 million to
repay the Phase 1 Loan and to finance a second phase and subsequent phases to
expand the telecommunications network in Sichuan Province and City of Chongqing.
No assurance can be given that Sichuan JV and Chongqing JV will be successful in
executing the long-term loan facility with Nortel. Accordingly, the Company
through the letter of credit may become obligated to finance up to $20.0 million
of the Phase I Project for the Sichuan JV and Chongqing JV.
In addition, the Company has guaranteed certain indebtness of one of the
Company's cellular telecommunications Joint Ventures. The total guarantee is for
$15.0 million of which $4.3 million has been borrowed at December 31, 1997.
As part of the financing of a Joint Venture, MITI and its Joint Venture partner
provided a 5% equity interest to the lender. The lender can put back the equity
interest to MITI and its Joint Venture partner at certain dates in the future at
an amount not to exceed $6.0 million. In addition, in connection with the
financing, MITI and its Joint Venture partner agreed to provide an additional
$7.0 million in funding to the Joint Venture.
SELF-INSURANCE LIABILITIES
At December 31, 1997 the Company had $17.8 million of outstanding letters of
credit which principally collateralize certain liabilities under the Company's
self-insurance program.
LITIGATION
The Company is involved in various legal and regulatory proceedings and while
the results of any litigation or regulatory issue contain an element of
uncertainty, management believes that the outcome of any known, pending or
threatened legal proceedings will not have material effect on the Company's
consolidated financial position and results of operations.
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 1997 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
F-53
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
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 year ended December 31, 1997. As of December 31, 1997, the Company
had a remaining reserve of approximately $1.1 million to cover its obligations
of 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 ("DP"), a former
subsidiary of the Company, and was transferred to a wholly-owned subsidiary of
the Company in connection with the sale of the Company's former sporting goods
business to RDM. 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 sale to RDM, RDM 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 sale, the
Company and RDM entered into an Environmental Indemnity Agreement (the
"Indemnity Agreement") under which the Company agreed to indemnify RDM 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. The
Company believes that the reserves of approximately $1.6 million previously
established by the Company for the Opelika Property will be adequate to cover
the cost of the remediation plan that has been developed.
F-54
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected financial information for the quarterly periods in 1997 and 1996 is
presented below (in thousands, except per-share amounts):
<TABLE>
<CAPTION>
FIRST QUARTER OF SECOND QUARTER OF
-------------------------------- --------------------------------
1997(A)(B)(L) 1996(A)(L) 1997(B)(L) 1996(A)(L)
------------- ------------- ---------- ----------------
<S> <C> <C> <C> <C>
Revenues................................ $ 58,975 $ 3,164 $ 52,000 $ 2,775
Operating loss.......................... (10,164) (7,443) (17,059) (10,645)
Interest expense, net................... (2,885) (3,610) (4,361) (3,806)
Equity in losses of Joint Ventures...... (1,598) (1,783) (587) (1,985)
Loss from continuing operations......... (13,505) (12,823) (45,958)(h) (16,428)
Loss from discontinued operations....... (8,753)(d)(e) (6,318)(d) (25,914)(d)(e) (2,422)(d)
Loss from extraordinary items........... -- -- (1,094)(h) --
Net loss................................ (22,258) (19,141) (72,966) (18,850)
Income (loss) per common share--Basic:
Continuing operations................. $ (0.21) $ (0.30) $ (0.69) $ (0.38)
Discontinued operations............... $ (0.13) $ (0.15) $ (0.39) $ (0.06)
Extraordinary items................... $ -- $ -- $ (0.02) $--
Net loss.............................. $ (0.34) $ (0.45) $ (1.10) $ (0.44)
<CAPTION>
THIRD QUARTER OF FOURTH QUARTER OF
-------------------------------- --------------------------------
1997(L) 1996(A)(B)(L) 1997 1996(A)(B)(C)(L)
------------- ------------- ---------- ----------------
<S> <C> <C> <C> <C>
Revenues................................ $ 36,545 $ 4,380 $ 56,808 $26,273
Operating loss.......................... (20,803) (10,022) (32,763) (22,671)
Interest income (expense), net.......... 143 (1,008) 1,148 (2,114)
Equity in losses of Joint Ventures...... (5,376) (2,292) (5,660) (5,019)
Loss from continuing operations
attributable to common stockholders... (31,863)(f)(i) (13,263) (43,911)(f) (29,632)
Income (loss) from discontinued
operations............................ 269,072(d)(e) (25,092)(d)(e)(g) (369)(e) (4,760)(d)(e)
Loss from extraordinary items........... (13,598)(j) (4,505)(k) -- --
Net income (loss) attributable to common
stockholders.......................... 223,611 (42,860) (44,280) (34,392)
Income (loss) per common share--Basic:
Continuing operations................. $ (0.48) $ (0.20) $ (0.64) $ (0.45)
Discontinued operations............... $ 4.01 $ (0.39) $ (0.01) $ (0.07)
Extraordinary items................... $ (0.20) $ (0.07) $ -- $--
Net income (loss)..................... $ 3.33 $ (0.66) $ (0.65) $ (0.52)
</TABLE>
- ------------------------
(a) Revenues, operating loss and interest income (expense), net, have been
restated to reflect the Entertainment Group Sale.
(b) Revenues, operating loss and interest income (expense), net, have been
restated to reflect Landmark as a discontinued operation.
F-55
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
(c) Includes the consolidation of Snapper as of November 1, 1996
(d) On July 10, 1997, the Company consummated the Entertainment Group Sale
resulting in a gain of $266.3 million, net of taxes. The transaction has
been treated as a discontinuance of a business segment and, accordingly, the
consolidated financial statements reflect the results of operations of the
Entertainment Group as a discontinued segment. The third quarter gain has
been restated by $16.6 million to reflect adjustments in taxes originally
reported in the Company's September 30, 1997 10-Q.
(e) The Company anticipates completing the Landmark Sale in April 1998. The
transaction has been treated as a discontinuance of a business segment and,
accordingly, the consolidated financial statements reflect the results of
operations of Landmark as a discontinued segment.
(f) Loss from continuing operations has been adjusted to reflect the dividend
requirements on the Company's 7 1/4% Cumulative Convertible Preferred Stock
issued on September 16, 1997.
(g) Reflects the writedown of the Company's investment in RDM.
(h) Includes the equity in losses of and writedown of investment in RDM of $25.1
million and the equity in early extinguishment of debt of RDM.
(i) Includes equity in losses of RDM of $19.9 million.
(j) In connection with the Entertainment Group Sale, the Company repaid all of
its outstanding debentures and expensed the unamortized discounts associated
with the debentures.
(k) In connection with the refinancing of the Entertainment Group Credit
Facility, the Company expensed the unamortized deferred financing costs.
(l) The Company has adopted SFAS 128 and all prior periods earnings per share
have been restated, as required.
F-56
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS INCORPORATED HEREIN BY REFERENCE
------------------------------------------------
DESIGNATION OF DOCUMENT WITH WHICH EXHIBIT
EXHIBIT IN THIS WAS PREVIOUSLY FILED WITH
FORM 10-K DESCRIPTION OF EXHIBITS COMMISSION
- ----------------- ------------------------------------------------ ------------------------------------------------
<S> <C> <C>
2.2 Agreement and Plan of Reorganization dated as of Quarterly Report on Form 10-Q for the three
July 20, 1994 by and among, The Actava Group months ended June 30, 1994, Exhibit 99.1
Inc., Diversified Products Corporation, Hutch
Sports USA Inc., Nelson/Weather-Rite, Inc.,
Willow Hosiery Company, Inc. and Roadmaster
Industries, Inc.
2.3 Amended and Restated Agreement and Plan of Current Report on Form 8-K for event occurring
Merger dated as of September 27, 1995 by and on September 27, 1995, Exhibit 99(a)
among The Actava Group Inc., Orion Pictures
Corporation, MCEG Sterling Incorporated,
Metromedia International Telecommunications,
Inc., OPG Merger Corp. and MITI Merger Corp. and
exhibits thereto. The Registrant agrees to
furnish copies of the schedules supplementally
to the Commission on request.
2.5 Agreement and Plan of Merger dated as of January Current Report on Form 8-K dated January 31,
31, 1996 by and among Metromedia International 1996, Exhibit 99.1
Group, Inc., The Samuel Goldwyn Company and SGC
Merger Corp. and exhibits thereto. The
registrant agrees to furnish copies of the
schedules to the Commission upon request.
3.1 Restated Certificate of Incorporation of Registration Statement on Form S-3 (Registration
Metromedia International Group, Inc. No. 33-63853), Exhibit 3.1
3.2 Restated By-laws of Metromedia International Registration Statement on Form S-3 (Registration
Group, Inc. No. 33-6353), Exhibit 3.2
4.1 Indenture dated as of August 1, 1973, with Application of Form T-3 for Qualification of
respect to 9 1/2% Subordinated Debentures due Indenture under the Trust Indenture Act of 1939
August 1, 1998, between The Actava Group Inc. (File No. 22-7615), Exhibit 4.1
and Chemical Bank, as Trustee.
4.2 Agreement among The Actava Group, Inc., Chemical Registration Statement on Form S-14
Bank and Manufacturers Hanover Trust Company, (Registration No. 2-81094), Exhibit 4.2
dated as of September 26, 1980, with respect to
successor trusteeship of the 9 1/2% Subordinated
Debentures due August 1, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS INCORPORATED HEREIN BY REFERENCE
------------------------------------------------
DESIGNATION OF DOCUMENT WITH WHICH EXHIBIT
EXHIBIT IN THIS WAS PREVIOUSLY FILED WITH
FORM 10-K DESCRIPTION OF EXHIBITS COMMISSION
- ----------------- ------------------------------------------------ ------------------------------------------------
<S> <C> <C>
4.3 Instrument of registration, appointment and Annual Report on Form 10-K for the year ended
acceptance dated as of June 9, 1986 among The December 31, 1986, Exhibit 4.3
Actava Group Inc., Manufacturers Hanover Trust
Company and Irving Trust Company, with respect
to successor trusteeship of the 9 1/2%
Subordinated Debentures due August 1, 1998.
4.4 Indenture dated as of March 15, 1977, with Registration Statement on Form S-7 (Registration
respect to 9 7/8% Senior Subordinated Debentures No. 2-58317), Exhibit 4.4
due March 15, 1997, between The Actava Group
Inc. and The Chase Manhattan Bank, N.A., as
Trustee.
4.5 Agreement among The Actava Group Inc., The Chase Registration Statement on Form S-14
Manhattan Bank, N.A. and United States Trust (Registration No. 2-281094), Exhibit 4.5
Company of New York, dated as of June 14, 1982,
with respect to successor trusteeship of the
97/8% Senior Subordinated Debentures due March
15, 1997.
4.6 Indenture between National Industries, Inc. and Post-Effective Amendment No. 1 to Application on
First National City Bank, dated October 1, 1974, Form T-3 for Qualification of Indenture Under
with respect to the 10% Subordinated Debentures, The Trust Indenture Act of 1939 (File No.
due October 1, 1999. 22-8076), Exhibit 4.6
4.7 Agreement among National Industries, Inc., The Registration Statement on Form S-14
Actava Group Inc., Citibank, N.A., and Marine (Registration No. 2-81094), Exhibit 4.7
Midland Bank, dated as of December 20, 1977,
with respect to successor trusteeship of the 10%
Subordinated Debentures due October 1, 1999.
4.8 First Supplemental Indenture among The Actava Registration Statement on Form S-7 (Registration
Group Inc., National Industries, Inc. and Marine No. 2-60566), Exhibit 4.8
Midland Bank, dated January 3, 1978,
supplemental to the Indenture dated October 1,
1974 between National and First National City
Bank for the 10% Subordinated Debentures due
October 1, 1999.
4.9 Indenture dated as of August 1, 1987 with Annual Report on Form 10-K for the year ended
respect to 6 1/2% Convertible Subordinated December 31, 1987, Exhibit 4.9
Debentures due August 4, 2002, between The
Actava Group Inc. and Chemical Bank, as Trustee.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS INCORPORATED HEREIN BY REFERENCE
------------------------------------------------
DESIGNATION OF DOCUMENT WITH WHICH EXHIBIT
EXHIBIT IN THIS WAS PREVIOUSLY FILED WITH
FORM 10-K DESCRIPTION OF EXHIBITS COMMISSION
- --------------- ------------------------------------------------ ------------------------------------------------
<S> <C> <C>
10.1 1982 Stock Option Plan of The Actava Group Inc. Proxy Statement dated March 31, 1982, Exhibit A
10.2 1989 Stock Option Plan of The Actava Group Inc. Proxy Statement dated March 31, 1989, Exhibit A
10.3 1969 Restricted Stock Plan of The Actava Group Annual Report on Form 10-K for the year ended
Inc. December 31, 1990, Exhibit 10.3
10.4 1991 Non-Employee Director Stock Option Plan. Annual Report on Form 10-K for the year ended
December 31, 1991, Exhibit 10.4
10.5 Amendment to 1991 Non-Employee Director Stock Annual Report on Form 10-K for the year ended
Option Plan. December 31, 1992, Exhibit 10.5
10.6 Snapper Power Equipment Profit Sharing Plan. Annual Report on Form 10-K for the year ended
December 31, 1987, Exhibit 10.6
10.7 Retirement Plan executed November 1, 1990, as Annual Report on Form 10-K for the year ended
amended effective January 1, 1989. December 31, 1990, Exhibit 10.7
10.8 Supplemental Retirement Plan of The Actava Group Annual Report on Form 10-K for the year ended
Inc. December 31, 1983, Exhibit 10.8
10.9 Supplemental Executive Medical Reimbursement Annual Report on Form 10-K for the year ended
Plan. December 31, 1990, Exhibit 10.9
10.10 Amendment to Supplemental Retirement Plan of The Annual Report on Form 10-K for the year ended
Actava Group Inc., effective April 1, 1992. December 31, 1991, Exhibit 10.10
10.11 1992 Officer and Director Stock Purchase Plan. Annual Report on Form 10-K for the year ended
December 31, 1991, Exhibit 10.11
10.12 Form of Restricted Purchase Agreement between Annual Report on Form 10-K for the year ended
certain officers of The Actava Group Inc. and December 31, 1991, Exhibit 10.12
The Actava Group Inc.
10.14 Form of Indemnification Agreement between Actava Annual Report on Form 10-K for the year ended
and certain of its directors and executive December 31, 1993, Exhibit 10.14
officers.
10.15 Employment Agreement between The Actava Group Current Report on Form 8-K dated
Inc. and John D. Phillips dated April 19, 1994. April 19, 1994, Exhibit 10.15
10.16 First Amendment to Employment Agreement dated Annual Report on Form 10-K for the year ended
November 1, 1995 between Metromedia December 31, 1995, Exhibit 10.16
International Group and John D. Phillips.
10.17 Option Agreement between The Actava Group Inc. Current Report on Form 8-K dated
and John D. Phillips dated April 19, 1994, Exhibit 10.17
April 19, 1994.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS INCORPORATED HEREIN BY REFERENCE
------------------------------------------------
DESIGNATION OF DOCUMENT WITH WHICH EXHIBIT
EXHIBIT IN THIS WAS PREVIOUSLY FILED WITH
FORM 10-K DESCRIPTION OF EXHIBITS COMMISSION
- --------------- ------------------------------------------------ ------------------------------------------------
<S> <C> <C>
10.18 Registration Rights Agreement among The Actava Current Report on Form 8-K dated
Group Inc., Renaissance Partners and John D. April 19, 1994, Exhibit 10.18
Phillips dated
April 19, 1994.
10.19 Shareholders Agreement dated as of December 6, Annual Report on Form 10-K for the year ended
1994 among The Actava Group Inc., Roadmaster, December 31, 1994, Exhibit 10.19
Henry Fong and Edward Shake.
10.20 Registration Rights Agreement dated as of Annual Report on Form 10-K for the year ended
December 6, 1994 between The Actava Group Inc. December 31, 1994, Exhibit 10.20
and Roadmaster.
10.21 Environmental Indemnity Agreement dated as of Annual Report on Form 10-K for the year ended
December 6, 1994 between The Actava Group Inc. December 31, 1994, Exhibit 10.21
and Roadmaster.
10.22 Lease Agreement dated October 21, 1994 between Annual Report on Form 10-K for the year ended
JDP Aircraft II, Inc. and The Actava Group Inc. December 31, 1994, Exhibit 10.22
10.23 Lease Agreement dated as of October 4, 1995 Quarterly Report on Form 10-Q for the quarter
between JDP Aircraft II, Inc. and The Actava ended September 30, 1995, Exhibit 10.23
Group Inc.
10.37 Management Agreement dated November 1, 1995 Annual Report on Form 10-K for the year ended
between Metromedia Company and Metromedia December 31, 1995, Exhibit 10.37
International Group, Inc.
10.38 The Metromedia International Group, Inc. 1996 Proxy Statement dated August 6, 1996, Exhibit B
Incentive Stock Plan.
10.39 License Agreement dated November 1, 1995 between Annual Report on Form 10-K for the year ended
Metromedia Company and Metromedia International December 31, 1995, Exhibit 10.39
Group, Inc.
10.40 MITI Bridge Loan Agreement dated February 29, Annual Report on Form 10-K for the year ended
1996, among Metromedia Company and MITI December 31, 1995, Exhibit 10.40
10.41 Metromedia International Telecommunications, Quarterly Report on Form 10-Q for the quarter
Inc. 1994 Stock Plan ended March 31, 1996, Exhibit 10.41
10.42 Amended and Restated Credit Security and Quarterly Report on Form 10-Q for the quarter
Guaranty Agreement dated as of November 1, 1995, ended June 30, 1996, Exhibit 10.42
by and among Orion Pictures Corporation, the
Corporate Guarantors' referred to herein, and
Chemical Bank, as Agent for the Lenders.
10.43 Metromedia International Group/Motion Picture Quarterly Report or Form 10-Q for the quarter
Corporation of America Restricted Stock Plan ended June 30, 1996, Exhibit 10.43
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS INCORPORATED HEREIN BY REFERENCE
------------------------------------------------
DESIGNATION OF DOCUMENT WITH WHICH EXHIBIT
EXHIBIT IN THIS WAS PREVIOUSLY FILED WITH
FORM 10-K DESCRIPTION OF EXHIBITS COMMISSION
- --------------- ------------------------------------------------ ------------------------------------------------
<S> <C> <C>
10.44 The Samuel Goldwyn Company Stock Awards Plan, as Registration Statement on Form S-8 (Registration
amended No. 333-6453), Exhibit 10.44
10.45 Credit Agreement, dated November 26, 1996 Annual Report on Form 10-K for the year ended
between Snapper, Inc. and AmSouth Bank of December 31, 1996, Exhibit 10.45
Alabama
10.46 Amendment No. 1 to License Agreement dated June Annual Report on Form 10-K for the year ended
13, 1996 between Metromedia Company and December 31, 1996, Exhibit 10.46
Metromedia International Group, Inc.
10.47 Amendment No. 1 to Management Agreement dated as Annual Report on Form 10-K for the year ended
of January 1, 1997 between Metromedia Company December 31, 1996, Exhibit 10.47
and Metromedia International Group, Inc.
10.48 Amended and Restated Agreement and Plan of Annual Report on Form 10-K for the year ended
Merger, dated as of May 17, 1996 between December 31, 1996, Exhibit 10.48
Metromedia International Group, Inc., MPCA
Merger Corp. and Bradley Krevoy and Steven
Stabler and Motion Picture Corporation of
America
10.49* Amendment to Snapper Credit Agreement, dated
November 12, 1997 between Snapper, Inc. and
AmSouth Bank of Alabama
10.50* Limited Guaranty Agreement, dated as of November
12, 1997 by John W. Kluge and Stuart Subotnick
in favor of AmSouth Bank of Alabama
10.51* Asset Purchase Agreement dated as of December
17, 1997
11* Statement of computation of earnings per share
12* Ratio of earnings to fixed charges
16 Letter from Ernst & Young to the Securities and Current Report on Form 8-K dated November 1,
Exchange Commission. 1995
21 List of subsidiaries of Metromedia International
Group, Inc.
23* Consent of KPMG Peat Marwick LLP regarding Annual Report on Form 10-K for the year ended
Metromedia International Group, Inc. December 31, 1996, Exhibit 21
27* Financial Data Schedule
</TABLE>
- ------------------------
* Filed herewith
5
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
AND THE PERIOD FROM NOVEMBER 1 TO DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues................................................................... $ -- $ -- $ --
Cost and expenses:
Selling, general and administrative.................................... 5,549 9,355 1,109
Depreciation and amortization.......................................... 12 18 --
----------- ----------- -----------
Operating loss............................................................. (5,561) (9,373) (1,109)
Interest income (expense), net............................................. 2,156 (13,313) (2,208)
Equity in losses of subsidiaries........................................... (88,581) (49,460) (32,948)
Equity in losses and writedown of investment in RDM Sports Group, Inc...... (45,056) -- --
Income tax benefit......................................................... 6,141 -- --
----------- ----------- -----------
Loss from continuing operations............................................ (130,901) (72,146) (36,265)
Discontinued operations:
Gain on disposal and (loss) on assets held for sale...................... 266,294 (16,305) (293,570)
Equity in losses of discontinued operations.............................. (32,258) (22,287) (50,759)
----------- ----------- -----------
Income (loss) before extraordinary items................................... 103,135 (110,738) (380,594)
Extraordinary items:
Loss and equity in loss on early extinguishment of debt.................. (14,692) (4,505) (32,382)
----------- ----------- -----------
Net income (loss).......................................................... 88,443 (115,243) (412,976)
Cumulative convertible preferred stock dividend requirement................ (4,336) -- --
----------- ----------- -----------
Net income (loss) attributable to common stockholders...................... $ 84,107 $ (115,243) $ (412,976)
----------- ----------- -----------
----------- ----------- -----------
Weighted average of number of common shares--Basic:........................ 66,961 54,293 24,541
----------- ----------- -----------
----------- ----------- -----------
Income (loss) per common share--Basic:
Continuing operations.................................................... $ (2.02) $ (1.33) $ (1.48)
Discontinued operations.................................................. $ 3.50 $ (0.71) $ (14.03)
Extraordinary item....................................................... $ (0.22) $ (0.08) $ (1.32)
Net income (loss)........................................................ $ 1.26 $ (2.12) $ (16.83)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the condensed financial
information.
See notes to Condensed Financial Information on page S-4.
S-1
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............................................................ $ 121,892 $ 83,855
Short-term investments............................................................... 100,000 --
Other assets......................................................................... 2,631 2,765
------------ -----------
Total current assets........................................................... 224,523 86,620
Investment in RDM Sports Group, Inc.................................................... -- 31,150
Net assets of discontinued operations.................................................. 48,531 57,474
Investment in subsidiaries............................................................. 82,809 141,518
Intercompany accounts.................................................................. 256,037 103,427
Other assets........................................................................... 1,923 2,542
------------ -----------
Total assets................................................................... $ 613,823 $ 422,731
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable..................................................................... $ 2,039 $ 2,453
Accrued expenses..................................................................... 49,443 57,581
Current portion of long-term debt.................................................... 420 17,158
------------ -----------
Total current liabilities...................................................... 51,902 77,192
Long-term debt......................................................................... 990 125,467
Other long-term liabilities............................................................ 249 390
------------ -----------
Total liabilities.............................................................. 53,141 203,049
------------ -----------
Stockholders' equity:
Preferred stock...................................................................... 207,000 --
Common stock......................................................................... 68,391 66,153
Paid-in surplus...................................................................... 1,007,272 959,558
Restricted stock..................................................................... -- (2,645)
Accumulated deficit.................................................................. (718,615) (803,349)
Accumulated other comprehensive loss................................................. (3,366) (35)
------------ -----------
Total stockholders' equity..................................................... 560,682 219,682
------------ -----------
Total liabilities and stockholders' equity..................................... $ 613,823 $ 422,731
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of the condensed financial
information.
See Notes to Condensed Financial Information on page S-4.
S-2
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
AND THE PERIOD FROM NOVEMBER 1 TO DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss).......................................................... $ 88,443 $ (115,243) $ (412,976)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
(Gain) on disposal and loss on assets held for sale...................... (266,294) 16,305 293,570
Equity in losses of discontinued operations.............................. 32,258 22,287 50,759
Loss and equity in loss on early extinguishment of debt.................. 14,692 4,505 32,382
Equity in losses and writedown of investment in RDM Sports Group, Inc.... 45,056 -- --
Equity in losses of subsidiaries......................................... 88,581 49,460 32,948
Amortization of debt discounts........................................... 1,711 2,607 434
Change in cumulative translation adjustment of subsidiaries.............. (2,526) (618) 399
Changes in operating assets and liabilities:
(Increase) decrease in other current assets.............................. 134 245 (5,567)
Decrease in other assets................................................. 619 1,983 5,035
Increase (decrease) in accounts payable, accrued expenses and other
liabilities............................................................ (41,804) (7,651) 1,769
----------- ----------- -----------
Cash used in operations.............................................. (39,130) (26,120) (1,247)
----------- ----------- -----------
Investing activities:
Proceeds from notes receivable........................................... -- -- 45,320
Net proceeds from Entertainment Group Sale............................... 276,607 -- --
Proceeds from sale of short-term investments............................. -- 5,366 --
Purchase of short-term investments....................................... (100,000) -- --
(Investment in) distribution from subsidiaries........................... -- 5,400 (4,230)
Investment in RDM Sports Group, Inc...................................... (15,000) -- --
Cash acquired, net in merger............................................. -- 819 66,702
----------- ----------- -----------
Cash provided by (used in) investing activities...................... 161,607 11,585 107,792
----------- ----------- -----------
Financing activities:
Proceeds from (payment of) revolving term loan........................... -- (28,754) 28,754
Payments on notes and subordinated debt.................................. (156,524) (7,656) (48,222)
Proceeds from issuance of stock.......................................... 217,595 191,576 2,282
Preferred stock dividends paid........................................... (3,709) -- --
Due from subsidiary...................................................... (143,221) (66,128) --
Due to (from) discontinued operations.................................... 1,419 (7,130) (72,877)
----------- ----------- -----------
Cash provided by (used in) financing activities...................... (84,440) 81,908 (90,063)
----------- ----------- -----------
Net increase in cash and cash equivalents.................................. 38,037 67,373 16,482
Cash and cash equivalents at beginning of year............................. 83,855 16,482 --
----------- ----------- -----------
Cash and cash equivalents at end of year................................... $ 121,892 $ 83,855 $ 16,482
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the condensed financial
information.
See Notes to Condensed Financial Information on page S-4.
S-3
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
NOTES TO CONDENSED FINANCIAL INFORMATION
DECEMBER 31, 1997, 1996 AND 1995
(A) Prior to the November 1 Merger discussed in note 7 to the "Notes to
Consolidated Financial Statements," there was no parent company. The
accompanying parent company financial statements reflect only the operations
of MMG for the years ended December 31, 1997 and 1996 and from November 1,
1995 to December 31, 1995 and the equity in losses of subsidiaries and
discontinued operations for the years ended December 31, 1997, 1996 and
1995. The calendar 1995 amounts, prior to the November 1 Merger, shown in
the historical consolidated financial statements represent the combined
financial statements of Orion (shown as a discontinued operation) and MITI
prior to the November 1 Merger and formation of MMG.
(B) Principal repayments of the Registrant's borrowings under debt agreements
and other debt outstanding at December 31, 1997 are expected to be required
no earlier than as follows (in thousands):
<TABLE>
<S> <C>
1998................................................. $ 420
1999................................................. 66
2000................................................. 72
2001................................................. 78
2002................................................. 86
Thereafter........................................... 688
</TABLE>
For additional information regarding the Registrant's borrowings under debt
agreements and other debt, see note 4 to the "Notes to Consolidated Financial
Statements."
S-4
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCES FOR DOUBTFUL ACCOUNTS, ETC. (DEDUCTED FROM CURRENT RECEIVABLES)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED
BALANCE AT TO COSTS BALANCE
BEGINNING AND OTHER DEDUCTIONS/ AT END OF
OF PERIOD EXPENSES CHARGES WRITE-OFFS PERIOD
----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997............................. $ 1,691 $ 1,675 $ -- $ (790) $ 2,576
----------- ----------- ----- ----- -----------
----------- ----------- ----- ----- -----------
Year ended December 31, 1996............................. $ 313 $ 1,378 $ -- $ -- $ 1,691
----------- ----------- ----- ----- -----------
----------- ----------- ----- ----- -----------
Year ended December 31, 1995............................. $ 223 $ 90 $ -- $ -- $ 313
----------- ----------- ----- ----- -----------
----------- ----------- ----- ----- -----------
</TABLE>
S-5
<PAGE>
EXHIBIT 10.49
[EXECUTION COPY]
AMENDED AND RESTATED CREDIT AGREEMENT
Dated November 12, 1997
Between
SNAPPER, INC.
and
AMSOUTH BANK
Relating to an
$80,000,000 Credit Facility
<PAGE>
TABLE OF CONTENTS
Page
------
ARTICLE 1
Rules of Construction and Definitions
SECTION 1.1 General Rules of Construction. . . . . . . 1
SECTION 1.2 Definitions. . . . . . . . . . . . . . . . 2
ARTICLE 2
Credit to be Extended
Under this Agreement
SECTION 2.1 Loan . . . . . . . . . . . . . . . . . . . 13
SECTION 2.2 Advances . . . . . . . . . . . . . . . . . 13
SECTION 2.3 Payments . . . . . . . . . . . . . . . . . 14
SECTION 2.4 Prepayment . . . . . . . . . . . . . . . . 14
SECTION 2.5 Reduction or Cancellation of Maximum
Credit Amount. . . . . . . . . . . . . . 14
SECTION 2.6 Fees . . . . . . . . . . . . . . . . . . . 14
SECTION 2.7 Extension of Termination Date. . . . . . . 15
SECTION 2.8 Place and Time of Payments . . . . . . . . 15
SECTION 2.9 Security . . . . . . . . . . . . . . . . . 16
SECTION 2.10 Guaranty Agreements. . . . . . . . . . . . 16
SECTION 2.11 Make-Whole Account . . . . . . . . . . . . 16
SECTION 2.12 Subordination Agreement. . . . . . . . . . 16
SECTION 2.13 Lock Box Agreement . . . . . . . . . . . . 16
ARTICLE 3
Interest
SECTION 3.1 Applicable Interest Rates. . . . . . . . . 18
SECTION 3.2 Procedure for Exercising Interest Rate
Options. . . . . . . . . . . . . . . . . 18
SECTION 3.3 Floating Rate. . . . . . . . . . . . . . . 18
SECTION 3.4 LIBOR-Based Rate . . . . . . . . . . . . . 19
SECTION 3.5 Termination of LIBOR-Based Rate; Increase
in LIBOR-Based Rate; Reduction of
Return. . . . . . . . . .. . . . . . . . 19
SECTION 3.6 Compensation . . . . . . . . . . . . . . . 20
ARTICLE 4
Representations and Warranties
SECTION 4.1 Financial Statements . . . . . . . . . . . 21
i
<PAGE>
SECTION 4.2 Non-Existence of Defaults. . . . . . . . . 21
SECTION 4.3 Litigation . . . . . . . . . . . . . . . . 21
SECTION 4.4 Material Adverse Changes . . . . . . . . . 22
SECTION 4.5 Title to Property. . . . . . . . . . . . . 22
SECTION 4.6 Corporate Status . . . . . . . . . . . . . 22
SECTION 4.7 Corporate Power and Authority. . . . . . . 22
SECTION 4.8 Place of Business. . . . . . . . . . . . . 22
SECTION 4.9 Place Where Records Maintained . . . . . . 22
SECTION 4.10 Validity, Binding Nature and
Enforceability of the Credit Documents . 22
SECTION 4.11 Taxes. . . . . . . . . . . . . . . . . . . 22
SECTION 4.12 Compliance with Laws . . . . . . . . . . . 23
SECTION 4.13 Consents . . . . . . . . . . . . . . . . . 23
SECTION 4.14 Purpose. . . . . . . . . . . . . . . . . . 23
SECTION 4.15 Condition of the Business. . . . . . . . . 23
SECTION 4.16 Labor Contracts. . . . . . . . . . . . . . 23
SECTION 4.17 ERISA. . . . . . . . . . . . . . . . . . . 23
SECTION 4.18 Patents and Trademarks . . . . . . . . . . 23
SECTION 4.19 Location of Property . . . . . . . . . . . 23
SECTION 4.20 Real Property. . . . . . . . . . . . . . . 23
SECTION 4.21 Capitalization . . . . . . . . . . . . . . 24
SECTION 4.22 Subsidiaries . . . . . . . . . . . . . . . 24
SECTION 4.23 Federal Reserve Board Regulations. . . . . 24
SECTION 4.24 Investment Company Act . . . . . . . . . . 24
ARTICLE 5
Conditions of Lending
SECTION 5.1 Representations and Warranties . . . . . . 24
SECTION 5.2 No Default . . . . . . . . . . . . . . . . 24
SECTION 5.3 Automatic Representations and Warranties . 25
SECTION 5.4 Required Items . . . . . . . . . . . . . . 25
SECTION 5.5 Supporting Documents . . . . . . . . . . . 25
ARTICLE 6
Covenants
SECTION 6.1 Payment and Performance. . . . . . . . . . 27
SECTION 6.2 Insurance. . . . . . . . . . . . . . . . . 27
SECTION 6.3 Collection of Receivables; Sale of
Inventory. . . . . . . . . . . . . . . . 28
SECTION 6.4 Notice of Litigation and Proceedings . . . 28
SECTION 6.5 Payment of Indebtedness to Third Persons . 29
SECTION 6.6 Notice of Change of Business Location. . . 29
SECTION 6.7 Pension Plans. . . . . . . . . . . . . . . 29
SECTION 6.8 Payment of Taxes . . . . . . . . . . . . . 29
ii
<PAGE>
SECTION 6.9 Further Assurances . . . . . . . . . . . . 29
SECTION 6.10 Advancements . . . . . . . . . . . . . . . 29
SECTION 6.11 Maintenance of Status. . . . . . . . . . . 30
SECTION 6.12 Financial Statements; Reporting
Requirements; Certification as to
Events of Defaults . . . . . . . . . . . 30
SECTION 6.13 Notice of Existence of Default . . . . . . 32
SECTION 6.14 Compliance with Laws . . . . . . . . . . . 32
SECTION 6.15 Maintenance of Property. . . . . . . . . . 32
SECTION 6.16 Property Records and Statements. . . . . . 32
SECTION 6.17 Inspection of Property, etc. . . . . . . . 32
SECTION 6.18 Change of Name, Etc. . . . . . . . . . . . 33
SECTION 6.19 Sale or Transfer of Assets . . . . . . . . 33
SECTION 6.20 Acquisition of Stock of Third Person . . . 33
SECTION 6.21 False Certificates or Documents. . . . . . 33
SECTION 6.22 Transactions with Affiliates . . . . . . . 33
SECTION 6.23 Dividends. . . . . . . . . . . . . . . . . 33
SECTION 6.24 Payments on MIG Notes. . . . . . . . . . . 33
SECTION 6.25 Loan . . . . . . . . . . . . . . . . . . . 34
SECTION 6.26 Use of Credit Proceeds . . . . . . . . . . 34
SECTION 6.27 Indebtedness . . . . . . . . . . . . . . . 34
SECTION 6.28 Guaranties . . . . . . . . . . . . . . . . 34
SECTION 6.29 Investments, etc . . . . . . . . . . . . . 34
SECTION 6.30 Sale of Receivables. . . . . . . . . . . . 34
SECTION 6.31 Solvency . . . . . . . . . . . . . . . . . 35
SECTION 6.32 Lease Obligations. . . . . . . . . . . . . 35
SECTION 6.33 Financial Covenants. . . . . . . . . . . . 35
SECTION 6.34 ERISA Compliance . . . . . . . . . . . . . 36
SECTION 6.35 Fiscal Year. . . . . . . . . . . . . . . . 36
ARTICLE 7
Events of Default
SECTION 7.1 Events of Default. . . . . . . . . . . . . 37
SECTION 7.2 Lender's Remedies on Default . . . . . . . 39
ARTICLE 8
Miscellaneous
SECTION 8.1 Notices. . . . . . . . . . . . . . . . . . 40
SECTION 8.2 Expenses . . . . . . . . . . . . . . . . . 42
SECTION 8.3 Independent Obligations. . . . . . . . . . 42
SECTION 8.4 Successors and Assigns . . . . . . . . . . 42
SECTION 8.5 Governing Law. . . . . . . . . . . . . . . 42
SECTION 8.6 Date of Agreement. . . . . . . . . . . . . 42
SECTION 8.7 Separability Clause. . . . . . . . . . . . 43
iii
<PAGE>
SECTION 8.8 Counterparts . . . . . . . . . . . . . . . 43
SECTION 8.9 No Oral Agreements . . . . . . . . . . . . 43
SECTION 8.10 Waiver and Election. . . . . . . . . . . . 43
SECTION 8.11 No Obligations of Lender; Indemnification. 43
SECTION 8.12 Set-off. . . . . . . . . . . . . . . . . . 44
SECTION 8.13 Participation. . . . . . . . . . . . . . . 44
SECTION 8.14 Submission to Jurisdiction . . . . . . . . 44
SECTION 8.15 Usury Laws . . . . . . . . . . . . . . . . 45
SECTION 8.16 Arbitration; Dispute Resolution;
Preservation of Foreclosure Remedies . . 46
SECTION 8.17 Original Credit Agreement Amended and
Restated in its Entirety . . . . . . . . 47
SECTION 8.18 Miscellaneous Provisions . . . . . . . . . 47
SECTION 8.19 Amendments to Certain Credit Documents . . 47
Schedule
A Credit Documents
B Eligible Adjusted Equipment Value
C Permitted Encumbrances
D Request for Advances or Interest Rate Election
E Borrowing Base Certificate
F Extended Terms
G Thirty Day Terms
4.3 Litigation
4.6 Trade Names
4.8 Locations of Personal Property
4.16 Labor Contracts
4.17 ERISA
4.18 Patents, Trademarks and Copyrights
4.20 Real Property
iv
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT ("this Agreement") dated
November 12, 1997, is between SNAPPER, INC., a Georgia corporation (the
"Borrower"), and AMSOUTH BANK (formerly named AmSouth Bank of Alabama), an
Alabama banking corporation (the "Lender").
Recitals
A. Capitalized terms used in these Recitals have the meanings defined for
them above or in Section 0.
B. The Borrower and the Lender have heretofore entered into a Credit
Agreement dated November 26, 1996, as amended by First Amendment to Credit
Agreement and Certain Other Credit Documents dated as of April 30, 1997 (the
"First Amendment") and by Second Amendment to Credit Agreement and Other Credit
Documents dated as of August 11, 1997 (said Credit Agreement, as so amended,
being sometimes herein referred to as the "Original Credit Agreement").
C. The Bridge Loan provided for in the First Amendment has been paid in
full. The Borrower, the Stockholder and the Sponsors have requested that the
Commitment Amount be increased to $80,000,000 and that certain other changes be
made in the Original Credit Agreement and the other Credit Documents.
D. The Lender is willing to increase the Commitment Amount to $80,000,000
and to make the other changes in the Credit Documents requested by the Borrower,
the Stockholder and the Sponsors, on the condition, among others, that the
Original Credit Agreement be amended and restated as set forth below.
Amended and Restated Agreement
NOW, THEREFORE, in consideration of the foregoing Recitals, to induce the
Lender to extend credit to the Borrower under this Agreement and the other
Credit Documents, and in order to amend and restate the Original Credit
Agreement in its entirety, the Borrower agrees with the Lender as follows:
ARTICLE I.
Rules of Construction and Definitions
SECTION A. General Rules of Construction. For the purposes of this
Agreement, except as otherwise expressly provided or unless the context
otherwise requires:
1. Words of masculine, feminine or neuter gender include the correlative
words of
<PAGE>
other genders. Singular terms include the plural as well as the singular, and
vice versa.
2. All references herein to designated "Articles," "Sections" and other
subdivisions or to lettered Schedules are to the designated Articles, Sections
and subdivisions hereof and the Schedules annexed hereto unless expressly
otherwise designated in context. All Article, Section, other subdivision and
Schedule captions herein are used for reference only and do not limit or
describe the scope or intent of, or in any way affect, this Agreement.
3. The terms "include," "including," and similar terms shall be construed
as if followed by the phrase "without being limited to."
4. The terms "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section, other subdivision or Schedule.
5. All Recitals set forth in, and all Schedules to, this Agreement are
hereby incorporated in this Agreement by reference.
6. No inference in favor of or against any party shall be drawn from the
fact that such party or such party's counsel has drafted any portion hereof.
7. All references in this Agreement to a separate instrument are to such
separate instrument as the same may be amended or supplemented from time to time
pursuant to the applicable provisions thereof.
8. If the Borrower hereafter has any Subsidiaries, all computations
required in connection with the covenants contained in Article 0 shall be made
for the Borrower and its Subsidiaries on a combined or consolidated basis, after
elimination of intercompany items, and all financial statements, reports and
certificates required hereunder shall be prepared on the same basis.
SECTION B. Definitions. As used in this Agreement, capitalized terms that
are not otherwise defined herein have the meanings defined for them in the
Security Agreement, and the following terms are defined as follows:
1. Actual/360 Day Basis means a method of computing interest and other
charges on the basis of an assumed year of 360 days for the actual number of
days elapsed, meaning that the interest accrued for each day will be computed by
multiplying the interest rate applicable on that day by the unpaid principal
balance on that day and dividing the result by 360.
2. Advance is defined in Section 0.
3. Affiliate of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For purposes of this definition, "control"
when used with respect to any specified person means the power to direct the
management and policies of such person, directly or
<PAGE>
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
4. Agreement means, on any date, this Amended and Restated Credit
Agreement, as originally in effect on the Closing Date and as thereafter from
time to time amended, supplemented, restated or otherwise modified and in effect
on such date.
5. Authorized Representative means the officer or officers of the
Borrower that are duly authorized to act for the Borrower in the specified
capacity under the Governing Documents of the Borrower or applicable law.
6. Borrowing Base means, at any time, the sum of:
(a) eighty percent (80.0%) of the Net Outstanding Amount of Eligible
Accounts at such time consisting of Accounts arising from the sale of Inventory
to (1) Home Depot; (2) a dealer which has financed the purchase of such
Inventory by means of a floor planning arrangement; (3) a dealer pursuant to
Extended Terms, on any date when the due date with respect to such Account is
fewer than ninety-one (91) days after such date or on which such Account is past
due but not more than sixty (60) days past due; (4) a dealer pursuant to Thirty
Day Terms; or (5) a dealer or distributor located outside the United States
whose Inventory has been shipped on the security of a letter of credit
acceptable to the Lender;
(b) the lesser of (A) $10,000,000 and (B) fifty-five percent (55.0%)
of (1) the Net Outstanding Amount of Eligible Accounts at such time consisting
of Accounts arising from the sale of Inventory to a dealer pursuant to Extended
Terms, on any date when the due date with respect to such Account is more than
ninety (90) days after such date (provided, that with respect to Accounts
arising from sales to dealers of Inventory consisting of snow products, which
Inventory has not been sold by the dealer or financed by the dealer by means of
a floor planning arrangement, the Borrower shall be permitted to extend the due
date with respect to such Account from March 10 of any year to December 10 of
such year) times (2) a dealer cost conversion factor of 65.8%, or such other
factor as the Borrower and the Lender may mutually agree to from time to time;
and
(c) an amount equal to the lesser of
(1) $60,000,000 on and after the Closing Date to and including
December 30, 1997, $55,000,000 on and after December 31, 1997, to and
including December 30, 1998, and $20,000,000 on and after December 31,
1998, and
(2) the sum of
(A) from the Closing Date to and including December 30,
1998, eighty percent (80.0%) and on and after December 31, 1998,
fifty percent (50.0%), in each case of Eligible Inventory at such
time consisting of finished goods that are ready for sale in the
ordinary course of business, identified by serial numbers and
located at the Borrower's factory in
<PAGE>
McDonough, Georgia or at the Borrower's other distribution
centers and commissioned distributor warehouses,
(B) the lesser of (i) $5,000,000 and (ii) fifty percent
(50.0%) of Eligible Inventory at such time consisting of engines,
and
(C) from the Closing Date to and including December 30,
1998, the lesser of (i) $7,500,000 and (ii) forty percent
(40.0%), and on and after December 31, 1998, the lesser of
(x) $3,000,000 and (y) thirty percent (30.0%), in each case of
Eligible Inventory at such time consisting of parts and
accessories other than engines; and
(e) an amount equal to seventy-five percent (75%) of the Eligible
Adjusted Equipment Value.
7. Business means the manufacture, distribution and/or sale of lawn,
garden, snow removal or outdoor power equipment and other products by the
Borrower.
8. Business Day means (a) any day on which commercial banks located in
Birmingham, Alabama are generally open for business and (b) if such day relates
to the giving of notices or quotes in connection with a LIBOR Quote or to a
borrowing of, a payment or prepayment of principal of or interest on, or a
LIBOR-Based Rate Period for, a LIBOR-Based Rate Segment or a notice by the
Borrower with respect to any such borrowing, payment, prepayment or LIBOR-Based
Rate Period, any day on which dealings in Dollar deposits are carried out in the
London interbank market.
9. Closing Date means November 12, 1997.
10. Code means the Internal Revenue Code of 1986, as amended from time to
time.
11. Commitment Amount means $80,000,000 (as the same may be reduced at any
time or from time to time pursuant to Section 2.5).
12. Controlled Group means all members of a controlled group of
corporations and all trade or business (whether or not incorporated) under
common control which, together with the Borrower, are treated as a single
employer under Section 414(c) of the Code.
13. Credit means, individually and collectively, all loans, forbearances,
renewals, extensions, advances, disbursements and other extensions of credit now
or hereafter made by the Lender to or for the account of the Borrower under this
Agreement and the other Credit Documents, including the Loan.
14. Credit Documents means this Agreement and the documents described in
Schedule A and all other documents now or hereafter executed or delivered in
connection with the transactions contemplated thereby.
<PAGE>
15. Debt of any person means a. all indebtedness, whether or not
represented by bonds, debentures, notes or other securities, for the repayment
of borrowed money, b. all deferred indebtedness for the payment of the purchase
price of property or assets purchased, c. all capitalized lease obligations,
d. all indebtedness secured by any Lien on any property of such person, whether
or not indebtedness secured thereby has been assumed, e. all obligations with
respect to any conditional sale contract or title retention agreement, f. all
indebtedness and obligations arising under acceptance facilities or in
connection with surety or similar bonds, and the outstanding amount of all
letters of credit issued for the account of such person, and g. all obligations
with respect to interest rate swap agreements.
16. Default Rate means a rate of interest equal to two percentage points
(200 basis points) in excess of the Floating Rate in effect from time to time,
or the maximum rate permitted by law, whichever is less.
17. Dollar and the symbol $ means dollars constituting legal tender for
the payment of public and private debts in the United States of America.
18. Eligible Account means only Accounts that are not more than 60 days
past due (provided, that with respect to Accounts arising from sales to dealers
of Inventory consisting of snow products, which Inventory has not been sold by
the dealer or financed by the dealer by means of a floor planning arrangement,
the Borrower shall be permitted to extend the due date with respect to such
Account from March 10 of any year to December 10 of such year), according to the
terms shown on the invoice (or the date of the invoice where terms are not
specifically stated). Without limiting the generality of the foregoing, the
Lender may exclude any Account from Eligible Accounts if:
a. the subject goods have been shipped or delivered to an Account
Debtor on a bill-and-hold, guaranteed sale, consignment, approval or
sale-or-return basis or subject to any other repurchase or return
agreement; or
b. any material part of the subject goods has been returned,
rejected, lost or damaged; or
c. the Account Debtor is located outside the United States, and the
subject goods have not been shipped on the security of a banker's
acceptance or letter of credit acceptable to the Lender and pledged to the
Lender, or the Account is not payable in United States dollars; or
d. the Account Debtor is also the Borrower's supplier or creditor;
or
e. more than 50% in amount of the other Accounts of the Account
Debtor are more than 90 days past due; or
f. the Account arises out of transactions with an employee, officer,
agent, director, stockholder, partner, member of the Borrower or the
Stockholder and its subsidiaries; or
<PAGE>
g. any of the representations or warranties set forth in Section 3.2
of the Security Agreement are not true and correct in all material respects
with respect to such Account.
19. Eligible Adjusted Equipment Value means the value of the Borrower's
Equipment assumed by the Lender in the amounts and for the periods set forth on
Schedule B, which amount shall be included as part of the Borrowing Base.
20. Eligible Inventory means Inventory, less any amount reserved on the
Borrower's books for surplus or obsolescence, consisting of factory whole goods,
engines or other parts and accessories held for sale by the Borrower that meet
all of the following specifications:
Documents. If it is represented or covered by documents of title, the
Borrower is the owner of the documents free of all Liens except the
Permitted Encumbrances.
Location. It is stored at such locations in the United States of
which the Borrower has given the Lender notice and where the Lender
has perfected its security interest, and is in the possession or
control of the Borrower or its consignee. If it is located on leased
premises, the Lender has received a landlord's waiver of rights with
respect to such Inventory. If it is held by a bailee, warehouseman or
similar party, the Lender shall have received from such bailee,
warehouseman or similar party such acknowledgements of the Lender's
Lien, warehouse receipts or other agreements, each in form and
substance acceptable to the Lender, as the Lender may require in its
reasonable discretion. If it is held by a consignee: (a) the Lender
shall have received a copy of a consignment agreement in form and
substance reasonably satisfactory to the Lender, (b) the Borrower
shall have filed all necessary or appropriate UCC consignment
financing statements in form and substance reasonably satisfactory to
the Lender as reasonably requested by the Lender, (c) the Borrower
shall have sent to the consignee's prior filed secured parties a
consignment notification letter in form and substance reasonably
satisfactory to the Lender, (d) the prior filed secured parties of the
consignee shall have subordinated their security interest in the
consigned inventory and all proceeds thereof in favor of the Borrower,
the Lender and The Chase Manhattan Bank, in form and substance
reasonably satisfactory to the Lender, (e) consignee and consignee's
landlord shall have executed a waiver of landlord's Lien in form and
substance reasonably satisfactory to the Lender and subordinating such
Lien in favor of the Borrower, the Lender and The Chase Manhattan
Bank, (f) the Borrower has agreed upon the request of the Lender to
file UCC financing statements against the Borrower in the jurisdiction
where such consigned inventory is located, and (g) prior filed secured
creditors of the Borrower shall have subordinated their security
interest in the consigned inventry in favor of the Lender.
Miscellaneous. It is unused, and it has not, in the Lender's good
faith judgment, been materially reduced in market value by reason of
age, obsolescence, surplus
<PAGE>
or other factors.
Ownership. It is owned by the Borrower free of all Liens except the
Permitted Encumbrances, and the Lender has a perfected first security
interest therein.
Other Financing. No financing statement is on file covering such item
or the products or proceeds thereof except for the Lender's financing
statement [and the financing statement of The Chase Manhattan Bank.
WIP. It is not work-in-process.
21. Environmental Laws means the Resource Conversation and Recovery Act,
as amended, the Toxic Substance Control Act, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the Solid
Waste Disposal Act, as amended, the Clean Air Act, as amended, the Clean Water
Act, as amended, and any comparable federal or state statutes, now existing or
later enacted, or any regulation promulgated under any of such federal or state
statutes relating to the protection of the environment.
22. ERISA means the Employee Retirement Income Security Act of 1974, as
amended.
23. Events of Default is defined in Section 0. An Event of Default
"exists" if an Event of Default has occurred and is continuing.
24. Extended Terms has the meaning set forth in Exhibit F.
25. Federal Funds Effective Rate means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of Atlanta, or, if such rate is not so published for any day that is a
Business Day, the average of the quotations at approximately 10:00 a.m.
(Birmingham, Alabama time) on such day on such transactions received by the
Lender from three Federal funds brokers of recognized standing selected by the
Lender in its sole discretion.
26. Floating Rate means a rate per annum equal to (A) from the Closing
Date to and including December 30, 1998, the higher of (1) the Prime Rate in
effect from time to time or (2) the Federal Funds Effective Rate in effect from
time to time, plus one-half of one percentage point (50 basis points) and
(B) from December 31, 1998, until the Termination Date, the higher of (1) the
Prime Rate in effect from time to time, plus one and one-half percentage points
(150 basis points) or (2) the Federal Funds Effective Rate in effect from time
to time, plus two percentage points (200 basis points).
27. GAAP means generally accepted accounting principles, consistently
applied.
<PAGE>
28. Governing Documents means all organizational and governing documents
applicable to the Borrower, including the Borrower's certificate or articles of
incorporation and bylaws, and all applicable resolutions or other directions of
the directors, shareholders, officers or other relevant persons comprising,
owning, managing or operating the Borrower.
29. Governmental Authority means any national, state, county, municipal or
other government, domestic or foreign, and any agency, authority, department,
commission, bureau, board, court or other instrumentality thereof.
30. Governmental Requirements means all laws, rules, regulations,
ordinances, judgments, decrees, codes, orders, injunctions, notices and demand
letters of any Governmental Authority.
31. Hazardous Substances means any and all hazardous or toxic substances,
materials or wastes as defined or listed under the Environmental Laws.
32. LIBOR-Based Rate means a rate per annum equal to (A) from the Closing
Date to and including December 30, 1998, the LIBOR Quote plus two and one-half
percentage points (250 basis points) and (B) from December 31, 1998, until the
Termination Date, the LIBOR Quote plus four percentage points (400 basis
points).
33. LIBOR-Based Rate Period means the period of time, selected by the
Borrower under Section 0, with respect to which the LIBOR-Based Rate is (or is
proposed to be) applicable to a Segment.
34. LIBOR-Based Rate Segment means a Segment to which the LIBOR-Based Rate
is (or is proposed to be) applicable.
35. LIBOR Quote means, with respect to any time at which the LIBOR-Based
Rate is to be determined, the rate of interest determined by the Lender at such
time by reference to the Knight-Ridder MoneyCenter reporting service or other
comparable financial information reporting service at the time employed by the
Lender, as the Lender's best estimate of the cost of funds available to the
Lender from the purchase on the London interbank market of funds in the form of
time deposits in Dollars in the approximate amount of the Segment that is to
bear interest at the LIBOR-Based Rate, having a maturity comparable to the
LIBOR-Based Rate Period during which the LIBOR-Based Rate is to be in effect, it
being expressly understood that (1) the Lender may not actually purchase any
such time deposits and obtain such funds and (2) the LIBOR Quote will be an
estimate, and for a variety of reasons, including changing market conditions,
the actual cost of funds to the Lender (if the Lender elects to purchase funds
in the form of time deposits on such date) might vary from the LIBOR Quote.
36. LIBOR Reserve Requirement means the percentage (expressed as a
decimal) prescribed by the Board of Governors of the Federal Reserve System (or
any successor Governmental Authority), on the date on which the LIBOR-Based Rate
is determined, for determining the reserve requirements of the Lender (including
any marginal, emergency, supplemental, special or other reserves) with respect
to liabilities relating to time deposits
<PAGE>
purchased in the London interbank market having a maturity equal to the period
during which the LIBOR-Based Rate will be in effect and in an amount equal to
the LIBOR-Based Rate Segment involved, without any benefit or credit for any
proration, exemptions or offsets under any now or hereafter applicable
regulations.
37. Lien means any mortgage, pledge, assignment, charge, encumbrance,
lien, security title, security interest or other preferential arrangement.
38. Loan is defined in Section 0.
39. Margin Stock is defined in Regulation U of the Federal Reserve Board,
as amended.
40. Maximum Credit Amount means the lesser of a. the amount of the
Borrowing Base; or b. the Commitment Amount.
41. MIG Notes means the $23,800,000 Subordinated Promissory Note dated
November 26, 1996, and the $10,000,000 Subordinated Promissory Note dated
November 12, 1997, in each case issued by the Borrower to the Stockholder.
42. Net Outstanding Amount of Eligible Accounts means the net outstanding
amount of all then Eligible Accounts after eliminating from the aggregate face
amount thereof all payments, adjustments, discounts, credits and allowances
applicable thereto and all amounts due thereon considered uncollectible by
reason of return, rejection, repossession or loss of, or damage to, the
merchandise covered thereby, disputes, financial difficulty of the Account
Debtor or otherwise.
43. Note is defined in Section 2.1.
44. Obligations means a. the payment of all amounts now or hereafter
becoming due and payable under the Credit Documents, including the principal
amount of the Credit, all interest (including interest that, but for the filing
of a petition in bankruptcy, would accrue on any such principal) and all other
fees, charges and costs (including attorneys' fees and disbursements) payable in
connection therewith; b. the observance and performance by the Borrower of all
of the provisions of the Credit Documents; c. the payment of all sums advanced
or paid by the Lender in exercising any of its rights, powers or remedies under
the Credit Documents, and all interest (including post-bankruptcy petition
interest, as aforesaid) on such sums provided for herein or therein; d. the
payment and performance of all other indebtedness, obligations and liabilities
of the Borrower to the Lender (including obligations of performance) of every
kind whatsoever, arising directly between the Borrower and the Lender or
acquired outright, as a participation or as collateral security from another
person by the Lender, direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter incurred, contracted or arising, joint or
several, liquidated or unliquidated, regardless of how they arise or by what
agreement or instrument they may be evidenced or whether they are evidenced by
agreement or instrument, and whether incurred as maker, endorser, surety,
guarantor, general partner, drawer, tort-feasor, account party with respect to a
letter of credit, indemnitor or
<PAGE>
otherwise; and e. all renewals, extensions, modifications and amendments of any
of the foregoing, whether or not any renewal, extension, modification or
amendment agreement is executed in connection therewith.
45. Obligors means the Borrower, the Stockholder, the Sponsors and any
other maker, endorser, surety, guarantor or other person now or hereafter liable
for the payment or performance, in whole or in part, of any of the Obligations.
46. PBGC means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
47. Pension Plan means an "employee pension benefit plan" (as such term is
defined in ERISA) from time to time maintained by the Borrower or a member of
the Controlled Group.
48. Permitted Contest means any appropriate proceeding conducted in good
faith by the Borrower to contest any tax, assessment, charge, Lien or similar
claim, during the pendency of which proceeding the enforcement of such tax,
assessment, charge, Lien or claim is stayed; provided that the Borrower has set
aside on its books or, if required by the Lender, deposited as cash collateral
with the Lender, adequate cash reserves to assure the payment of any such tax,
assessment, charge, Lien or claim.
49. Permitted Encumbrances means (a) Liens for taxes, assessments or other
governmental charges or levies not yet delinquent or that are subject to
Permitted Contests; (b) Liens of mechanics, materialmen, landlord, warehousemen,
carriers and similar Liens arising in the future in the ordinary course of
business for sums not yet delinquent or that are subject to Permitted Contests;
(c) Liens incurred in the ordinary course of business in connection with
workers' compensation, unemployment insurance, social security, and similar
items for sums not yet delinquent or that are subject to Permitted Contests; (d)
lessor's Liens arising from operating and capitalized leases entered into in the
ordinary course of business; (e) Liens arising from legal proceedings, so long
as such proceedings are subject to a Permitted Contest, and so long as execution
is stayed on all judgments resulting from any such proceedings; (f) easements,
rights of way, restrictions and other similar encumbrances incurred in the
ordinary course of business and encumbrances consisting of zoning restrictions,
easements, licenses, restrictions on the use of property or minor imperfections
in title thereto that, in the aggregate, are not material in amount and that do
not materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the Business; (g) Liens securing Debt
incurred for the payment of all or any part of the purchase price of any real
property and fixed assets, and any renewal, extensions or refinancings thereof;
(h) Liens upon the real property of the Borrower located at 535 Macon Road,
McDonough, Georgia that are expressly permitted by the Deed to Secure Debt and
Security Agreement in favor of the Lender relating to such real property; (i)
Liens and security interest existing on the Closing Date and set forth on
Schedule C hereto (which include the Liens of The Chase Manhattan Bank); and (j)
Liens in favor of the Lender.
50. Permitted Investments means a. direct obligations of, or obligations
unconditionally guaranteed by, the United States of America or any agency
thereof maturing in less than one year from the date of purchase; b. commercial
paper issued by any person
<PAGE>
organized and doing business under the laws of the United States of America or
any state thereof rated P-1 or better by Moody's Investors Services, Inc. or A-1
or better by Standard & Poor's Corporation and maturing in less than one year
from the date of purchase; and c. certificates of deposit maturing within one
year of the date of acquisition thereof issued by the Lender or any other
financial institution acceptable to the Lender.
51. Person (whether or not capitalized) includes natural persons, sole
proprietorships, corporations, trusts, unincorporated organizations,
associations, companies, institutions, entities, joint ventures, partnerships,
limited liability companies and Governmental Authorities.
52. Plan means, at any time, an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (a) maintained by the Borrower or any
member of a Controlled Group for employees of the Borrower or any member of such
Controlled Group or (b) maintained pursuant to a collective bargaining agreement
or any other arrangement under which more than one employer makes contributions
and to which the Borrower or any member of a Controlled Group is then making or
accruing an obligation to make contributions or has within the preceding five
plan years made contributions.
53. Prime Rate means that rate of interest designated by the Lender from
time to time as its "prime rate," it being expressly understood and agreed that
the "prime rate" is merely an index rate used by the Lender to establish lending
rates and is not necessarily the Lender's most favorable lending rate, and that
changes in the "prime rate" are discretionary with the Lender.
54. Principal Office means the principal office of the Lender located at
AmSouth-Sonat Tower, 1900 Fifth Avenue North, Birmingham, Alabama 35203.
55. Property means all property, real and personal, that is now or
hereafter conveyed or assigned to the Lender, or in which the Lender is now or
hereafter granted a Lien, as security for any of the Obligations.
56. Request for Advances or Interest Rate Election is defined in
Section 2.2.
57. Security Agreement means the General Security Agreement described on
Schedule A.
58. Security Documents means all Credit Documents that now or hereafter
grant or purport to grant to Lender any guaranty, collateral or other security
for any of the Obligations.
59. Segment means a portion of the Advances (or all thereof) with respect
to which a particular interest rate is (or is proposed to be) applicable. The
aggregate amount of all Advances that bear interest at the Floating Rate shall
be deemed to constitute a single Segment. The aggregate amount of all Advances
that bear interest at the same LIBOR-Based Rate and for the same LIBOR-Based
Rate Period shall be deemed to constitute a single LIBOR-Based Rate Segment.
<PAGE>
60. Solvent means, with respect to any person on a particular date, that
as of such date a. the fair value of the property of such person is greater than
the total amount of liabilities (including contingent liabilities) of such
person, b. the present fair salable value of the assets of such person is not
less than the amount that will be required to pay the probable liability of such
person on its debts as they become absolute and matured, c. such person is not
engaged in business or a transaction, and is not about to engage in business or
a transaction, for which such person's property would constitute an unreasonably
small capital, and d. such person does not intend to, or believe or reasonably
should have believed that it will, incur debts beyond its ability to repay as
they become due.
61. Sponsors means John W. Kluge and Stuart Subotnick.
62. Stockholder means Metromedia International Group, Inc., a Delaware
corporation.
63. Subordinated Debt means Debt of the Borrower (including the Debt
evidenced by the MIG Notes) that is subordinated to the Obligations on terms
approved by the Lender.
64. Subsidiary means a. any corporation more than 50% of whose shares of
stock having general voting power under ordinary circumstances to elect a
majority of the board of directors, managers or trustees of such corporation
(irrespective of whether or not at the time stock of any other class or classes
has or might have voting power by reason of the happening of any contingency),
are owned or controlled directly or indirectly by the Borrower, or b. any
partnership or limited liability company, 50% or more of the partnership or
membership interests in which are owned or controlled, directly or indirectly,
by the Borrower, and includes entities currently or hereafter falling within the
categories described above.
65. Termination Date means the maturity date of the Loan (which is
initially January 1, 2000), as such date may be extended from time to time
pursuant to Section 0 or accelerated pursuant to Section 0.
66. Thirty Day Terms has the meaning as set forth in Exhibit G.
ARTICLE II.
Credit to be Extended
Under this Agreement
SECTION A. Loan. From the Closing Date to (but not including) the
Termination Date, the Lender agrees, upon the terms and subject to the
conditions of this Agreement, to make a revolving line of credit available to
the Borrower, pursuant to which the Borrower may from time to time borrow from
the Lender and repay and reborrow, such sums as may be needed by the Borrower
for the purposes expressed in this Agreement up to a maximum aggregate principal
amount at any one time outstanding not exceeding the Maximum Credit Amount (the
"Loan").
<PAGE>
All advances made by the Lender to the Borrower under this Agreement
("Advances") shall be evidenced by an Amended and Restated Note (the "Note")
dated the Closing Date, payable to the order of the Lender, duly executed by the
Borrower and in the maximum principal amount of $80,000,000. The Advances shall
bear interest as provided in Article 3. In no event shall the balance of the
Loan be reduced below $100.
SECTION B. Advances. The Advances made by the Lender pursuant to each
request for Advances shall be in an aggregate amount not less than $1,000,000 or
a greater integral multiple of $100,000. Each request for Advances must be in
writing (which may be by facsimile transmission) and must be received by the
Lender not later than 10:00 a.m., Birmingham, Alabama time, on the day on which
the Advances are to be made, except that, if the Advances are to bear interest
at the LIBOR-Based Rate, the request must be received by the Lender not later
than 10:00 a.m., Birmingham, Alabama time, two Business Days prior to the day on
which the Advances are to be made. Each request for Advances shall be in the
form attached hereto as Schedule D ("Request for Advances or Interest Rate
Election") and shall specify the aggregate amount of the Advances requested, the
day as of which the Advances are to be made and shall provide the interest rate
information called for in Section 0. All the Advances requested in a single
Request for Advances or Interest Rate Election shall be subject to the same
interest rate terms. Not later than 2:00 p.m. Birmingham, Alabama time on the
date specified for the Advances, the Lender shall make available the amount of
the Advances to be made by it on such date to the Borrower by depositing the
proceeds thereof into an account with the Lender or with an Affiliate of the
Lender in the name of the Borrower. The Lender's obligation to make Advances
shall terminate, if not sooner terminated pursuant to the provisions of this
Agreement, on the Termination Date. The Lender shall have no obligation to make
Advances if an Event of Default exists. Each Request for Advances or Interest
Rate Election, whether submitted under this Section 0 in connection with
requested Advances or under Section 0 in connection with an interest rate
election, shall be signed by an Authorized Representative of the Borrower
designated as authorized to sign and submit Request for Advances or Interest
Rate Election forms in the documents submitted to the Lender pursuant to
Section 0. The Borrower may, from time to time, by written notice to the
Lender, terminate the authority of any Authorized Representative to submit
Request for Advances or Interest Rate Election forms, such termination of
authority to become effective upon actual receipt by the Lender of such notice
of termination. The Borrower may from time to time authorize other Authorized
Representatives to sign and submit Request for Advances or Interest Rate
Election forms by delivering to the Lender a certificate of the Secretary of the
Borrower certifying the incumbency and specimen signature of each such
Authorized Representative. The Lender shall be entitled to rely conclusively
upon the authority of any Authorized Representative so designated by the
Borrower.
SECTION C. Payments. All interest accrued at the Floating Rate shall be
payable in arrears monthly on the first day of each month, commencing on
December 1, 1997; and all interest accrued on each LIBOR-Based Rate Segment
shall be payable on the last day of the applicable LIBOR-Based Rate Period. The
principal amount of the Advances, together with accrued interest thereon, shall
be due and payable on the Termination Date.
SECTION D. Prepayment.
<PAGE>
1. The Borrower may at any time prepay all or any part of the Advances,
without premium or penalty; provided, however, that (1) unless the Borrower pays
the amounts, if any, due under Section 0, no LIBOR-Based Rate Segment may be
prepaid during a LIBOR-Based Rate Period if the Lender, at any time during the
LIBOR-Based Rate Period, purchases on the London interbank market funds in the
form of time deposits in dollars in the approximate amount of the LIBOR-Based
Rate Segment being prepaid, and (2) any partial prepayment shall be in the
amount of not less than $1,000,000 or a greater integral multiple of $100,000.
Any prepayment shall be accompanied by the payment of accrued interest to the
date of prepayment on the principal amount prepaid.
2. If at any time the principal amount of the Advances is greater than
the Maximum Credit Amount, the Borrower shall immediately make a prepayment
(notwithstanding the provisions of clause (a)(1) of this section, but subject to
the provisions of Section 0) on the Advances equal to the difference between
said aggregate principal amount of the Advances and the Maximum Credit Amount.
SECTION E. Reduction or Cancellation of Maximum Credit Amount. The
Borrower shall have the right at any time to reduce the unused portion of the
Maximum Credit Amount on the first day of each month, provided that: (a) the
Borrower shall give the Lender at least 10 days' prior notice in writing of each
such reduction, (b) the amount of such reduction shall not be less than
$500,000, and (c) no reduction in the Maximum Credit Amount may be reinstated.
The Borrower shall also have the right at any time to terminate this Agreement
by prepayment in full of the Obligations (subject to the provisions of
Section 0) with at least 15 days' prior notice in writing of such termination.
SECTION F. Fees.
1. The Borrower shall pay to the Lender on the Closing Date a closing fee
equal to $525,000. This fee shall be fully earned and non-refundable as of the
Closing Date.
2. The Borrower shall pay to the Lender an availability fee (the
"Availability Fee") that begins to accrue on the Closing Date and shall be
computed at the Applicable Rate per annum times the daily average difference
between (1) the Commitment Amount and (2) the sum of the aggregate outstanding
principal amount of the Advances made by the Lender. The Availability Fee shall
be payable in arrears monthly on the first day of each month in each year,
commencing on December 1, 1997, and on the Termination Date. The Availability
Fee shall be computed on an Actual/360 Basis. The term "Applicable Rate" shall
mean from the Closing Date to and including December 31, 1998, one-half of one
percent (.5%) and from January 1, 1999, until the Termination Date, three
quarters of one percent (.75%).
3. The Borrower shall pay to the Lender on June 30, 1998, a
non-refundable fee of $400,000 unless, prior to that date (i) a bank acceptable
to the Lender has agreed to participate in the Loan in the principal amount of
not less than $25,000,000 or (ii) the Commitment Amount, and the outstanding
principal amount of the Loan, have been reduced to $55,000,000 or less.
SECTION G. Extension of Termination Date. The Borrower and the Lender may
<PAGE>
from time to time extend the then-current Termination Date to any subsequent
termination date upon which the Borrower and the Lender may agree by executing a
written extension agreement. Upon the execution of such an extension agreement
by the Borrower and the Lender, the maturity date of the Loan shall be extended
to the agreed-upon termination date, and the agreed-upon termination date shall
become the new "Termination Date" for purposes of this Agreement.
SECTION H. Place and Time of Payments.
1. All payments by the Borrower to the Lender under this Agreement and
the other Credit Documents shall be made in lawful currency of the United States
and in immediately available funds to the Lender at its Principal Office in
Birmingham, Alabama at the hand delivery address set forth in Section 0 or at
such other address within the continental United States as shall be specified by
the Lender by notice to the Borrower. Any payment received by the Lender after
2:00 p.m. (Birmingham, Alabama time) on a Business Day (or at any time on a day
that is not a Business Day) shall be deemed made by the Borrower and received by
the Lender on the following Business Day.
2. All amounts payable by the Borrower to the Lender under this Agreement
or any of the other Credit Documents for which a payment date is expressly set
forth herein or therein shall be payable on the specified due date without
notice or demand by the Lender. All amounts payable by the Borrower to the
Lender under this Agreement or the other Credit Documents for which no payment
date is expressly set forth herein or therein shall be payable ten days after
written demand by the Lender to the Borrower. The Lender may, at its option,
send written notice or demand to the Borrower of amounts payable on a specified
due date pursuant to this Agreement or the other Credit Documents, but the
failure to send such notice shall not affect or excuse the Borrower's obligation
to make payment of the amounts due on the specified due date.
3. Payments that are due on a day that is not a Business Day shall be
payable on the next succeeding Business Day, and any interest payable thereon
shall be payable for such extended time at the specified rate.
4. Except as otherwise required by law, payments received by the Lender
shall be applied first to expenses, fees and charges, then to interest and
finally to principal.
SECTION I. Security. The security for the Obligations shall include the
collateral and other security granted to the Lender under the Security Documents
described in Schedule A. The Security Documents shall be valid and binding as
security for, the aggregate amount of the Obligations outstanding from time to
time, whether or not the full amount of the Credit is actually advanced by the
Lender to the Borrower.
SECTION J. Guaranty Agreements. Concurrently with the execution of this
Agreement (a) the Stockholder is executing and delivering to the Lender a
guaranty agreement pursuant to which the Stockholder is unconditionally
guaranteeing the payment to the Lender, when and as due and payable, of the
Obligations, and (b) the Sponsors are executing and delivering to the Lender a
limited guaranty agreement pursuant to which the Sponsors are, jointly and
severally, unconditionally guaranteeing the payment to the Lender, when and as
due and
<PAGE>
payable, of a portion of the Obligations.
SECTION K. Make-Whole Account. The Borrower has deposited, or
concurrently with the execution of this Agreement is depositing, with the Lender
the sum of $1,000,000 in a restricted account (the "Snapper Make-Whole
Account"). Funds in the Snapper Make-Whole Account may be withdrawn by the
Lender from time to time to pay any and all amounts that are due the Lender from
time to time pursuant to the terms of this Agreement and other credit documents,
if the Borrower has not made such payment within the time provided herein in the
other credit documents (after giving effect to any notice or cure periods). The
Snapper Make-Whole Agreement shall be pledged to the Lender pursuant to the
terms of the Security Agreement. Any withdrawals from the Snapper Make-Whole
Account shall not cure a default under this Agreement unless the default was due
solely to a failure on the part of the Borrower to make a scheduled payment of
principal or interest pursuant to the terms of this Agreement or the Lenders so
agrees in writing.
SECTION L. Subordination Agreement. Concurrently with the execution of
this Agreement, the Borrower and the Stockholder are executing and delivering to
the Lender a Subordination Agreement pursuant to which the MIG Notes are
expressly subordinated to the Obligations pursuant to the terms therein
described.
SECTION M. Lock Box Agreement.
1. Receipt and Credit for Collections. Within 60 days after the Closing
Date, the Borrower shall enter into a Lock Box Agreement with the Lender
pursuant to which the Lender will be granted access to the post office box
to which all Account Debtors shall be instructed to forward payments with
respect to all Property. All checks, drafts, cash, notes, money orders,
acceptances and other remittances in part or full payment with respect to
the Property ("Collections") received through the Lock Box shall be
retained by the Lender and processed in accordance with the Lock Box
Agreement. All Collections received directly by the Borrower shall
immediately be sent or delivered by the Borrower to the post office box
that is part of the lock box arrangement. The Lender shall, without
further inquiry and without regard to any instructions from the Borrower,
deposit all collections in such account or accounts as the Lender shall
from time to time elect. Any fees or expenses charged to the Lender by any
other bank for transfer of funds from the Borrower's account shall be
charged as accrued, as a debit to the Obligations.
2. Verification of Receivables. If an Event of Default exists, the
Lender may confirm and verify all Accounts in any reasonable manner. In
such circumstance, the Borrower shall assist the Lender in confirmation and
verification of the Accounts. If no Event of Default exists, the Lender
and the Borrower shall in good faith coordinate the verification of all
Accounts. The Lender may at any time after an Event of Default exists,
notify or require the Borrower to notify, all of the Borrower's Account
Debtors or any of them to make payment directly to the Lender to the extent
not already provided by the Lock Box. The Lender may enforce collection
of, settle, compromise, extend or renew the indebtedness of any or all of
the Borrower's Account Debtors after an Event of
<PAGE>
Default exists.
3. Authority to Perform for Borrower - Lock Box. The Borrower hereby
appoints the Lender as the Borrower's attorney-in-fact in connection solely
with enforcement of the Lender's rights under the Lock Box Agreement, (i)
to endorse the name of the Borrower on any notes, acceptances, checks,
drafts, money orders or other instruments for the payment of money or any
security interest that may come into the Lender's possession; (ii) after an
Event of Default exists, to sign the Borrower's name on any invoice or bill
of lading relating to any of the Accounts, on drafts against Account
Debtors, and notices to Account Debtors; and (iii) after an Event of
Default exists, to receive, open and dispose of all mail addressed to the
Borrower and received at the lock box established pursuant to subparagraph
(a) hereof. This power, because it is coupled with an interest, is
irrevocable during the term of this Agreement. The Lender is hereby
authorized and empowered to accept the return of goods represented by any
of the Accounts, without notice to or the consent of the Borrower and
without discharging or in any way affecting the Borrower's liability
hereunder. Except in case of its gross negligence or intentional
misconduct, neither the Lender nor its appointee shall be liable for any
acts of commission or omission, nor for any error of judgment or mistake of
fact or law.
ARTICLE III.
Interest
SECTION A. Applicable Interest Rates. The Borrower shall have the option
to elect to have any Segment bear interest at the Floating Rate or the
LIBOR-Based Rate. For any period of time and for any Segment with respect to
which the Borrower does not elect the LIBOR-Based Rate, such Segment shall bear
interest at the Floating Rate. The Borrower's right to elect the LIBOR-Based
Rate shall be subject to the following requirements: (a) each LIBOR-Based Rate
Segment shall be in the amount of $1,000,000 or more and in an integral multiple
of $100,000 thereafter, (b) each LIBOR-Based Rate Segment shall have a maturity
selected by the Borrower of one, two or three months, (c) no more than three
Segments may be outstanding at any time, and (d) no LIBOR-Based Rate Segment may
have a maturity date later than the Termination Date.
SECTION B. Procedure for Exercising Interest Rate Options. The Borrower
may elect to have a particular interest rate apply to a Segment by notifying the
Lender in writing (which may be by facsimile transmission) not later than 10:00
a.m., Birmingham, Alabama time, on the day on which a requested interest rate is
to become applicable, except that, if the Segment is to bear interest at the
LIBOR-Based Rate, the notice must be received by the Lender not later than 10:00
a.m. Birmingham, Alabama time, two Business Days before the day on which the
requested interest rate is to become applicable. Any notice of interest rate
election hereunder shall be irrevocable and shall be on a Request for Advances
or Interest Rate Election form and shall set forth the following: (a) the
amount of the Segment to which the requested interest rate will apply, (b) the
date on which the selected interest rate will become applicable, (c) whether the
<PAGE>
interest rate selected is the Floating Rate or the LIBOR-Based Rate and (d) if
the interest rate selected is the LIBOR-Based Rate, the maturity selected for
the LIBOR-Based Rate Period. On the day that the Lender receives a notice
hereunder requesting that the LIBOR-Based Rate be applicable, the Lender shall
use its best efforts to notify the Borrower by telephone or by facsimile
transmission of the Lender's estimate of the applicable LIBOR-Based Rate as
early on that day or the next Business Day as may be practical in the
circumstances. The Lender shall not be required to provide an estimate of the
LIBOR-Based Rate on any day on which dealings in deposits in Dollars are not
transacted in the London interbank market. If the Borrower does not immediately
accept the LIBOR-Based Rate quoted by the Lender, the Lender may, in view of
changing market conditions, revise the quoted LIBOR-Based Rate at any time. No
LIBOR-Based Rate shall be effective until mutually agreed upon by the Borrower
and the Lender. If the Lender and the Borrower attempt to agree on the
LIBOR-Based Rate but fail so to agree, or if there is any uncertainty as to
whether or not the Lender and the Borrower have agreed upon the LIBOR-Based
Rate, interest shall accrue on the Segment for which the LIBOR-Based Rate has
been selected at the then applicable Floating Rate.
SECTION C. Floating Rate. Each Segment subject to the Floating Rate shall
bear interest from the date the Floating Rate becomes applicable thereto until
payment in full, or until the LIBOR-Based Rate is selected by the Borrower and
becomes applicable thereto, on the unpaid principal balance of such Segment on
an Actual/360 Basis. Any change in the Floating Rate caused by a change in the
Prime Rate or in the Federal Funds Effective Rate shall take effect on the
effective date of such change in the Prime Rate designated by the Lender or in
the Federal Funds Effective Rate, without notice to the Borrower and without any
further action by the Lender. If an Event of Default exists, each Segment
subject to the Floating Rate shall bear interest from the date of such Event of
Default until payment in full at a per annum rate (computed on an Actual/360
Basis) equal to the Default Rate. Notwithstanding the foregoing, for the
purpose of enabling the Lender to send periodic billing statements in advance of
each interest payment date reflecting the amount of interest payable on such
interest payment date, at the option of the Lender, the Prime Rate or the
Federal Funds Effective Rate, as applicable, in effect 15 days prior to each
interest payment date shall be deemed to be the Prime Rate or the Federal Funds
Effective Rate, as applicable, as continuing in effect until the date prior to
such interest payment date for purposes of computing the amount of interest
payable on such interest payment date. If the Lender elects to use the Prime
Rate or the Federal Funds Effective Rate, as applicable, 15 days prior to the
interest payment date for billing purposes, and if the Prime Rate or the Federal
Funds Effective Rate, as applicable, changes during such 15-day period, the
difference between the amount of interest that in fact accrues during such
period and the amount of interest actually paid will be added to or subtracted
from, as the case may be, the interest otherwise payable in preparing the
periodic billing statement for the next succeeding interest payment date. In
determining the amount of interest payable at the Termination Date or upon full
prepayment of the Obligations, all changes in the Prime Rate or the Federal
Funds Effective Rate, as applicable, occurring on or prior to the day before the
Termination Date or the date of such full prepayment shall be taken into
account.
SECTION D. LIBOR-Based Rate. Each LIBOR-Based Rate Segment shall bear
interest from the date the LIBOR-Based Rate becomes applicable thereto until the
end of the applicable LIBOR-Based Rate Period on the unpaid principal balance of
such LIBOR-Based Rate
<PAGE>
Segment at the LIBOR-Based Rate on an Actual/360 Basis. If an Event of Default
exists, each LIBOR-Based Rate Segment shall bear interest from the date of such
Event of Default until payment in full at a per annum rate (computed on an
Actual/360 Basis) equal to two percent (2%) in excess of the LIBOR-Based Rate
that would otherwise have been applicable.
SECTION E. Termination of LIBOR-Based Rate; Increase in LIBOR-Based Rate;
Reduction of Return.
1. If at any time the Lender shall reasonably determine (which
determination, if reasonable, shall be final, conclusive and binding upon all
parties) that:
(1) by reason of any changes arising after Closing Date affecting the
London interbank market or affecting the position of the Lender in such
market, adequate and fair means do not exist for ascertaining the
LIBOR-Based Rate by reference to the LIBOR Quote with respect to a
LIBOR-Based Rate Segment; or
(2) the continuation by the Lender of LIBOR-Based Rate Segments at
the LIBOR-Based Rate or the funding thereof in the London interbank market
would be unlawful by reason of any law, governmental rule, regulation,
guidelines or order; or
(3) the continuation by the Lender of LIBOR-Based Rate Segments at
the LIBOR-Based Rate or the funding thereof in the London interbank market
would be impracticable as a result of a contingency occurring after the
Closing Date that materially and adversely affects the London interbank
market;
then, and in any such event, the Lender shall on such date give notice (by
telephone and confirmed in writing) to the Borrower of such determination. The
obligation of the Lender to make or maintain LIBOR-Based Rate Segments so
affected or to permit interest to be computed thereon at the LIBOR-Based Rate,
as the case may be, shall be terminated, and interest shall thereafter be
computed on the affected Segment or Segments at the then applicable Floating
Rate.
2. It is the intention of the parties hereto that the LIBOR-Based Rate
shall accurately reflect the cost to the Lender of maintaining any LIBOR-Based
Rate Segment during the applicable LIBOR-Based Rate Period assuming the Bank
purchases any such time deposits and obtains such funds comprising any
LIBOR-Based Rate Segment. Accordingly, if by reason of any change after the
date hereof in any applicable Governmental Requirement (or any interpretation
thereof and including the introduction of any new Governmental Requirement),
including any change in the LIBOR Reserve Requirement, the cost to the Lender of
maintaining any LIBOR-Based Rate Segment or funding the same by means of a
London interbank market time deposit, as the case may be, shall increase, the
LIBOR-Based Rate applicable to such LIBOR-Based Rate Segment shall be adjusted
as necessary to reflect such change in cost to the Lender, effective as of the
date on which such change in any applicable Governmental Requirement becomes
effective. Any amounts due under this Section 0 as a result of a change in the
LIBOR Reserve Requirement shall only be payable by the Borrower to the extent
the Lender incurs actual costs associated with any such change.
<PAGE>
3. If the Lender shall have determined that the adoption after the
Closing Date of any Governmental Requirement regarding capital adequacy, or any
change in any of the foregoing or in the interpretation or administration of any
of the foregoing by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by the Lender (or any lending office of the Lender) or the Lender's holding
company with any request or directive regarding capital adequacy (whether or not
having the force of law) of any such Governmental Authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on the Lender's capital or on the capital of the Lender's holding company, as a
consequence of the Lender's obligations under this Agreement or the Advances
made by the Lender pursuant hereto to a level below that which the Lender or the
Lender's holding company could have achieved but for such adoption, change or
compliance (taking into consideration the Lender's guidelines with respect to
capital adequacy) by an amount deemed by the Lender to be material, then from
time to time the Borrower shall pay to the Lender such additional amount or
amounts as will compensate the Lender or the Lender's holding company for any
such reduction suffered.
SECTION F. Compensation. The Borrower shall compensate the Lender for all
reasonable losses, expenses and liabilities (including any interest paid by the
Lender to lenders on funds borrowed by the Lender to make or carry any
LIBOR-Based Rate Segment and any loss sustained by the Lender in connection with
the re-employment of such funds), that the Lender may sustain: (a) if for any
reason (other than a default by the Lender) following agreement between the
Borrower and the Lender as to the LIBOR-Based Rate applicable to the LIBOR-Based
Rate Segment the Borrower fails to accept such LIBOR-Based Rate Segment, (b) as
a consequence of any unauthorized action taken or default by the Borrower in the
repayment of any LIBOR-Based Rate Segment when required by the terms of this
Agreement or (c) as a consequence of the prepayment of any LIBOR-Based Rate
Segment pursuant to Section 0. A certificate as to the amount of any additional
amounts payable pursuant to this section or Section 0 (setting forth in
reasonable detail the basis for requesting such amounts) submitted by the Lender
to the Borrower shall be conclusive, in the absence of manifest error. The
Borrower shall pay to the Lender the amount shown as due on any such certificate
delivered by the Lender within 30 days after the Borrower's receipt of the same.
ARTICLE IV.
Representations and Warranties
The Borrower represents and warrants to the Lender as follows:
SECTION A. Financial Statements. The Borrower's audited consolidated
financial statements as at December 31, 1996, and the Borrower's unaudited
consolidated financial statement as at September 30, 1997, copies of which have
been previously submitted to the Lender, have been prepared in conformity with
GAAP and present fairly in all material respects the financial condition of the
Borrower as at such dates and the results of its operations for the periods then
ended, subject (in the case of the September 30, 1997, financial statements) to
year-end audit adjustments and omission of footnotes.
<PAGE>
SECTION B. Non-Existence of Defaults. As of the Closing Date, it is not
in default with respect to any material amount of its existing Debt. The making
and performance of this Agreement and the Credit Documents, will not
immediately, or with the passage of time, the giving of notice, or both: (a)
violate the provisions of the organizational documents or any other corporate
document of the Borrower; (b) violate any laws; (c) result in a material default
under any contract, agreement, or instrument to which the Borrower is a party or
by which the Borrower or its properties are bound; or (d) result in the creation
or imposition of any Lien upon any of the Property of the Borrower except in
favor of the Lender or The Chase Manhattan Bank.
SECTION C. Litigation. Set forth on Schedule 4.3 is a list of all
material actions, suits, investigations or proceedings pending or, in the
knowledge of the Borrower, threatened against the Borrower as of the Closing
Date in which there is a reasonable probability of an adverse decision that
would materially and adversely affect the Borrower, the Business, the Property,
or the conditions, financial or otherwise, of the Borrower.
SECTION D. Material Adverse Changes. As of the Closing Date, the Borrower
does not know of any material adverse change in the Business, or in the
Borrower's assets, liabilities, properties, or condition, financial or
otherwise, including changes in the Borrower's financial condition from
September 30, 1996, through the Closing Date.
SECTION E. Title to Property. The Borrower has good and marketable title
to all of the Property, free and clear of any and all Liens, other than the
Permitted Encumbrances.
SECTION F. Corporate Status. The Borrower is a duly organized Georgia
corporation, in good standing, with perpetual corporate existence. The Borrower
has the corporate power and authority to own its properties and to transact the
Business in which it is engaged and presently proposes to engage. The Borrower
has not done business under any other name, trade name or otherwise, within the
five years immediately preceding the Closing Date except as set forth in
Schedule 4.6.
SECTION G. Corporate Power and Authority. The Borrower has the corporate
power to borrow and to execute, deliver and carry out the terms and provisions
of the Credit Documents and is duly qualified or registered to do business in
every jurisdiction where the character of its properties or the nature of its
activities makes such qualification or registration necessary, except to the
extent it would not have a material adverse effect on the Borrower to so qualify
or register. The Borrower has taken or caused to be taken all necessary
corporate action to authorize the execution, delivery and performance of the
Credit Documents and the borrowing thereunder (including the obtaining of any
consent of shareholders required by law or by the Borrower's Certificate of
Incorporation or Bylaws).
SECTION H. Place of Business. As of the Closing Date, the primary place
of business and chief executive office of the Borrower is at 535 Macon Road,
McDonough, GA 30253. The Property is maintained as of the Closing Date solely
at the locations listed in Schedule 4.8, and all assets used in the Business are
in such locations.
<PAGE>
SECTION I. Place Where Records Maintained. As of the Closing Date the
Borrower's records concerning the Property are kept at the chief executive
office of the Borrower referenced above, or will be kept at such other place
that the Borrower informs the Lender of in advance of relocation.
SECTION J. Validity, Binding Nature and Enforceability of the Credit
Documents. The Credit Documents executed by the Borrower are the valid and
binding obligations of the Borrower and are enforceable against the Borrower in
accordance with their terms, except as limited by bankruptcy, insolvency, or
other laws of general application relating to the enforcement of creditors'
rights.
SECTION K. Taxes. As of the Closing Date, the Borrower has (a) filed all
federal and all material state and local tax returns and other reports that it
is required by law to file prior to the Closing Date, (b) paid or cause to be
paid all taxes, assessments and other governmental charges that are due and
payable prior to the Closing Date, the failure of which to pay would have a
material adverse effect on the Business, except those subject to a Permitted
Contest, and (c) made adequate provision for the payment of such taxes,
assessments or other charges accruing but not yet payable. The Borrower has no
knowledge of any deficiency or additional assessment in a material amount in
connection with any taxes, assessments or charges.
SECTION L. Compliance with Laws. As of the Closing Date, the Borrower has
complied in all material respects with all applicable laws, including any
Environmental Laws and any zoning laws, the failure of which to comply with
would have a material adverse effect on the Borrower.
SECTION M. Consents. As of the Closing Date, the Borrower has duly
obtained all material consents, permits, licenses, approvals or authorization
of, or effected the filing, registration or qualification with, any Governmental
Authority that is required to be obtained or effected by the Borrower in
connection with the Business or the execution and delivery of this Agreement and
the other Credit Documents the failure of which to obtain or effect would have a
material adverse effect on the Borrower.
SECTION N. Purpose. The proceeds of the Loan shall be used by the
Borrower solely for capital expenditures and the working capital needs of the
Borrower.
SECTION O. Condition of the Business. All material assets used in the
conduct of the Business are in good operating condition and repair and are fully
usable in the ordinary course thereof, reasonable wear and tear excepted.
SECTION P. Labor Contracts. As of the Closing Date, the Borrower is not a
party to or bound by any collective bargaining agreements, nor are there any
petitions to certify a collective bargaining organization or notices of
intention to organize pursuant to the National Labor Relations Act, other than
as described in Schedule 4.16.
SECTION Q. ERISA. As of the Closing Date, except as set forth on
Schedule 4.17,
<PAGE>
the Borrower has no employee benefit plans covered by Title IV of ERISA and no
qualified or nonqualified retirement plans or deferred compensation plans.
SECTION R. Patents and Trademarks. As of the Closing Date, the Borrower
owns no registered patents, trademarks or service marks, and has no pending
registration applications with respect to patents, trademarks or service marks,
in either case relating to the Business, other than those listed in the attached
Schedule 4.18.
SECTION S. Location of Property. Schedule 4.8 describes the locations
where any of the Property is located or stored as of the date hereof.
SECTION T. Real Property. As of the Closing Date, the Borrower does not
own or lease any real property, except as set forth on Schedule 4.20 attached
hereto.
SECTION U. Capitalization. The Borrower has authorized and outstanding
1,000 shares of its capital stock, which are held beneficially and of record as
follows:
Shareholder Number of Shares
----------- ----------------
Stockholder 1,000
There are no outstanding subscriptions, options, rights, warrants, calls,
commitments or agreements of any kind to issue, acquire or transfer any shares
of capital stock of the Borrower or any securities convertible into any shares
of such capital stock.
SECTION V. Subsidiaries. The Borrower has no Subsidiaries.
SECTION W. Federal Reserve Board Regulations. The Borrower does not
intend to use any part of the proceeds of the Credit, and has not incurred any
indebtedness to be reduced, retired or purchased by it out of such proceeds, for
the purpose of purchasing or carrying any Margin Stock, and it does not own and
has no intention of acquiring any such Margin Stock.
SECTION X. Investment Company Act. The Borrower is not an "investment
company," or a company "controlled" by an "investment company," as such terms
are defined in the Investment Company Act of 1940, as amended.
ARTICLE V.
Conditions of Lending
The obligation of the Lender to lend hereunder is subject to the following
conditions precedent:
SECTION A. Representations and Warranties. On and as of the Closing Date
and
<PAGE>
any later date on which Credit is to be extended hereunder, and on the date the
Borrower presents to the Lender each Request for Advance or Interest Rate
Election form requesting an Advance, the representations and warranties set
forth in Article 0 must be true and correct in all material respects with the
same effect as though they had been made on and as of such date, except to the
extent that they expressly relate to an earlier date.
SECTION B. No Default. On and as of the Closing Date hereof and any later
date on which Credit is to be extended hereunder and on the date the Borrower
presents to the Lender each Request for Advance or Interest Rate Election form
requesting an Advance, no Event of Default, nor any event that upon notice or
lapse of time or both would constitute an Event of Default, may exist. The
presentation by the Borrower of each Request for Advance or Interest Rate
Election form requesting an Advance shall constitute representation and warranty
by the Borrower to the Lender that no Event of Default exists.
SECTION C. Automatic Representations and Warranties. The making of any
request for an Advance shall constitute an automatic representation and warranty
by the Borrower that the representations and warranties contained in Article 0
are true and correct in all material respects on and as of the date of such
Advance.
SECTION D. Required Items. On and as of the Closing Date and on and as of
the date of each Advance and on the date the Borrower presents to the Lender
each Request for Advance or Interest Rate Election form, the Lender must have
received all financial statements (if any), reports and other items required as
of that date under Article 0 and Article 0 of this Agreement.
SECTION E. Supporting Documents.
1. The Lender shall have received on or before the Closing Date:
(a) a copy of resolutions of the Board of Directors of the Borrower,
certified as in full force and effect on the Closing Date by the Secretary
of the Borrower, authorizing the execution, delivery and performance of the
Credit Documents by the Borrower and authorizing designated officers of the
Borrower to execute and deliver the Credit Documents and execute and
deliver to the Lender Request for Advances or Interest Rate Election forms;
(b) a certificate of the Secretary of the Borrower, dated the Closing
Date, certifying (A) that attached thereto are true, correct and accurate
copies of Certificate of Incorporation and By-laws of the Borrower and
(B) the incumbency and specimen signatures of the designated officers
referred to clause (i) above;
(c) Opinions of Counsel to the Borrower, the Stockholder and the
Sponsors in form and content acceptable to the Lender and its counsel as to
the execution and delivery by the Borrower, the Stockholder and the
Sponsors of the Credit Documents and other matters related thereto;
<PAGE>
(d) a Pledge Agreement duly executed by the Stockholder granting to
the Lender a first priority perfected security interest in all the
outstanding capital stock of the Borrower, together with all stock powers,
stock certificates and financing statements related thereto;
(e) other duly executed Security Documents granting to the Lender a
first priority perfected security interest and Lien on all other assets,
real or personal, then or thereafter owned by the Borrower;
(f) the Subordination Agreement duly executed by the Borrower and the
Stockholder together with a copy of each of the MIG Notes;
(g) the Make-Whole and Pledge Agreement duly executed by the Sponsors
dated the Closing Date in favor of the Lender;
(h) the Intercreditor and Subordination Agreement duly executed by
the Lender and The Chase Manhattan Bank dated the Closing Date;
(i) the deposit of $1,000,000 made by the Borrower into the Snapper
Make-Whole Account provided for in the Make-Whole and Pledge Agreement;
(j) the Lock Box Agreement duly executed by the Bank, the Lender and
the Borrower;
(k) a copy of resolutions of the Board of Directors of the
Stockholder, certified as in full force and effect on the Closing Date by
the Secretary of Stockholder, authorizing the execution, delivery and
performance by the Stockholder of the Credit Documents to which it is a
party and authorizing designated officers of the Stockholder to execute and
deliver such Credit Documents on behalf of the Stockholder;
(l) a certificate of the Secretary of the Stockholder, dated the
Closing Date, certifying (A) that attached thereto are true, correct and
accurate copies of the Certificate of Incorporation and By-laws of the
Stockholder and (B) the incumbency and specimen signatures of the
designated officers referred to in clause (xii) above;
(m) the Guaranty Agreement duly executed by the Stockholder in favor
of the Lender;
(n) the Limited Guaranty Agreement duly executed by the Sponsors in
favor of the Lender;
(o) certificates of good standing with respect to the Borrower and
the Stockholder from the appropriate Governmental Authorities in the
jurisdictions under the laws of which each of them is incorporated or
formed; and
(p) such additional supporting documents as the Lender or its counsel
may
<PAGE>
reasonably request.
2. The Lender shall have received on or before the Closing Date the
following additional documents:
(a) a Phase I environmental audit with respect to the real property
described on Schedule 4.20 (the "Real Property") showing that there exist
no material environmental problems with the Real Property;
(b) evidence satisfactory to the Lender that there has been no
material pending or threatened litigation, bankruptcy or insolvency,
injunction, order or claim pending with respect to the Borrower or any of
them and that no material adverse change has occurred in the financial
condition, business or prospects of the Borrower or any of them since the
date of the financial statements referred to in Section 4.1;
(c) a title insurance policy, endorsed to be effective as of the
Closing Date, in the amount of $12,000,000 with respect to the Real
Property, issued by a title insurance company approved by the Lender and
insuring the Lien of the Lender, under the deed to secure debt executed and
delivered by the Borrower, and showing no exceptions other than Permitted
Encumbrances;
(d) to the extent required by the Lender, subordinations and consents
from the landlords where the Borrower has any Inventory located or
consigned whereby each such party acknowledges the Lender's first-priority
security interest in the Borrower's Inventory and other tangible personal
property;
(e) such additional supporting documents as the Agents, the Lenders
or their counsel may reasonably request.
3. On or before the delivery to the Lender of any Security Document, the
Borrower shall have delivered to the Lender, at the Borrower's expense, such
title insurance commitments, environmental reports, surveys, UCC searches,
financing statements, filing information, opinions of counsel and other
information as shall be requested by the Lender in order to satisfy the Lender
and its counsel as to the validity, legality, effectiveness, perfection,
priority and enforceability of such Security Document.
4. All documents delivered to the Lender under this Section 5.5 shall be
in form and substance reasonably satisfactory to the Lender and its counsel.
ARTICLE VI.
Covenants
The Borrower covenants and agrees that:
<PAGE>
SECTION A. Payment and Performance. The Borrower shall pay and perform
all Obligations in full when and as due under the terms of the Credit Documents.
SECTION B. Insurance.
1. Type of Insurance. The Borrower shall at all times cause the Business
and the Property to be insured by reputable insurers of reasonable
financial soundness and having an A. M. Best rating of A or better, with
such policies, against such risks (including products liability) and in
such amounts as are appropriate for reasonably prudent businesses in the
Borrower's industry and of the Borrower's size and financial strength.
2. Requirements as to Insurance Policies. The policies of insurance
which the Borrower is required to carry pursuant to the provisions of
Section 6.2(a) shall comply with the requirements listed below:
(i) Each such policy shall provide that it may not be cancelled or
allowed to lapse at the end of a policy period without at least 30
days' prior written notice to the Lender;
(ii) Each liability and hazard insurance policy shall name the Lender
as an additional insured; and
(iii) Each insurance policy required under Section 6.2(a) shall
contain a standard lender's loss payable clause in favor of the
Lender. Such insurance policies shall also contain lender's loss
payable endorsements satisfactory to the Lender providing, among other
things, that any loss shall be payable in accordance with the terms of
such policy notwithstanding any act of the Borrower which might
otherwise result in forfeiture of such insurance.
3. Collection of Claims. The Borrower agrees that it shall promptly
advise the Lender of any insured casualty in excess of $100,000 and, if
such loss represents the destruction of any Property that causes the
Borrowing Base to be exceeded, the Borrower agrees that the Lender may
direct all insurance proceeds therefrom to be paid directly to the Lender,
and hereby appoints the Lender its attorney-in-fact for such purpose.
4. Blanket Policies. Any insurance required by this Section 6.2 may be
supplied by means of a blanket or umbrella insurance policy.
5. Delivery of Policies or Certificate of Insurance. The Borrower shall
deliver to the Lender certificates of insurance issued by insurers to
evidence that the insurance maintained by the Borrower complies with the
requirements of this Section 6.2.
SECTION C. Collection of Receivables; Sale of Inventory. The Borrower
shall collect its Accounts and sell its Inventory only in the ordinary course of
business, unless written permission to the contrary is obtained from the Lender.
<PAGE>
SECTION D. Notice of Litigation and Proceedings. The Borrower shall give
prompt notice to the Lender of (a) any litigation or proceeding (including fines
and penalties of any public authority) in which it is a party in which there is
a reasonable probability of an adverse decision that would require it to pay
more than $500,000, or deliver assets the value of which exceeds $500,000,
whether or not the claim is considered to be covered by insurance; (b) any class
action litigation against it, regardless of size; and (c) the institution of any
other suit or proceeding that could reasonably be likely to materially and
adversely affect its operations, financial condition, property or the Business.
SECTION E. Payment of Indebtedness to Third Persons. The Borrower shall
pay, when due, all Debt due third persons, except when the amount thereof is
subject to a Permitted Contest.
SECTION F. Notice of Change of Business Location. The Borrower shall
notify the Lender: (a) 30 days in advance of any change in or discontinuation
of the location of the Property, the Borrower's principal place of business, (b)
30 days in advance of the establishment of any new places of business relating
to the Business, and (c) 2 days in advance of any change in or addition to the
locations where the Borrower's Inventory or records are kept; provided, however,
that Inventory shall be excluded from the Borrowing Base if it is moved to a new
location and the Lender is not satisfied it has a valid perfected security
interest in such Inventory.
SECTION G. Pension Plans. The Borrower shall (a) fund all of its defined
benefit or defined contribution pension plans, if any, in accordance with, and
in amounts not less than that required by, the minimum funding standards of
Section 302 of ERISA, as amended, (b) make available for inspection and copying
by the Lender, all audit reports and Forms 5500, filed with the United States
Department of Labor or the Internal Revenue Service with respect to all such
plans promptly after filing, and any other related information as may be
reasonably requested from time to time by the Lender, and (c) promptly advise
the Lender of the occurrence of any reportable event or non-exempt prohibited
transaction (as defined in ERISA) with respect to any such plan.
SECTION H. Payment of Taxes. The Borrower shall pay or cause to be paid
when and as due, all taxes, assessments and charges or levies imposed upon it or
on any of its property or that it is required to withhold and pay over to the
taxing authority or that it must pay on its income, the failure of which to pay
would have a material adverse effect on the Borrower, except where subject to a
Permitted Contest. The Borrower shall, however, pay or cause to be paid all
such taxes, assessments, charges or levies immediately whenever foreclosure of
any Lien that attaches on the Property or the Real Property appears imminent.
SECTION I. Further Assurances. The Borrower agrees to, execute such other
and further documents, including confirmatory deeds, deeds to secure debt,
promissory notes, security agreements, financing statements, continuation
statements, certificates of title, and the like as may from time to time in the
reasonable opinion of the Lender be necessary to perfect, confirm, establish,
reestablish, continue, or complete the security interests, collateral
assignments and liens in the Property, and the purposes and intentions of this
Agreement.
<PAGE>
SECTION J. Advancements. If the Borrower fails to (i) perform any of the
affirmative covenants contained in Section 6.1, (ii) protect or preserve the
Property or (iii) protect or preserve the status and priority of the Liens and
security interest of the Lender in the Property, the Lender may make advances to
perform those obligations. All sums so advanced shall immediately upon
advancement be subject to the terms and provisions of this Agreement and all of
the Credit Documents. Any provisions in this Agreement to the contrary
notwithstanding, the authorizations contained in this Section 6.10 shall impose
no duty or obligation on the Lender to perform any action or make any
advancement on behalf of the Borrower and are for the sole benefit and
protection of the Lender.
SECTION K. Maintenance of Status. The Borrower shall take all necessary
steps to (i) preserve its existence as a corporation, (ii) preserve the
Borrower's franchises and permits the loss of which would have a material
adverse effect on the Business, and (iii) comply with all present and future
material agreements to which the Borrower's is subject. The Borrower shall not
change the nature of the Business during the term of this Agreement.
SECTION L. Financial Statements; Reporting Requirements; Certification as
to Events of Defaults. During the term of this Agreement, the Borrower shall
furnish copies of the following to the Lender:
1. within thirty (30) days of each month, the Borrower's monthly
financial package, consisting of projections of the Borrowing Base for the
next succeeding twelve month period, financial operating results summary,
together with operating summaries for the Borrower for the month and year
to date then ended, subject to year-end audit adjustments, and certified by
the Chief Financial Officer of the Borrower to have been prepared in
accordance with GAAP and to accurately reflect in all material respects the
financial condition of the Borrower;
2. within 90 days of each fiscal year, annual financial statements for
the Borrower as of the end of such fiscal year, consisting of a
consolidated balance sheet, consolidated statement of operations,
consolidated statements of cash flows and consolidated statement of
stockholder's equity, in comparative form. The statements and balance
sheet shall be consolidated with the financial statements of the
Stockholder and the Stockholder's financial statements shall be audited by
an independent firm of certified public accountants selected by the
Stockholder and reasonably acceptable to the Lender (the Stockholder's
present accounting firm, KPMG Peat Marwick is acceptable and any so-called
"Big Six" accounting firm selected by the Stockholder shall be acceptable
to the Lender), and certified by that firm of certified public accountants
to have been prepared in accordance with GAAP. The certified public
accountants shall render an unqualified opinion as to such statements and
balance sheets; provided, however, if the opinion is qualified, the
accountants shall provide a precise and full explanation of the reasons for
any such qualification together with all papers upon which any such
qualification is based. the Lender shall have the absolute and irrevocable
right, from time to time, to discuss the affairs of the Borrower directly
with the independent certified public accountant after prior notice to the
Borrower and the reasonable opportunity of the Borrower to be present at
any such discussions and a representative of the Stockholder
<PAGE>
shall have the right to be present during any such discussions;
3. within 45 days after the close of each fiscal quarter beginning with
the fiscal quarter ending December 31, 1997, a certificate of the
President, Chief Financial Officer, or Director of Taxes of the Borrower
stating that he has reviewed the provisions of the Credit Documents and
that a review of the activities of the Borrower during such quarter has
been made by or under his supervision with a view to determining whether
the Borrower has observed and performed all of the Borrower's obligations
under the Credit Documents, and that, to the best of his knowledge,
information and belief, the Borrower has observed and performed each and
every undertaking contained in the Credit Documents and is not at the time
in default in the observance or performance of any of the terms and
conditions thereof or, if the Borrower shall be so in default, specifying
all of such defaults and events of which he may have knowledge;
4. by January 3l of each fiscal year, an operating plan for such fiscal
year prepared for each month, including projected income statements,
balance sheets, cash flow budgets, and capital expenditure budgets for each
month supported by a narrative describing the assumptions upon which the
plan is based;
5. within 15 days after the end of each month, financial statements
similar to those referred to in Section 6.12(b) for such month and for the
period beginning on the first day of the fiscal year and beginning on the
last day of such month, unaudited but certified by the Chief Financial
Officer of the Borrower;
6. on Monday of each week, a completed Borrowing Base Certificate in the
form attached hereto as Schedule E, certified by an Authorized
Representative of the Borrower, together with (i) a detailed aged trial
balance, in form and substance acceptable to the Lender, of all
then-existing Accounts specifying the names, addresses, face value and
dates of invoices for each Account Debtor obligated on an Account so
listed, separated as to Eligible Accounts and Accounts which are not
Eligible Accounts, and, upon demand, the original copy of all documents
(including proof of shipment and delivery, sales journals, contracts, bills
of lading, warehouse receipts, purchase orders, invoices, customer
statements, repayment histories, completion certificates or other proof of
the satisfactory performance of the services that gave rise to an Account,
and present status reports) evidencing or relating to the Accounts so
scheduled and such other matters and information relating to the
then-existing Accounts as the Lender shall reasonably request and
(ii) schedules of inventory; original orders; invoices; shipping documents;
floorplan billing settlements and receivables; market and inventory listing
containing model, serial number, location and parts inventory by location,
the current status and value of the Inventory and weekly sales reports in
form and detail reasonably satisfactory to the Lender. The statements
shall be in the form and shall contain the information as is prescribed by
the Lender. Other reporting shall be available upon request by the Lender,
including inventory reporting showing the cost (determined on a "first-in,
first-out" basis) and market value thereof;
7. promptly upon receipt thereof, copies of all final reports and final
management
<PAGE>
letters (or excerpts of such reports or letters which include information
about the Borrower) submitted to the Stockholder by independent accountants
in connection with any annual or interim audit of the books of the
Stockholder made by such accountants that relate solely to the Borrower;
8. copies of any and all reports, filings and other documentation
delivered to the Securities and Exchange Commission, if any; and
9. any other statements, reports and other information as the Lender may
reasonably request concerning the financial condition of the Borrower.
SECTION M. Notice of Existence of Default. The Borrower shall promptly
notify the Lender of: (i) the existence of any known condition or event, which
is or which will be with notice or the passage of time or both an Event of
Default of (ii) the actual or threatened termination, suspension, lapse or
relinquishment of any material license, authorization, permit or other right
granted the Borrower or for the Borrower's benefit and used in the Business by
any Governmental Authority material to the Business.
SECTION N. Compliance with Laws. The Borrower shall comply in all
material respects with all applicable laws, rules, regulations and orders the
noncompliance with which would have a material adverse effect on the Borrower.
SECTION O. Maintenance of Property. The Borrower shall maintain the
Property and every part thereof in good condition and repair. The Borrower
shall not permit the value of the Property to be materially impaired. The
Borrower shall defend the Property against all claims and legal proceedings by
persons other than the Lender and The Chase Manhattan Bank. The Borrower shall
not transfer the Property from the premises where now located (other than
Inventory sold in the ordinary course of business, other Property transferred in
the ordinary course of business or in accordance with Section 6.19 of this
Agreement), or permit the Property to become a fixture or accession (unless so
affixed on the Closing Date) to any goods which are not items of Property,
without the prior written approval of the Lender. The Borrower shall not permit
the Property to be used in violation of any applicable law, regulations, or
policy of insurance. As to Property consisting of Instruments and Chattel
Paper, the Borrower shall preserve rights in it against prior parties.
SECTION P. Property Records and Statements. The Borrower shall keep such
accurate and complete books and records pertaining to the Property in such
detail and form as the Lender reasonably requires.
SECTION Q. Inspection of Property, etc. The Lender may examine the
Property at any time, and from time to time. The Lender shall have full access
to, and the right to audit, inspect and make abstracts and copies from the
Borrower's books and records pertaining to the information included in the
Borrowing Base Certificate or the Property, wherever located, at any time during
reasonable business hours, and from time to time. The Borrower shall assist the
Lender in so doing. Without limiting the generality of the foregoing, the
Lender shall have the right to perform or cause to be performed, a lender's due
diligence examination of the Borrower
<PAGE>
and its business and assets and to obtain independent appraisals of the
Borrower's Accounts, Equipment and Inventory. The Borrower will cooperate fully
with the Lender to the end that such examination and appraisals can be completed
within 60 days after the Closing Date. The Borrower will promptly reimburse the
Lender for all costs incurred by the Lender in connection with such audit and
appraisals, whether prepared by personnel of the Lender or by other persons at
the Lender's request.
SECTION R. Change of Name, Etc. The Borrower shall not change its name,
or begin to trade under any assumed names or trade names in connection with the
Business without thirty (30) days' prior written notice to the Lender, other
than the trade name "Blackhawk" and "Lady Garden" of which the Lender is hereby
given notice may be applied to certain products of the Borrower.
SECTION S. Sale or Transfer of Assets. Except as consented to in writing
by the Lender, the Borrower shall not sell, transfer, lease (including
sale-leaseback) or otherwise dispose of all or any material portion of its
assets or merge with any person (whether or not the Borrower shall be the
survivor of such merger); provided that the Borrower may sell or otherwise
dispose of Property having an aggregate book value of not more than $500,000 in
any fiscal year or an aggregate fair market value of not more than $250,000 in
any fiscal year. This provision shall not apply to any sale if the proceeds of
such sale pay the Obligations in full.
SECTION T. Acquisition of Stock of Third Person. The Borrower shall not
enter into any agreement, commitment letter or letter of intent to acquire any
equity interest or stock in another business.
SECTION U. False Certificates or Documents. The Borrower shall not
furnish the Lender with any certificate or other document delivered pursuant to
this Agreement that contains any untrue statement of material fact or that omits
to state a material fact necessary to make it not misleading in light of the
circumstances under which it was furnished.
SECTION V. Transactions with Affiliates. Without the prior written
consent of the Lender, which shall not be unreasonably withheld, the Borrower
shall not enter into any contracts, leases, sales or other transactions with any
division or Affiliates on terms less favorable than could be obtained generally
by the Borrower from a nonaffiliate or in the aggregate, would have a material
adverse effect on the Property or on the Business.
SECTION W. Dividends. The Borrower shall not declare or pay any dividends
or make any distributions upon any of its stock (including dividends and
distributions payable only in shares of its stock) or directly or indirectly
apply any of its assets to the redemption, retirement, purchase or other
acquisition of its stock.
SECTION X. Payments on MIG Notes. The Borrower shall not make any
payments to the Stockholder on the MIG Notes at any time (a) that an Event of
Default exists or would result because of such payment, (b) that the aggregate
principal amount of the Loan outstanding exceeds the Borrowing Base or (c) prior
to June 1, 1998. Such payments may not be made more frequently than quarterly
after September 30, 1998.
<PAGE>
SECTION Y. Loan. The Borrower shall not make any loan to any Person,
except for loans in anticipation of reasonable and normally reimbursable
business expenses, trade credit extended in the ordinary course of Business and
loans to employees in an aggregate principal amount not to exceed $300,000 at
any one time outstanding.
SECTION Z. Use of Credit Proceeds. Not, directly or indirectly use any
part of the proceeds of the Credit 1. for any purpose other than capital
expenditures and general working capital needs or 2. without limiting the
generality of the foregoing, for the purpose of purchasing or carrying any
Margin Stock, or of reducing, retiring or purchasing any indebtedness incurred
for such purpose; or take any other action that would involve a violation of
Section 7 of the Securities Exchange Act of 1934, as amended, or any regulation
issued thereunder, including Regulation U or Regulation X of the Federal Reserve
Board, in connection with the transactions contemplated hereby; provided,
however, that nothing set forth in this Section 6.26 or elsewhere in this
Agreement shall be construed as imposing any duty on the Lender to supervise the
use or application of the Credit proceeds or any liability on the Lender to any
person if the Credit proceeds are not used for the purposes set forth in this
Agreement.
SECTION AA. Indebtedness. The Borrower shall not incur, create, assume or
permit to exist any Debt, other than the Obligations, Subordinated Debt, Debt
existing on the Closing Date and reflected on the Borrower's financial
statements, other Debt to the Lender, capitalized lease obligations in excess of
$3,000,000 and purchase money obligations allowed under Permitted Encumbrances.
SECTION BB. Guaranties. The Borrower shall not guarantee, endorse, become
surety for or otherwise in any way become or be responsible for the indebtedness
or obligations of any other person, whether by agreement to purchase the
indebtedness, liabilities or obligations of any other person, or agreement for
the furnishing of funds to any other person (directly or indirectly, through the
purchase of goods, supplies or services or by way of stock purchase, capital
contribution, working capital maintenance agreement, advance or loan) or for the
purpose of paying or discharging the indebtedness or obligations of any other
person, or otherwise, except for the endorsement of negotiable instruments in
the ordinary course of business for collection.
SECTION CC. Investments, etc. The Borrower shall not purchase or hold
beneficially any stock, other securities or evidences of indebtedness of or make
any investment or acquire any interest whatsoever in, any other person;
provided, however, that it may invest in Permitted Investments.
SECTION DD. Sale of Receivables. The Borrower shall not sell, assign or
discount, or grant or permit any Lien (other than Permitted Encumbrances) on any
of its accounts receivable or any promissory note held by it, with or without
recourse, other than the discount of such notes in the ordinary course of
business for collection.
SECTION EE. Solvency. The Borrower shall continue to be Solvent.
<PAGE>
SECTION FF. Lease Obligations. Except for existing leases (and all
renewals, extensions and replacements thereof), the Borrower shall not incur,
create, permit to exist or assume any commitment to make any direct or indirect
payment, whether as rent or otherwise, under any lease, rental or other
arrangement for the use of property of any other person, if immediately
thereafter the aggregate of such payments to be made by it would exceed $500,000
in any consecutive twelve-month period.
SECTION GG. Financial Covenants. The Borrower will at all times maintain:
1. on each of the dates set forth below, a Tangible Net Worth plus
Subordinated Debt in the combined amount of not less than the amount indicated
for such date:
<TABLE>
<CAPTION>
Tangible Net Worth
Date plus Subordinated Debt
----------------- ----------------------
<S> <C>
December 31, 1997 $14,500,000
March 31, 1998 $15,500,000
June 30, 1998 $ 7,800,000
September 30, 1998 $ 5,500,000
December 31, 1998 $ 7,500,000
March 31, 1999 $ 8,000,000
June 30, 1999 $ 8,000,000
September 30, 1999 $ 7,000,000
December 31, 1999 $ 8,000,000
</TABLE>
2. on each of the dates set forth below, an EBITDA of not less than the
amount indicated for the three-month period ending on such date:
<TABLE>
<CAPTION>
Date Minimum EBITDA
---------------- ------------------
<S> <C>
December 31, 1997 $1,500,000
March 31, 1998 $3,750,000
June 30, 1998 $3,750,000
September 30, 1998 $1,000,000
December 31, 1998 $3,000,000
March 31, 1999 $4,500,000
June 30, 1999 $4,500,000
September 30, 1999 $1,500,000
December 31, 1999 $4,500,000
</TABLE>
For purposes of this Section 6.33: (i) "Tangible Net Worth" means the book
value of the Borrower's assets less liabilities, excluding from such assets all
Intangibles; (ii) "Intangibles" means and includes general intangibles (as that
term is defined in the Uniform Commercial Code), accounts receivable and
advances due from officers, directors, employees, stockholders and affiliates,
non-trade accounts receivable and other unidentified accounts receivable,
leasehold improvements net of depreciation, licenses, goodwill, prepaid
expenses, escrow deposits,
<PAGE>
covenants not to compete, the excess of cost over book value of acquired assets,
franchise fees, organizational costs, finance reserves held for recourse
obligations, capitalized research and development costs and such other similar
items as the Lender may from time to time determine in the Lender's reasonable
discretion; (iii) "EBITDA" means, for any period of determination, the
consolidated net income of the Borrower before provision for income taxes,
Interest Expense, depreciation and amortization (including implicit interest
expense on capitalized leases), all as determined in accordance with GAAP,
excluding therefrom (to the extent included): (a) non-operating gains
(including extraordinary or nonrecurring gains, gains from discontinuance of
operations and gains arising from the sale of assets other than Inventory)
during the applicable period; (b) net earnings of any business entity in which
the Borrower has an ownership interest unless such net earnings shall have
actually been received by the Borrower in the form of cash distributions; (c)
the earnings of any Person to which any assets of the Borrower shall have been
sold, transferred or disposed of, or into which the Borrower shall have merged,
or been a party to any consolidation or other form of reorganization, prior to
the date of such transaction; (d) any gain arising from the acquisition of any
securities of the Borrower; and (e) non-operating losses arising from the sale
of capital assets during such period; and (iv) "Interest Expense" means interest
payable on Debt during the period in question. The foregoing terms will be
determined in accordance with GAAP, and, if applicable, on a consolidated basis.
SECTION HH. ERISA Compliance. Neither the Borrower nor any member of the
Controlled Group nor any Plan of any of them will:
1. engage in any "prohibited transaction" (as such term is defined in
Section 406 or Section 2003 (a) of ERISA) which is not subject to a legal
exemption;
2. incur any "accumulated funding deficiency" (as such term is defined in
Section 302 of ERISA) whether or not waived;
3. terminate any Pension Plan in a manner that could result in the
imposition of a Lien on any property of the Borrower or any member of the
Controlled Group pursuant to Section 4068 of ERISA; or
4. violate state or federal securities laws applicable to any Plan.
SECTION II. Fiscal Year. The Borrower shall not change its fiscal
year-end without sixty days prior written notice to the Lender.
ARTICLE VII.
Events of Default
SECTION A. Events of Default. The occurrence of any of the following
events shall constitute an event of default (an "Event of Default") under this
Agreement (whatever the reason for such event and whether or not it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
Governmental Requirement):
<PAGE>
1. any representation or warranty made in this Agreement or in any of the
other Credit Documents shall prove to be false or misleading in any material
respect as of the time made; or
2. any certificate, financial statement or other instrument furnished
pursuant to this Agreement or any of the other Credit Documents, shall prove to
be false or misleading in any material respect as of the time furnished; or
3. default shall be made in the payment when due of any of the
Obligations, and such default shall continue unremedied for five (5) days; or
4. default shall be made in the due observance or performance of any
covenant, condition or agreement on the part of the Borrower to be observed or
performed pursuant to the terms of Sections 6.19, 6.20, 6.21, 6.23, 6.24, 6.25,
6.27, 6.28, 6.29, 6.30, 6.31, 6.32, 6.33, 6.34 and 6.35 hereof; or
5. default shall be made in the due observance or performance of any
covenant, condition or agreement on the part of the Borrower to be observed or
performed pursuant to the terms of this Agreement (other than any covenant,
condition or agreement, default in the observance or performance of which is
elsewhere in this Section 0 specifically dealt with) and such default shall
continue unremedied until the first to occur of a. the date that is thirty (30)
days after written notice by the Lender to the Borrower or b. the date that is
thirty (30) days after the Borrower first obtains knowledge thereof; or
6. any default or event of default, as therein defined, shall occur under
any of the other Credit Documents (after giving effect to any applicable notice,
grace or cure period specified therein); or
7. default shall be made with respect to any Debt (other than the
Obligations) of any Obligor in a principal amount in excess of $2,000,000, if
the effect of such default is to accelerate the maturity of such Debt or to
permit the holder thereof to cause such Debt to become due prior to its stated
maturity, or any such Debt shall not be paid when due (after giving effect to
any applicable notice, grace or cure periods); or
8. any Obligor shall a. apply for or consent to the appointment of a
receiver, trustee, liquidator or other custodian of such Obligor or any of such
Obligor's properties or assets, b. fail or admit in writing such Obligor's
inability to pay such Obligor's debts generally as they become due, c. make a
general assignment for the benefit of creditors, d. suffer or permit an order
for relief to be entered against such Obligor in any proceeding under the
federal Bankruptcy Code, or e. file a voluntary petition in bankruptcy, or a
petition or an answer seeking an arrangement with creditors or to take advantage
of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution
or liquidation law or statute, or an answer admitting the material allegations
of a petition filed against such Obligor in any proceeding under any such law or
statute, or if corporate action shall be taken by any Obligor for the purpose of
effecting any of the foregoing; or
<PAGE>
9. a petition shall be filed, without the application, approval or
consent of any Obligor in any court of competent jurisdiction, seeking
bankruptcy, reorganization, rearrangement, dissolution or liquidation of such
Obligor or of all or a substantial part of the properties or assets of such
Obligor, or seeking any other relief under any law or statute of the type
referred to in Section 0 against such Obligor, or the appointment of a receiver,
trustee, liquidator or other custodian of such Obligor or of all or a
substantial part of the properties or assets of such Obligor, and such petition
shall not have been stayed or dismissed within 60 days after the filing thereof;
or
10. any Obligor shall be dissolved or liquidated, if an entity, or cease
to be Solvent or suspend business; or
11. a Change in Control shall occur; for purposes hereof, a "Change in
Control" shall mean (1) a change of ownership of the Borrower that results in
the Stockholder not owning at least 80% of all the outstanding stock of the
Borrower, (2) a change of ownership of the Stockholder that results in (A) the
Sponsors not having beneficial ownership or common voting power of at least 15%
of the common voting power of the Stockholder, (B) any "person" (as such term is
defined in 13(d) and 14(d) of the Securities and Exchange Act of 1934) having
more common voting power than the Sponsors or (C) any person other than the
Sponsors for any reason obtaining the right to appoint a majority of the board
of directors of the Stockholder; or
12. an Estate Default shall occur; for purposes hereof an "Estate Default"
shall mean (1) a failure by the estate of either Sponsor within ninety (90) days
after the death of such Sponsor, or a failure by a conservator, committee or
guardian (a "conservator") for the assets of either Sponsor within ninety (90)
days of the appointment of any such conservator, (A) to duly allow and assume,
or otherwise confirm, a creditor's claim filed against the estate or the
conservator in accordance with applicable law relating to the obligations of
such Sponsor under the Make-Whole and Pledge Agreement (which, in the case of
the death of either Sponsor, shall, if required by applicable law, be evidenced
by a creditor's claim filed against the estate in accordance with applicable
law) and (B) to agree for the benefit of the Lender to maintain (unless the
Lender is furnished with cash collateral), a letter of credit or other
collateral acceptable to the Lender in an amount equal to the estate's maximum
exposure under the Make-Whole and Pledge Agreement (assuming an Event of Default
thereunder and an acceleration of the Obligations hereunder at a time when the
Loan was fully drawn) the net worth of the estate (disregarding the separate
status of the Borrower) of at least $1,000,000,000 and not to make any
beneficial distribution from the estate that would cause its net worth to be
less than such amount and (C) to provide a legal opinion (in form and substance,
and from counsel, reasonably satisfactory to the Lender) regarding such
allowance and assumption or confirmation and such agreement or (2) any
rejection, or attempt at rejection, by the estate of either Sponsor or a
conservator for either Sponsor's assets of his obligations under the Make-Whole
and Pledge Agreement or the taking of any action or the filing of any motion by
such estate or conservator that could reasonably be expected to materially
adversely affect or impede the enforceability of such obligation; or
13. the Borrower or any member of the Controlled Group shall fail to pay
when due an amount or amounts aggregating in excess of $2,000,000 which it shall
have become liable to
<PAGE>
pay to the PBGC or to a Plan under Section 515 of ERISA or Title IV of ERISA;
or notice of intent to terminate a Plan or Plans (other than a multi-employer
plan, as defined in Section 4001(3) of ERISA), having aggregate benefit
commitments or vested liabilities in excess of assets by an amount in excess of
$2,000,000 shall be filed under Title IV of ERISA by the Borrower, any member of
the Controlled Group, any plan administrator or any combination of the
foregoing, or the PBGC shall institute proceedings under Title IV of ERISA to
terminate any such Plan or Plans and such default, if capable of cure, continues
for thirty (30) calendar days after notice of such default to the Borrower from
the Lender; or
14. any writ of execution, attachment or garnishment shall be issued
against the assets of any Obligor, the fair market value of which assets are in
excess of $2,000,000, and such writ of execution, attachment or garnishment
shall not be dismissed, discharged, bonded off or quashed within 90 days of
issuance; or
15. any final judgment for the payment of money in the amount of $250,000
or more shall be rendered against the Borrower or any such judgment in the
amount of $1,000,000 or more shall be rendered against the Stockholder or either
of the Sponsors and in either case such judgment shall remain undischarged for a
period of 30 days during which execution shall not be effectively stayed; or
16. any guarantor of any of the Obligations shall default in the due
observance or performance of any covenant, condition or agreement on such
guarantor's part to be observed or performed under such guarantor's guaranty
agreement (after giving effect to any applicable notice, grace or cure period
specified therein) or shall terminate or attempt to terminate such guarantor's
guaranty agreement.
SECTION B. Lender's Remedies on Default. If an Event of Default exists,
or any event exists that upon notice or lapse of time or both would constitute
an Event of Default, the Lender shall have no obligation to extend any further
Credit hereunder. If an Event of Default exists under Section 0 or 0, all of
the Obligations shall automatically become immediately due and payable. If any
other Event of Default exists, the Lender may, by written notice to the
Borrower, declare any or all of the Obligations to be immediately due and
payable, whereupon they shall become immediately due and payable. Any such
acceleration (whether automatic or upon notice) shall be effective without
presentment, demand, protest or other action of any kind, all of which are
hereby expressly waived, anything contained herein or in any of the other Credit
Documents to the contrary notwithstanding. If an Event of Default exists, the
Lender may exercise any of its rights and remedies on default under the Credit
Documents or applicable law, including the right to make withdrawals from the
Make-Whole Accounts (as defined in the Make-Whole and Pledge Agreement).
ARTICLE VIII.
Miscellaneous
SECTION A. Notices.
<PAGE>
1. Any request, demand, authorization, direction, notice, consent, waiver
or other document provided or permitted by this Agreement or the other Credit
Documents to be made upon, given or furnished to, or filed with, the Borrower or
the Lender must (except as otherwise provided in this Agreement or the other
Credit Documents) be in writing and be delivered by one of the following means:
a. by personal delivery at the hand delivery address specified below, b. by
first-class, registered or certified mail, postage prepaid and addressed as
specified below, or c. if facsimile transmission facilities for such party are
identified below or pursuant to a separate notice from such party, sent by
facsimile transmission to the number specified below or in such notice.
2. The hand delivery address, mailing address and (if applicable)
facsimile transmission number for receipt of notice or other documents by such
parties are as follows:
Borrower
- --------
By hand Snapper, Inc.
or mail: 535 Macon Road
McDonough, Georgia 30253
Attention: Robin K. Chamberlin/Paul N. Kiel
By facsimile: (770) 914-4271
Attention: Robin K. Chamberlin/Paul N. Kiel
With a copy to the c/o One Meadowlands Plaza
Stockholder and the East Rutherford, New Jersey 07076
Sponsors: Attention: Arnold L. Wadler
By facsimile: (201) 531-2803
Attention: Arnold L. Wadler
And to: Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: James M. Dubin
By facsimile: (212) 757-3990
Attention: James M. Dubin
Lender:
By hand: AmSouth Bank
7th Floor, AmSouth-Sonat Tower
1900 5th Avenue North
Birmingham, Alabama 35203
Attention: S. John Lakanen
<PAGE>
By mail: AmSouth Bank
P.O. Box 11007
Birmingham, Alabama 35288
Attention: S. John Lakanen
By facsimile: (205) 801-0157
Attention: S. John Lakanen
With a copy to: J. Kris Lowry
Maynard, Cooper & Gale, P.C.
1901 Sixth Avenue North
2400 AmSouth/Harbert Plaza
Birmingham, Alabama 35203-2602
By facsimile: (205) 254-1999
Any of such parties may change the address or facsimile transmission notice for
receiving any such notice or other document by giving notice of the change to
the other parties named in this Section 0.
3. Any such notice or other document shall be deemed delivered when
actually received by the party to whom directed (or, if such party is not a
natural person, to an officer, director, partner, member or other legal
representative of the party) at the address or number specified pursuant to this
Section 0, or, if sent by mail, three Business Days after such notice or
document is deposited in the United States mail, addressed as provided above.
4. Five Business Days' written notice to the Borrower as provided above
shall constitute reasonable notification to the Borrower when notification is
required by law; provided, however, that nothing contained in the foregoing
shall be construed as requiring five Business Days' notice if, under applicable
law and the circumstances then existing, a shorter period of time would
constitute reasonable notice.
SECTION B. Expenses. The Borrower shall promptly on demand pay all costs
and expenses, including the fees and disbursements of counsel to the Lender,
reasonably incurred by the Lender in connection with 1. the extension of the
Credit and the administration or collection of the Obligations, 2. the
negotiation, preparation and review of the Credit Documents (whether or not the
transactions contemplated by this Agreement shall be consummated), 3. the
enforcement of any of the Credit Documents, 4. the custody and preservation of
the Property, 5. the protection or perfection of the Lender's rights and
interests under the Security Documents in the Property, 6. the filing or
recording of the Security Documents or any related financing, continuation or
termination statements, or similar documents (including any stamp, documentary,
mortgage, recording and similar taxes and fees), 7. the exercise by or on behalf
of the Lender of any of its rights, powers or remedies under the Credit
Documents, 8. the compliance by the Lender with any Governmental Requirements
with respect to any of the Credit Documents, any of the Property or any of the
Obligations, and 9. the successful prosecution or defense of any
<PAGE>
action or proceeding by or against the Lender, the Borrower, any Obligor, or any
one or more of them, concerning any matter related to this Agreement or any of
the other Credit Documents, any of the Property or any of the Obligations. All
such amounts shall bear interest from the date demand is made at the Default
Rate and shall be included in the Obligations secured by the Security Documents.
The Borrower's obligations under this Section 0 shall survive the payment in
full of the Obligations and the termination of this Agreement.
SECTION C. Independent Obligations. The Borrower agrees that each of the
obligations of the Borrower to the Lender under this Agreement may be enforced
against the Borrower without the necessity of joining any other Obligor, any
other holders of Liens in any Property or any other person, as a party.
SECTION D. Successors and Assigns. Whenever in this Agreement any party
hereto is referred to, such reference shall be deemed to include the successors
and assigns of such party, except that neither the Borrower nor the Lender may
assign or transfer this Agreement without the prior written consent of the other
party; and all covenants and agreements of the Borrower contained in this
Agreement shall bind the Borrower's successors and assigns and shall inure to
the benefit of the successors and assigns of the Lender.
SECTION E. Governing Law. This Agreement and the other Credit Documents
shall be construed in accordance with and governed by Title 9 of the U.S. Code
and the internal laws of the State of Alabama (without regard to conflict of law
principles) except as required by mandatory provisions of law and except to the
extent that the validity and perfection of the Liens on the Property are
governed by the laws of any jurisdiction other than the State of Alabama.
SECTION F. Date of Agreement. The date of this Agreement is intended as a
date for the convenient identification of this Agreement and is not intended to
indicate that this Agreement was executed and delivered on that date.
SECTION G. Separability Clause. If any provision of the Credit Documents
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION H. Counterparts. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed an original, but all
such counterparts shall together constitute but one and the same agreement.
SECTION I. No Oral Agreements. This Agreement is the final expression of
the agreement between the parties hereto, and this Agreement may not be
contradicted by evidence of any prior oral agreement between such parties. All
previous oral agreements between the parties hereto have been incorporated into
this Agreement and the other Credit Documents, and there is no unwritten oral
agreement between the parties hereto in existence.
SECTION J. Waiver and Election. The exercise by the Lender of any option
given under this Agreement shall not constitute a waiver of the right to
exercise any other option. No failure or delay on the part of the Lender in
exercising any right, power or remedy under this
<PAGE>
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any further exercise
thereof or the exercise of any other right, power or remedy. No modification,
termination or waiver of any provisions of the Credit Documents, nor consent to
any departure by the Borrower therefrom, shall be effective unless in writing
and signed by an authorized representative of the Lender, and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other or further notice or demand in similar
or other circumstances. NO SUCH WRITTEN AMENDMENT, MODIFICATION OR SUPPLEMENT
THAT WOULD (A) INCREASE THE PRINCIPAL AMOUNT OF OR RATE OF INTEREST ON THE
OBLIGATIONS, (B) INCREASE THE RATE OF ANY FEE PAYABLE UNDER SECTION 2.6(b) OR
(c) OF THIS AGREEMENT, (C) EXCEPT AS MAY BE OTHERWISE SPECIFICALLY PROVIDED IN
THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT, RELEASE ALL OR SUBSTANTIALLY ALL OF
THE PROPERTY, OR (D) WAIVE AN EVENT OF DEFAULT UNDER ANY CREDIT DOCUMENT SHALL
BE EFFECTIVE BETWEEN THE PARTIES THERETO UNLESS CONSENTED TO IN WRITING BY THE
STOCKHOLDER AND THE SPONSORS.
SECTION K. No Obligations of Lender; Indemnification. The Lender does not
by virtue of this Agreement or any of the transactions contemplated by the
Credit Documents assume any duties, liabilities or obligations with respect to
any property now or hereafter granted to it as collateral for any of the
Obligations unless expressly assumed by the Lender under a separate agreement in
writing, and the Credit Documents shall not be deemed to confer on the Lender
any duties or obligations that would make the Lender directly or derivatively
liable for any person's negligent, reckless or wilful conduct. The Borrower
agrees to indemnify and hold the Lender harmless against and with respect to any
damage, claim, action, loss, cost, expense, liability, penalty or interest
(including attorney's fees) and all costs and expenses of all actions, suits,
proceedings, demands, assessments, claims and judgments directly or indirectly
resulting from, occurring in connection with, or arising out of: 1. any
inaccurate representation made by the Borrower or any Obligor in this Agreement
or any other Credit Document; and 2. any breach of any of the warranties or
obligations of the Borrower or any Obligor under this Agreement or any other
Credit Document. The provisions of this Section 0 shall survive the payment of
the Obligations in full and the termination of this Agreement and the other
Credit Documents, and the satisfaction, release (in whole or in part) and
foreclosure of the Security Documents.
SECTION L. Set-off. While any Event of Default exists, the Lender is
authorized at any time and from time to time, without notice to the Borrower
(any such notice being expressly waived by the Borrower), to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by the Lender to or
for the credit or the account of the Borrower against any and all of the
Obligations, irrespective of whether or not the Lender shall have made any
demand under this Agreement and although such Obligations may be unmatured. The
rights of the Lender under this Section 8.12 are in addition to all other rights
and remedies (including other rights of set-off or pursuant to any banker's
lien) that the Lender may have.
SECTION M. Participation. The Borrower understands that the Lender may,
with the
<PAGE>
Borrower's consent, from time to time enter into a participation agreement or
agreements with one or more participants pursuant to which each such participant
shall be given a participation in the Credit and that any such participant may
from time to time similarly grant to one or more subparticipants
subparticipations in the Credit. The Borrower agrees that any participant or
subparticipant may exercise any and all rights of banker's lien or set-off with
respect to the Borrower, as fully as if such participant or subparticipant had
made a loan directly to the Borrower in the amount of the participation or
subparticipation given to such participant or subparticipant in the Credit. For
the purposes of this Section 0 only, the Borrower shall be deemed to be directly
obligated to each participant or subparticipant in the amount of its
participating interest in the amount of the Credit and any other Obligations.
Nothing contained in this Section 0 shall affect the Lender's right of set-off
(under Section 8.12 or applicable law) with respect to the entire amount of the
Obligations, notwithstanding any such participation or subparticipation. The
Lender may divulge to any participant or subparticipant all information,
reports, financial statements, certificates and documents obtained by it from
the Borrower or any other person under any provision of this Agreement or
otherwise.
SECTION N. Submission to Jurisdiction. The Borrower irrevocably
1. acknowledges that this Agreement will be accepted by the Lender and performed
by the Borrower in the State of Alabama; 2. submits to the jurisdiction of each
state or federal court sitting in Jefferson County, Alabama (collectively, the
"Courts") over any suit, action or proceeding arising out of or relating to this
Agreement (to enforce the arbitration provisions hereof or, if the arbitration
provisions are found to be unenforceable, to determine any issues arising out of
or relating to this Agreement) or any of the other Credit Documents
(individually, an "Agreement Action"); 3. waives, to the fullest extent
permitted by law, any objection or defense that the Borrower may now or
hereafter have based on improper venue, lack of personal jurisdiction,
inconvenience of forum or any similar matter in any Agreement Action brought in
any of the Courts; 4. agrees that final judgment in any Agreement Action brought
in any of the Courts shall be conclusive and binding upon the Borrower and may
be enforced in any other court to the jurisdiction of which the Borrower is
subject, by a suit upon such judgment; 5. consents to the service of process on
the Borrower in any Agreement Action by the mailing of a copy thereof by
registered or certified mail, postage prepaid, to the Borrower at the Borrower's
address designated in or pursuant to Section 0; 6. agrees that service in
accordance with Section 0 shall in every respect be effective and binding on the
Borrower to the same extent as though served on the Borrower in person by a
person duly authorized to serve such process; and 7. AGREES THAT THE PROVISIONS
OF THIS SECTION, EVEN IF FOUND NOT TO BE STRICTLY ENFORCEABLE BY ANY COURT,
SHALL CONSTITUTE "FAIR WARNING" TO THE BORROWER THAT THE EXECUTION OF THIS
AGREEMENT MAY SUBJECT THE BORROWER TO THE JURISDICTION OF EACH STATE OR FEDERAL
COURT SITTING IN JEFFERSON COUNTY, ALABAMA WITH RESPECT TO ANY AGREEMENT
ACTIONS, AND THAT IT IS FORESEEABLE BY THE BORROWER THAT THE BORROWER MAY BE
SUBJECTED TO THE JURISDICTION OF SUCH COURTS AND MAY BE SUED IN THE STATE OF
ALABAMA IN ANY AGREEMENT ACTIONS. Nothing in this Section 0 shall limit or
restrict the Lender's right to serve process or bring Agreement Actions in
manners and in courts otherwise than as herein provided.
SECTION O. Usury Laws. Any provision of this Agreement or any of the
other
<PAGE>
Credit Documents to the contrary notwithstanding, the Borrower and the Lender
agree that they do not intend for the interest or other consideration provided
for in this Agreement and the other Credit Documents to be greater than the
maximum amount permitted by applicable law. Regardless of any provision in this
Agreement or any of the other Credit Documents, the Lender shall not be entitled
to receive, collect or apply, as interest on the Obligations, any amount in
excess of the maximum rate of interest permitted to be charged under applicable
law until such time, if any, as that interest, together with all other interest
then payable, falls within the then applicable maximum lawful rate of interest.
If the Lender shall receive, collect or apply any amount in excess of the then
maximum rate of interest, the amount that would be excessive interest shall be
applied first to the reduction of the principal amount of the Obligations then
outstanding in the inverse order of maturity, and second, if such principal
amount is paid in full, any excess shall forthwith be returned to the Borrower.
In determining whether the interest paid or payable under any specific
contingency exceeds the highest lawful rate, the Borrower and the Lender shall,
to the maximum extent permitted under applicable law, 1. characterize any
nonprincipal payment as an expense, fee or premium rather than as interest,
2. exclude voluntary prepayments and the effects thereof, 3. consider all the
Obligations as one general obligation of the Borrower, and 4. "spread" the total
amount of the interest throughout the entire term of the Note so that the
interest rate is uniform throughout the entire term of the Note.
SECTION P. Arbitration; Dispute Resolution; Preservation of Foreclosure
Remedies.
1. The Borrower represents to the Lender that its business and affairs
constitute substantial interstate commerce and that it contemplates using the
proceeds of the Note in substantial interstate commerce. Except as otherwise
specifically set forth below, any action, dispute, claim, counterclaim or
controversy ("Dispute" or "Disputes"), between or among the Lender, the Borrower
or any other Obligor, including any claim based on or arising from an alleged
tort, shall be resolved by arbitration as set forth below. As used herein,
Disputes shall include all actions, disputes, claims, counterclaims or
controversies arising in connection with the Note, any extension of or
commitment to extend Credit by the Lender, any collection of any indebtedness
owed to the Lender, any security or collateral given to the Lender, any action
taken (or any omission to take any action) in connection with any of the
foregoing, any past, present and future agreement between or among the Lender,
the Borrower or any other Obligor (including the Note and any Credit Document),
and any past, present or future transactions between or among the Lender, the
Borrower or any other Obligor. Without limiting the generality of the
foregoing, Disputes shall include actions commonly referred to as lender
liability actions.
2. All Disputes shall be resolved by binding arbitration in accordance
with Title 9 of the U.S. Code and the Commercial Arbitration Rules of the
American Arbitration Association (the "AAA"). Defenses based on statutes of
limitation, estoppel, waiver, laches and similar doctrines, that would otherwise
be applicable to an action brought by a party, shall be applicable in any such
arbitration proceeding, and the commencement of an arbitration proceeding with
respect to this Agreement shall be deemed the commencement of an action for such
purposes.
3. Notwithstanding the foregoing, the Borrower and each other Obligor
agrees that
<PAGE>
the Lender shall have the option, but not the obligation, to submit to and
pursue in a court of law any claim against the Borrower or any other Obligor for
a debt due. The Borrower and each other Obligor agrees that, if the Lender
pursues such a claim in a court of law, a. failure of the Lender to assert any
additional claim in such proceeding shall not be deemed a waiver of, or estoppel
to pursue, such claim as a claim or counterclaim in arbitration as set forth
above, and b. the institution or maintenance of a judicial action hereunder
shall not constitute a waiver of the right of any party to submit any other
action, dispute, claim or controversy as described above, even though arising
out of the same transaction or occurrence, to binding arbitration as set forth
herein. If the Borrower asserts a claim against the Lender in arbitration or
otherwise during the pendency of a claim brought by the Lender in a court of
law, the court action shall be stayed and the parties shall submit to
arbitration all claims.
4. No provision of, nor the exercise of any rights under this Section,
shall limit the right of any party a. to foreclose against any real or personal
property collateral by exercise of a power of sale under any Credit Document, or
by exercise of any rights of foreclosure or of sale under applicable law, b. to
exercise self-help remedies such as set-off, or c. to obtain provisional or
ancillary remedies such as injunctive relief, attachment or the appointment of a
receiver from a court having jurisdiction before, during or after the pendency
of any arbitration or referral. The institution and maintenance of an action
for judicial relief or pursuit of provisional or ancillary remedies or exercise
of self-help remedies shall not constitute a waiver of the right of any party,
including the plaintiff in such an action, to submit the Dispute to arbitration
or, in the case of actions on a debt, to judicial resolution.
5. Whenever an arbitration is required hereunder, the arbitrator shall be
selected in accordance with the Commercial Arbitration Rules of the AAA. The
AAA shall designate a panel of 10 potential arbitrators knowledgeable in the
subject matter of the Dispute. Each of the Lender and the Obligor shall
designate, within 30 days of the receipt of the list of potential arbitrators,
one of the potential arbitrators to serve, and the two arbitrators so designated
shall select a third arbitrator from the eight remaining potential arbitrators.
The panel of three arbitrators shall determine the resolution of the Dispute.
SECTION Q. Original Credit Agreement Amended and Restated in its Entirety.
This Agreement amends and restates, in its entirety, the Original Credit
Agreement.
SECTION R. Miscellaneous Provisions.
1. In order to induce the Lender to enter into this Agreement, the
Borrower represents and warrants to the Lender that (i) all the representations
and warranties set forth in the Original Credit Agreement and the other Credit
Documents are true and correct in all material respects on and as of the Closing
Date, except to the extent that such representations and warranties expressly
relate to an earlier date, and (ii) as of the Closing Date, except as permitted
under this Agreement, the Borrower is in compliance in all material respects
with all the terms and provisions set forth in the Original Credit Agreement and
the other Credit Documents on its part to be observed or performed and no Event
of Default nor any event that upon notice or lapse of time or both would
constitute an Event of Default, has occurred and is continuing.
<PAGE>
2. Nothing contained in this Agreement or in any of the other amendments
to the Credit Documents that are being made in connection with this Agreement
shall be deemed to constitute a novation of the terms of any of the Credit
Documents, nor to impair any Liens granted to the Lender under the Credit
Documents, nor to release any Obligor from liability for any of the Obligations,
nor to affect any of the rights, powers or remedies of the Lender under the
Credit Documents, nor to constitute a waiver of any provision thereof, except as
specifically set forth in this Agreement and in said other amendments to the
Credit Documents.
SECTION S. Amendments to Certain Credit Documents. The parties agree that
the following amendments are hereby made to certain of the Credit Documents, as
follows:
1. All references in the Credit Documents other than this Agreement to
the "Credit Agreement" shall refer to this Agreement, as the same may hereafter
from time to time be amended, supplemented, restated or otherwise modified.
2. Subsection 1.2(g) of the Security Agreement is hereby amended to read,
in its entirety, as follows:
"(g) Credit means, individually and collectively, all
loans, forbearances, renewals, extensions, advances,
disbursements and other extensions of credit now or
hereafter made by the Lender to or for the account of the
Borrower under the Credit Documents."
3. Subsection 1.2(b) of the Environmental Indemnity Agreement is hereby
amended to read, in its entirety, as follows:
"(b) Credit means, individually and collectively, all
loans, forbearances, renewals, extensions, advances,
disbursements and other extensions of credit now or
hereafter made by the Lender to or for the account of the
Borrower under the Credit Documents."
4. Exhibits B, C, D and E to the Security Agreement are hereby amended to
read, in their entirety, in the forms attached hereto as Revised Exhibits B, C,
D and E, respectively.
5. The list of the Credit Documents contained in Exhibit B to each of the
Security Agreement and the Environmental Indemnity Agreement is hereby amended
to read, in its entirety, in the form of the list contained in Schedule A to
this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lender have caused this Agreement
to be dated November _____, 1997, and to be duly executed and delivered.
SNAPPER, INC.
By---------------------------------------
Its---------------------------------
AMSOUTH BANK
By--------------------------------------
Its Senior Vice President
<PAGE>
LIST OF SCHEDULES
Schedule
A Credit Documents
B Eligible Adjusted Equipment Value
C Permitted Encumbrances
D Request for Advances or Interest Rate Election
E Borrowing Base Certificate
F Extended Terms
G Thirty Day Terms
4.3 Litigation
4.6 Trade Names
4.8 Locations of Personal Property
4.16 Labor Contracts
4.17 ERISA
4.18 Patents, Trademarks and Copyrights
4.20 Real Property
<PAGE>
SCHEDULE A
CREDIT DOCUMENTS
The "Credit Documents" referred to in this Agreement include the following:
(a) Amended and Restated Credit Agreement dated November 12, 1997,
executed by the Borrower and the Lender.
(b) Amended and Restated Promissory Note dated November 12, 1997, in the
principal amount of Eighty Million and No/100 Dollars ($80,000,000.00) executed
by the Borrower in favor of the Lender (the "Note"), which evidences the loan
made by the Lender to the Borrower and has a final maturity date of January 1,
2000.
(c) Limited Guaranty Agreement dated November 12, 1997, executed by
John W. Kluge and Stuart Subotnick.
(d) Environmental Indemnity Agreement dated November 26, 1996, executed
by the Borrower and Metromedia International Group, Inc. in favor of the Lender,
as amended by First Amendment thereto dated as of April 30, 1997, and by Amended
and Restated Credit Agreement dated November 12, 1997.
(e) Security Agreement (General) dated November 26, 1996, executed by the
Borrower in favor of the Lender, as amended by First Amendment thereto dated as
of April 30, 1997, and by Amended and Restated Credit Agreement dated
November 12, 1997.
(f) Guaranty Agreement dated November 26, 1996, executed by Metromedia
International Group, Inc. in favor of the Lender, as amended by First Amendment
to MIG Documents dated as of April 30, 1997, and by Second Amendment to MIG
Documents dated November 12, 1997.
(g) Pledge Agreement dated November 26, 1996, executed by Metromedia
International Group, Inc. in favor of the Lender, as amended by First Amendment
to MIG Documents dated as of April 30, 1997, and by Second Amendment to MIG
Documents dated November 12, 1997.
(h) Make-Whole and Pledge Agreement dated November 26, 1996, executed by
John W. Kluge and Stuart Subotnick in favor of the Lender, as amended by First
Amendment to Sponsor Documents dated as of April 30, 1997, and by Second
Amendment to Sponsor Documents dated November 12, 1997.
(i) Deed to Secure Debt, Security Agreement and Assignment of Rents and
Leases dated November 26, 1996, executed by the Borrower in favor of the Lender,
as amended by First Amendment to Deed to Secure Debt, Security Agreement and
Assignment of Rents and Leases dated as of April 30, 1996, and by Second
Amendment to Deed to Secure Debt, Security
<PAGE>
Agreement and Assignment of Rents and Leases dated November 12, 1997.
(j) Subordination Agreement dated November 26, 1996, executed by the
Borrower and Metromedia International Group, Inc. for the benefit of the Lender,
as amended by First Amendment to MIG Documents dated as of April 30, 1997, and
by Second Amendment to MIG Documents dated November 12, 1997.
(k) Intercreditor and Subordination Agreement dated November 26, 1996, by
and among The Chase Manhattan Bank, the Borrower, Metromedia International
Group, Inc. and the Lender, as amended by First Amendment to Intercreditor and
Subordination Agreement dated as of April 30, 1997, and by Second Amendment to
Intercreditor and Subordination Agreement dated November 12, 1997.
(l) Amended and Restated Reimbursement and Priority Agreement dated
November 12, 1997, by the Borrower, Metromedia International Group, Inc.,
John W. Kluge and Stuart Subotnick.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE B
ELIGIBLE ADJUSTED EQUIPMENT VALUE
Applicable Period Equipment Value
<S> <C>
12/97 $6,363,000
1/98 6,236,000
2/98 6,111,000
3/98 5,989,000
4/98 5,869,000
5/98 5,752,000
6/98 5,637,000
7/98 5,524,000
8/98 5,414,000
9/98 5,306,000
10/98 5,200,000
11/98 5,096,000
12/98 4,994,000
1/99 until the
Termination Date Values to be based upon a new
equipment appraisal to be
provided by the Borrower to the
Lender after the Lender applying
the assumed depreciation
percentage of 2%
</TABLE>
<PAGE>
SCHEDULE C
PERMITTED ENCUMBRANCES
<TABLE>
<CAPTION>
Jurisdiction State UCC Secured Party Collateral
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Henry County Clerk of GA UCC-193-845 AT&T Systems Specific equipment
Superior Court
- -------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-194-106 AT&T Systems Specific equipment under lease
Superior Court
- -------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-1075-96-565 AT&T Systems Leasing Specific equipment under lease
Superior Court
- -------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-07596001965 AT&T Systems Leasing Specific equipment under lease
Superior Court
- -------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-07596001966 AT&T Systems Leasing Specific equipment under lease
Superior Court
- -------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-07597000092 AT&T Systems Leasing Specific equipment under lease
Superior Court
- -------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-07597000326 AT&T Systems Leasing Specific equipment under lease
Superior Court
- -------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-07597000327 AT&T Systems Leasing Specific equipment under lease
Superior Court
- -------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-07597001096 AT&T Systems Leasing Specific equipment under lease
Superior Court
- -------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-07597001097 AT&T Systems Leasing Specific equipment under lease
Superior Court
- --------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-07597001442 AT&T Systems Leasing Specific equipment under lease
Superior Court
- --------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-07597001443 AT&T Systems Leasing Specific equipment under lease
Superior Court
- --------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-07597001444 AT&T Systems Leasing Specific equipment under lease
Superior Court
- --------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-07597001762 AT&T Systems Leasing Specific equipment under lease
Superior Court
- ---------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-07597002111 AT&T Systems Leasing Specific equipment under lease
Superior Court
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Superior Court
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Henry County Clerk of GA UCC-07597002112 AT&T Systems Leasing Specific equipment under lease
Superior Court
- ----------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-07596001452 AT&T Systems Leasing Specific equipment under lease
Superior Court
- ----------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-07597001948 Financial Federal Credit, Equipment, fixtures, inventory,
Superior Court Inc. general intangibles, chattel
paper, negotiable instruments,
vehicles, accounts, proceeds,
miscellaneous goods
- -----------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-07597000419 Financial Federal Credit, Equipment, fixtures, inventory,
Superior Court Inc. general intangibles, chattel
paper, negotiable instruments,
vehicles, accounts, proceeds,
miscellaneous goods
- ------------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-07596002064 GTE Leasing Corporation Specific equipment under lease
Superior Court
- ------------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-07596002065 GTE Leasing Corporation Specific equipment under lease
Superior Court
- ------------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-04497006470 Hyster Credit Company Specific equipment under lease
Superior Court (Assignee)
Wrenn Handling, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-193-790 Wrenn Handling Specific equipment under lease
Superior Court
- ------------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-194-1095 GE Capital Specific equipment under lease
Superior Court
- ------------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-1075-95-468 StorageTek Distributed Specific equipment under lease
Superior Court
- ------------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-1075-95-683 StorageTek Distributed Specific equipment under lease
Superior Court
- ------------------------------------------------------------------------------------------------------------------------------
Henry County Clerk of GA UCC-1075-96-1248 Leasetec Corporation Specific equipment under lease
Superior Court
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE D
REQUEST FOR ADVANCES OR INTEREST RATE ELECTION
Under the Amended and Restated Credit Agreement dated November 12, 1997
(the "Credit Agreement") entered into by SNAPPER, INC., a Georgia corporation,
(the "Borrower"), and AMSOUTH BANK, an Alabama banking corporation:
Request for Advances
Pursuant to Section 0 of the Credit Agreement, the Borrower hereby requests
Advances as follows:
(a) Aggregate amount of Advances -
$_______________.
(b) Date as of which the Advances are to be made -
_________________, 199__.
(c) The following interest rate information is
provided with respect to the Segment represented
by the Advances:
(i) the interest rate shall be [the Floating
Rate] [the LIBOR-Based Rate] (circle one).
(ii) If the LIBOR-Based Rate is selected, the
maturity selected for the LIBOR-Based Rate Period
is [one month] [two months] [three months] (circle
one, if applicable).
Interest Rate Election
Pursuant to Section 0 of the Credit Agreement, the Borrower makes the
following interest rate election with respect to the Segment in the principal
amount of $______________ that matures on ____________________.
(a) The amount of the Segment to which the requested
interest rate will apply - $__________.
(b) The date on which the selected interest rate will
become applicable - _______________.
(c) The interest rate selected is [the Floating Rate]
[the LIBOR-Based Rate] (circle one).
<PAGE>
(d) If the LIBOR-Based Rate is selected, the maturity
selected for the LIBOR-Based Rate Period is [one
month] [two months] [three months] (circle one, if
applicable).
In accordance with Section 0 of the Credit Agreement, the presentation by
the Borrower of this Request for Advances or Interest Rate Election constitutes
a representation and warranty by the Borrower to the Lender that (a) no material
adverse change in the financial condition of the Borrower in the financial
statements referred to in Section 4.1 of the Credit Agreement, has occurred
since the date of such financial statements, and (b) no Event of Default exists.
Dated ________________, 199__.
SNAPPER, INC.
By:________________________________________
Its ____________________________________
D-2
<PAGE>
SCHEDULE E
BORROWING BASE CERTIFICATE
To: AmSouth Bank
Date: _______________, 19____
Snapper, Inc. (the "Borrower") hereby furnishes the following information
to you pursuant to the Amended and Restated Credit Agreement (the "Credit
Agreement") between you and the Borrower dated November 12, 1997. Capitalized
terms used in this certificate and not otherwise defined herein have the
meanings defined for them in the Credit Agreement.
<TABLE>
<CAPTION>
<S> <C>
I. ACCOUNTS RECEIVABLE
A. Dealer Accounts
(1) Home Depot $------------------
(2) Dealers utilizing floor plan financing ------------------
(3) Dealers utilizing Extended Terms ------------------
(4) Dealers utilizing Thirty Day Terms ------------------
(5) Dealers/Distributors outside U.S. with
letter of credit serving Inventory shipped ------------------
B. Sum of (1) through (5) ------------------
C. Less adjustments per definition of Net Outstanding
Amount of Eligible Accounts (------------------)
D. Line (B) minus (C) ------------------
E. Line (D) times 80% $------------------
------------------
F. $10,000,000 $10,000,000.00
G. Dealer Accounts utilizing Extended Terms over 90 days
but not 60 days past due (1)
H. Less adjustments per definition of Net Outstanding
Amount of Eligible Accounts (------------------)
I. Line (G) minus (H) ------------------
J. Line (I) times 65.8% ------------------
K. Line (J) times 55% ------------------
L. Lesser of Line (F) and (K) ------------------
M. TOTAL OF LINES (E) and (L) $------------------
------------------
</TABLE>
- --------------------
(1) With respect to the Accounts arising from sales to dealers of Inventory
consisting of snow products, which Inventory has not been sold by the dealer or
financed by the dealer by means of floor planning arrangement, the Borrower
shall be permitted to extend the due date with respect to such Account for March
10 of any year to December 10 of such year.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
II. INVENTORY
A. $60,000,000 on and after the Closing Date to
and including December 30, 1997; $55,000,000
on and after December 31, 1997, to and
including December 30, 1998; and $20,000,000
on and after December 31, 1998 $----------------
B. Finished Goods Inventory ----------------
C. Line (B) times (i) from the Closing Date to and
including December 30, 1998, 80%, and (ii) on and
after December 31, 1998, 50% $----------------
----------------
D. $5,000,000 $ 5,000,000.00
E. Engines -----------------
F. Line (E) times 50% -----------------
G. Lesser of Line (D) and (F) $----------------
----------------
H. From the Closing Date to and including
December 30, 1998, $7,500,000, and on and
after December 31, 1998, $3,000,000 $----------------
I. Parts and accessories (other than engines) ----------------
J. Line (H) times (i) from the Closing Date to and
including December 30, 1998, 40%, and (ii) on and
after December 31, 1998, 30% ----------------
K. Lesser of Line (H) and (J) $---------------
---------------
L. Sum of Lines (C), (G) and (K) $---------------
M. Less Inventory that is not Eligible Inventory or
that should be excluded per Section 6.6 of the
Credit Agreement (---------------)
N. Line (L) minus (M) -----------------
O. Lesser of Lines (A) and (N) $----------------
----------------
III. EQUIPMENT
A. Eligible Adjusted Equipment Value $----------------
B. Line (A) times 75% $----------------
----------------
IV. MAXIMUM CREDIT ACCOUNT
A. Borrowing Base Amount sum of Lines (I.M.,
II.O. and III.B.) $----------------
B. Commitment Amount -----------------
C. Lesser of Lines (A) and (B) -----------------
D. Outstanding Advances -----------------
E. Line (C) minus (D) (Maximum Availability) $----------------
----------------
E-2
</TABLE>
<PAGE>
The Borrower certifies to you as follows:
(a) The representations and warranties contained in the Credit Agreement
are true and correct on and as of the date of this certificate, except as
follows:
(b) The representations and warranties contained in Section 3.2 of the
Security Agreement are true and correct with respect to all Accounts included in
the Net Outstanding Amount of Eligible Accounts on line 3 of this certificate
except as follows:
(c) The representations and warranties contained in Section 3.3 of the
Security Agreement are true and correct with respect to all Inventory included
in the Eligible Inventory on line 7 of this certificate except as follows:
(d) No Event of Default, nor any event that would constitute an Event of
Default with the passage of time or the giving of notice, or both, exists under
the Credit Agreement or the other Credit Documents, except as follows:
(e) The information contained in this certificate is true and correct to
the best of the Borrower's knowledge.
This certificate is furnished to you for the purpose of obtaining Advances
from you under the Credit Agreement or otherwise complying with the provisions
of the Credit Agreement.
SNAPPER, INC.
By:______________________________________________
Its ________________________________________
E-3
<PAGE>
SCHEDULE F
EXTENDED TERMS
Extended Terms - Open Account Only
Dealers:
Residential Lawn & Garden: Dealers Utilizing Floorplan - For stocking
order shipments during the months of
September through December 31, 1997,
payment due July 31, 1998. For stocking
order shipments during the months of
January through April 30, 1998, payment due
August 31, 1998. Non-stocking order
shipments and all in-season reorders
payment due 120 days from invoice date.
Open Account - Net 30 days from invoice date.
Commercial: For certified commercial dealers, all
shipments due for payment in 10 months from
shipment date.
Snow: Dealers Utilizing Floorplan - All shipments
June 1, 1997 through December 31, 1997,
payment due March 31, 1998.
Open Account - Net 30 days from invoice
date.
Parts and Accessories: All 1998 stocking orders due one-half May
1, 1998, and one-half July 1, 1998. Parts
reorders due 30 days from invoice date.
<PAGE>
SCHEDULE G
THIRTY DAY TERMS
For all Accounts with dealers that are not subject to Extended Terms or
floor plan financing, Invoices due 30 days from Invoice Date.
<PAGE>
Exhibit 10.50
[EXECUTION COPY]
LIMITED GUARANTY AGREEMENT
THIS LIMITED GUARANTY AGREEMENT ("this Agreement") dated as of November 12,
1997, is executed by JOHN W. KLUGE, an individual ("Kluge"), and STUART
SUBOTNICK, an individual ("Subotnick") (Kluge and Subotnick being sometimes
hereinafter referred to collectively as the "Guarantors" or individually as a
"Guarantor"), in favor of AMSOUTH BANK, an Alabama banking corporation (the
"Lender").
RECITALS
A. Capitalized terms used in these Recitals have the meanings given them
above and in Section 2.
B. Lender and Snapper, Inc., a Georgia corporation (the "Borrower"), have
heretofore entered into a Credit Agreement dated November 26, 1996, as the same
has heretofore been amended (the "Original Credit Agreement"), under the terms
of which the Lender has extended certain credit to the Borrower.
C. The Borrower, the Guarantors and Metromedia International Group, Inc.,
a Delaware corporation (the "Stockholder"), which is the holder of all the
outstanding capital stock of the Borrower, have requested that the Commitment
Amount (as defined in the Original Credit Agreement) be increased from
$55,000,000 to $80,000,000 and that certain other changes be made in the
Original Credit Agreement and in the Credit Documents, as heretofore amended.
D. The Lender is willing to consent to the requested increase in the
Commitment Amount and to the other requested changes in the Original Credit
Agreement and in the other Credit Documents, on the condition, among others,
that the Guarantors execute and deliver this Limited Guaranty Agreement (this
"Agreement").
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals, and to induce
the Lender to enter into with the Borrower an Amended and Restated Credit
Agreement of even date herewith (the "Credit Agreement") and to extend
additional credit to the Borrower under the Credit Documents, the Guarantors
covenant and agree with the Lender as follows:
SECTION I. RULES OF CONSTRUCTION. This Agreement is subject to the
rules of construction set forth in the Credit Agreement.
SECTION II. DEFINITIONS. As used in this Agreement capitalized terms
not otherwise
<PAGE>
defined herein have the meanings defined for them in the preamble to this
Agreement, in the Recitals hereto and in the Credit Agreement, and the term
"Maximum Guaranty Amount" means the maximum amount of the Guarantors' joint and
several liability to the Lender under this Agreement, which shall be an amount
equal to the sum of (1) the lesser of (A) the aggregate amount of the
Obligations outstanding upon the maturity thereof, whether by acceleration or
otherwise, and (B) $10,000,000, plus (2) interest on the amount determined under
clause (1) of this definition at the Default Rate from the date demand for
payment thereof is made by the Lender on the Guarantors or either of them until
payment in full under the terms of this Agreement, plus (3) any and all
enforcement expenses incurred by the Lender in enforcing the obligations of the
Guarantors or either of them under this Agreement as provided in Section 8.
SECTION III. GUARANTY OF OBLIGATIONS. Subject to the Maximum Guaranty
Amount, the Guarantors hereby, jointly and severally, guarantee to the Lender
the due and punctual payment of the Obligations, when and as the same shall
become due and payable (whether by acceleration or otherwise). Notwithstanding
anything to the contrary elsewhere contained in this Agreement, the maximum
aggregate liability of the Guarantors to the Lender under this Agreement shall
not exceed the Maximum Guaranty Amount; however, any payment made by either of
the Guarantors under this Agreement shall be effective to reduce or discharge
such Guarantor's liability hereunder only if accompanied by a written
transmittal document sent to the Lender at its address specified in or pursuant
to Section 13, advising the Lender that such payment is made under this
Agreement for such purpose.
SECTION IV. NATURE OF GUARANTY.
A. Subject to the Maximum Guaranty Amount, the guaranty provided for in
this Agreement is an absolute, unconditional, irrevocable, joint and several and
present guaranty of payment and not of collectibility and is in no way
conditioned upon or limited by: (1) any attempt to collect from the Borrower or
any other Obligor; or (2) the exercise of any other rights, powers or remedies
the Lender may have against any Obligor; or (3) any resort to any other
Property; or (4) whether any of the Obligations are enforceable against the
Borrower (including whether any interest and charges accruing after the filing
of a petition in bankruptcy may be enforceable); or (5) any other action,
occurrence or circumstance whatsoever.
B. If the Borrower shall fail to pay any of the Obligations, when and as
the same shall become due and payable, the Guarantors shall on demand forthwith
pay such Obligations, in lawful money of the United States immediately available
in Birmingham, Alabama, directly to the Lender at its address specified in or
pursuant to Section 13.
SECTION V. CREDIT DOCUMENTS. The Guarantors shall be bound by all the
provisions (including any provisions waiving notice and agreeing to pay costs
and expenses of collection in the event of default and any terms providing for
the ARBITRATION OF DISPUTES and preservation of foreclosure remedies) appearing
on the face of any of the Credit Documents just as though the Guarantors had
signed them. Without limiting the generality of the foregoing, the Guarantors
agree to be bound by Section 8.16 of the Credit Agreement, entitled
"ARBITRATION; DISPUTE RESOLUTION; PRESERVATION OF FORECLOSURE REMEDIES."
<PAGE>
SECTION VI. NATURE OF OBLIGATIONS. Subject to the Maximum Guaranty
Amount, the obligations and liabilities of the Guarantors under this Agreement
are primary obligations of the Guarantors, are joint and several, absolute,
unconditional and irrevocable, shall not be subject to any counterclaim,
recoupment, set-off, reduction or defense based on any claim that the Guarantors
or either of them may have against the Lender (other than the defense of payment
or performance), any Obligor or any of their respective affiliates, and shall
remain in full force and effect until terminated in accordance with Section 16
(subject to reinstatement as provided in Section 17), without regard to, and
without being released, discharged, impaired, modified or in any way affected
by, the occurrence from time to time of any event, circumstance or condition,
including any one or more of the following, whether or not with notice to, or
the consent of, the Guarantors or either of them: (a) the invalidity or
unenforceability, in whole or in part, of any of the Credit Documents; (b) any
failure or refusal to give notice to the Guarantors or either of them of the
occurrence of any event of default under any of the Credit Documents; (c) any
modification, amendment or supplement (whether material or otherwise) of any
obligation, covenant or agreement contained in any of the Credit Documents or of
the terms of payment of any of the Obligations or the interest rate applicable
thereto; (d) any assignment or transfer (whether voluntarily or by operation of
law) of the Loan or of any of the Credit Documents or of any interest therein or
thereunder; (e) any compromise, settlement, release or termination of any of the
obligations or agreements of any Obligor under any of the Credit Documents;
(f) any waiver of the payment, performance or observance of any Obligor's
obligations or agreements under any of the Credit Documents; (g) any consent,
extension, indulgence or other action or inaction (including any lack of
diligence or failure to mitigate damages) with respect to any of the Credit
Documents, or any exercise or non-exercise of any right, power, remedy or
privilege with respect to any of the Credit Documents; (h) any failure or
omission to exercise any right, power, privilege or remedy under any of the
Credit Documents; (i) any extension of time for payment or performance of any of
the Obligations or any other obligations or agreements under any of the Credit
Documents; (j) any furnishing or accepting of additional Property, or any
release, modification, substitution, nonexistence, invalidity or lack of value
of any Property; (k) the death of, voluntary or involuntary liquidation,
reorganization or dissolution of, sale or other disposition of all or
substantially all the assets of, or the marshalling of assets and liabilities,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
merger, consolidation, other reorganization, arrangement, composition or
readjustment of, or other similar proceeding affecting, any Obligor or any of
such Obligor's assets, or any action taken by any trustee, receiver, custodian
or other officer with similar powers (collectively, a "custodian") or by any
court in any such proceeding, or the disaffirmance, rejection or postponement in
any such proceeding of any Obligor's obligations under any of the Credit
Documents; (l) any failure of the Lender, upon the occurrence of any of the
events specified in Section 6(k), to file a claim or proof of claim or otherwise
pursue any of its remedies in any proceeding resulting from such event; (m) any
release or discharge (by act or omission of the Lender, operation of law or
otherwise) of any Obligor from the performance or observance of any obligation,
agreement or condition to be performed by such Obligor under any of the Credit
Documents; (n) any limitation on or exculpation from the liabilities or
obligations of any Obligor under any of the Credit Documents (whether pursuant
to the terms of any of the Credit Documents or otherwise), any termination,
cancellation, invalidity or unenforceability, in whole or in part, of any of the
Credit Documents or any limitation that may now or hereafter exist with respect
to any of the Credit Documents; (o) any failure on the part of any Obligor fully
to perform or to comply with any provision of any
<PAGE>
of the Credit Documents; (p) any claim of the Guarantors against any Obligor;
(q) any understanding or agreement that any other person was or is to execute
this Agreement, any similar agreement or any of the Credit Documents or
otherwise become liable, in whole or in part, for any of the Obligations;
(r) any understanding or agreement that any other person was or is to grant any
Property, in whole or in part, to secure any of the Obligations; (s) any defense
or counterclaim that the Borrower may assert with respect to any of the
Obligations, including failure of consideration, breach of warranty, fraud,
statute of frauds, bankruptcy, infancy, statute of limitations, lender
liability, accord and satisfaction and usury; or (t) any other circumstance,
occurrence or condition, whether similar or dissimilar to any of the foregoing,
that might be raised in avoidance of, or in defense against an action to
enforce, the obligations of the Guarantors or either of them under this
Agreement, other than the defense of discharge by payment in full; PROVIDED,
THAT notwithstanding the foregoing, no material amendment, waiver or
modification that affects the Obligations may be made without the prior written
consent of the Guarantors.
SECTION VII. WAIVERS BY GUARANTORS. Each of the Guarantors, insofar as
such Guarantor's obligations under this Agreement are concerned and to the
extent not otherwise prohibited by applicable law:
A. unconditionally waives: (1) notice of the execution and delivery of
the Credit Documents; (2) notice of the Lender's acceptance of and reliance on
this Agreement or of the extension by the Lender to or for the account of the
Borrower of any loans, forbearances, advances, disbursements or other extensions
of credit included in the Obligations (including the Loan), or the payment by
any Obligor of any sums with respect to any of the Obligations; (3) notice of
any of the matters referred to in Section 6; (4) all notices required by
statute, rule of law or otherwise to preserve any rights against the Guarantors
or either of them hereunder, including any demand, proof or notice of
non-payment of any Obligation by any Obligor and notice of any failure on the
part of any Obligor to perform or comply with any provision of any of the Credit
Documents; (5) any right to the enforcement, assertion or exercise of any right,
power or remedy under or with respect to any of the Credit Documents; and (6)
any requirement that any Obligor be joined as a party to any proceeding for the
enforcement of any provision of the Credit Documents, any requirement of
diligence on the part of the Lender and any requirement on the part of the
Lender to mitigate any damages resulting from any non-payment of any Obligation
or any default or event of default under any of the Credit Documents; and
B. agrees that such Guarantor will not assert or attempt to enforce any
right that such Guarantor may now or hereafter have, whether at law, in equity
or otherwise (including any right of indemnity, contribution, reimbursement,
marshalling or subrogation), to recover from the Borrower, or from any other
person that may now or hereafter have such a right to recover from the Borrower,
any amounts paid by the Guarantors, or either of them, to satisfy, in whole or
in part, the Obligations, and such Guarantor hereby waives and relinquishes any
such right until the Obligations have been paid in full. This Section 7(b) is
for the benefit of the Borrower as well as the Lender and may be enforced by the
Borrower. Subject to the prior, final and indefeasible payment in full of all
Obligations and to the extent of payments received by the Lender from the
Guarantors on account of the Obligations, the Guarantors shall be subrogated to
the rights of the Lender to receive payments or distributions of cash, property
or securities of the
<PAGE>
Borrower applicable to the Obligations.
SECTION VIII. ENFORCEMENT EXPENSES. The Guarantors shall, jointly and
severally, indemnify and hold harmless the Lender against any loss, liability or
expense, including reasonable attorneys' fees and disbursements and any other
fees and disbursements, that may result from any failure of the Guarantors or
either of them to pay any Obligation when and as due and payable hereunder or
that may be incurred by or on behalf of the Lender in enforcing any obligation
of the Guarantors or either of them hereunder.
SECTION IX. DELAY AND WAIVER BY LENDER. No delay in the exercise of, or
failure to exercise, any right, power or remedy accruing upon any default or
failure of the Guarantors or either of them in the performance of any obligation
under this Agreement shall impair any such right, power or remedy or shall be
construed to be a waiver thereof, but rather any such right, power or remedy may
be exercised from time to time and as often as the Lender deems expedient. In
order to entitle the Lender to exercise any right, power or remedy reserved to
it in this Agreement, it shall not be necessary to give any notice to the
Guarantors or either of them. If the Guarantors or either of them defaults in
the performance of any obligation hereunder, and such default is thereafter
waived by the Lender, such waiver shall be limited to the particular default so
waived. No waiver, amendment, release or modification of this Agreement shall
be established by conduct, custom or course of dealing, but solely by an
instrument in writing executed by a duly authorized officer of the Lender.
SECTION X. SUBMISSION TO JURISDICTION. Each of the Guarantors
irrevocably (a) acknowledges that this Agreement will be accepted by the Lender
and performed by the Guarantors in the State of Alabama; (b) submits to the
jurisdiction of each state or federal court sitting in Jefferson County, Alabama
(collectively, the "Courts") over any suit, action or proceeding arising out of
or relating to this Agreement (to enforce the arbitration provisions hereof or,
if the arbitration provisions are found to be unenforceable, to determine any
issues arising out of or relating to this Agreement) or any of the other Credit
Documents to which the Guarantors or either of them is now or hereafter a party
(individually, an "Agreement Action"); (c) waives, to the fullest extent
permitted by law, any objection or defense that said Guarantor may now or
hereafter have based on improper venue, lack of personal jurisdiction,
inconvenience of forum or any similar matter in any Agreement Action brought in
any of the Courts; (d) agrees that final judgment in any Agreement Action
brought in any of the Courts shall be conclusive and binding upon said Guarantor
and may be enforced in any other court to the jurisdiction of which said
Guarantor is subject, by a suit upon such judgment; (e) consents to the service
of process on said Guarantor in any Agreement Action by the mailing of a copy
thereof by registered or certified mail, postage prepaid, to said Guarantor at
said Guarantor's address designated in or pursuant to Section 13; (f) agrees
that service in accordance with Section 10(e) shall in every respect be
effective and binding on said Guarantor to the same extent as though served on
said Guarantor in person by a person duly authorized to serve such process; and
(g) AGREES THAT THE PROVISIONS OF THIS SECTION, EVEN IF FOUND NOT TO BE STRICTLY
ENFORCEABLE BY ANY COURT, SHALL CONSTITUTE "FAIR WARNING" TO SAID GUARANTOR THAT
THE EXECUTION OF THIS AGREEMENT MAY SUBJECT SAID GUARANTOR TO THE JURISDICTION
OF EACH STATE OR FEDERAL COURT SITTING IN JEFFERSON COUNTY, ALABAMA
<PAGE>
WITH RESPECT TO ANY AGREEMENT ACTIONS, AND THAT IT IS FORESEEABLE BY SAID
GUARANTOR THAT SAID GUARANTOR MAY BE SUBJECTED TO THE JURISDICTION OF SUCH
COURTS AND MAY BE SUED IN THE STATE OF ALABAMA IN ANY AGREEMENT ACTIONS.
Nothing in this Section 10 shall limit or restrict the Lender's right to serve
process or bring Agreement Actions in manners and in courts otherwise than as
herein provided.
SECTION XI. SET-OFF. In addition to all liens upon, and rights of
set-off against, any moneys, securities or other property of the Guarantors or
either of them given to the Lender by law, the Lender shall have a lien upon and
a right of set-off against all moneys, securities and other property of the
Guarantors or either of them now or hereafter in the possession of, or on
deposit with, the Lender, whether held in a general or special account or
deposit, for safekeeping or otherwise; and every such lien and right of set-off
may be exercised without demand upon or notice to the Guarantors or either of
them.
SECTION XII. TOLLING OF STATUTE OF LIMITATIONS. Any act or circumstance
that shall toll any statute of limitations applicable to the Obligations shall
also toll the statute of limitations applicable to the liability of the
Guarantors for the Obligations under this Agreement.
SECTION XIII. NOTICES.
A. Any request, demand, authorization, direction, notice, consent, waiver
or other document provided or permitted by this Agreement to be made upon, given
or furnished to, or filed with, the Guarantors or either of them or the Lender
must (except as otherwise expressly provided in this Agreement) be in writing
and be delivered by one of the following methods: (1) by personal delivery at
the hand-delivery address specified below, (2) by first-class, registered or
certified mail, postage prepaid, addressed as specified below, or (3) sent by
facsimile transmission to the number specified below.
B. the hand-delivery address, mailing address and facsimile transmission
number for receipt of notice or other documents by the parties hereto are as
follows:
(i) John W. Kluge:
-------------
By hand or mail: c/o Metromedia Company
215 East 67th Street
New York, New York 10021
By facsimile:
With a copy to: Metromedia Company
One Meadowlands Plaza
East Rutherford, New Jersey 07076
Attention: General Counsel
By facsimile: (201) 531-2803
<PAGE>
(ii) STUART SUBOTNICK:
----------------
By hand or mail: c/o Metromedia Company
215 East 67th Street
New York, New York 10021
By facsimile: (212) 606-4337
With a copy to: Metromedia Company
One Meadowlands Plaza
East Rutherford, New Jersey 07076
Attention: General Counsel
By facsimile: (201) 531-2803
(iii) LENDER:
------
By hand: AmSouth Bank
7th Floor, AmSouth-Sonat Tower
1900 5th Avenue North
Birmingham, Alabama 35203
Attention: S. John Lakanen
By mail: AmSouth Bank
P.O. Box 11007
Birmingham, Alabama 35288
Attention: S. John Lakanen
By facsimile: (205) 801-0157
Attention: S. John Lakanen
With a copy to: J. Kris Lowry
Maynard, Cooper & Gale, P.C.
1901 Sixth Avenue North
2400 AmSouth/Harbert Plaza
Birmingham, Alabama 35203-2602
By facsimile: (205) 254-1999
Any of the parties hereto may change its or his address or number for receiving
any notice or other document by giving notice of the change to the other parties
named in this Section 13.
<PAGE>
C. Any such notice or other document shall be deemed delivered when
actually received by the party to whom directed (in the case of the Lender, by
an executive officer thereof) at the address or number specified pursuant to
this Section 13, or, if sent by mail, three Business Days after such notice or
document is deposited in the United States mail, addressed as provided above.
D. Five Business Days' written notice to either Guarantor as provided
above shall constitute reasonable notification to such Guarantor when
notification is required by law; provided, however, that nothing contained in
the foregoing shall be construed as requiring five Business Days' notice if,
under applicable law and the circumstances then existing, a shorter period of
time would constitute reasonable notice.
SECTION XIV. SURVIVAL OF AGREEMENTS, ETC. All agreements,
representations and warranties of the Guarantors and each of them hereunder
shall survive the execution and delivery of this Agreement and the Credit
Documents, any investigation at any time made by or on behalf of the Lender, the
acceptance of the Credit Documents by the Lender and any disposition and payment
of the Credit Documents.
SECTION XV. HEIRS, SUCCESSORS AND ASSIGNS. All covenants and agreements
of each of the Guarantors set forth in this Agreement shall bind such Guarantor
and his heirs and assigns and shall inure to the benefit of, and be enforceable
by, the Lender and its successors and assigns, including any holder of any of
the Credit Documents.
SECTION XVI. TERMINATION. This Agreement shall remain in full force and
effect until the earlier to occur of the following events (a) all the
Obligations shall have been paid in full and the Lender shall have no obligation
to extend any further Credit to or for the account of the Borrower under the
Credit Documents or (b) the Guarantors shall have paid the Maximum Guaranty
Amount in full; subject, however, to the provisions of Section 17. Upon
termination of this Agreement, the Lender shall return the original of this
Agreement marked "Cancelled."
SECTION XVII. REINSTATEMENT OF OBLIGATIONS. This Agreement and the
obligations of the Guarantors and of each of them hereunder shall continue to be
effective, or be automatically reinstated, as the case may be, if at any time
payment of any of the Obligations by any Obligor is rescinded or must otherwise
be restored or returned to such Obligor (or paid to the creditors of such
Obligor or to any custodian for such Obligor or any of the property thereof)
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
such Obligor, or upon or as a result of the appointment of a custodian with
respect to such Obligor or with respect to any part of the property thereof, or
otherwise, all as though such payment had not been made.
SECTION XVIII. MISCELLANEOUS. Neither this Agreement nor any provision
hereof may be terminated, amended, supplemented, waived, released or modified
orally, but only by an instrument in writing signed by the party (in the case of
the Lender, by a duly authorized officer thereof) against which the enforcement
of the termination, amendment, supplement, waiver, release or modification is
sought. This Agreement shall in all respects be governed by, and construed and
enforced in accordance with, Title 9 of the U.S. Code and the laws of the State
of Alabama (without regard to conflict of law principles). If any provision of
this Agreement or
<PAGE>
any obligation hereunder shall be held to be invalid, illegal or unenforceable,
the remainder of this Agreement and any other application of such provision
shall not be affected thereby. The section headings of this Agreement are for
convenience only, and shall not modify, define, limit or expand the express
provisions hereof. This Agreement may be executed in several counterparts, each
of which shall be deemed an original but all of which together shall constitute
one instrument, and it shall not be necessary in making proof hereof to produce
or account for more than one such counterpart. This Agreement is executed under
the seal of each of the Guarantors. NO SUCH WRITTEN AMENDMENT, MODIFICATION OR
SUPPLEMENT THAT WOULD (A) INCREASE THE PRINCIPAL AMOUNT OF OR RATE OF INTEREST
ON THE OBLIGATIONS, (B) INCREASE THE AMOUNT OR RATE OF ANY FEE PAYABLE UNDER
SECTION 2.6(b) OR (c) OF THE CREDIT AGREEMENT, (C) EXCEPT AS MAY BE OTHERWISE
SPECIFICALLY PROVIDED IN THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT, RELEASE
ALL OR SUBSTANTIALLY ALL OF THE PROPERTY, OR (D) WAIVE AN EVENT OF DEFAULT UNDER
ANY CREDIT DOCUMENT, SHALL BE EFFECTIVE BETWEEN THE PARTIES THERETO UNLESS
CONSENTED TO IN WRITING BY THE GUARANTORS.
SECTION XIX. REPRESENTATIONS AND WARRANTIES. The Guarantors hereby
represent and warrant to the Lender, to induce the Lender to accept this
Agreement, as follows:
A. NO LEGAL BAR. The execution, delivery and performance of this
Agreement will not violate any Governmental Requirement or any indenture,
agreement or other instrument to which the Guarantors, or either of them, is a
party and will not result in, or require, the creation or imposition of any Lien
on any of their respective properties or revenues pursuant to any such
Governmental Requirement or indenture, agreement or instrument.
B. NO MATERIAL LITIGATION. No litigation, investigation or proceeding of
or before any arbitrator or Governmental Authority is pending or, to the
knowledge of the Guarantors, threatened by or against the Guarantors, or either
of them, or against any of their respective properties or revenues with respect
to this Agreement.
C. NET WORTH. The Guarantors have a combined net worth in excess of
$1,000,000,000.
D. LIABILITIES. The combined Total Liabilities of the Guarantors are not
in excess of $200,000,000. As used herein the term "Total Liabilities" shall
mean the total liabilities of the Guarantors, including all character of debt
and obligation, present, current, future, fixed, absolute, contingent or likely.
E. ASSETS. The Guarantors have combined and unencumbered cash and cash
equivalents (as determined in accordance with generally accepted accounting
principles) of at least $400,000,000 (the "Liquid Assets"). At least
seventy-five percent (75%) of the Liquid Assets are direct obligations of, or
obligations the full and timely payment of which is fully and unconditionally
guaranteed by, the United States of America.
<PAGE>
F. INVESTIGATION. The Guarantors are fully aware of the financial
condition of the Borrower and are executing and delivering this Agreement based
solely upon the Guarantors' own independent investigation of all matters
pertinent thereto, and the Guarantors are not relying in any manner upon any
representation or statement of the Lender.
The representations and warranties in subsections (a) through (e) above are
continuing representations and warranties of the Guarantors, and the Guarantors
covenant to provide the Lender with immediate written notice if any such
representation or warranty is no longer true.
SECTION XX. COVENANTS OF GUARANTORS. The Guarantors agree that until
payment in full of all of the Obligations and the termination of this Agreement
in accordance with Section 16 hereof, each of the Guarantors will furnish to the
Lender, as soon as practical, from time to time, such information regarding the
financial condition of such Guarantor as the Lender may reasonably request.
SECTION XXI. BRIDGE LOAN REPAID. By acceptance of this Agreement the
Lender acknowledges that the Bridge Loan (as defined in the Original Credit
Agreement) has been paid in full and that the Bridge Guaranty (as defined in the
Original Credit Agreement) has been terminated, subject to the provisions of
Section 17 of the Bridge Guaranty.
[SIGNATURES APPEAR ON THE FOLLOWING PAGES]
<PAGE>
IN WITNESS WHEREOF, each of the Guarantors has executed this Agreement on
the date of the acknowledgment of said Guarantor's signature set forth below,
although this Agreement is dated as of November 12, 1997, for purposes of
convenient reference.
________________________________
JOHN W. KLUGE, individually
STATE OF ________ )
)
________ COUNTY )
I, the undersigned authority, a Notary Public in and for said County in
said State, hereby certify that JOHN W. KLUGE, whose name is signed to the
foregoing instrument, and who is known to me, acknowledged before me on this day
that, being informed of the contents of said instrument, he has executed the
same voluntarily on the date of this acknowledgment.
Given under my hand and official seal, this the _____ day of November,
1997.
________________________________
Notary Public
[AFFIX SEAL]
My commission expires: ________________________
<PAGE>
________________________________
STUART SUBOTNICK, individually
STATE OF ________ )
)
________ COUNTY )
I, the undersigned authority, a Notary Public in and for said County in
said State, hereby certify that STUART SUBOTNICK, whose name is signed to the
foregoing instrument, and who is known to me, acknowledged before me on this day
that, being informed of the contents of said instrument, he has executed the
same voluntarily on the date of this acknowledgment.
Given under my hand and official seal, this the _____ day of November,
1997.
________________________________
Notary Public
[AFFIX SEAL]
My commission expires: ________________________
<PAGE>
Exhibit 10.51
AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS
THIS AGREEMENT, dated as of December 17, 1997, is made by and among
Landmark Theatre Corporation, a California corporation ("LTC") , Seven Gables
Corporation, a California corporation ("Gables"), Parallax Theatre Systems,
Inc., a California corporation ("Parallax"), San Francisco Landmark Theatre
Corporation, a California corporation ("SFLTC"), and Wisconsin Repertory
Cinemas, Inc., a California corporation ("Wisconsin") The Landmark Theater
Group, a California corporation ("Group"), (LTC, Group, Gables, Parallax, SFLTC
and Wisconsin are collectively and individually called "Seller"), Metromedia
International Group, Inc., a Delaware corporation ("Metromedia"), and Silver
Cinemas, Inc., a Delaware corporation ("Buyer").
RECITALS
A. Seller is engaged in the ownership and operation of movie exhibition
theaters. Seller's operation of the Theaters (as defined below) is referred to
as the "Business".
B. Seller desires to sell to Buyer, and Buyer desires to purchase,
certain of Seller's assets upon the terms and conditions set forth herein.
AGREEMENTS
ACCORDINGLY, in consideration of the premises and the mutual agreements,
covenants, representations and warranties hereafter set forth, the parties
hereto agree as follows:
Section 1. Purchase of Assets by Buyer.
1.1 Agreement to Sell. At the Closing, upon the terms and subject to the
conditions of this Agreement and in reliance upon the representations and
warranties of Buyer in this Agreement, Seller hereby agrees to sell, grant,
convey, transfer, assign and deliver unto Buyer the following assets (the
"Assets"), free and clear of all liens, encumbrances, mortgages, pledges,
claims, charges, security interests, restrictions and rights of others
("Liens"), with the exception of those liens, encumbrances, mortgages, pledges,
claims, charges, security interests, restrictions and rights of others listed on
Schedule 1.1 attached hereto (the "Permitted Liens"), such sale and transfer to
be evidenced by documents reasonably satisfactory to Buyer in form and
substance:
(a) All owned furniture, fixtures, machinery, equipment, computers
(including both hardware and software) and other assets used in connection
with the operation of the theaters as listed in Schedule 1.1(a) attached
hereto (the "Theaters").
(b) All inventory of Seller related to the Theaters on the Closing
Date;
(c) All inventory in the hands of suppliers for which Seller is
committed with
<PAGE>
respect to the Theaters as of the date hereof or the Closing Date, as
listed on Schedule 1.1(c) attached hereto;
(d) Leaseholds (including without limitation, to the extent leased by
Seller, land, buildings, structures, fixtures, appurtenances and
improvements) relating to the Theaters, including without limitation the
leases relating to real property listed on Schedule 1.1(d) (the "Leases")
and the fee property (including without limitation buildings, structures,
fixtures, appurtenances and improvements) relating to the Theaters listed
on Schedule 1.1(d)(i) (the "Fee Property");
(e) Certain contracts, trade names and equipment leases to which
Seller is a party listed on Schedule 1.1(e) attached hereto;
(f) The current assets of Seller as set forth on the balance sheet
attached hereto as Schedule 1.1(f), including without limitation, any
security deposits transferred to Buyer under the Leases; and
(g) The name "Landmark Theatre Corporation" and the tradename
"Landmark".
1.2 All Assets Relating to the Theaters. The Assets are intended to and
shall constitute all of the business assets of Seller used in connection with
the operation of the Theaters, with the exception of those assets of Seller
listed on Schedule 1.2 attached hereto (the "Excluded Assets").
1.3 Agreement to Purchase. At the Closing, the Buyer hereby agrees to
purchase from the Seller, upon the terms and subject to the terms and conditions
of this Agreement and in reliance upon the representations and warranties of the
Seller in this Agreement, the Assets. As consideration therefor, the Buyer
shall pay to the Seller the Purchase Price for the Assets.
Section 2. Price and Terms.
2.1 Purchase Price. (a) Buyer shall deliver to Seller, as and for the
purchase price of the Assets, consideration of Sixty Two Million Four Hundred
Seventy Two Thousand Dollars ($62,472,000), as adjusted pursuant to Section
2.1.(b) below and elsewhere herein (the "Purchase Price"), payable by a wire
transfer of immediately available funds to an account designated in writing by
Seller at least two days prior to the Closing Date.
(b) As promptly as possible after the Closing Date, Buyer shall
prepare a Closing Date balance sheet mutually agreeable to Buyer and Metromedia
(the "Final Balance Sheet") reflecting the combined Assets and Assumed
Liabilities (and accruing pro rata amounts including employment obligations).
In the event that Metromedia and Buyer are unable to agree upon a Final Balance
Sheet within thirty (30) days following delivery of a balance sheet, Buyer
and Metromedia shall employ a "Big Six" accounting firm, selected mutually by
Metromedia and Buyer, to resolve such dispute. If the Final Balance Sheet
indicates that current assets, excluding
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cash, less current liabilities exceeds the corresponding number set forth in
Schedule 1.1(f), then Buyer shall pay to Metromedia the difference between such
numbers within five (5) working days of receipt of the Final Balance Sheet. If
the Final Balance Sheet indicates that current assets, including without
limitation any security deposits transferred to Buyer under the Leases, less
current liabilities are less than the corresponding number set forth in Schedule
1.1(f), then Metromedia shall pay to Buyer the difference between such numbers
within five (5) working days of receipt of the Final Balance Sheet. The Final
Balance Sheet will not reflect as a liability any liability for wages, overtime,
severance pay, pay in lieu of notice, or vacation time with respect to employees
of Seller not hired by Buyer since Seller will pay all such costs at or prior to
Closing. In order to prepare the Final Balance Sheet, Buyer shall engage
certain employees of Seller listed on Schedule 2.1(b) (the "Transition
Employees") from the Closing Date for a period of up to six weeks from the
Closing Date (or for a longer time period, if deemed necessary by Buyer to
complete the Final Balance Sheet) (the "Transition Period"). Seller and
Metromedia agree that they shall cooperate with Buyer and the Transition
Employees in making all books and records available to Buyer and the Transition
Employees as necessary to prepare the Final Balance Sheet.
2.2 Liabilities Assumed. (a) Except for the Assumed Liabilities
expressly specified in Section 2.2(b), Buyer has not agreed to pay, shall not be
required to assume and shall have no liability or obligation with respect to,
any liability or obligation, direct or indirect, absolute or contingent, known
or unknown, matured or unmatured, of Seller, any subsidiary or affiliate of
Seller or any other person, whether arising out of occurrence prior to, at or
after the date hereof (the "Excluded Liabilities"). Excluded Liabilities shall
include, without limitation, (i) all fees and expenses incurred by Seller or any
of its affiliates or subsidiaries, in connection with this Agreement; (ii) any
liability or obligation to or in respect of any employees or former employees of
Seller related to their employment or accruing prior to the Closing or as a
result of their termination by Seller including without limitation (w) wages,
overtime, severance pay, pay in lieu of notice, accrued vacation time earned or
accrued prior to the Closing or as a result thereof, other than any accrued paid
vacation days and sick pay for any employees of Seller whom Buyer agrees to
employ ("Employee Costs"), (x) any employment agreement, whether or not written,
between Seller and any person, (y) any liability under any Employee Plan
(defined to include any employee benefit plan, "Employee Benefit Plan," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended, "ERISA," and all other benefit arrangements that are not Employee
Benefit Plans, including, but not limited to any employment or consulting
agreement, any arrangement providing insurance benefits, any incentive bonus or
deferred bonus arrangement, any arrangement providing termination allowance,
severance or similar benefits, any equity compensation plan, any deferred
compensation plan, and any compensation policy or practice, "Benefit
Arrangement," (i) which are maintained, contributed to or required to be
contributed to by Seller or any entity that, together with Seller as of the
relevant measuring date under ERISA, is or was required to be treated as a
single employer under Section 414 of the Code, "ERISA Affiliate," or under which
Seller or any ERISA Affiliate may incur any liability, and (ii) which cover the
employees, former employees, directors or former directors of Seller or any
ERISA Affiliate) at any time maintained, contributed to or required to be
contributed to by or with respect to Seller or under which Seller may incur
liability, or any contributions, benefits or liabilities therefor, or any
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<PAGE>
liability with respect to Seller's withdrawal or partial withdrawal from or
termination of any Employee Plan and (z) any claim of an unfair labor practice,
or any claim under any state unemployment compensation or worker's compensation
law or regulation or under any federal or state employment discrimination law or
regulation, which shall have been asserted on or prior to the Closing Date or is
based on acts or omissions which occurred on or prior to the Closing Date; (iii)
any liability or obligation of Parent or Seller in respect of any Tax; or (iv)
any liability arising out of occurrences or omissions prior to the Closing. For
purposes of this Agreement "Tax" means any of the Taxes, and "Taxes" means all
federal, state, local and foreign income, capital gains, gross receipts, sales,
use, ad valorem, franchise, capital, profits, license, withholding, employment,
payroll, transfer, conveyance, documentary, stamp, property, excise, value
added, customs duties, minimum taxes, and any other taxes, levies or assessments
of any kind whatsoever, together with additions to tax or additional amounts,
interest and penalties relating thereto that may be imposed by any federal,
state, local or foreign governments.
(b) The "Assumed Liabilities" are the following, which Buyer will assume
at Closing:
(i) Capital leases listed on Schedule 2.2.1;
(ii) Operating leases related to Theaters and Theater equipment
listed on Schedule 2.2.2;
(iii) All liabilities of the Seller under contracts listed on
Schedule 2.2.3 with respect to events occurring after the
Closing Date;
(iv) All current liabilities set forth on the balance sheet
attached as Schedule 1.1(f);
(v) All accrued paid vacation days and sick pay set forth on the
Schedule delivered pursuant to Section 5.14 hereof for any
employees of Seller who become employees of Buyer;
(vi) That certain promissory note dated December 30, 1996 in the
original principal amount of $330,000 made by Gables in
favor of Chao Tsan Ting and Mei-Hwa Ting, which note is
secured by a deed of trust dated as of the same date;
provided that Gables shall make the payment due under such
note on January 6, 1998 and Buyer shall have no liability or
responsibility for such payment.
(c) Except as otherwise provided herein, to the extent that Buyer hires
any employees of Seller, Buyer will thereafter be responsible for any
termination and severance obligations it may have with respect to such employees
including without limitation (a) any and all claims against Seller asserted by
or on behalf of former employees of Seller who commence employment with Buyer on
the Closing Date to the extent such claims are based upon or arise from terms
and conditions of employment after the Closing Date or the termination of such
post-Closing employment; (b) any and all claims asserted by or on behalf of any
former employee of Seller who does not commence employment with Buyer on the
Closing Date but who is employed by Buyer at any time following the Closing Date
relating to such employee's terms and conditions of employment after the Closing
Date or the termination of such post-Closing
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employment and (c) any and all liability for the obligation to provide notice
under the Worker Adjustment and Retraining Notification Act of 1988 ("WARN")
with respect to any "plant closing" or "mass layoff," as those terms are defined
in WARN, for employment losses occurring on the Closing Date caused by Buyer's
failure to offer employment to any employee of the Seller; and
(d) Buyer and Seller may supplement the list of Assumed Liabilities to
include any liability of Seller incurred at Buyer's direction, so long as such
direction is in writing specifically indicating that it is delivered pursuant to
this Section 2.2(e)
2.3 Documents of Sale and Conveyance. The sale, conveyance, assignment,
transfer and delivery of the Assets shall be effected by delivery by Seller to
Buyer of (i) a duly executed bill of sale in substantially the form of Exhibit
"A" attached hereto (the "Bill of Sale"), (ii) Lease Assignments in recordable
form in substantially the form of Exhibit "B" attached hereto with respect to
Leases already of record (collectively, the "Lease Assignments"), (iii) grant
deeds in recordable form with respect to the Fee Property (collectively, the
"Grant Deeds"), and (iv) such other good and sufficient instruments of
conveyance and transfer listed on Schedule 2.3 attached hereto as shall be
reasonably necessary to vest in Buyer good, valid and indefeasible title to the
Assets (collectively, the "Other Instruments"). In addition, in the event that
Buyer prepares the assignments of trademarks and tradenames in form suitable for
recording in the Patent and Trademark Office with respect to registered
trademarks and tradenames, Seller shall execute such documents.
2.4 Bulk Sales; Sales and Transfer Taxes. Buyer and Seller have agreed
not to comply with the bulk transfer provisions of the bulk sales law of any
state (collectively the "Bulk Transfer Law"). Seller agrees to indemnify Buyer
for any damages, costs, expenses or liabilities asserted against, imposed upon
or resulting from any failure to comply with the Bulk Transfer Law. Buyer shall
have no liability for any federal, state or local tax liabilities of Seller,
including any sales tax or title transfer fee attributable to the sale of Assets
contemplated herein. Any sales, use or similar transfer taxes, and any
transfer, recording or similar fees and charges arising in connection with the
transfer of the Assets from Seller to Buyer shall be borne by the Seller.
2.5 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Assets in accordance with the allocations set forth in Schedule 2.5 to
be agreed upon by Buyer and Seller at Closing. Such allocations shall be
conclusive and binding on both Buyer and Seller for purposes of their federal
and, where applicable, state and local income and transfer tax returns. Buyer
and Seller hereby agree not to take positions on any tax return inconsistent
with such allocation. Buyer and Seller shall prepare and timely file all such
reports and returns as may be required by Section 1060 of the Internal Revenue
Code of 1986, as amended (the "Code") to report such allocation.
2.6 Real Estate Taxes. To the extent payable by tenant, real estate taxes
and assessments relating to the real estate subject to the Leases for the
calendar year of closing shall be prorated between Seller and Buyer as of the
Closing Date. If the amount of such taxes for the year of closing are not yet
available, the proration shall be based upon the amount of such taxes for the
previous year. Upon issuance of the actual tax bills for the year of closing,
the parties agree to recompute the proration based upon the actual tax bills,
and any amount determined to be owing by one party to the other shall be paid by
such party to the other, which obligation
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shall survive the Closing hereunder.
2.7 Proration of Lease Payments, Taxes, Utility Charges, Film Rental and
Other Payments. To the extent not reflected on Schedule 1.1(f), in any case
where the Closing Date shall fall on a date other than the date on which
payments are due with respect to (i) any Leases or (ii) utility or similar
regular periodic charges respecting the Assets for which a final billing has not
been received by Seller, any installment of rental payments and any such utility
or similar charge payable with respect to the current period in which the
Closing Date occurs shall be prorated between Seller and Buyer on the basis of
the actual number of days elapsed from the first day of such period to the
Closing Date. In the event that actual common area maintenance or similar
charges in connection with any Leases for the year of Closing are not available
at the Closing Date, an estimated provisional proration of such charges shall be
made using figures for common area maintenance or similar charges from the
preceding year. When actual figures for such charges become available, a
corrected and definitive proration of such charges shall be promptly made. In
the event that such charges for the year of Closing exceed the amount estimated
in such provisional proration, Seller shall pay Buyer its pro rata share of the
amount by which the actual charges exceeded the estimated charges. Similarly,
in the event that such charges from the year of Closing are less than the amount
estimated in such provisional proration, Buyer shall pay Seller its pro rata
share of the amount by which the estimated charges exceeded the actual charges.
Film rental payments made to the licensors of the films shall be prorated by
Sellers and Buyers as of the Closing Date as soon as the amount of the actual
film rental settlement amounts are paid by the Seller or Buyer, as the case may
be, to the licensors; provided, however, that such settlement shall occur within
60 days after the Closing Date.
2.8 "Phase I" Environmental Surveys. Seller will reimburse Buyer for
fifty percent (50%) of the cost of obtaining a written "Phase I" environmental
survey conducted with respect to the Fee Property. Such Property together with
the property underlying any Lease is individually and collectively referred to
herein as the "Land".
2.9 ADA Survey. Seller has furnished Buyer with complete copies of all
written reports or accessibility surveys in its possession concerning compliance
with the Americans with Disabilities Act of 1990, as amended ("ADA").
2.10 Sales Use and Transfer Tax. Should any sales or use tax be payable in
connection with the sale of assets to be sold by Seller to Buyer pursuant to
this Agreement or should any transfer or similar tax be applicable to any lease
assignment herein contemplated, such sales, use or transfer tax shall be paid by
Seller. The parties shall cooperate in the reporting and settlement of such
taxes.
2.11 Title Policies. At or prior to Closing, Seller shall deliver to Buyer
ALTA owner's title policies covering up to ten (10) Theaters, subject only to
those exceptions acceptable to Buyer (the "Title Policies") and Buyer shall
reimburse Seller fifty percent (50%) of the costs of the Title Policies.
2.12 Closing Date. The consummation of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Latham &
Watkins, New York Office as promptly as possible after all conditions to Closing
have been satisfied (the "Closing Date") or at such other location or date as
the parties may agree. The date on which the Closing actually occurs is
hereinafter referred to as the "Closing Date".
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<PAGE>
(a) Deliveries by Seller. At the Closing, Seller shall deliver to
Buyer (unless delivered previously), the following (the "Closing
Documents"):
1. the Bill of Sale;
2. the Lease Assignments;
3. the Grant Deeds;
4. the Other Instruments;
5. the officers' certificates referred to in Sections 6.1, 6.2
and 6.3 hereof;
6. the opinion of counsel referred to in Section 6.4 hereof;
7. any consents referred to in Section 5.3 hereof;
8. all warranty records, sales literature, licensing records,
service and parts records, and including all other existing records
relating to Seller's business at the Theaters;
9. the documents referred to in Section 6.8 hereof;
10. the documents referred to in Section 6.10 hereof;
11. the Title Policies; and
12. all other previously undelivered documents, instruments and
writings required to be delivered by Seller to Buyer at or prior to
the Closing pursuant to this Agreement.
(b) Deliveries by Buyer. At the Closing, Buyer shall deliver to
Seller the following:
1. the wire transfer of an amount equal to the Purchase Price;
2. the officer's certificates referred to in Sections 7.1, 7.2
and 7.3 hereof; and
3. all other previously undelivered documents, instruments and
writings required to be delivered by Buyer to Seller at or prior to
the Closing.
Section 3. Representations and Warranties by Seller.
Seller represents and warrants the following:
3.1 Organization and Good Standing. Seller is a corporation duly
organized, validly
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existing and in good standing under the laws of the State of California, and has
all requisite corporate power to carry on its business as now conducted by it
and to own and operate its assets as now owned and operated by it. Seller has
no subsidiaries or equity interests in other entities except as set forth on
Schedule 3.1. Seller is qualified to do business and is in good standing in
each jurisdiction where such qualification is necessary, except for such
failures to be so qualified as would not, in the aggregate, have a material
adverse effect on Seller's business or financial condition, the Business, any
Theater or on Seller's ability to consummate the transactions contemplated by
this Agreement ( each a "Seller Material Adverse Effect"). Seller has delivered
to Buyer true and complete copies of the Seller's Articles of Incorporation and
all amendments thereto, certified by the Secretary of State of California, and
the bylaws of Seller as presently in effect, certified as true and correct by
Seller's Secretary. Each Seller is a wholly-owned subsidiary of Landmark
Theatre Group, a California corporation ("Landmark").
3.2 Authority. Seller has all requisite corporate power and authority to
execute and deliver this Agreement and any instruments and agreements
contemplated herein required to be executed and delivered by it pursuant to this
Agreement, including, without limitation, the Bill of Sale, the Grant Deeds, the
Lease Assignments and the Other Instruments (collectively, the "Related
Instruments") and to consummate the transactions contemplated hereby and
thereby. This Agreement has been duly authorized, executed and delivered by
Seller, and no other corporate act or proceeding on the part of the Seller is
necessary to authorize the execution and delivery of this Agreement or the
Related Instruments or to consummate the transactions contemplated hereby or
thereby. This Agreement is, and each of the Related Instruments, when executed
and delivered by Seller at the Closing, will be, a legally valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms,
subject to the effects of bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting the rights of creditors and to
general principles of equity, whether considered in a proceeding in equity or at
law.
3.3 No Violation. Subject to receipt of the consents and approvals listed
on Schedule 3.20 and described in Sections 6.7, 6.8 and 5.3 and except as set
forth in Schedule 3.3, neither the execution and delivery by Seller of this
Agreement nor any of the Related Instruments, nor the consummation by Seller of
the transactions contemplated hereby or thereby, will violate any provision of
Seller's (i) Articles of Incorporation or Bylaws, (ii)(a) violate, conflict with
or constitute a default (or an event or condition which, with notice or lapse of
time or both, would constitute a default) under, or (b) result in the
termination of, or accelerate the performance required by, or cause the
acceleration of the maturity of, any liability or obligation pursuant to, under
any note, bond, mortgage, indenture, deed of trust, license, lease, contract,
commitment, understanding, arrangement, agreement or restriction to which Seller
is a party or to which any of the Assets may be subject, (iii) violate any
statute or law or any judgment, decree, order, writ, injunction, regulation or
rule of any court or governmental authority applicable to Seller, or (iv) result
in the creation or imposition of any Lien upon any of the Assets except, in the
case of clauses (ii) and (iii), for violations, conflicts, defaults,
terminations and accelerations which would not, in the aggregate, have a Seller
Material Adverse Effect.
3.4 No Brokerage Commission. Seller has not employed any broker, agent or
finder in connection with any transaction contemplated by this Agreement and
hereby indemnifies Buyer against any liability for a brokerage commission or
finders fee or any description incurred by Seller with respect to any
transaction contemplated by this Agreement.
3.5 No Undisclosed Liabilities. There are no liabilities or obligations
of Seller
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relating to the Theaters or any of the Assets, whether accrued, absolute,
contingent or otherwise, except those specifically described in the exhibits and
schedules attached hereto and those incurred in the ordinary course of business
consistent with past practices since the Balance Sheet Date. Since January 1,
1997, there has been no event or occurrence which has had or could reasonably be
expected to have a Seller Material Adverse Effect.
3.6 Title to Property; Encumbrances. Seller has good and marketable title
to all the Assets. All Assets are free and clear of all Liens except Permitted
Liens. The Assets are in operating condition and repair, subject to ordinary
wear and tear, and are fit and usable for the purposes for which they are being
put. Except as set forth on Schedule 3.6, there are no material repairs or
maintenance required in connection with any Theater.
3.7 Contracts. Attached hereto as Schedule 3.7 is a listing of the
following contracts, understandings, commitments and agreement to which Seller
is a party or is bound related to the Business or the Theaters (the
"Contracts"), copies of which have been provided through due diligence:
(a) All oral or written contracts, understandings or commitments
which are listed on Schedule 1.1(e), whether in the ordinary course of
business or not, involving a present or future obligation of any party in
an amount or value in excess of Fifteen Thousand Dollars ($15,000.00) each;
(b) All Employee Benefit Plans and Benefit Arrangements;
(c) All collective bargaining agreements or other contracts or
commitments (whether written or oral) to or with any labor union, employee
representative or group of employees; and
(d) All employment contracts, and all other contracts, agreements or
commitments (whether written or oral) to or with individual employees for a
period in excess of thirty (30) days or for a renumeration which exceeds or
will exceed in accordance with present commitments, $20,000.00 per annum,
identifying the individual and his or her position.
There has not been any default in any obligation to be performed by Seller under
any Contract which default has had or could reasonably be expected to have a
Seller Material Adverse Effect, and Seller has not waived any right under any
such contract, commitment or agreement, so as to have a Seller Material Adverse
Effect. Copies of all such written contracts and written summaries of all such
oral contracts will be furnished or made available to Buyer within at least
fifteen (15) days of the date hereof.
3.8 Assets Necessary to Business. The Assets constitute all of the
assets, properties, licenses, real and personal property leases, permits,
consents and other agreements which are presently being used or are reasonably
related to the business and operations of the Business as presently conducted,
except for the Excluded Assets.
3.9 Litigation. Except as set forth on Schedule 3.9 and Schedule 3.16,
there is no pending or, to Seller's knowledge, threatened litigation,
arbitration, proceeding or governmental investigation or inquiry, nor, to
Seller's knowledge, is there any basis therefor, affecting the
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Theaters, the Assets or the transactions contemplated hereby in any court or
before any arbitration panel of any kind or before any governmental body.
Except as set forth in Schedule 3.9, there is no outstanding order, judgment or
award of which Seller has received notice by any court, arbitrator or
governmental body against or affecting the Theaters, the Business or the Assets.
3.10 Insurance. Seller now has and has had in full force and effect since
the opening of the Theaters fire, liability, workers' compensation, personal
injury, property damage to third parties and other insurance covering operations
at the Theaters as set forth in Schedule 3.10 attached hereto, in amounts and
against such losses and risks as are therein set out, and valid policies for
such insurance as is shown to be in effect on the date of this Agreement will be
outstanding and duly in force on the Closing Date. Such policies are sufficient
for compliance in all material respects with all requirements of law and all
agreements with respect to the operation of Seller's business at the Theaters;
are valid, outstanding and enforceable policies; provide adequate insurance
coverage for the Assets and the operations of Seller's business at the Theaters;
and the coverage provided thereby, with respect to any act or event occurring on
or prior to the Closing Date, will not in any way be affected by or terminate or
lapse by reason of the transactions contemplated by this Agreement. True and
complete copies of all policies of insurance now in effect have been furnished
to or made available to Buyer except for umbrella policies of Metromedia.
3.11 Inventory. The inventory of Seller on the Closing Date will consist
of items substantially all of which were and will be of the usual quality and
quantity used in the ordinary course of business at the Theaters and reasonably
expected to be usable or saleable within a reasonable period of time in the
ordinary course of business, except items of inventory which have been written
down to realizable market value or written off completely, and damaged, broken
or spoiled items in an amount which does not materially affect the value of the
inventory as a whole. With respect to inventory in the hands of suppliers for
which Seller is committed as of the date hereof or the Closing Date, such
inventory is described in Schedule 1.1(c) and is reasonably expected to be
usable in the ordinary course of business as presently being conducted.
3.12 Improvements, Furniture, Fixtures, Machinery and Equipment. Set forth
on Schedule 1.1(a) are lists as of the date hereof and as of the Closing Date of
each item of improvements (excluding the Theater building itself), machinery,
furniture, fixtures and equipment owned by Seller or the applicable landlord
located at the Theaters.
3.13 Equipment Leased by Seller. Schedule 1.1(e) attached hereto contains
a complete and accurate list of all equipment leases to which Seller is a
lessee, including a description of the equipment, the name and address of each
lessor, the expiration date of each lease, the monthly rent and any additional
rent payable under such lease and whether the consent of the lessor is required
for the consummation of the transaction contemplated. Unless otherwise
indicated on Schedule 1.1(e), each such lease may be cancelled on not more than
ninety (90) days notice. Copies of all such leases have been furnished to or
made available to Buyer. Seller is not in default under any such lease, and
there is not, under any such lease, any event of default or event which, with
notice and/or lapse of time, would constitute a default by Seller or, to its
knowledge, any party to such lease, in each case which could have a Seller
Material Adverse Effect.
3.14 Real Property.
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(a) Schedule 1.1(d) includes a complete and accurate list of all real
property leases related to the Theaters, including the address of each property,
together with the name and address of each landlord, the expiration date of each
lease, the monthly rent, common area maintenance costs, real estate tax charges
and any other amounts due under the Leases (as adjusted from time to time
pursuant to the terms of the Leases) and whether the consent of any other party
is required to consummate the transactions contemplated hereby. True and
correct copies of such leases and any amendments thereto have been made
available to Buyer. The Leases are valid and binding obligations of the parties
thereto and are in full force and effect. Seller has not received written
notice nor to its knowledge is Seller or any other party in default under any
such Lease, and there is not, under any such Lease, any event of default or
event which, with notice and/or lapse of time, would constitute a default by
Seller or, to its knowledge, any other party to such Lease, except as set forth
on Schedule 3.14. Seller has no knowledge of any pending or threatened action
or proceeding which could result in a modification or termination of the zoning
applicable to the real property subject to the Leases. Seller has not received
written notice that any of the real property is subject to any governmental
decree or order to be sold or is being condemned, expropriated or otherwise
taken by any public authority with or without compensation therefor, nor to
Seller's knowledge has any such condemnation, expiration or taking been
proposed.
(b) Schedule 1.1(d)(i) includes a complete and accurate list of all
real property related to the Theaters owned in fee by Seller, including the
address of each property. Seller has no knowledge of any pending or threatened
action or proceeding which could result in a modification or termination of the
zoning applicable to the Fee Property. Seller transfers the Fee Property to
Buyer free and clear of any restrictions which would materially affect the use
for which they are held by Seller. Seller has not received written notice that
any of the Fee Property is subject to any governmental decree or order to be
sold or is being condemned, expropriated or otherwise taken by any public
authority with or without compensation therefor, nor to Seller's knowledge has
any such condemnation, expiration or taking been proposed.
3.15 Employees. Schedule 3.15 contains a list of all employees of Seller
at the Theaters, together with their job titles, amount of compensation, fringe
benefits and date of employment.
3.16 Compliance with Laws; Environmental Matters.
(a) For the purposes of this Agreement, the term "Environmental Laws"
shall mean all applicable federal, state and local environmental protection, or
other similar laws, ordinances, licenses, rules, regulations and permit
conditions, including but not limited to the Federal Water Pollution Control
Act, Resource Conservation & Recovery Act, Safe Drinking Water Act, Toxic
Substances Control Act, Clean Air Act, Comprehensive Environmental Response,
Compensation and Liability Act, Emergency Planning and Community Right to Know
or other applicable U.S. or Canadian federal, state, province, or local laws of
similar effect, each as amended as of the Closing Date, and the term "Hazardous
Materials" shall mean any hazardous or toxic substances, wastes or materials,
including without limitation petroleum or petroleum products, defined as such or
governed by any applicable Environmental Law.
(b) Except as set forth on Schedule 3.16, (i) Seller is in, and to
Seller's knowledge, the Theaters have been maintained in, material compliance
with the terms and conditions of all Environmental Laws and all other laws,
ordinances, rules and regulations and
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has obtained all material permits required to be obtained pursuant to all
Environmental Laws; (ii) no asbestos in a friable condition or equipment
containing polychlorinated biphenyls or leaking underground or above-ground
storage tanks is contained in or located at any Theater as of the Closing Date;
(iii) Seller has fully disclosed all known material past and present
non-compliance with Environmental Laws, and all known past discharges,
emissions, leaking or releases of Hazardous Substances known to Seller; and (iv)
Seller has not received written notice of any past or present events,
conditions, circumstances, activities, practices, incidents, actions or plans
that are alleged to form the basis of any claim, action, suit, proceeding,
hearing or investigation under any Environmental Laws; provided, however, that
clauses (i) through (iv) only address those matters that would have a Seller
Material Adverse Effect.
3.17 Taxes.
(a) All (i) material tax returns required to be filed by or on behalf
of Seller have been filed with respect to all taxes of any kind, (ii) taxes
shown to have been due pursuant to such returns have been paid and (iii) all
other taxes for which a notice of assessment or demand for payment has been
received have been paid.
(b) All tax returns filed by or on behalf of Seller have been
prepared in accordance with all applicable laws and requirements, are correct
and complete and accurately reflect the taxable income (or other measure of tax)
of the entity filing the return in all material respects.
(c) Except as set forth on Schedule 3.17, there are no tax Liens upon
any of the Assets, except Liens with respect to real and personal property taxes
not yet delinquent, and Seller is not aware of any audit or other proceeding or
investigation, or of any position taken on a tax return of Seller which could
give rise to a Lien upon any Assets.
(d) There are no agreements, waivers or other arrangements providing
for an extension of time with respect to the assessment of any tax or deficiency
against Seller, nor are there any actions, suits, proceedings, investigations or
claims now pending against Seller regarding any tax or assessment or any matter
under audit by or discussion with any federal, state, local or foreign authority
relating to any taxes or assessments, or any claims for additional taxes or
assessments asserted by any such authority.
3.18 Employee Benefit Plans - ERISA. Except as set forth on Schedule 3.18:
(a) With respect to any Employee Benefit Plan that is subject to
regulation under Title IV of ERISA ( other than a multiemployer plan, as defined
in ERISA Section 3(37), "Multiemployer Plan"), no Pension Plan has been
terminated so as to subject, directly or indirectly, any assets of Seller or its
ERISA Affiliates to any liability, contingent or otherwise, or the imposition of
any liens under Title IV of ERISA.
(b) With respect to any Multiemployer Plan maintained, contributed to
or with respect to which Seller or any ERISA Affiliate has or had an obligation
to contribute:
(A) Neither Seller nor any ERISA Affiliate has withdrawn from a
Multiemployer Plan in a "complete withdrawal" or a "partial withdrawal" as
defined in Sections 4203 and 4205 of ERISA, respectively, so as to result
in a liability to Seller or
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any ERISA Affiliate which has not been fully paid.
(B) To Seller's knowledge, with respect to each Multiemployer
Plan: no such plan has been terminated or has been in reorganization
under ERISA so as to result in any material liability to Seller or any
ERISA Affiliate under Title IV of ERISA and no proceeding has been
initiated by any person (including the PBGC) to terminate any such plan.
(c) Neither Seller nor any ERISA Affiliate has any liability for
unpaid contributions under Section 515 of ERISA with respect to any Pension Plan
or Multiemployer Plan.
(d) With respect to all group health plans, within the meaning of
Section 5000(b)(1) of the Code, maintained by Seller and its ERISA Affiliates
for the benefit of the employees, former employees and beneficiaries of such
employees and former employees, Seller and its ERISA Affiliates have complied in
all material respects with the provisions of Section 4980B of the Code and Part
6 of Title I of ERISA.
3.19 Books and Records and Financial Statements. Seller maintains its
books, records and accounts, including without limitation, those kept for
financial reporting purposes and tax purposes, with respect to the Theaters in
sufficient detail to reflect accurately and fairly the transactions and
dispositions of its assets and liabilities at the Theaters. All financial
statements delivered to Buyer present fairly the financial condition of the
Seller and the results of their operation at the Theaters. Such financial
statements have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved.
3.20 Consents. Except as set forth on Schedule 3.20, other than the
consent of the lessors under the Leases or any personal property lease and other
than filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), no consent, approval, license, permit or authorization
or order of or with any court, governmental body or other person or entity is
required in connection with the execution and delivery of this Agreement by
Seller or the consummation of the transaction contemplated herein.
3.21 Full Disclosure. No representation or warranty of Seller made in this
Agreement (including the schedules, exhibits and other documents delivered
pursuant to this Agreement), or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact which
affects the Assets of Seller, or Seller's title to the Assets or omits or will
omit to state a material fact necessary to make the statements or facts
contained herein or therein not misleading in light of the circumstances when
made. Each of the schedules attached hereto is a true, complete and accurate
list or description, as appropriate, of the items purported to be listed or
described thereon.
3.22 Financial Statements. Seller has delivered to Buyer the
consolidated balance sheet, statement of income and statements of cash flows of
Landmark, at and for the fiscal years ended March 31, 1995 and 1996, the nine
months ended December 31, 1996 and the nine months ended September 30, 1997 (the
"Unaudited Financials"). Such Unaudited Financials are in accordance with the
books and records of Landmark and Seller, fairly present the consolidated
financial position, results of operations and cash flows of Landmark in
accordance with generally accepted accounting principles ("GAAP") on a
consistent basis, except for the absence of
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footnotes and subject to year-end adjustments not material in effect and
consistent with prior years' adjustments.
3.23 Intellectual Property. Schedule 3.23 sets forth a list of all
registered and unregistered trademarks, copyrights, tradenames, service marks,
and all applications for any of the foregoing, used in the operation of the
Business ("Intellectual Property"). Except as set forth on Schedule 3.23,
Seller owns or is licensed to or otherwise has the right to use all such
Intellectual Property, free and clear of all Liens. Seller has not received any
written notice of any claim of infringement with respect to such Intellectual
Property, and to Seller's knowledge there is no basis for any such claim.
3.24 No Material Changes. Since March 31, 1997, the Theaters and the
Business have been operated in the ordinary course, consistent with past
practices, and there has not been any event which has had or could reasonably be
expected to have a Seller Material Adverse Effect. In particular, except in the
ordinary course of business, consistent with past practices, there has not been
any sale or other disposition of material Assets or amendment, cancellation or
termination of any material contract or agreement related to the Assets or the
Business.
Section 4. Representations and Warranties by Buyer.
Buyer represents and warrants the following;
4.1 Organization and Good Standing. Buyer 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 to carry on its business as now
conducted by it and to own and operate its assets as now owned and operated by
it. Buyer is qualified to do business and is in good standing in each
jurisdiction where such qualification is necessary, except for such failures to
be so qualified as would not, in the aggregate, have a material adverse effect
on Buyer's business or financial condition, the Business or on Buyer's ability
to consummate the transactions contemplated by this Agreement (a "Buyer Material
Adverse Effect"). Buyer has delivered to Seller true and complete copies of the
Buyer's Certificate of Incorporation and all amendments thereto, certified by
the Secretary of State of Delaware, and the bylaws of Buyer as presently in
effect, certified as true and correct by Buyer's Secretary.
4.2 Authority. Buyer has all requisite corporate power and authority to
execute and deliver this Agreement and any instruments and agreements
contemplated herein required to be executed and delivered by it pursuant to this
Agreement, including, without limitation, the Lease Assignments and the Other
Instruments (collectively, the "Related Instruments") and to consummate the
transactions contemplated hereby and thereby. This Agreement has been duly
authorized, executed and delivered by Buyer, and no other corporate act or
proceeding on the part of the Buyer is necessary to authorize the execution and
delivery of this Agreement or the Related Instruments or to consummate the
transactions contemplated hereby or thereby. This Agreement is, and each of the
Related Instruments, when executed and delivered by Seller at the Closing, will
be, a legally valid and binding obligation of Buyer, enforceable against Buyer
in accordance with its terms.
4.3 No Violation. Neither the execution and delivery by Buyer of this
Agreement nor any of the Related Instruments, nor the consummation by Buyer of
the transactions contemplated
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hereby or thereby, will violate any provision of Buyer's (i) Articles of
Incorporation or Bylaws, (ii)(a) violate, conflict with or constitute a default
(or an event or condition which, with notice or lapse of time or both, would
constitute a default) under, or (b) result in the termination of, or accelerate
the performance required by, or cause the acceleration of the maturity of, any
liability or obligation pursuant to, under any note, bond, mortgage, indenture,
deed of trust, license, lease, contract, commitment, understanding, arrangement,
agreement or restriction to which Buyer is a party or to which any of the Assets
may be subject, (iii) violate any statute or law or any judgment, decree, order,
writ, injunction, regulation or rule of any court or governmental authority
applicable to Buyer, or (iv) result in the creation or imposition of any Lien
upon any of the Assets except, in the case of clauses (ii) and (iii) for
violations, conflicts, defaults, terminations and accelerations which would not,
in the aggregate, have a Buyer Material Adverse Effect.
4.4 No Brokerage Commission. Buyer has not employed any broker, agent or
finder in connection with any transaction contemplated by this Agreement and
hereby indemnifies Seller against any liability for a brokerage commission or
finders fee or any description incurred by Buyer with respect to any transaction
contemplated by this Agreement.
Section 5. Agreements by Seller and Buyer.
5.1 Except to the extent waived or consented to in writing by Buyer,
Seller agrees that pending the Closing:
(a) Seller will operate the Business in the ordinary course, consistent
with past practice, and use reasonable commercial efforts to keep the
business of Seller at the Theaters intact (including without
limitation (i) by proceeding with customary advertising and inventory
purchases and (ii) by maintaining its relationships with film
distributors consistent with past practice), to maintain, preserve and
protect the property used to conduct the business at the Theaters, and
to preserve the good will of suppliers and customers and others having
business relations with it;
(b) Seller will promptly notify Buyer of any lawsuits, proceedings, or to
Seller's knowledge, governmental investigations which are threatened
in writing or commenced against Seller, or the officers or directors
of Seller between the date of this Agreement and the Closing Date
which may adversely affect the Business or the transactions
contemplated hereby, except routine personal injury litigation covered
by Seller's insurance.
(c) Seller shall not incur any liabilities or obligations of any nature
(whether absolute, accrued, contingent or otherwise and whether due or
to become due) with respect to the Theaters for which Buyer may be
liable after the Closing, except for trade payables and other
obligations incurred in the ordinary course of business consistent
with past practices;
(d) Seller shall not permit, allow or cause any of its properties or
assets (tangible or intangible) at the Theaters to be subjected to any
Lien other than Permitted Liens;
(e) Seller shall not sell, transfer or otherwise dispose of any of its
assets related to the Theaters (tangible or intangible) except in the
ordinary course of business and
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consistent with past practices;
(f) Seller shall not terminate or amend in any respect any material
contract, lease, license or other agreement related to the Business or
the Assets to which it is a party;
(g) Seller shall maintain all insurance policies and coverage relating to
the Assets; and
(h) Except as a result of the Closing, which shall trigger a complete
withdrawal as provided in Sections 3 and 4 of ERISA, Seller shall not
agree, whether in writing or otherwise, to do any of the foregoing.
5.2 Supplying of Information. Prior to Closing, Seller shall furnish to
Buyer or its representatives complete and accurate information and access to
facilities and personnel as Buyer may reasonably request in connection with any
audit, review, investigation or examination of the books and records, accounts,
contracts, properties, assets, operations and facilities of Seller.
5.3 Notices and Consents. Subject to Section 6.8 hereof, Seller shall
give all notices to third parties and obtain prior to the Closing all consents
listed on Schedule 3.20 and the consents of the landlords under the Leases
attached hereto or otherwise mutually agreed by Buyer and Seller to be required
in connection with the consummation of the transactions contemplated hereby,
including without limitation, the consent of each lessor of real or personal
property leased by Seller included in the Assets to the assignment of Seller's
interest under such lease to Buyer at the Closing to the extent required. All
such consents shall be in writing and in form and substance reasonably
satisfactory to Buyer and Buyer's counsel and executed counterparts thereof
shall be delivered to Buyer promptly after receipt thereof by Seller but in no
event later than the Closing. Buyer agrees to cooperate with Seller in
obtaining such consents, including without limitation, by way of furnishing
financial and other information as may reasonably be requested by any lessor or
third party whose consent is needed. Buyer and Seller agree to prepare and file
within ten (10) days after the execution of this agreement the premerger
notification required by the HSR Act and to provide such further information as
may be requested by the Department of Justice or Federal Trade Commission in
connection therewith.
5.4 Employees.
(a) On or prior to the Closing Date, Buyer shall advise Seller of
those employees of Seller which Buyer intends to employ. Seller will do nothing
to dissuade any of its employees from remaining in the employ of Buyer after the
Closing Date, and Seller will be responsible for all severance and termination
costs, with the exception of the Employee Costs.
(b) Seller shall be solely responsible for all of the Employee Plans
and all obligations and liabilities thereunder. Buyer shall not assume any of
the Employee Plans or any obligation or liability thereunder.
5.5 Other Transactions. Prior to the Closing, Seller shall not, nor shall
Seller permit any of its officers, directors, stockholders or other
representatives to, (i) directly or indirectly, encourage, solicit, initiate or
participate in discussions or negotiations with, or provide any information or
assistance to, any corporation, partnership, person, or other entity or group
(other than Buyer and its representatives) concerning any merger, issuance or
sale of securities, sale of substantial assets or similar transaction involving
the Assets or the Business, or (ii) entertain or
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discuss any acquisition or proposals with respect to a substantial portion of
the Assets arising either from parties who previously expressed an interest in
the Assets or from any unsolicited sources.
5.6 Casualty Loss. All risk of loss to the Assets shall remain upon the
Seller prior to the Closing Date.
(a) If prior to the Closing Date, the Assets located in those
Theaters listed in Schedule 5.6 attached hereto (the "Critical Theaters") are
damaged (excluding immaterial damage which does not interfere with the operation
of the Theater) or destroyed by fire or other casualty and cannot be repaired to
Buyer's reasonable satisfaction within 90 days, Buyer may (i) terminate this
Agreement by written notice to the Seller or (ii) close. If Buyer elects to
close despite said damage or destruction to the Critical Theaters, then Buyer
may (i) postpone the Closing Date until such time as the Critical Theaters are
repaired to Buyer's reasonable satisfaction or (ii) elect to close partially by
buying all Assets except the Theater in question and closing on such Theater
when it has been repaired to Buyer's reasonable satisfaction. In the event of a
partial closing, the parties will follow the same provisions as set forth in
Section 5.6(b) below with regard to payment of a portion of the Purchase Price
at Closing and escrow of a portion of the Purchase Price with respect to the
Theater not purchased at the initial Closing.
(b) If prior to the Closing Date, the Assets located in any Theaters
other than the Critical Theaters are damaged or destroyed by fire or other
casualty, Buyer shall withhold from the Purchase Price and deposit into escrow
an amount equal to the twelve months cash flow prior to September 30, 1997
generated for such Theater multiplied by six ("Casualty Payment"). Unless and
until Seller has repaired the damage to such Theater so that such Theater could
be opened to the public, as reasonably acceptable to Buyer, the Casualty Payment
shall remain escrowed; provided that the Casualty Payment shall be released to
Buyer in the event that Seller is unable to satisfactorily repair such Theater
within six (6) months from the date of such casualty.
5.7 Discharge of Liens. Seller shall cause all Liens on any of the Assets
(other than Permitted Liens or Liens not caused by Seller on the Land underlying
a Leased Property) to be terminated or otherwise discharged at or prior to the
Closing.
5.8 No Proceeding or Litigation. Except as set forth on Schedule 3.9,
There shall not be threatened, instituted or pending any suit, action,
investigation, inquiry, injunction, writ or preliminary restraining order or
other proceeding by or before any court or governmental or other regulatory or
administrative agency or commission requesting or looking toward an order,
judgment or decree which (a) seeks to restrain or prohibits the consummation of
the transactions contemplated hereby or (b) could reasonably be expected to have
a Seller Material Adverse Effect.
5.9 Earthquake Reinforcements. Prior to Closing, Seller shall construct,
to the reasonable satisfaction of Buyer, any improvements in connection with the
Theaters known as the California Theater and the UC Berkeley Theater necessary
to ensure that such Theaters comply with (a) all statutes, rules and regulations
governing earthquake and seismic reinforcement and (b) all applicable
requirements of the leases governing such Theaters. Alternatively, Seller may
elect to reduce the Purchase Price by One Million Four Hundred Thousand Dollars
($1,400,000).
17
<PAGE>
5.10 [Intentionally Omitted]
5.11 Parking Issues. From the Closing and through the third anniversary
thereof, Buyer and Seller shall share equally the actual costs in connection
with providing parking for the Theater known as the Metro Ten and Seller agrees
to promptly reimburse Buyer for its share of such costs. Buyer acknowledges
that Seller is currently involved in pending and/or threatened litigation
concerning parking for the Metro Ten Theater. Seller acknowledges that,
notwithstanding the next sentence, Seller will remain liable for all claims,
costs, attorneys fees, expenses, judgments, settlements and damages relating to
such litigation in connection with parking issues at the Metro Ten Theater.
Buyer shall have the right to control such litigation and to defend, settle or
take to trial any claims raised therein, all at Seller's expense. Buyer agrees
to provide to Seller in writing a status report on the litigation (a) on a
quarterly basis and (b) upon the occurrence of any major development
5.12 Construction of Theaters. Buyer and Seller agree that Buyer shall
have the right, upon written notice to Seller, from and after the date of this
Agreement through the Closing to supervise and take over the construction of the
Theaters located in Waltham Massachusetts and St. Louis Missouri to ensure such
construction complies (and Seller agrees to cause such Theaters to comply) in
all material respects with all governmental requirements including, without
limitation, zoning rules and regulations, building codes and the ADA. Buyer
will pay for all changes it requires in excess of Seller's present construction
budget which has been provided to Buyer, including any incidental costs related
to Buyer's requests for changes.
5.13 Home Office Lease. Seller agrees to complete the build-out of the
improvements set forth on Schedule 5.13 in connection with Seller's corporate
offices located at 2230 Barrington Avenue, Los Angeles, California (the
"Corporate Offices"), in exchange for which, Buyer will assume the obligations
under the leases governing the Corporate Offices; provided that Seller will not
be required to complete the screening rooms at the Corporate Offices and that
Seller will not be required to spend more than $50,000 from the date of this
Agreement to complete such build-out.
Section 6. Conditions Precedent to the Obligation of Buyer to Close.
The obligation of Buyer to close shall be subject to the following
conditions precedent:
6.1 Fulfillment of Covenants. Seller shall have performed and complied in
all material respects with all covenants, obligations and agreements as set
forth in this Agreement to be so performed or complied with by it at or prior to
the Closing, and Seller shall deliver to Buyer a certificate dated as of the
Closing Date executed by an executive officer of Seller so stating.
6.2 Representation and Warranties. The representations and warranties of
Seller contained in this Agreement shall be complete and accurate in all
material respects on the date when made and shall also be accurate on the
Closing Date to the same extent as if made on such date. Seller shall deliver
to Buyer a certificate dated the Closing Date and executed by an
18
<PAGE>
executive officer of Seller stating that said representations and warranties are
true, correct and accurate in all material respects on the date hereof and as of
the Closing Date and that all covenants, agreements and conditions required by
this Agreement to be performed by Seller prior to Closing have been performed on
or prior to the Closing Date.
6.3 Corporate Approval. Buyer shall have received a copy of the
resolution of the Board of Directors of Seller, certified by its Secretary or an
Assistant Secretary, authorizing the execution of this Agreement and the
consummation of the transactions contemplated hereby.
6.4 Opinion of Seller's Counsel. At the Closing Date there shall have
been delivered to Buyer an opinion from counsel for Seller, dated as of the
Closing Date, acceptable to counsel for Buyer, to the effect that:
(a) Seller is a corporation duly incorporated and validly existing in
good standing under the laws of the State of California. Seller has
corporate power and authority to own its properties and to conduct its
business. Seller is qualified to do business and in good standing in each
jurisdiction in which a Theater is located;
(b) The execution of this Agreement and the Other Instruments by
Seller, the delivery to Buyer, and the performance of their respective
terms have been duly authorized by Seller;
(c) No authorization, approval, consent or license of any regulatory
body or authority is required for the sale and delivery of the Assets,
which has not been obtained;
(d) The consummation of this Agreement will not and does not violate
(i) the Articles of Incorporation or Bylaws of Seller, (ii) breach or cause
a default under any term or provision of any material contract identified
to such counsel by Seller as one to which Seller is a party or by which any
of Seller's assets are bound; or (iii) violate any judgment, decree,
injunction, writ or order identified to such counsel by Seller as
applicable to Seller; or (iv) breach or violate any law, rule or regulation
applicable to Seller; and
(e) Each of this Agreement and the Other Instruments to which Seller
is a party is a legally valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms; subject to the effect of
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights of creditors and other customary
exceptions reasonably acceptable to Buyer's counsel.
6.5 No Material Adverse Changes. No occurrence constituting or having a
Seller Material Adverse Effect shall have occurred.
6.6 Documents. All documents required by this Agreement to be delivered
by Seller to Buyer at the Closing shall be in substance reasonably satisfactory
to Buyer and shall have been executed and delivered to Buyer.
6.7 Consents and Approvals. The waiting period under the HSR Act shall
have expired. All licenses, permits, consents, approvals and authorizations of
all third parties and governmental bodies and agencies required by this
Agreement shall have been obtained
19
<PAGE>
and provided to Buyer.
6.8 Certain Real Estate Documents. Seller shall use its reasonable good
faith efforts to have delivered to Buyer the consents referred to in Section 5.3
(the "Consents"), Estoppel Certificates, Non-Disturbance Agreements and
Memoranda of Lease in the forms of Exhibit "D", Exhibit "E" and Exhibit "F"
hereto, respectively, from lessors and mortgagees, respectively, with respect to
each of the real property leases listed on Schedule 1.1(d) with such changes
requested by such lessors and mortgagees, respectively, agreed to in the
reasonable discretion of Buyer.
6.9 No Proceeding or Litigation. There shall not be threatened,
instituted or pending any suit, action, investigation, inquiry, injunction, writ
or preliminary restraining order or other proceeding by or before any court or
governmental or other regulatory or administrative agency or commission
requesting or looking toward an order, judgment or decree which (a) seeks to
restrain or prohibits the consummation of the transactions contemplated hereby
or (b) might have a Seller Material Adverse Effect.
6.10 Non-Compete. Buyer and Metromedia shall have executed and delivered a
mutually satisfactory non-compete agreement.
6.11 Audited Financial Statements. Seller shall have delivered to Buyer by
December 31, 1997 the consolidated balance sheet, statement of income and
statements of cash flows of Landmark, at and for the fiscal years ended March
31, 1995 and 1996 and for the nine month period ending December 31, 1996,
accompanied by the unqualified audit opinion of a "Big Six" accounting firm (the
"Audited Financials"). Such Audited Financials will be the same in all material
respects as the Unaudited Financials, fairly present the consolidated financial
position, results of operations and cash flows of Landmark in accordance with
generally accepted accounting principles ("GAAP") on a consistent basis. Buyer
shall reimburse Seller fifty percent (50%) of all costs incurred by Seller
solely in connection with the preparation of such Audited
Financials in connection with the transaction contemplated by this Agreement.
Section 7. Conditions Precedent to the Obligation of Seller and Metromedia
to Close.
The obligation of Seller to close shall be subject to the following
conditions precedent:
7.1 Fulfillment of Covenants. Buyer shall have performed and complied in
all material respects with all of its covenants, obligations and agreements
required by this Agreement to be so complied with by it at or prior to the
Closing, and Buyer shall deliver to Seller a certificate executed by an
executive officer of Buyer so stating.
7.2 Representations and Warranties. The representations and warranties of
Buyer contained in this Agreement shall be accurate in all material respects on
the Closing Date to the same extent as if made on such date, and Buyer shall
deliver to Seller a certificate dated on the Closing Date executed by its
President or Vice President and its Secretary or an Assistant Secretary or its
Treasurer stating that said representations and warranties are accurate in all
respects as of the Closing Date and that all conditions precedent to Closing to
be performed by Buyer shall have been performed.
20
<PAGE>
7.3 Corporate Approval. Seller shall have received a certified copy of the
resolutions of the Board of Directors of Buyer, certified by its Secretary or an
Assistant Secretary, authorizing the execution of this Agreement and the
consummation of the transactions contemplated hereby.
Section 8. Termination.
In addition to any other provision in this Agreement, this Agreement may be
terminated at any time (i) by mutual consent of all parties, (ii) by either
Buyer or Seller at any time in the event of a breach of the other which remains
uncured for thirty (30) days after notice in writing of such breach, (iii) by
Buyer pursuant to Section 5.6, or (iv) by either Buyer or Seller at any time
after March 31, 1998.
Section 9. Indemnification.
9.1 Survival of Representations and Agreements. The representations and
warranties and agreements made herein are true and binding as of the date hereof
and shall continue in full force and effect for two (2) years after the Closing
Date notwithstanding any investigations which may have been made by any of the
parties prior thereto. Any Claim Notice (as defined in Section 9.5) must be
given within said 2 years.
9.2 Seller's and Metromedia's Agreement to Indemnify. Each of Seller and
Metromedia, jointly and severally, shall indemnify, defend, save and hold
harmless Buyer and its affiliates from any liability, damage, deficiency, loss,
cost or expense, including reasonable attorney fees and any costs of
investigation, defense or settlement of any of the foregoing (herein,
"Damages"), incurred in connection with, arising out of, resulting from or
incident to (i) any breach of any representation or warranty made by Seller in
or pursuant to this Agreement; (ii) any breach of any covenant or agreement made
by Seller in or pursuant to this Agreement; (iii) any liability arising from the
operation of the Theaters on or prior to the Closing Date; (iv) any liability
arising from a written claim, action, notice of investigation, notice of intent
to bring an action or written threat to bring an action in connection with any
alleged ADA violation at any Theater (excluding the Waltham and/or St. Louis
Theaters if Buyer has exercised its rights under Section 5.12 with respect
thereto); (v) any liability imposed upon or resulting from any claims against
Buyer by the Transition Employees for severance or other termination
compensation in connection with their termination by Buyer; or (vi) any Excluded
Liabilities.
9.3 By Buyer. Buyer shall indemnify and save and hold harmless Seller and
its affiliates from and against any and all Damages incurred in connection with,
arising out of, resulting from or incident to (i) any breach of any
representation or warranty made by Buyer in or pursuant to this Agreement, (ii)
any breach of any covenant or agreement made by Buyer in or pursuant to this
Agreement, or (iii) any liability arising from the operation of the Theaters on
or after the Closing Date.
9.4 Cooperation. The indemnified party shall cooperate in all reasonable
respects with the indemnifying party and such attorneys in the investigation,
trial and defense of such lawsuit or action and any appeal arising therefrom;
provided, however, that the indemnified party may, at its own cost, participate
in the investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom. The parties shall cooperate with each other in any
notifications to insurers.
21
<PAGE>
9.5 Defense of Claims. If a claim for Damages (a "Claim") is to be made
by a party entitled to indemnification hereunder against the indemnifying party,
the party claiming such indemnification shall, give written notice (a "Claim
Notice") to the indemnifying party as soon as practicable after the party
entitled to indemnification becomes aware of any fact, condition or event which
may give rise to Damages for which indemnification may be sought under this
Article 9; provided that such notice must be given within two (2) years after
the Closing Date. If any lawsuit or enforcement action is filed against any
party entitled to the benefit of indemnity hereunder, written notice thereof
shall be given to the indemnifying party as promptly as practicable (and in any
event within fifteen (15) calendar days after the service of the citation or
summons). The failure of any indemnified party to give timely notice hereunder
shall not affect rights to indemnification hereunder, except to the extent that
the indemnifying party demonstrates actual damage caused by such failure. After
such notice, if the indemnifying party shall acknowledge in writing to the
indemnified party that the indemnifying party shall be obligated under the terms
of its indemnity hereunder in connection with such lawsuit or action, then the
indemnifying party shall be entitled, if it so elects, (i) to assume the defense
and investigation of such lawsuit or action, (ii) to employ and engage attorneys
of its own choice (which shall be reasonably acceptable to the indemnified
party) to handle and defend the same, at the indemnifying party's cost, risk and
expense unless the named parties to such action or proceeding include both the
indemnifying party and the indemnified party and the indemnified party has been
advised in writing by counsel that there may be one or more legal defenses
available to such indemnified party that are different from or additional to
those available to the indemnifying party, and (iii) to compromise or settle
such claim, which compromise or settlement shall be made only with the written
consent of the indemnified party, such consent not to be unreasonably withheld;
provided, however, if the remediation or resolution of any such Claim will occur
on or at any Theater or is reasonably expected to have a material adverse effect
on the indemnified party's business operations, then, notwithstanding the
foregoing, the indemnified party shall have the right to control such
remediation or resolution, including without limitation to assume the defense
and investigation of such lawsuit or action, to employ and engage attorneys of
its own choice to handle and defend the same, at the indemnifying party's cost,
risk and expense, and to compromise or settle such Claim. If the indemnifying
party fails to assume the defense of such claim within fifteen (15) calendar
days after receipt of the Claim Notice, the indemnified party against which such
claim has been asserted will (upon delivering notice to such effect to the
indemnifying party) have the right to undertake, at the indemnifying party's
cost and expense, the defense, compromise or settlement of such claim on behalf
of and for the account and risk of the indemnifying party. In the event the
indemnified party assumes the defense of the claim, the indemnified party will
keep the indemnifying party reasonably informed of the progress of any such
defense, compromise or settlement. The indemnifying party shall be liable for
any settlement of any action effected pursuant to and in accordance with this
Article 9 and for any final judgment (subject to any right of appeal), and the
indemnifying party agrees to indemnify and hold harmless an indemnified party
from and against any Damages by reason of such settlement or judgment.
9.6 Limitations. Neither Buyer nor Seller shall be liable to the other
under this Article 9 for any Damages until the amount otherwise due the party
being indemnified exceeds one percent (1%) of the Purchase Price in the
aggregate, in which case such indemnifying party will be liable to the
indemnified party for all such amounts, in excess of the first one percent (1%)
of the Purchase Price; provided, however, that this limitation shall not apply
with respect to Damages or Claims arising out of a breach of a representation or
warranty contained in
22
<PAGE>
Sections 3.16, 3.17 or 3.18; provided, further that this limitation shall not
apply with respect to any damages set forth in Sections 9.2(iv) or (v). In
addition, except for Damages or Claims arising out of a breach of a
representation or warranty contained in Section 3.16, 3.17 or 3.18, Seller shall
have no liability for indemnification in excess of one half of the Purchase
Price. In connection with Damages or Claims arising out of a breach of a
representation or warranty contained in Section 3.16, 3.17 or 3.18, Seller shall
have no liability for indemnification in excess of the Purchase Price.
9.7 Liability and Remedies, etc. No individual representative of any
party shall be personally liable for any Damages under the provisions contained
in this Article 9. Nothing herein shall relieve either party of any liability
to make any payment expressly required to be made by such party pursuant to this
Agreement. The term "Damages" as used in this Article 9 is not limited to
matters asserted by third parties against Seller or Buyer, but includes Damages
incurred or sustained by Seller or Buyer in the absence of third party claims.
Payments by Buyer of amounts for which Buyer is indemnified hereunder, and
payments by Seller of amounts for which Seller is indemnified, shall not be a
condition precedent to recovery. Seller's obligation to indemnify Buyer, and
Buyer's obligation to indemnify Seller, shall not limit any other rights,
including without limitation rights of contribution which either party may have
under statute or common law.
Section 10. Miscellaneous.
10.1 Reformation and Severability. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, the legality, validity and enforceability of
the remaining provisions hereof shall not in any way be affected or impaired
thereby.
10.2 Relief. Seller acknowledges and agrees that in view of the uniqueness
of Seller's business at the Theaters, damages at law would be insufficient for
breach of any of Seller's covenants to sell the Assets to Buyer. Accordingly,
Seller agrees that in the event of a breach or threatened breach by Seller of
such provisions, Buyer shall be entitled to seek equitable relief in the form of
an injunction to prevent irreparable injury. Nothing herein shall be construed
as prohibiting Buyer from pursuing any remedies, including damages, for breach
or threatened breach of this Agreement.
10.3 Further Assurances. Each party hereto shall, from time to time after
the Closing, at the request of any other party hereto and without further
consideration, execute and deliver such other instruments of conveyance,
assignments, transfer and assumption, and take such other actions, as such other
party may reasonably request to more effectively consummate the transactions
contemplated by this Agreement. Seller acknowledges that prior to and/or after
the Closing Date, Buyer may be required by securities and accounting
regulations, or may elect for other business reasons, to engage an independent
public accounting firm to audit the financial statements of the Business for
periods prior to or including the Closing Date. Seller agrees to cooperate with
Buyer in the preparation of such financial statements and the conduct of such
audit, including without limitation, by providing access to all relevant books,
records, files and other data (whether in written or computer-readable form) of
Seller (or, at Buyer's request and at Buyer's expense, by providing copies of
such books, records, files and other date.)
10.4 Notices. Any notice or other communication required or permitted to
be given
23
<PAGE>
hereunder shall be in writing and shall be sent by certified mail, return
receipt requested (or by the most nearly comparable method if mailed from or to
a location outside of the United States), or by cable, telex, telegram or
facsimile transmission (receipt confirmed), or delivered by hand or by overnight
or similar delivery service, fees prepaid, to the party to whom it is to be
given at the address of such party set forth below or to such other address for
notice as such party shall provide in accordance with the terms of this section.
Except as otherwise specifically provided in this Agreement, notice so given
shall, in the case of notice given by certified mail (or by such comparable
method) be deemed to be given and received three business days after the time of
certification thereof (or comparable act), in the case of notice so given by
overnight delivery service, on the date of actual delivery, and, in the case of
notice so given by cable, telegram, facsimile transmission, telex or personal
delivery, on the date of actual transmission or, as the case may be, personal
delivery. Any party hereto may change the address designated for notice by
written notice to the other party.
To: Seller
Metromedia International Group, Inc.
One Meadowlands Plaza
East Rutherford, New Jersey 07073
Attention: General Counsel
Telecopy: (201) 531-2803
To: Buyer
Silver Cinemas, Inc.
4004 Beltline Road, Suite 205
Dallas, Texas 75244
Attention: Steven L. Holmes and Thomas J. Owens
Telecopy: (972) 503-9864
10.5 Expenses. Except as set forth in this Section 10.5, each party hereto
shall bear its or his own costs and expenses incurred pursuant to this Agreement
and the transactions contemplated hereby and all investigations and proceedings
in connection therewith, including without limitation, fees and expenses of
their respective counsel and accountants ("Expenses"). If the Closing does not
occur due to a violation of Section 5.5 of this Agreement, (i) Seller will, in
addition to bearing its own Expenses, the Seller will promptly reimburse Buyer
for its Expenses, and (ii) Buyer will be free to seek additional damages for
breach of this Agreement.
10.6 Entire Agreement. This Agreement, together with the Schedules
referred to herein which are incorporated herein by this reference, and the
other documents, instruments, certificates and agreements referred to herein,
constitutes the entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior negotiations and understandings
and agreements.
10.7 Governing Law. The parties hereto agree that this Agreement shall be
governed by, construed and enforced in accordance with the laws of the State of
New York without giving effect to the conflict of laws rules or choice of laws
rules thereof.
10.8 Number and Gender of Words. When the context so requires in this
Agreement,
24
<PAGE>
words or gender shall include either or both of the other genders and the
singular number shall include the plural. Whenever the term "Seller's
knowledge" or a similar term is used in this Agreement it shall include the
actual knowledge of Steve Gilula, Bert Manzari, Paul Richardson, Janet Grumer
and Gary Cann and the knowledge that reasonably could have been obtained by such
persons through a diligent inquiry of their personnel and files.
10.9 Assignability and Binding Effect. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, their respective successors
and permitted assigns. Unless specifically provided otherwise in this
Agreement, this Agreement and the rights and obligations hereunder are not
assignable without the express written consent of all parties hereto.
10.10 Amendments. This Agreement may not be modified, amended or
supplemented except by a written agreement executed by all of the parties
hereto.
10.11 Counterparts. This Agreement may be executed in several
counterparts, all of which taken together shall be deemed to constitute one and
the same instrument.
10.12 Headings. The headings of sections contained in this Agreement
are for convenience only and shall not be deemed to control or affect the
meaning or construction of any provision of this Agreement.
10.13 Waiver. The failure of any party to insist, in any one or more
instances, upon performance of any of the terms, covenants or conditions of this
Agreement shall not be construed as a waiver or a relinquishment of any right or
claim granted or arising hereunder or of the future performance of any such
term, covenant, or condition, and such failure shall in no way affect the
validity of this Agreement or the rights and obligations of the parties hereto.
10.14 Third Parties. Except with respect to indemnification under
Section 9, nothing herein expressed or implied is intended or shall be construed
to confer upon or give to any person other than the parties hereto and their
successors or permitted assigns, any rights or remedies under or by reason of
this Agreement.
10.15 Public Announcements. Except as required by law, no press
release or other public disclosure of the transactions contemplated by this
Agreement will be made unless mutually agreed to by Buyer and Seller, which
approval will not be unreasonably withheld. If Seller believes public
disclosure is necessary as a result of Seller or its parent company being a
public entity, Seller will provide Buyer with at least twenty-four hours prior
opportunity to review and comment on the proposed disclosure.
10.16 Purchase Agreement to Control. The terms and conditions of this
Agreement shall control any conflicting terms and conditions set forth in any
Exhibit to this Agreement.
[signature page to follow]
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto intending to be legally bound have
caused this Agreement to be executed on the day and year first above written.
METROMEDIA INTERNATIONAL GROUP, INC.
By:
-----------------------------------
Name:
----------------------------------
Title:
--------------------------------
LANDMARK THEATRE CORPORATION
By:
-----------------------------------
Name:
----------------------------------
Title:
--------------------------------
SEVEN GABLES CORPORATION
By:
-----------------------------------
Name:
----------------------------------
Title:
--------------------------------
PARALLAX THEATRE SYSTEMS, INC.
By:
-----------------------------------
Name:
----------------------------------
Title:
--------------------------------
[signatures continued on next page]
26
<PAGE>
SAN FRANCISCO LANDMARK THEATRE CORPORATION
By:
-----------------------------------
Name:
----------------------------------
Title:
--------------------------------
WISCONSIN REPERTORY CINEMAS, INC.
By:
-----------------------------------
Name:
----------------------------------
Title:
--------------------------------
THE LANDMARK THEATRE GROUP
By:
-----------------------------------
Name:
----------------------------------
Title:
--------------------------------
SILVER CINEMAS, INC.
By:
-----------------------------------
Name:
----------------------------------
Title:
--------------------------------
27
<PAGE>
EXHIBIT A
BILL OF SALE
For good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, [SELLER] a __________ corporation ("Seller"), does
hereby grant, bargain, transfer, sell, assign, convey and deliver to Silver
Cinemas, Inc., a Delaware corporation ("Buyer"), all right, title and interest
in and to the Assets (as such term is defined in the Agreement for the Purchase
and Sale of Assets dated as of December ___, 1997, by and between Buyer and
Seller (the "Agreement"). Buyer hereby acknowledges that Seller is making no
representation or warranty with respect to the assets being conveyed hereby
except as specifically set forth in the Agreement. Seller for itself, its
successors and assigns hereby covenants and agrees that, at any time and from
time to time forthwith upon the written request of Buyer, Seller will do,
execute, acknowledge and deliver or cause to be done, executed, acknowledged and
delivered, each and all of such further acts, deeds, assignments, transfers,
conveyances, powers of attorney and assurances as may reasonably be required by
Buyer in order to assign, transfer, set over, convey, assure and confirm unto
and vest in Buyer, its successors and assigns, title to the assets sold,
conveyed, transferred and delivered by this Bill of Sale.
This Bill of Sale is executed and delivered by Seller pursuant to the
Agreement.
Executed at , this day of , 1998.
----------------- ------ --------
[SELLER'S NAME]
By
---------------------------
Its
---------------------------
STATE OF )
----------------------
COUNTY OF ) ss.
----------------------
On _______________________, before me, ___________________, personally appeared
____________________________________, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
[SEAL]
- ---------------------------------
Notary Public in and for said
County and State
<PAGE>
EXHIBIT 11
METROMEDIA INTERNATIONAL GROUP, INC.
COMPUTATION OF EARNINGS PER SHARE
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Income (loss) per share - Basic (A):
Continuing operations.......................................... $ (130,901) $ (72,146) $ (36,265)
Cumulative convertible preferred stock dividend requirement.... (4,336) -- --
-------------- -------------- --------------
Continuing operations attributable to common stock
shareholders................................................. (135,237) (72,146) (36,265)
Discontinued operations........................................ 234,036 (38,592) (344,329)
Extraordinary items............................................ (14,692) (4,505) (32,382)
-------------- -------------- --------------
Net income (loss) available for common stock shareholders...... $ 84,107 $ (115,243) $ (412,976)
-------------- -------------- --------------
-------------- -------------- --------------
Weighted average common stock shares outstanding during the
period.......................................................... 66,961 54,293 24,541
-------------- -------------- --------------
-------------- -------------- --------------
Income (loss) per share - Basic:
Continuing operations.......................................... $ (2.02) $ (1.33) $ (1.48)
Discontinued operations........................................ 3.50 (0.71) (14.03)
Extraordinary items............................................ (0.22) (0.08) (1.32)
-------------- -------------- --------------
Net income (loss).............................................. $ 1.26 $ (2.12) $ (16.83)
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
(A) In calculating diluted earnings per share, no potential shares of common
stock are to be included in the computation when a loss from continuing
operations available to common stockholders exists. For the years ended
December 31, 1997, 1996 and 1995, the Company had a loss from continuing
operations.
<PAGE>
EXHIBIT 12
METROMEDIA INTERNATIONAL GROUP, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
YEARS ENDED DECEMBER 31, FEBRUARY 28,
----------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1995 1994
----------- ---------- ---------- ---------- ---------
EARNINGS:
Loss from continuing operations before income taxes
attributable to common stockholders................. $ (140,464) $ (71,732) $ (36,265) $ (19,141) $ (7,334)
Additional losses of majority-owned joint ventures not
consolidated........................................ (586) -- -- -- --
Excess (income) losses of
fifty-percent-owned joint ventures.................. 5,029 3,405 2,328 554 (16)
Equity in (income) losses of less than
fifty-percent-owned joint ventures.................. 1,465 2,170 1,088 449 80
Income distributions from less than fifty-percent-
owned joint ventures................................ 940 300 -- -- --
Minority interest..................................... (8,893) (666) (188) (221) (34)
----------- ---------- ---------- ---------- ---------
Adjusted loss....................................... $ (142,509) $ (66,523) $ (33,037) $ (18,359) $ (7,304)
----------- ---------- ---------- ---------- ---------
----------- ---------- ---------- ---------- ---------
FIXED CHARGES:
Interest expense, including amortization of debt
discount............................................ $ 20,922 $ 19,090 $ 5,935 $ 1,109 $ 348
Portion of rent expense representative of the interest
factor.............................................. 1,572 435 303 205 47
Preferred stock dividend requirement.................. 4,336 -- -- -- --
----------- ---------- ---------- ---------- ---------
Total fixed charges................................. $ 26,830 $ 19,525 $ 6,238 $ 1,314 $ 395
----------- ---------- ---------- ---------- ---------
----------- ---------- ---------- ---------- ---------
Ratio of earnings to fixed charges.................... (A) (A) (A) (A) (A)
----------- ---------- ---------- ---------- ---------
----------- ---------- ---------- ---------- ---------
</TABLE>
- ------------------------
(A) The ratios of earnings to fixed charges were computed by dividing fixed
charges into the sum of earnings (after certain adjustments) and fixed
charges. Earnings are defined as pre-tax earnings or loss from continuing
operations of the Company plus (i) its majority-owned subsidiaries, whether
or not consolidated, (ii) its proportionate share of any-fifty-percent-owned
joint ventures, and (iii) any income received from less-than
fifty-percent-owned joint ventures. Fixed charges include interest on all
debt of continuing operations (including amortization of debt discount) plus
the interest component of operating rents (deemed to be one-third) and
dividends on preferred stock. The ratio of earnings to fixed charges of the
Company was less than 1.00 for each of the years ended December 31, 1997,
1996 and 1995 and for each of the years ended February 28, 1995 and 1994;
thus, earnings available for fixed charges were inadequate to cover fixed
charges for such periods. The deficiency in earnings to fixed charges for
each of the years ended December 31, 1997, 1996 and 1995 and for each of the
years ended February 28, 1995 and 1994 were $142.5 million, $66.5 million,
$33.0 million, $18.4 million, and $7.3 million, respectively.
In addition, the Company has guaranteed the debt of certain of its Joint
Ventures. The interest expense associated with the debt that has been
guaranteed by the Company was $74,000 for the year ended December 31, 1997.
<PAGE>
Exhibit 23
The Board of Directors
Metromedia International Group, Inc.:
We consent to incorporation by reference in the registration statements (Nos.
333-02301, 333-07387, and 333-13763 on Form S-8 of Metromedia International
Group, Inc. of our report dated March 20, 1998, relating to the consolidated
balance sheets of Metromedia International Group, Inc. and subsidiaries as of
December 31, 1997, and 1996, and the related consolidated statements of
operations, stockholders' equity, comprehensive income (loss) and cash flows
for each of the years in the three-year period ended December 31, 1997, and
all related financial statement schedules, which report appears in the
December 31, 1997, annual report on Form 10-K of Metromedia International
Group, Inc.
KPMG Peat Marwick LLP
New York, New York
March 20, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FILED AS PART OF THE ANNUAL REPORT ON FORM 10K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 129,661
<SECURITIES> 100,000
<RECEIVABLES> 34,260
<ALLOWANCES> (2,576)
<INVENTORY> 96,436
<CURRENT-ASSETS> 361,802
<PP&E> 54,535
<DEPRECIATION> (10,525)
<TOTAL-ASSETS> 789,272
<CURRENT-LIABILITIES> 128,411
<BONDS> 57,938
0
207,000
<COMMON> 68,391
<OTHER-SE> 285,291
<TOTAL-LIABILITY-AND-EQUITY> 789,272
<SALES> 204,328
<TOTAL-REVENUES> 204,328
<CGS> 126,544
<TOTAL-COSTS> 285,117
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,922
<INCOME-PRETAX> (136,128)
<INCOME-TAX> 5,227
<INCOME-CONTINUING> (130,901)
<DISCONTINUED> 234,036
<EXTRAORDINARY> (14,692)
<CHANGES> 0
<NET-INCOME> 88,443
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.26
</TABLE>
