<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 8, 1995
REGISTRATION NO. 33-63509
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ALL AMERICAN COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 95-3803222
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
2114 PICO BOULEVARD
SANTA MONICA, CALIFORNIA 90405
(310) 450-3193
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
THOMAS BRADSHAW
SENIOR EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
ALL AMERICAN COMMUNICATIONS, INC.
2114 PICO BOULEVARD
SANTA MONICA, CALIFORNIA 90405
(310) 450-3193
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
With copies to:
<TABLE>
<S> <C>
BARRY L. DASTIN, ESQ. HOWARD SHECTER, ESQ.
KAYE, SCHOLER, FIERMAN, HAYS & HANDLER MORGAN, LEWIS & BOCKIUS LLP
1999 AVENUE OF THE STARS, SUITE 1600 101 PARK AVENUE
LOS ANGELES, CA 90067 NEW YORK, NY 10178-0060
(310) 788-1000 (212) 309-6000
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
- ------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
- ------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
ALL AMERICAN COMMUNICATIONS, INC.,
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM S-2
<TABLE>
<CAPTION>
FORM S-2 REGISTRATION STATEMENT ITEM AND
HEADING HEADING IN PROSPECTUS
------------------------------------------ ---------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Facing Page; Cross Reference Sheet; Outside
Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors...... Prospectus Summary; The Company; Summary
Selected Consolidated Financial Data; Risk
Factors
4. Use of Proceeds........................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price........... Underwriting
6. Dilution.................................. Not Applicable
7. Selling Security Holders.................. Principal and Selling Stockholders
8. Plan of Distribution...................... Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered................................ Prospectus Summary; Capitalization;
Description of Capital Stock
10. Interests of Named Experts and Counsel.... Not Applicable
11. Information with Respect to the
Registrant................................ Outside and Inside Front Cover Page;
Prospectus Summary; The Company; Certain Pro
Forma Information; Risk Factors; Use of
Proceeds; Market For Common Stock and
Dividends; Capitalization; Selected
Consolidated Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Description of Capital Stock;
Experts; Incorporation of Certain Documents
by Reference; Available Information;
Consolidated Financial Statements
12. Incorporation of Certain Documents by
Reference................................. Incorporation of Certain Documents by
Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 8, 1995
4,000,000 SHARES
ALL AMERICAN COMMUNICATIONS, INC.
LOGO CLASS B COMMON STOCK
------------------------
The 4,000,000 shares of Class B Common Stock being offered hereby are being
sold by All American Communications, Inc. (the "Company"). The Class B Common
Stock is identical to the Company's outstanding Common Stock except that the
Class B Common Stock is non-voting. In the event of a change in control (as
defined) of the Company, the Class B Common Stock would be automatically
converted into Common Stock on a share for share basis. See "Description of
Capital Stock." Prior to this offering, there has been no public market for the
Class B Common Stock. The public offering price has been determined with
reference to the market price for the Common Stock. See "Underwriting."
The Class B Common Stock has been approved for quotation on The Nasdaq
National Market ("NNM") under the trading symbol "AACIB", subject to
notification of issuance. The Common Stock of the Company is currently traded on
The Nasdaq SmallCap Market under the symbol "AACI". The Company has applied for
quotation of the Common Stock of the Company on the NNM. On December 7, 1995,
the last sale price of the Common Stock as reported by The Nasdaq SmallCap
Market was $11.00 per share. See "Market for Common Stock and Dividends."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS B COMMON STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------------
Per Share...................................... $ $ $
Total(3)....................................... $ $ $
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses of the offering estimated at $675,000 payable by
the Company.
(3) Certain stockholders named under "Principal and Selling Stockholders" (the
"Selling Stockholders") have granted the Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to 600,000 additional
shares of Class B Common Stock for the purpose of covering over-allotments,
if any. If the Underwriters exercise such option in full, the total Price to
Public, Underwriting Discount and Proceeds to the Company will be
$ , $ and $ , respectively. See "Underwriting."
------------------------
The shares of Class B Common Stock are offered by the Underwriters when, as
and if delivered to and accepted by them, subject to their right to withdraw,
cancel or reject orders in whole or in part and subject to certain other
conditions. It is expected that delivery of certificates representing the shares
of Class B Common Stock will be made against payment on or about December ,
1995 at the office of Oppenheimer & Co., Inc., Oppenheimer Tower, World
Financial Center, New York, New York 10281.
------------------------
OPPENHEIMER & CO., INC. ARNHOLD AND S. BLEICHROEDER, INC.
The date of this Prospectus is December , 1995
<PAGE> 4
LOGO
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS B COMMON
STOCK OFFERED HEREBY OR THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMPANY'S
COMMON STOCK ON NASDAQ IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial data appearing elsewhere in this
Prospectus. Unless the context otherwise requires, references herein to the
"Company" or "All American" are to All American Communications, Inc., its direct
or indirect subsidiaries and its predecessors. Except as otherwise indicated,
all information in this Prospectus assumes the Underwriters' over-allotment
option will not be exercised.
THE COMPANY
The Company is a leading independent supplier of syndicated television
programming, including the production and domestic distribution of Baywatch,
currently one of the highest rated one-hour series in first-run syndication and
seen in more than 100 countries around the world. In addition, the Company is
one of the world's largest distributors of television game shows outside of the
United States. In October 1995, in order to further strengthen its position in
the game show business, the Company formed a 50/50 joint venture with The
Interpublic Group of Companies, Inc. ("Interpublic") which joint venture
acquired substantially all of the assets of Mark Goodson Productions, L.P. and a
related entity (the "Mark Goodson Acquisition"), including ownership of rights
to approximately 40 Goodson game show formats, including The Price Is Right, and
a tape library of approximately 17,000 hours of programming and 30,000 broadcast
episodes. The Company also distributes an extensive library of television
programming and has operated as an independent record company since 1981.
The Company's television operations currently include the production and
domestic distribution of Baywatch, the production and world-wide distribution of
Baywatch Nights and the domestic distribution of The Richard Bey Show. Currently
being telecast for its sixth season, Baywatch has been exhibited by the Company
in first-run syndication since the 1991/1992 broadcast season and is currently
being broadcast to approximately 99% of the U.S. television market. The Company
has also launched a rerun strip syndication package of 111 previously aired
Baywatch episodes for exhibition through September 1997. Through November 7,
1995, the rerun syndication package has been licensed to television stations
covering more than 93% of the U.S. television market. The Company has granted
exclusive rights to such previously aired Baywatch episodes (together with
certain future episodes) to USA Networks for cable and satellite television
exhibition commencing in September 1997 for a three-year period, subject to
certain renewal options in favor of the licensee. See "Business -- Television
Operations -- Domestic Television Production."
Based upon the success of its Baywatch series, the Company has launched a
new one-hour spin-off in first-run syndication, Baywatch Nights, for the
1995/1996 broadcast season. The new series is currently being broadcast to more
than 96% of the U.S. television market. In August 1995, in order to expand its
production activities to network television, the Company entered into a two-year
agreement (subject to a one-year renewal option) with The Gerber Company with
respect to the services of David Gerber who, while head of television
programming at a major studio, was responsible for television programs such as
thirtysomething and In The Heat Of The Night. As head of a production team, Mr.
Gerber is overseeing development of movies-for-television and episodic series
for potential network exhibition. The Company is also distributing The Richard
Bey Show, a daily one-hour talk show in first-run syndication, after having
commenced distribution of the show during the middle of the prior broadcast
year.
The Company's All American Fremantle International, Inc. subsidiary
(together with its related entities, "Fremantle" or "AAFII") currently produces
or distributes approximately 90 game shows in 28 countries, principally in the
local language and based upon formats licensed from U.S. game show producers,
including Mark Goodson Productions, LLC. Thus, for example, Fremantle produces
German language versions of The Price Is Right and Let's Make a Deal which
include German hosts and contestants and which are televised in the German
market. By virtue of the Mark Goodson Acquisition, the Company will be in a
position to expand its television game show business in the United States and on
a world-wide basis.
In addition to its current television programming and projects in
development, the Company distributes, represents or owns participation interests
in an extensive television library of previously aired programming,
3
<PAGE> 6
including more than 50 television series, television rights to over 135 motion
pictures, a variety of children's programming and "live event" specials. Such
programming includes the children's animated series Heathcliff and Inspector
Gadget, documentaries on Marilyn Monroe, John F. Kennedy and Elvis Presley,
contemporary films such as Split Decision with Gene Hackman, The Long Walk Home
with Whoopi Goldberg and Defenseless with Sam Shepard and 11 classic Bob Hope
films. See "Business -- Television Operations -- Domestic Television
Distribution."
The Company's business strategy includes as a principal component the
expansion of the Company through the acquisition of complementary assets or
businesses. In February 1993, the Company completed the acquisition of the
domestic syndication operations and programming assets of LBS Communications,
Inc. In August 1994, the Company completed the acquisition (the "Fremantle
Acquisition") of certain international programming rights and equity of
Fremantle from Interpublic. In October 1995, the Company completed the Mark
Goodson Acquisition. One of the principal purposes of this offering is to
provide the Company with additional working capital potentially available for
future acquisitions. See "Use of Proceeds" and "Business -- Acquisitions."
The Company produces and distributes recorded music both domestically and
internationally. The Company currently has a roster of 15 active recording
artists and a catalog of approximately 140 albums of individual artists, groups
and motion picture soundtracks. These artists include James Brown, Freddie
Jackson, Skee-Lo, 12 Gauge and "Weird Al" Yankovic, and the catalog includes
certain previously released works by such artists, pop/rock groups such as
Survivor and E.L.O. Part II, jazz artists such as Count Basie, Sarah Vaughn and
Dizzy Gillespie and soundtracks from motion pictures and television shows such
as Baywatch, Never Talk to Strangers, Cliffhanger, Rocky IV and Eddie and the
Cruisers. The Company's new product mix primarily focuses on urban and
alternative music under its Street Life label.
All American's principal business strategies are to: (i) develop, produce
and distribute quality television programming on a world-wide basis; (ii)
increase its library of programming for television distribution by both internal
production and acquisition of rights from third parties; (iii) acquire assets or
businesses complementary to its current operations; and (iv) develop its
recorded music operations through both new and established artists and
increasing sales from its catalog.
THE OFFERING
<TABLE>
<S> <C>
Class B Common Stock offered by the Company...... 4,000,000 shares(1)
Class B Common Stock to be outstanding after the
offering....................................... 6,520,000 shares(1)
Common Stock and Class B Common Stock to be
outstanding after the offering................. 12,068,141 shares(1)(2)
Use of proceeds.................................. To reduce indebtedness and for general
corporate purposes, including possible
acquisitions. See "Use of Proceeds."
Nasdaq symbol for Class B Common Stock........... AACIB
</TABLE>
- ---------------
(1) Does not include an additional 600,000 shares of Class B Common Stock which
would be issued in connection with the exercise in full of the Underwriters'
over-allotment option in exchange for the cancellation of an equal number of
shares of Common Stock. See "Underwriting" and "Principal and Selling
Stockholders."
(2) Includes 197,388 shares issued or issuable after September 30, 1995 in
connection with the conversion of $2.3 million principal amount of
Convertible Subordinated Notes through December 6, 1995. Does not include
6,293,063 shares of Common Stock reserved for issuance in respect of
outstanding convertible notes, options and warrants.
4
<PAGE> 7
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA(1)
The following summary selected consolidated financial data are derived from
the Consolidated Financial Statements and the unaudited Condensed Consolidated
Financial Statements of All American Communications, Inc. The data should be
read in conjunction with the Consolidated Financial Statements, unaudited
Condensed Consolidated Financial Statements, related notes, and other financial
information included or incorporated by reference herein.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED TEN MONTHS
SEPTEMBER 30, YEAR ENDED DECEMBER 31, ENDED
----------------------- -------------------------------------------- DECEMBER 31,
1995 1994 1994 1993 1992 1991 1990(2)
-------- -------- ------- ------- ------- ------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL OPERATING DATA:
Revenues:
Television....................... $144,637 $ 54,771 $98,771 $57,407 $45,302 $25,173 $1,332
Recorded music and
merchandising.................. 15,540 10,947 16,130 13,215 12,616 7,758 3,720
------- ------- -------- ------- ------- ------- -------
160,177 65,718 114,901 70,622 57,918 32,931 5,052
------- ------- -------- ------- ------- ------- -------
Expenses:
Television....................... 114,980 41,294 75,196 42,560 32,078 18,337 1,039
Recorded music and
merchandising.................. 12,101 7,102 10,750 9,780 9,250 4,885 762
Selling, general &
administrative................. 18,094 15,472 21,523 16,074 13,471 9,543 2,219
Goodwill amortization............ 1,606 430 971 133 138 67 --
------- ------- -------- ------- ------- ------- -------
146,781 64,298 108,440 68,547 54,937 32,832 4,020
------- ------- -------- ------- ------- ------- -------
Operating income................... $ 13,396 $ 1,420 $ 6,461 $ 2,075 $ 2,981 $ 99 $1,032
======= ======= ======== ======= ======= ======= =======
Income (loss) from continuing
operations....................... $ 4,057 $ (2,667) $ 455 $ 380 $ 1,863 $ 145 $ 244
======= ======= ======== ======= ======= ======= =======
Net income (loss) per share
applicable to common stockholders
from continuing operations(3):
Primary........................ $ 0.50 $ (0.54) $ 0.07 $ 0.87(4) $ (0.18)(5) $ (0.49)(5) $ 0.07
======= ======= ======== ======= ======= ======= =======
Fully diluted.................. $ 0.43 $ (0.54) $ 0.07 $ 0.78(4) $ (0.18)(5) $ (0.49)(5) $ 0.07
======= ======= ======== ======= ======= ======= =======
Weighted average common shares and
share equivalents outstanding(3):
Primary........................ 8,083 4,960 6,201 4,874 4,752 3,970 3,544
======= ======= ======== ======= ======= ======= =======
Fully diluted.................. 13,610 4,960 6,201 6,275 4,752 3,970 3,544
======= ======= ======== ======= ======= ======= =======
</TABLE>
- ---------------
(1) Includes (a) for periods subsequent to February 1991 the combined operations
of Scotti Brothers Entertainment Industries, Inc. ("SBEI") and All American
Television, Inc., certain predecessors of the Company and (b) for periods
subsequent to February 1993 and August 1994, respectively, the combined
operations of the Company including LBS Communications, Inc. and Fremantle,
following their respective dates of purchase by the Company. The data
provided for the periods ended December 31, 1990 through 1994 are derived
from the Consolidated Financial Statements of the Company. The data provided
for the nine months ended September 30, 1995 and 1994 are derived from the
unaudited Condensed Consolidated Financial Statements of the Company. See
"The Company" and "Selected Consolidated Financial Data."
(2) Effective December 31, 1990, the Company changed its fiscal year end to
December 31.
(3) Adjusted to give retroactive effect to a one-for-four reverse stock split
effected on March 20, 1992.
(4) Per share income from continuing operations applicable to common
stockholders for the year ended December 31, 1993 includes a gain of $3.9
million, which represents the excess carrying value of redeemable preferred
and common stock formerly outstanding over the price paid for its purchase,
net of accretion and dividends on such redeemable stock.
(5) Per share income from continuing operations applicable to common
stockholders for the years ended December 31, 1992 and December 31, 1991
includes the effect of $2.7 million and $2.1 million, respectively, of
accretion and dividends on redeemable stock.
5
<PAGE> 8
CERTAIN PRO FORMA DATA(1)
The following unaudited pro forma operating data for the nine months ended
September 30, 1995 and the pro forma balance sheet data as of September 30, 1995
give effect to the Mark Goodson Acquisition (which is being accounted for as of
October 1995 using the equity method) and this offering. The unaudited pro forma
operating data for the year ended December 31, 1994 and the nine months ended
September 30, 1994 give effect to the Fremantle Acquisition (which was accounted
for as a purchase in August 1994) and is then further adjusted to give effect
for the Mark Goodson Acquisition and this offering. The unaudited pro forma
operating data have been prepared as if the aforementioned transactions had
occurred at the beginning of the earliest period presented (January 1, 1994).
The unaudited pro forma balance sheet data have been prepared as if the Mark
Goodson Acquisition and the sale of the Class B Common Stock had occurred at the
end of the latest period presented (September 30, 1995).
PRO FORMA OPERATING DATA:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED
------------------------------------------------------ DECEMBER 31, 1994
1994 -----------------------------------
1995 --------------------------------- AS FURTHER
---------------- AS FURTHER ADJUSTED(2)(3)
AS ADJUSTED(2) AS ADJUSTED(3) ADJUSTED(2)(3) AS ADJUSTED(3) -
---------------- -------------- ---------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue..................... $160,177 $ 96,282 $ 96,282 $145,465 $145,465
Goodwill amortization....... 2,616 1,613 2,506 2,154 3,344
Operating income............ 14,962 1,691 3,337 6,732 8,987
Equity earnings in
unconsolidated
affiliate................. 4,569 -- 4,410 -- 5,860
Interest expense, net....... 6,135 5,546 7,239 7,590 9,114
Net income (loss)........... 7,909 (4,224) 166 (1,102) 3,391
Net income (loss) per share:
Primary................... 0.65 (0.52) 0.01 (0.14) 0.28
Fully diluted............. 0.55 (0.52) 0.01 (0.14) 0.28
Weighted average common
shares and common share
equivalents outstanding:
Primary................... 12,130 8,110 12,163 7,976 12,042
Fully diluted............. 17,610 8,110 12,163 7,976 12,042
</TABLE>
PRO FORMA BALANCE SHEET DATA:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
-----------------------------
ACTUAL AS ADJUSTED(2)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
Cash, including restricted cash....................................................... $ 15,348 $ 15,348
Receivables, net...................................................................... 101,253 101,253
Television program costs, net......................................................... 76,025 76,025
Investment in unconsolidated affiliate................................................ -- 26,000
Goodwill.............................................................................. 49,939 49,939
Total assets.......................................................................... 255,661 281,661
Notes payable......................................................................... 135,300 [
Total liabilities..................................................................... 223,214
Stockholders' equity.................................................................. 32,447 ]
</TABLE>
- ---------------
(1) The pro forma information presented above is prepared for comparative
purposes only and does not purport to be indicative of what would have
occurred had the acquisitions and the offering been made at the dates
indicated, or of the results which may occur in the future. The unaudited
pro forma data do not give effect to the possible exercise by the Company of
an option (the "Interpublic Option") to purchase the remaining 50% interest
in the joint venture formed to consummate the Mark Goodson Acquisition
during the six-month period commencing April 30, 1996. See
"Business -- Acquisitions."
(2) Adjusted for the Mark Goodson Acquisition and this offering and the
application of the estimated proceeds therefrom. See "Use of Proceeds."
(3) Adjusted for the Fremantle Acquisition.
6
<PAGE> 9
RISK FACTORS
Prospective investors should consider carefully the following factors, as
well as all of the other information set forth in this Prospectus, in evaluating
an investment in the Class B Common Stock offered hereby.
DEPENDENCE ON A LIMITED NUMBER OF PROJECTS
The Company's revenues have been derived principally from a relatively
small number of television projects and recorded music releases. The loss of a
major project in any period, unless replaced by new projects, could have an
adverse effect on the Company's results of operations. The agreements between
the Company and the various television stations which broadcast Baywatch and
Baywatch Nights do not have automatic renewal provisions and typically expire at
the end of each broadcast year. The decision to renew a particular project is
made during the prior broadcast year and is based on a number of factors,
including ratings, availability of principal talent and estimated clearances
from local television stations. There is no assurance that these television
projects will be renewed for the 1996/1997 broadcast season. In addition, there
is no assurance that Baywatch, which contributed approximately 33%, 31% and 41%
of the Company's revenues during the nine month period ended September 30, 1995
and the years ended December 31, 1994 and 1993, respectively, will continue at
its historical level of success in the 1995/1996 television season or that it
will be successful in rerun syndication. There is no assurance that Baywatch
Nights, the Company's new series in first-run syndication, will be successful.
Additionally, a significant amount (approximately 32% for the nine month period
ended September 30, 1995 and approximately 42% in 1994 and 58% in 1993) of the
Company's revenues from television operations are derived from barter sales,
which may fluctuate significantly based on ratings and viewer demographics of a
particular program and general economic trends, such as advertising rates. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
LIQUIDITY AND FINANCING REQUIREMENTS
The Company's television and recorded music operations require significant
cash outlays. The Company experienced significant negative cash flows from
operations in the approximate amounts of $16.2 million in the nine month period
ended September 30, 1995, and $14.7 million and $19.3 million in the years ended
December 31, 1994 and 1993, respectively, due primarily to net increases in
capitalized television program costs. This negative cash flow was funded by an
increase in bank financings and the sale of the Company's 6 1/2% Convertible
Subordinated Notes due 2003 (the "Notes"). The Company expects to continue to
experience, from time to time, negative cash flows from operations. In such
event, the Company may be required to fund at least a portion of production and
recording costs, pending receipt of licensing revenues, out of its lines of
credit or from outside sources. The Company believes that its existing working
capital, together with the net proceeds from the offering, its lines of credit
and anticipated cash flows from operations, will be sufficient to satisfy the
Company's operating requirements for at least the next twelve months. However,
there can be no assurance that there will be adequate liquidity or financing
available to the Company for all of its capital requirements in the future. In
addition, the liquidity provided to the Company by this offering may be
partially utilized if the Company exercises the Interpublic Option or certain
additional rights are exercised by the Company or Interpublic. See "Use of
Proceeds", "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and
"Business -- Acquisitions."
The Company, from time to time, considers the acquisition of program rights
and the expansion of its business through the acquisition of businesses
complementary to the current operations of the Company. Consummation of any such
acquisition or other expansion of the business conducted by the Company, if
beyond the Company's capital resources, would be subject to the Company securing
additional financing to the extent required. There is no assurance, however,
that suitable acquisition or expansion opportunities will be identified by the
Company.
7
<PAGE> 10
EXPANSION RISKS
The Company has experienced significant revenue growth since 1991, in
substantial part due to acquisitions, and the Company continues to regularly
evaluate potential acquisitions. No assurance can be given that the recently
completed Mark Goodson Acquisition or any other acquisition will be successful.
There can be no assurance that the Company will consummate any other
acquisitions or that any recent or future expansions of the Company's operations
will be profitable. The Company's ability to achieve its expansion plans will
depend on a variety of factors, many of which may be beyond the Company's
control, including the Company's ability to identify and negotiate satisfactory
terms with acquisition targets, obtain additional capital on satisfactory terms,
operate its business profitably and attract and retain qualified and experienced
personnel.
CERTAIN RISKS RELATING TO THE MARK GOODSON ACQUISITION
There is no assurance that the Mark Goodson Acquisition will be successful.
In particular, with respect to the 1995/1996 broadcast season, the only Mark
Goodson Productions game show in production for the domestic market is "The
Price Is Right" hosted by Bob Barker and there is no assurance that the show
will be renewed for the 1996/1997 broadcast season. In addition, pursuant to the
operative documents relating to the limited liability company which purchased
the assets in the Mark Goodson Acquisition, under certain circumstances
Interpublic may exercise certain "put" rights and the Company may exercise the
Interpublic Option or certain "call" rights, any of which would reduce the
Company's liquidity and shift 100% of the risk of the Mark Goodson Acquisition
to the Company. See "Business -- Acquisitions."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts and abilities of certain of its
senior management, particularly those of Anthony J. Scotti, the Company's
co-founder and chief executive officer. The loss of the services of the
Company's key executives could have an adverse effect on the business and
prospects of the Company if suitable replacements were not promptly obtained.
The Company maintains $10.0 million "key man" life insurance policies on each of
Anthony J. Scotti and Lawrence E. Lamattina (the chief executive officer of All
American Fremantle Television Group) which are payable first to the Company's
principal bank lenders for so long as amounts on the Company's credit facilities
remain outstanding. The name and the logo "Scotti Brothers Records" and all
other rights to use the name "Scotti" belong to Anthony J. Scotti and his
brother, Benjamin J. Scotti (the Company's co-founder and Senior Executive Vice
President). The Company will no longer be permitted to use such name and logo in
the event that either of them is no longer employed by the Company (unless
amounts are then outstanding on the Company's credit facilities). In addition,
the Company's credit facilities permit the lenders to terminate the commitments
and/or declare all outstanding principal and interest amounts forthwith due and
payable if Anthony J. Scotti or all three of the following: Thomas Bradshaw,
Myron Roth and Lawrence E. Lamattina cease to be active in the business of the
Company. Furthermore, any project in production by the Company may be dependent
upon the availability of material talent involved in such projects, the loss of
whom could have a negative impact on the operating results of the Company.
FLUCTUATIONS IN RESULTS OF OPERATIONS
A large percentage of a television program's revenues are recognized when
the program is delivered, or, in the case of syndicated reruns, available for
broadcast. As a result, significant fluctuations in the Company's total revenues
and net income can occur from period to period depending on the delivery or
availability dates of programs. The Company's television distribution revenues
have historically been higher in the third and fourth quarters as a result of
the commencement of the television broadcast season in the fall of each year.
Pursuant to the Company's accounting policy, as required under generally
accepted accounting principles, capitalized television program costs are
reviewed on a quarterly basis and any portion of such costs that subsequently
appear not to be fully recoverable from future revenues are charged to expense
during the period in which the loss becomes evident. As a result, some quarters
or years will have fluctuating levels of expenses due to such losses. The
Company's recorded music operations are also subject to fluctuations due to the
timing of album releases (which may generate significant revenues in the period
in which the release occurs) and to
8
<PAGE> 11
the timing of the recognition of artist cost expense (which may occur during a
period prior to determination of actual sales of an album).
From March 31, 1993 through the quarter ended September 30, 1995, the
Company's quarterly revenues have ranged from approximately $7.6 million to
$85.2 million, and quarterly net income before accretion and dividends on
redeemable stock has ranged from a net loss of approximately $3.8 million to a
net profit of approximately $5.6 million. Year to year comparisons of quarterly
results may not be meaningful and quarterly operating results during the course
of a fiscal year may not be indicative of results that may be expected for the
entire fiscal year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Quarterly Results of Operations."
COMPETITION
Competition is intense within the television and recorded music industries
and between each of these industries and other entertainment media. The Company
is in competition with major television and recorded music companies as well as
with numerous smaller companies for the services of performing artists, other
creative and technical personnel and creative material. Many of the entities
that the Company competes against have far greater financial and managerial
resources than the Company. There can be no assurance that the Company will
continue to acquire rights to additional successful properties or enter into
agreements for the financing, production or licensing of television programs or
musical recordings on terms favorable to the Company. Furthermore, the Company's
success is highly dependent upon various unpredictable factors such as the
viewing preferences of television audiences and the popularity of new releases
of recorded music.
LIMITATIONS ON CLASS B STOCKHOLDERS' ABILITY TO VOTE
The shares of Class B Common Stock have no voting rights except as required
by law. Therefore, the holders of shares of Class B Common Stock will have no
ability to elect any directors and no vote on such significant issues as whether
to dissolve, merge or sell the assets of the Company. Prospective investors in
the Class B Common Stock should note that (i) the Company can issue additional
voting shares of Common Stock at any time, and (ii) the shares of Class B Common
Stock only become voting shares in the event of a "change in control" (as
defined in the Company's certificate of incorporation) of the Company. See
"Description of Capital Stock."
CONTROL BY MANAGEMENT
Upon consummation of the offering (assuming no additional conversions of
the Notes or exercise of outstanding warrants or options or of the
over-allotment option), approximately 69% of the outstanding shares of Common
Stock will be beneficially held by executive officers and directors of the
Company. Anthony J. Scotti, together with Benjamin J. Scotti, beneficially holds
approximately 67% of the outstanding shares of Common Stock and thereby
effectively controls the Company. Accordingly, senior management (primarily
Anthony J. Scotti) will continue to be in a position to elect the entire Board
of Directors of the Company, and to determine whether to dissolve, merge or sell
the assets of the Company and, generally, to direct the affairs of the Company.
The Board of Directors of the Company has approved an amendment to the Company's
charter, subject to stockholder and Nasdaq approval, which would enable holders
of Common Stock to convert such shares into Class B Common Stock on a
one-for-one basis. To the extent such amendment is adopted and non-management
holders of Common Stock choose to convert into shares of Class B Common Stock,
the management holders will have an increased concentration of ownership of
Common Stock. See "Description of Capital Stock."
CHANGE OF CONTROL
Anthony J. Scotti (together with certain related persons and Company
affiliates) controls the Company and, through such ownership, the related power
ultimately to elect all of the Company's directors. In the event of a "change of
control" of the Company as variously defined in particular contractual
provisions (generally the sale of the Company or the acquisition by persons
other than Mr. Scotti and related persons of more than 50% of the outstanding
Common Stock or the beneficial ownership by Mr. Scotti and related persons of
less
9
<PAGE> 12
than a specified percentage of the Common Stock) various potentially adverse
consequences could occur. Such consequences include the potential acceleration
of the Company's secured bank debt, mandatory prepayment of the Notes, exercise
by Interpublic of certain "put" rights to the Company with respect to its
interest in the Mark Goodson Acquisition, accelerated vesting of employee stock
options, loss of the right to use the name "Scotti" and the automatic conversion
of the Class B Common Stock into Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Description of
Capital Stock." The cumulative impact of such provisions may have the effect of
discouraging certain types of transactions involving an actual or potential
change of control of the Company, including transactions in which the holders of
Common Stock or Class B Common Stock might otherwise receive a premium for their
shares over the current market prices.
NATURE OF THE ENTERTAINMENT INDUSTRY
The television and recorded music industries are highly speculative and
historically have involved a substantial degree of risk. The success of an
individual television program or musical recording depends upon unpredictable
and changing factors, such as personal tastes of the public and critics.
Therefore, there is a substantial risk that any of the Company's projects will
not be successful, resulting in costs not being recouped and anticipated profits
not being realized. Although the Company attempts to limit various risks
involved with production through various activities including obtaining
insurance and completion bonds, and entering into co-productions and pre-sales,
in selected projects and in its distribution activities the Company expects to
continue to take significant financial risks in return for more favorable
participation in potential revenues over the life of the programs. Public taste
is unpredictable and a shift in demand could cause the Company's television
programming to lose its appeal. The Company's television syndication barter
business is also impacted by advertising rates, which to the extent they may
decline, will have an adverse impact on the Company. For a description of the
barter syndication business, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview." In addition, because
the success of recording artists and releases is highly dependent on consumer
taste and critical response, as well as public awareness of recording artists,
the level of marketing and promotional activities and expenses necessary or
advisable in any particular instance cannot be predicted with certainty.
GOVERNMENT REGULATION
In a decision released September 6, 1995, the Federal Communications
Commission ("FCC") repealed its financial interest and syndication rules
effective as of September 21, 1995. Those FCC rules, which were adopted in 1970
to limit television network control over television programming and thereby
foster the development of diverse programming sources, had restricted the
ability of the three established, major U.S. television networks (i.e., ABC, CBS
and NBC), to own and syndicate television programming. The impact of the repeal
of the FCC's financial interest and syndication rules on the Company's
operations cannot be predicted at the present time, although it is expected that
there will be an increase in in-house productions of television programming for
the networks' own use. It is possible that this change will have a negative
impact on the Company's business. Additionally, in international markets, the
Company may be subject to local content and quota requirements which effectively
prohibit or limit access to particular markets.
In a decision released September 1, 1995, the FCC repealed the Prime Time
Access Rule, effective August 30, 1996. The Prime Time Access Rule generally
prohibits network-affiliated television stations in the top 50 television
markets from broadcasting more than three hours of network programs, or programs
previously aired on a network during the four prime time viewing hours (i.e.,
7:00 p.m. - 11:00 p.m. Eastern and Pacific times, and 6:00 p.m. - 10:00 p.m.
Central and Mountain times). Due to the Prime Time Access Rule,
network-affiliated television stations often acquire a certain amount of
programming (typically including game shows) for exhibition during the prime
time access period from independent television producers and syndicators. While
the Company's sale of syndicated programming during prime time is primarily to
independent television stations rather than to network-affiliated stations, it
is possible that the repeal of the Prime Time Access Rule may constrict the
market for the Company's television programming product and that the Company
might be subject to increased competition.
10
<PAGE> 13
FOREIGN CURRENCY EXCHANGE RATE RISK
The operations of the Company's foreign entities are measured in
substantial part in local currencies. For reporting purposes, assets and
liabilities are translated into United States dollars using exchange rates in
effect at the end of each reporting period. Revenues and expenses are translated
into U.S. dollars at the average exchange rates prevailing during the period.
The Company has not purchased financial instruments designed to hedge or
minimize such foreign currency exposure. To the extent the Company does not
enter into such agreements, the Company can expect to record foreign exchange
losses and gains in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Nine Months Ended September 30,
1995 Compared to Nine Months Ended September 30, 1994."
BROAD DISCRETION AS TO USE OF PROCEEDS
The Company intends to use a substantial portion of the net proceeds of the
offering for general corporate purposes, which may include the acquisition of
program rights and the acquisition of businesses complementary to the current
operations of the Company. The Company has not entered into any such acquisition
agreement and has not yet determined the extent to which it will expand its
program rights. As a result, a significant portion of the net proceeds will be
available for acquisitions and projects that are not yet identified, and the
Board of Directors will have broad discretion with respect to the application of
such proceeds. In addition, the Company may use a portion of the net proceeds of
this offering to exercise the Interpublic Option, in the event the Company
determines to exercise such option, to acquire a 100% interest in the Mark
Goodson Acquisition. The Company may not be able to consummate acquisitions or
identify and arrange projects that meet the Company's requirements. See "Use of
Proceeds."
NO PRIOR MARKET FOR THE CLASS B COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
There has been no prior market for the Class B Common Stock, and no
assurance can be given that a viable public market will develop or be sustained
after this offering. The public offering price has been determined with
reference to the market price of the Company's Common Stock. Although the Class
B Common Stock is generally the same as the Common Stock, it is non-voting and,
as a consequence, may trade at a discount to the Common Stock. In addition, the
market price of the Class B Common Stock could be subject to substantial
fluctuations in response to variances in quarterly financial results, the market
price of the Common Stock, general trends in the Company's industry, general
economic conditions and other factors. See "Market for Common Stock and
Dividends" and "Underwriting."
SHARES AVAILABLE FOR FUTURE SALE
The prevailing market price of the Class B Common Stock could be adversely
affected by the availability of shares for sale or actual sales of substantial
amounts of Class B Common Stock or Common Stock by existing stockholders. Upon
completion of this offering, there will be 6,520,000 shares of Class B Common
Stock outstanding (assuming no exercise of the Underwriters' over-allotment
option). There is currently one holder of Class B Common Stock, Interpublic,
which has 2,520,000 shares, all of which are "restricted securities" subject to
Rule 144 promulgated under the Securities Act of 1933, as amended (the
"Securities Act"); however, Interpublic has demand and piggyback registration
rights with respect to all of such shares. Interpublic has agreed with the
Representatives of the Underwriters (the "Representatives") that it will not
publicly offer for sale, sell, distribute, grant any option for the sale of or
otherwise encumber or dispose of, directly or indirectly, or exercise
registration rights with respect to, any shares of Common Stock or Class B
Common Stock (or any securities convertible into, exercisable for or
exchangeable for such shares) for a period of 180 days from the date hereof
without the prior written consent of the Company and the Representatives. Sales
of substantial numbers of shares of Class B Common Stock on the public market
(or the perception that such sales would occur) could adversely affect the
market price of the Class B Common Stock and could impair the Company's future
ability to raise capital through a public offering of additional equity
securities.
Upon completion of this offering, there will be 5,623,359 shares of Common
Stock outstanding (after reflecting the conversion of $2.3 million principal
value of the Notes into 197,388 shares of Common Stock for
11
<PAGE> 14
which the Company had received conversion notices as of November 30, 1995) prior
to additional conversions of the Notes (which are convertible at $11.50 per
share into 5,020,000 shares of Common Stock subject to adjustment under certain
circumstances) and assuming no exercise of the Underwriters' over-allotment
option (in connection with which up to 600,000 outstanding shares of Common
Stock would be exchanged by certain stockholders named under "Principal and
Selling Stockholders" for an equal number of newly-issued shares of Class B
Common Stock and retired). The number of shares of Common Stock outstanding is
also subject to increase upon exercise of outstanding options and warrants. Of
the currently outstanding shares of Common Stock, 1,229,594 shares are freely
tradeable by non-affiliates without restriction under the Securities Act, and
holders of an additional 4,393,765 outstanding shares of Common Stock may sell
their shares at any time subject to the volume, timing and manner of sale
limitations under Rule 144 of the Securities Act. All of the 5,020,000 shares of
Common Stock currently issuable upon conversion of the Notes are freely
tradeable upon issuance without restriction under the Securities Act pursuant to
an effective registration statement or exemption from registration. An
additional 1,273,063 shares of Common Stock are issuable pursuant to options and
warrants, of which 404,863 shares are vested and all such shares, upon vesting,
may be freely tradeable upon issuance without restriction under the Securities
Act. The Company has filed a Registration Statement on Form S-8 under the
Securities Act to register all of the shares granted pursuant to the Company's
employee stock option plans.
Officers and directors of the Company holding an aggregate amount of
3,763,765 shares of Common Stock and the holders of options and warrants
exercisable for an aggregate of 657,500 shares of Common Stock, of which 91,300
shares are currently vested, have agreed not to offer for sale, sell,
distribute, grant any option for the sale of or otherwise encumber or dispose
of, directly or indirectly, or exercise registration rights with respect to
shares of Common Stock or Class B Common Stock (or any securities convertible
into, exercisable for or exchangeable for such shares), other than in connection
with an exercise by the Underwriters of the over-allotment option, so long as
such persons are employees of the Company, for a period of 180 days after the
date of this Prospectus without the prior written consent of the
Representatives. See "Description of Capital Stock -- Shares Available for
Future Sale."
The Company has agreed not to offer for sale, sell, distribute or otherwise
dispose of, directly or indirectly, shares of Common Stock or Class B Common
Stock (or any securities convertible into, exercisable for or exchangeable for
such shares) for a period of 180 days after the date of this Prospectus without
the prior written consent of the Representatives; provided however, that the
Company may issue shares of Common Stock or Class B Common Stock, as the case
may be, (i) in connection with this offering or the Underwriters' over-allotment
option, (ii) pursuant to any employee benefit plan, (iii) upon conversion of the
Notes or exercise of outstanding options or warrants, (iv) upon conversion of
shares of Common Stock into Class B Common Stock (following amendment of the
Company's charter), (v) pursuant to a merger, acquisition or other business
combination or in a private placement to one or more strategic investors (as
determined in good faith by the Company's Board of Directors) or (vi) pursuant
to a prior agreement with a specified individual in an amount not to exceed
15,000 shares.
12
<PAGE> 15
THE COMPANY
The Company is a leading independent supplier of syndicated television
programming, including the production and domestic distribution of Baywatch,
currently one of the highest rated one-hour series in first-run syndication and
seen in more than 100 countries around the world. In addition, the Company is
one of the world's largest distributors of television game shows outside of the
United States. In October 1995, in order to further strengthen its position in
the game show business, the Company formed a 50/50 joint venture with The
Interpublic Group of Companies, Inc. ("Interpublic") which joint venture
acquired substantially all of the assets of Mark Goodson Productions, L.P. and a
related entity (the "Mark Goodson Acquisition"), including ownership of rights
to approximately 40 Goodson game show formats, including The Price Is Right, and
a tape library of approximately 17,000 hours of programming and 30,000 broadcast
episodes. The Company also distributes an extensive library of television
programming and has operated as an independent record producer.
The Company is the successor of All American Television, Inc., a Delaware
corporation primarily engaged in the distribution of television programming. All
American Television, Inc. had distributed certain television programming
produced by Scotti Brothers Entertainment Industries, Inc., a Delaware
corporation ("SBEI"), among its other business activities. On February 25, 1991,
a wholly-owned subsidiary of All American Television, Inc. was merged into SBEI,
and SBEI became a wholly-owned subsidiary of the Company. On such date, the
Company changed its name to "All American Communications, Inc." and the
pre-merger operations of All American Television, Inc. were contributed to
another wholly-owned subsidiary of the Company (named All American Television,
Inc. and referred to herein as "AATV"). In February 1993 the Company acquired
LBS Communications, Inc. (the "LBS Acquisition"), which became a wholly-owned
subsidiary of the Company. In August 1994 the Company completed the acquisition
of certain assets and securities, and assumed certain liabilities, of Fremantle
International, Inc. (the "Fremantle Acquisition"). In October 1995 a joint
venture of which the Company is a member consummated the Mark Goodson
Acquisition. See "Business -- Acquisitions."
The Company's principal executive offices are presently located at 2114
Pico Boulevard, Santa Monica, California 90405 and its telephone number is (310)
450-3193.
USE OF PROCEEDS
The net proceeds from the sale of the shares of Class B Common Stock
offered hereby are estimated to be $ million.
The Company intends to use a substantial portion of the net proceeds for
general corporate purposes, which may include the acquisition of program rights
and the acquisition of businesses complementary to the current operations of the
Company. On an interim basis, the Company intends to use the net proceeds to
repay outstanding revolving debt under its Working Capital and Production Lines
(as defined in "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources") under which an
aggregate of $52.0 million was outstanding on December 7, 1995 and $47.8 million
was outstanding on September 30, 1995. The lines of credit accrue interest at
annual rates based upon specified margins over LIBOR (accruing as of December 7,
1995 at 8.56%) or the bank's Alternate Base Rate (accruing as of December 7,
1995 at 10.5%) and are scheduled to mature on April 13, 1999. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Company has not entered into any acquisition agreements other than as
disclosed herein and has not determined the extent to which it will expand its
business by acquisitions, as contrasted with internal growth. As a result, the
Company has no specific plans at this time for a significant portion of the net
proceeds of this offering. A significant portion of the net proceeds may be
available for acquisitions and projects that are not yet identified, and the
Board of Directors will have broad discretion with respect to the application of
such proceeds. Without limiting the generality of the foregoing, the Company may
use a portion of the net proceeds to fund the exercise of the Interpublic Option
to acquire a 100% interest in the Mark Goodson Acquisition at an initial
exercise price of approximately $25.9 million, subject to increase at a notional
rate equal to 7% per
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<PAGE> 16
annum during the six month term of the Interpublic Option. No determination has
been made by the Company whether or not to exercise the Interpublic Option. Any
such determination may be based upon, among other things, the availability of
sufficient resources to exercise the option, the renewal or non-renewal of The
Price Is Right and management's business judgment as to the best use of the
Company's resources during the option exercise period. See
"Business -- Acquisitions." The exercise by the Company of the Interpublic
Option or consummation of any other acquisition is subject to obtaining the
consent of the banks under the Company's existing credit facilities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." The Company may not be able to
consummate acquisitions or identify and arrange projects that meet the Company's
requirements.
Pending such use, the balance of the net proceeds from the offering not
used to pay down outstanding revolving debt, if any, will be placed in
short-term, interest-bearing, investment-grade debt securities, certificates of
deposit or guaranteed obligations of the United States of America.
14
<PAGE> 17
MARKET FOR COMMON STOCK AND DIVIDENDS
MARKET INFORMATION
The Common Stock is traded in the over-the-counter market under the symbol
AACI. The following table sets forth, for the periods indicated, the range of
low and high bid quotations for the Common Stock as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System ("Nasdaq")
SmallCap Market. The prices reflect inter-dealer quotations without retail
mark-ups, mark-downs or commissions and may not represent actual transactions.
Prior to this offering, there was no public market for the Class B Common Stock.
The Class B Common Stock has been approved for quotation on the NNM, under the
symbol "AACIB", subject to notification of issuance. There is no assurance that
the prices set forth below will prevail for the Class B Common Stock.
<TABLE>
<CAPTION>
LOW HIGH
----- -----
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1993
First Quarter.............................................................. 6.50 7.75
Second Quarter............................................................. 6.75 8.25
Third Quarter.............................................................. 7.00 10.25
Fourth Quarter............................................................. 7.25 10.50
YEAR ENDED DECEMBER 31, 1994
First Quarter.............................................................. 7.25 9.75
Second Quarter............................................................. 7.00 9.25
Third Quarter.............................................................. 7.00 9.75
Fourth Quarter............................................................. 5.25 7.25
YEAR ENDED DECEMBER 31, 1995
First Quarter.............................................................. 6.25 10.00
Second Quarter............................................................. 8.25 11.50
Third Quarter.............................................................. 9.75 13.69
Fourth Quarter (through December 7, 1995).................................. 10.50 13.00
</TABLE>
- ---------------
On December 7, 1995, the closing bid and ask prices of the Common Stock as
reported on Nasdaq were $10.50 and $11.25 per share, respectively. As of
December 7, 1995, there were 77 holders of record of the Common Stock and one
holder of the Class B Common Stock.
DIVIDENDS
The Company has never declared or paid a cash dividend on its Common Stock
or Class B Common Stock. The Company currently intends to retain all earnings to
finance the continued growth of the Company's business and does not anticipate
paying any cash dividends in the foreseeable future on its Common Stock or Class
B Common Stock. In addition, the Company's bank agreements prohibit the
declaration and payment of dividends on the Common Stock and Class B Common
Stock. See "Management's Discussion and Analysis and Results of
Operations -- Liquidity and Capital Resources."
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<PAGE> 18
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1995 and as adjusted to give effect to the Mark
Goodson Acquisition and to further give effect to the sale of shares of Class B
Common Stock being offered hereby (assuming the Underwriters' over-allotment
option is not exercised) and the application of the estimated net proceeds
therefrom. See "Use of Proceeds." This information should be read in conjunction
with the audited Consolidated Financial Sstatements of the Company as of
December 31, 1994 and 1993 and for the three years ended December 31, 1994 and
the unaudited Condensed Consolidated Financial Statements for the nine month
periods ended September 30, 1995 and 1994, and the related notes thereto,
included elsewhere herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
----------------------------------------------
AS ADJUSTED
FOR THE AS FURTHER
MARK GOODSON ADJUSTED
ACTUAL ACQUISITION FOR THE OFFERING
-------- ------------ ----------------
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C>
Notes payable:
Television production facilities................... $ 31,700 $ 31,700 $ []
Working capital facilities......................... 16,100 16,100 --
Term loans......................................... 27,500 52,500 52,500
Convertible Subordinated Notes Due 2003(1)......... 60,000 60,000 60,000
-------- -------- --------
Total notes payable........................ 135,300 160,300 []
-------- -------- --------
Stockholders' equity:
Common stock, $.0001 par value, authorized
20,000,000 shares; 5,455,971 shares issued and
outstanding(1).................................. 1 1 1
Class B common stock, $.0001 par value, authorized
20,000,000 shares; 2,520,000 issued and
outstanding; 6,520,000 shares issued and
outstanding as further adjusted................. -- -- 1
Additional paid-in capital......................... 28,751 28,751 []
Retained earnings.................................. 3,748 3,748 3,748
Other.............................................. (53) (53) (53)
-------- -------- --------
Total stockholders' equity...................... 32,447 32,447 []
-------- -------- --------
Total capitalization....................... $167,747 $192,747 $ []
======== ======== ========
</TABLE>
- ---------------
(1) Holders of an aggregate of $2.3 million principal amount of the Notes have
converted or requested to convert such Notes into Common Stock (197,388
shares) through December 6, 1995.
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<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA(1)
The following selected consolidated financial data are derived from the
Consolidated Financial Statements and the unaudited Condensed Consolidated
Financial Statements of All American Communications, Inc. The data should be
read in conjunction with the Consolidated Financial Statements, the unaudited
Condensed Consolidated Financial Statements, related notes, and other financial
information included or incorporated by reference herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
TEN MONTHS
SEPTEMBER 30, YEAR ENDED DECEMBER 31, ENDED
-------------------- ----------------------------------------------- DECEMBER 31,
1995 1994 1994 1993 1992 1991 1990(2)
-------- -------- -------- -------- ------- ------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues
Television.......................... $144,637 $ 54,771 $ 98,771 $ 57,407 $45,302 $25,173 $ 1,332
Recorded music and merchandising.... 15,540 10,947 16,130 13,215 12,616 7,758 3,720
-------- ------- -------- -------- ------- ------- -------
160,177 65,718 114,901 70,622 57,918 32,931 5,052
-------- ------- -------- -------- ------- ------- -------
Expenses
Television.......................... 114,980 41,294 75,196 42,560 32,078 18,337 1,039
Recorded music and merchandising.... 12,101 7,102 10,750 9,780 9,250 4,885 762
Selling, general & administrative... 18,094 15,472 21,523 16,074 13,471 9,543 2,219
Goodwill amortization............... 1,606 430 971 133 138 67 --
-------- ------- -------- -------- ------- ------- -------
146,781 64,298 108,440 68,547 54,937 32,832 4,020
-------- ------- -------- -------- ------- ------- -------
Operating income...................... $ 13,396 $ 1,420 $ 6,461 $ 2,075 $ 2,981 $ 99 $ 1,032
======== ======= ======== ======== ======= ======= =======
Income (loss) from continuing
operations.......................... $ 4,057 $ (2,667) $ 455 $ 380 $ 1,863 $ 145 $ 244
======== ======= ======== ======== ======= ======= =======
Net income (loss) per share applicable
to common stockholders from
continuing operations(3):
Primary........................... $ 0.50 $ (0.54) $ 0.07 $ 0.87(4) $ (0.18)(5) $ (0.49)(5) $ 0.07
======== ======= ======== ======== ======= ======= =======
Fully diluted..................... $ 0.43 $ (0.54) $ 0.07 $ 0.78(4) $ (0.18)(5) $ (0.49)(5) $ 0.07
======== ======= ======== ======== ======= ======= =======
BALANCE SHEET DATA:
Cash, including restricted cash....... $ 15,348 $ 11,386 $ 11,908 $ 3,404 $ 572 $ 793 $ 340
Receivables, net...................... 101,253 54,399 62,338 43,226 27,178 16,769 2,825
Television program costs, net......... 76,025 58,499 68,437 52,381 33,993 19,293 12,255
Goodwill, net......................... 49,939 48,025 51,545 2,395 1,883 1,954 --
Total assets.......................... 255,661 186,323 208,007 112,521 74,130 46,856 18,963
Due to producers...................... 25,547 25,978 27,278 22,086 17,237 10,056 --
Notes payable......................... 135,300 108,575 115,343 60,424 11,234 10,419 14,716
Total liabilities..................... 223,214 161,528 179,924 104,768 51,084 29,301 15,852
Redeemable stock:
Preferred........................... -- -- -- -- 11,124 10,496 --
Common.............................. -- -- -- -- 9,241 7,941 --
Retained earnings (accumulated
deficit)............................ 3,748 (3,431) (309) (764)(6) (1,144)(6) (524)(6) 2,811
</TABLE>
- ---------------
(1) The Selected Consolidated Financial Data for periods subsequent to February
1993 and August 1994 include the combined operations of LBS Communications,
Inc. and the Company and Fremantle International, Inc. and the Company,
respectively. The LBS and the Fremantle Acquisitions were each accounted for
as a purchase by the Company. The financial data for periods subsequent to
February 1991 include the combined operations of Scotti Brothers
Entertainment Industries, Inc., a Delaware corporation ("SBEI") and All
American Television, Inc. SBEI merged into All American Television, Inc. in
February 1991, which was accounted for as a purchase by SBEI of All American
Television, Inc. The Selected Consolidated Financial Data reflect the
financial results of SBEI for periods prior to February 1991. The data
provided for the periods ended December 31, 1990 through 1994 are derived
from the Consolidated Financial Statements of the Company. The data provided
for the nine months ended September 30, 1995 and 1994 are derived from the
unaudited Condensed Consolidated Financial Statements of the Company
included elsewhere herein.
(2) Effective December 31, 1990, the Company changed its fiscal year end to
December 31.
(3) Adjusted to give retroactive effect to a one-for-four reverse stock split
effected on March 20, 1992.
(4) Per share income from continuing operations applicable to common
stockholders for the year ended December 31, 1993 includes a gain of $3.9
million, which represents the excess carrying value of redeemable preferred
and common stock formerly outstanding over the price paid for its purchase,
net of accretion and dividends on such redeemable stock.
(5) Per share income from continuing operations applicable to common
stockholders for the years ended December 31, 1992 and December 31, 1991
includes the effect of $2.7 million and $2.1 million, respectively, of
accretion and dividends on redeemable stock.
(6) The Company charged approximately $1.5 million during each of the years
ended December 31, 1992 and December 31, 1991 against retained earnings for
accretion on redeemable stock and dividends on preferred stock. The gain of
$3.9 million recorded during the year ended December 31, 1993 (see Note (4)
above) was credited to additional paid in capital.
17
<PAGE> 20
CERTAIN PRO FORMA INFORMATION
The following unaudited pro forma condensed consolidated balance sheet as
of September 30, 1995 and the pro forma condensed consolidated statements of
operations for the nine months ended September 30, 1995 and 1994 and the year
ended December 31, 1994 give effect to the October 1995 acquisition by Mark
Goodson Productions, LLC (the "LLC"), a 50/50 joint venture between the Company
and Interpublic, of substantially all of the assets of Mark Goodson Productions,
L.P. and The Child's Play Company (the "Sellers"), the August 1994 acquisition
from Interpublic of certain assets and all of the outstanding non-voting common
stock of Fremantle International, Inc. ("Fremantle") and the offering.
The pro forma information is based on the historical financial statements
of the Company, the Sellers and Fremantle, giving effect to: (i) the Mark
Goodson Acquisition under the equity method of accounting, (ii) the Fremantle
Acquisition under the purchase method of accounting, (iii) the offering and (iv)
the assumptions and adjustments described in the accompanying notes to the pro
forma condensed consolidated financial statements. The unaudited pro forma
condensed consolidated statements of operations have been prepared as if the
above transactions had occurred at the beginning of the earliest period
presented (January 1, 1994). The unaudited pro forma condensed consolidated
balance sheet data have been prepared as if the Mark Goodson Acquisition and the
offering had occurred at the end of the latest period presented (September 30,
1995).
These pro forma statements may not be indicative of the results that would
have occurred if the above transactions had occurred on the dates indicated or
which may be obtained in the future. The pro forma financial statements should
be read in conjunction with the Consolidated Financial Statements and notes of
the Company for the year ended December 31, 1994 and the condensed consolidated
financial statements and notes of the Company for the nine months ended
September 30, 1995 contained or incorporated by reference herein.
THE MARK GOODSON ACQUISITION
As of October 6, 1995, the Company formed the LLC as a 50/50 joint venture
with Interpublic. The LLC acquired substantially all of the assets of the
Sellers. The Sellers are not affiliated with the Company. The purchase price
paid by the Company for its undivided 50% interest of the Sellers' net assets
acquired consisted of a cash payment of $25.0 million plus an as yet
undetermined contingent purchase price. The contingent purchase price, payable
to the Sellers, is to be earned and paid based on the income (as defined)
resulting from a domestic television network contract and the exploitation of
certain other domestic television rights. The contingent purchase price, in
total, is limited to $48.5 million if paid (whether earned or not) during the
first five years following October 6, 1995. Otherwise, the amount of contingent
purchase price is unlimited to the extent it is earned within the first ten
years following October 6, 1995. At the end of ten years no additional
contingent purchase price accrues. The Company shares equally with Interpublic
in the contingent purchase price.
Based upon a preliminary review and evaluation, substantially all of the
Company's $25.0 million portion of the initial purchase price has been allocated
to goodwill. The contingent purchase price, to the extent earned, will be
treated as an increase in goodwill and will be amortized coterminously with the
original 25 year period. To the extent additional contingent purchase price
payments are made, amortization will increase in future periods. If the full
contingent purchase price were earned or paid, goodwill would be increased by a
total of $24.25 million, and annual amortization expense associated with such
additional goodwill would be $1.0 million (for an aggregate annual amortization
expense of $2.3 million). If the Company exercises the Interpublic Option, the
Company would report additional annual goodwill amortization based on the
purchase price of such option and the full share of contingent purchase price.
Management of the Company is in the process of reviewing the allocation of the
purchase price and, when completed, may modify its preliminary allocation. The
Mark Goodson Acquisition will be accounted for by the Company under the equity
method of accounting.
THE FREMANTLE ACQUISITION
In August 1994 the Company completed the Fremantle Acquisition. The
purchase price paid by the Company to Interpublic (which at such time had no
ownership interest in the Company) consisted of the following: (i) a cash
payment of $31.5 million and (ii) the issuance of 630,000 shares of Common Stock
and 2,520,000 shares of Class B Common Stock.
The Company has accounted for the Fremantle Acquisition as a purchase and
has allocated the purchase price based on the estimated fair value of assets and
liabilities acquired. The total consideration of $52.5 million (including
expenses related to the acquisition of $1.0 million) exceeded the estimated fair
value of net assets acquired by $50.3 million (goodwill); such goodwill is being
amortized over 25 years. The amounts shown as historical Fremantle have been
adjusted to reflect contractual terms with respect to the Fremantle Acquisition.
18
<PAGE> 21
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
----------------------------------------------
AS ADJUSTED
FOR THE
MARK GOODSON
ACQUISITION
HISTORICAL PRO FORMA AND THE
COMPANY ADJUSTMENTS OFFERING
----------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash, including restricted cash.................................. $ 15,348 $ $ 15,348
Trade receivables, net........................................... 86,855 86,855
Unbilled receivables............................................. 14,398 14,398
Inventory........................................................ 1,306 1,306
Advances to recording artists.................................... 947 947
Television program costs, net.................................... 76,025 76,025
Property and equipment, net...................................... 3,876 3,876
Investment in unconsolidated affiliate........................... -- 25,000(2) 26,000
1,000(3)
Goodwill, net.................................................... 49,939 49,939
Debt issue costs................................................. 4,712 400(4) 5,112
Other............................................................ 2,255 (400)(3) 1,855
-------- ------ -------
Total assets................................................ $ 255,661 $ 26,000 $ 281,661
======== ====== =======
Liabilities:
Accounts payable and accrued expenses............................ $ 29,165 $ 600(3) $ 30,165
400(4)
Royalties payable................................................ 4,326 4,326
Deferred revenues................................................ 7 7
Due to producers................................................. 25,547 25,547
Participations payable........................................... 28,869 28,869
Due to banks..................................................... 75,300 [ ](1) [ ]
25,000(2)
Notes payable.................................................... 60,000 60,000
-------- ------ -------
Total liabilities........................................... 223,214 [ ] [ ]
Stockholders' equity:
Preferred stock.................................................. -- --
Common stock..................................................... 1 1
Class B common stock............................................. -- 1(1) 1
Additional paid in capital....................................... 28,751 [ ](1) [ ]
Retained earnings................................................ 3,748 3,748
Other............................................................ (53) (53)
-------- ------ -------
Total stockholders' equity.................................. 32,447 [ ] [ ]
-------- ------ -------
Total liabilities and stockholders' equity.................. $ 255,661 $ [ ] $ [ ]
======== ====== =======
</TABLE>
19
<PAGE> 22
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1995
---------------------------------------------
AS ADJUSTED
FOR THE
MARK GOODSON
HISTORICAL ACQUISITION
----------- PRO FORMA AND THE
COMPANY ADJUSTMENTS OFFERING
----------- ------------ ------------
(IN THOUSANDS -- EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues........................................................................ $ 160,177 $ $160,177
Cost of sales................................................................... 127,081 (2,576)(5) 124,505
Selling, general and administrative............................................. 18,094 18,094
Goodwill amortization........................................................... 1,606 1,010(6) 2,616
------- ------- --------
Operating income.............................................................. 13,396 1,566 14,962
------- ------- --------
Equity earnings in unconsolidated affiliate..................................... -- 3,570(7) 4,569
3,575(8)
(2,576)(5)
Other income, net............................................................... 241 241
Interest income/(expense)....................................................... (6,642) 2,400(9) (6,135)
(1,793)(10)
(100)(11)
------- ------- --------
Income before taxes........................................................... 6,995 6,642 13,637
Provision for income taxes...................................................... 2,938 2,790(12) 5,728
------- ------- --------
Net income.................................................................... $ 4,057 $ 3,852 $ 7,909
======= ======= ========
Net income per share:
Primary..................................................................... $ 0.50 $ 0.65
======= ========
Fully diluted............................................................... $ 0.43 $ 0.55
======= ========
Weighted average number of common shares and common share equivalents
outstanding:
47(13)
Primary..................................................................... 8,083 4,000(1) 12,130
======= ========
Fully diluted............................................................... 13,610 4,000(1) 17,610
======= ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1994
-------------------------------------------------------------
AS FURTHER
SEVEN MONTH ADJUSTED
NINE MONTHS PERIOD ENDED FOR THE
ENDED JULY 31, AS ADJUSTED MARK GOODSON
SEPTEMBER 30, 1994 FOR THE ACQUISITION
1994 AS HISTORICAL PRO FORMA FREMANTLE PRO FORMA AND THE
REPORTED(14) FREMANTLE ADJUSTMENTS ACQUISITION ADJUSTMENTS OFFERING
------------- ------------ ----------- ----------- ------------ -------------
(IN THOUSANDS -- EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenues........................... $65,718 $ 30,564 $ $96,282 $ $96,282
Cost of sales...................... 48,396 25,820 298(16) 74,514 (2,539)(5) 71,975
Selling, general and
administrative................... 15,472 2,992 18,464 18,464
Goodwill amortization.............. 430 447 1,183(17) 1,613 893(6) 2,506
(447)(18)
------- ------- ------- ------- ------ -------
Operating income................. 1,420 1,305 (1,034) 1,691 1,646 3,337
------- ------- ------- ------- ------ -------
Equity earnings in unconsolidated
affiliate........................ -- -- -- 2,755(7) 4,410
4,194(8)
(2,539)(5)
Other income/(expense), net........ (271) 464 (207) (207)
Interest income/(expense), net..... (3,681) 99 (1,750)(10) (5,546) 200(9) (7,239)
(214)(11) (1,793)(10)
(100)(11)
------- ------- ------- ------- ------ -------
Income (loss) before taxes....... (2,532) 1,468 (2,998) (4,062) 4,363 301
Provision (benefit) for income
taxes............................ 135 992 965(12) 162 (27)(12) 135
------- ------- ------- ------- ------ -------
Net income (loss)................ $(2,667) $ 476 $(2,033) $(4,224) $4,390 $ 166
======= ======= ======= ======= ====== =======
Net income (loss) per share...... $ (0.54) $ (0.52) $ 0.01
======= ======= =======
Weighted average number of common
shares and 53(13)
common share equivalents
outstanding.................... 4,960 3,150(20) 8,110 4,000(1) 12,163
======= ======= ======= ====== =======
</TABLE>
20
<PAGE> 23
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
-------------------------------
SEVEN MONTH
YEAR ENDED PERIOD ENDED AS ADJUSTED
DECEMBER 31, JULY 31, 1994 FOR THE
1994 HISTORICAL PRO FORMA FREMANTLE
AS REPORTED(15) FREMANTLE ADJUSTMENTS ACQUISITION
--------------- ------------- ------------ ------------
(IN THOUSANDS -- EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues................................................. $ 114,901 $30,564 $ $145,465
Cost of sales............................................ 85,946 25,820 298(16) 112,064
Selling, general and administrative...................... 21,523 2,992 24,515
Goodwill amortization.................................... 971 447 1,183(17) 2,154
(447)(18)
-------- ------- ------- --------
Operating income....................................... 6,461 1,305 (1,034) 6,732
-------- ------- ------- --------
Equity earnings in unconsolidated affiliate.............. -- -- --
Other income, net........................................ 49 64 113
Interest income/(expense), net........................... (5,725) 99 (1,750)(10) (7,590)
(214)(11)
-------- ------- ------- --------
Income (loss) before taxes............................. 785 1,468 (2,998) (745)
Provision (benefit) for income taxes..................... 330 992 (965)(12) 357
-------- ------- ------- --------
Net income (loss)...................................... $ 455 $ 476 $ (2,033) $ (1,102)
======== ======= ======= ========
Net income (loss) per share............................ $ 0.07 $ (0.14)
======== ========
Weighted average number of common shares and common (66)(19)
share equivalents outstanding........................ 6,201 1,841(20) 7,976
======== ========
<CAPTION>
AS FURTHER
ADJUSTED
FOR THE
MARK GOODSON
ACQUISITION
PRO FORMA AND THE
ADJUSTMENTS OFFERING
----------- ------------
<S> <C> <C> <C>
Revenues................................................. $ $145,465
Cost of sales............................................ (3,445)(5) 108,619
Selling, general and administrative...................... 24,515
Goodwill amortization.................................... 1,190(6) 3,344
------ -------
Operating income....................................... 2,255 8,987
------ -------
Equity earnings in unconsolidated affiliate.............. 3,588(7) 5,860
5,717(8)
(3,445)(5)
Other income, net........................................ 113
Interest income/(expense), net........................... 1,000(9) (9,114)
(2,391)(10)
(133)(11)
------ -------
Income (loss) before taxes............................. 6,591 5,846
Provision (benefit) for income taxes..................... 2,098(12) 2,455
------ -------
Net income (loss)...................................... $ 4,493 $ 3,391
====== =======
Net income (loss) per share............................ $ 0.28
=======
Weighted average number of common shares and common 66(13)
share equivalents outstanding........................ 4,000(1) 12,042
=======
</TABLE>
- ---------------
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following footnotes relate to the pro forma balance sheet as of
September 30, 1995 and the pro forma statements of operations for the nine month
periods ended September 30, 1995 and 1994 and the year ended December 31, 1994.
(1) Reflects expected use of net proceeds and the issuance of Class B Common
Stock in connection with the offering based upon an assumed aggregate
offering amount of $49.0 million before expenses.
(2) Reflects the Company's investment in the LLC and the bank financing
incurred in connection with the Mark Goodson Acquisition.
(3) Reflects closing costs incurred by the Company in connection with the Mark
Goodson Acquisition ($.4 million of such costs were included in the
Company's other assets as prepaid items in the September 30, 1995
historical balance sheet).
(4) Reflects debt issue costs incurred in connection with the Mark Goodson
Acquisition.
(5) Reflects the intercompany elimination of the Company's 50% share of
Fremantle license fees paid to Mark Goodson Productions, L.P.
(6) Reflects amortization of initial goodwill in connection with the Mark
Goodson Acquisition of $26.0 million, plus amortization of estimated
contingent purchase price of $3.8 million in 1994 over 25 years and
amortization of additional estimated contingent purchase price of $2.8
million for the 1995 nine month period over 24 years. To the extent
additional contingent purchase price payments are made, amortization will
increase in future periods. If the full contingent purchase price were
earned or paid, goodwill would be increased by a total of $24.3 million and
annual amortization expense associated with such additional goodwill would
be $1.0 million (for an aggregate annual amortization expense of
approximately $2.3 million).
(7) Reflects the Company's 50% interest in the historical net earnings of Mark
Goodson Productions, L.P.
21
<PAGE> 24
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) Reflects the elimination of the Company's 50% share of Mark Goodson
Productions, L.P. historical selling, general and administrative costs
which will not be incurred subsequent to the date of the Mark Goodson
Acquisition, as the Mark Goodson Productions, L.P. day to day operations
will be absorbed into the Company's existing operations.
(9) Reflects expected reduction in interest expense from the use of the net
proceeds from the offering to pay down short term debt (no short term debt
was outstanding during the first six months of 1994).
(10) Reflects interest expense on debt incurred in connection with the
acquisitions.
(11) Reflects amortization of debt issuance costs.
(12) Reflects income tax effects of the pro forma adjustments.
(13) Reflects the inclusion of dilutive common stock equivalents for earnings
per share purposes.
(14) The historical results for the nine months ended September 30, 1994 include
the two months of operations of Fremantle from August 1994, the date of the
Fremantle Acquisition.
(15) The historical results for the year ended December 31, 1994 include the
five months of operations of Fremantle from August 1994, the date of the
Fremantle Acquisition.
(16) Reflects additional amortization of television program costs, as adjusted,
acquired in connection with the Fremantle Acquisition.
(17) Reflects amortization of goodwill in connection with the Fremantle
Acquisition of $50.3 million over 25 years.
(18) Reflects the elimination of goodwill amortization recorded by Fremantle
prior to the Fremantle Acquisition.
(19) Reflects the elimination of anti-dilutive common stock equivalents for
earnings per share purposes.
(20) Reflects the weighted average number of shares issued in connection with
the Fremantle Acquisition.
22
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a diversified entertainment company which produces and
distributes, markets and promotes television programs and recorded music both
domestically and internationally.
The television industry may be broadly divided into three major segments:
production, involving the development, financing and making of television shows;
distribution, involving the promotion and exploitation of completed television
shows; and broadcast, involving the airing or broadcast of programming over
network affiliated stations, independent stations and cable or satellite
television. The United States broadcast television market is served principally
by network affiliated stations, independent stations and cable and satellite
television operators. During prime time hours (primarily 8:00 P.M. to 11:00 P.M.
in the Eastern and Pacific time zones and 7:00 P.M. to 10:00 P.M. in the Central
and Mountain time zones), network affiliates primarily broadcast programming
produced for the networks. In non-prime time, network affiliates telecast
network programming, off-network programming (reruns), first-run programming
(programming produced for distribution on a syndicated basis) and local
programming produced by the local stations themselves. Independent television
stations, during both prime and non-prime time, telecast self produced
programming, off-network programming or first-run programming from independent
producers or "syndicators." In general terms, a syndicator is a company that
sells programming to independent television stations and network affiliates.
Programming acquired by stations on a syndicated basis is acquired either for a
cash license fee or in exchange for a certain amount of commercial advertising
time within the program which is retained by the syndicator for sale thereby to
advertisers ("barter"), or for a combination of cash and barter. The Company
domestically distributes programming for television produced by the Company or
unrelated third parties in the first-run and rerun syndication markets. In
general, the Company receives its revenues from program license fees paid by
broadcasters and/or by selling advertising time for programs distributed on a
barter basis.
Barter syndication is the process whereby a syndicator obtains clearances
from television stations to broadcast a program in certain agreed upon time
periods, retains advertising time in the program in lieu of receiving a cash
licensing fee, and sells such retained advertising time for its own account to
national advertisers at rates based on projected ratings and viewer
demographics. From time to time, certain stations may obtain cash consideration
from the Company in addition to programming in exchange for advertising time
and/or a commitment for a particular time period. By placing the program with
television stations throughout the United States, the syndicator creates an "ad
hoc" network of stations that have agreed to carry the program. The creation of
this ad hoc network, typically representing a penetration of at least 70% of
total United States television households (calculated by means of a generally
recognized system as measured by Nielsen Media Ratings), enables the syndicator
to sell the commercial inventory to sponsors desiring national coverage. The
rates charged by a syndicator for advertising time are typically lower than the
rates charged by the networks for similar demographics since the networks'
coverage of the market is generally greater. See "Business -- Television
Operations -- Domestic Television Distribution."
Rates for the sale of advertising time are established on the basis of
certain levels of audience rating and, in some cases, an assumed demographic
make-up of the viewing audience assumed by the Company. Because the Company's
arrangements with advertisers do not permit the Company to receive advertising
revenue on the amount by which the actual ratings or demographic make-up (as
determined by Nielsen Media Ratings or similar ratings services) exceed the
assumed ratings or demographic make-up, it is in the interest of the Company to
establish as high an assumed rating and as favorable a demographic make-up as
possible. If the television program does not achieve the assumed rating or
demographic make-up, the Company may be obligated to offer the advertiser
additional advertising time ("make goods") on the same program or on other
programs. "Make goods" are the predominant means whereby the Company satisfies
such obligations to advertisers. Alternatively, the Company may be obligated to
refund a portion of the advertising revenue derived from such sales. There can
be no assurance in advance that the actual rating or demographic make-up of a
particular program will support the rates initially charged for advertising time
on such program. The Company generally reports net revenues from barter
syndication after deducting a reserve for potential make
23
<PAGE> 26
goods. Historically, such reserve has been sufficient to cover the actual
provision for make goods, although there is no assurance that such reserve will
continue to be adequate.
Sponsors that regularly purchase advertising time in the Company's programs
include Procter & Gamble, Bristol Myers-Squibb, MCI, Beecham, Kellogg Company,
Nestle and RJR Nabisco. Sales are typically made through advertising agencies
representing the sponsors. The barter syndication licenses granted by the
Company provide that the Company retains negotiated amounts of commercial time
per program for sale to national advertisers, with the remaining commercial time
retained by the station for local sale. A significant percentage of the
Company's revenues from television operations are derived from barter sales
(approximately 32% for the nine month period ended September 30, 1995 and
approximately 42% in 1994, 58% in 1993 and 62% in 1992). Barter sales may
fluctuate significantly based on ratings of a particular program and general
economic trends, such as advertising rates.
In most cases, the Company's distribution revenues are based on a
percentage of the net revenues derived from the sale of advertiser sponsorships
and/or on cash license fees. The Company normally advances all distribution
costs for items such as advertising, promotion, and tape shipping and
duplication and recovers such expenses out of program revenues. The Company's
fee for distribution is generally between 15% and 35% of net revenues and its
fee for advertiser sales representation is generally between 10% and 15% of net
revenues. However, each fee arrangement is separately negotiated and may be
subject to variation. Amounts remaining in excess of the Company's distribution
fees and recoupable expenses (including a portion of the amounts derived from
the sale of advertising time) are either remitted in full to the producer from
whom the Company obtained the distribution rights, or, if the Company has a
profit participation in the program, are shared between the Company and the
producer in accordance with a pre-determined allocation. In some instances, the
Company will make an advance payment to the producer to cover production costs
or will guarantee the producer certain minimum license fees. For the 1994/1995
broadcast season the Company made advance payments and/or certain guarantees
with respect to SuperHuman Samurai Syber Squad, Sirens and The New Family Feud.
For the 1995/1996 broadcast season the Company made no such guarantees.
Television production costs are capitalized as incurred. The income
forecast method is used to amortize these costs based upon the revenues
recognized in proportion to management's estimate of ultimate revenues to be
received. Unamortized costs are reviewed periodically and compared with net
realizable values on a project-by-project basis and losses are provided to the
extent necessary. Advertising revenues are recognized upon the commencement of
the license period of the program and when the advertising time has been sold
pursuant to non-cancelable agreements, provided the program is available for its
first broadcast. The portion of recognized revenue which is to be shared with
the producers and owners of the licensed program material (participations
payable and due to producers) is accrued as the related revenue is recognized.
Minimum guaranteed amounts from domestic television sales generally are
recognized when the license period begins and the program becomes available
pursuant to the terms of the license agreement. Foreign minimum guaranteed
amounts or outright fees are recorded as revenues and contracts receivable on
the date of the license agreement unless the program is not yet available for
exhibition. Revenues under foreign production agreements are recognized as
completed episodes are delivered. Deferred revenues consist principally of
advance payments received on television contracts for which the products are not
yet available for broadcast or exploitation.
Domestic revenues from recorded music are recorded as units are shipped to
customers. The Company provides for estimated future returns of recorded music
product at the time the products are initially sold. These reserves are based
upon historical experience. Actual returns are charged against the reserve.
Foreign distribution of recorded music is effected through a distributor in
exchange for guaranteed non-refundable advances against future royalties.
Non-refundable guarantees from foreign sales are generally recognized as the
Company satisfies its delivery requirements to its foreign distributor.
MUSIC PRODUCT
Royalties earned by artists from sales of recorded music product are
charged to expense as the related revenues are recognized. Advances to artists
against future royalties are recorded as assets if the Company
24
<PAGE> 27
estimates that the amount of advances will be recoverable from future royalties
to be earned by the artist, based upon the past performance and current
popularity of the artist to whom the advance is made. Such advances are applied
against subsequent royalties earned by the artist. The Company expenses
recoupable artist advances and recording costs for new recording artists and for
artists where recovery cannot be estimated. Pursuant to this policy, capitalized
artist advances are reviewed on a quarterly basis and any portion of advances
that subsequently appear not to be fully recoverable from future royalties to be
earned by the artist are charged to expense during the period in which the loss
becomes evident. As a result, some quarters or years will have fluctuating
levels of these expenses depending on the number or type of artists signed or on
changes in recording activities from period to period. In the event of
subsequent sales for any such artists for which the related advances were
expensed, the Company will have a higher margin for these sales than for sales
by the Company's other artists.
A small number of television programs and musical recordings historically
has accounted for a significant portion of the Company's revenues in any given
fiscal period. In addition, the Company's television distribution revenues have
historically been higher in the third and fourth quarters as a result of the
commencement of the television season in the fall of each year. As a result of
the strip syndication of Baywatch, the third quarter of 1995 reflected
substantially all of the cash and a portion of the barter sales expected on the
re-run syndication of the series to date. Additional barter sales on the strip
syndication will be recognized in subsequent periods. In October 1995, in order
to further strengthen its position in the game show business, the Company formed
a 50/50 joint venture with Interpublic, which joint venture acquired
substantially all of the assets of Mark Goodson Productions, L.P. and a related
entity. The assets acquired included ownership rights to approximately 40
Goodson game show formats, including the currently televised network game show,
The Price Is Right. There is no assurance that the Mark Goodson Acquisition will
be successful. In particular, with respect to the 1995/1996 broadcast season,
the only Mark Goodson Productions game show in production for the domestic
market is The Price Is Right, hosted by Bob Barker, and there is no assurance
that this game show will be renewed for the 1996/1997 broadcast season. Any
change in programs from period to period or the discontinuation of certain
projects may materially adversely affect a given period's results of operations.
Therefore, year-to-year results may not be comparable and results in any quarter
may not be indicative of results for an entire year.
25
<PAGE> 28
RESULTS OF OPERATIONS
The following table sets forth the amount of, and percentage relationship
to, total revenues of certain items included in the Company's Consolidated
Statements of Operations from continuing operations for the nine month periods
ended September 30, 1995 and 1994 and fiscal years ended December 31, 1994, 1993
and 1992.
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS ENDED YEAR ENDED DECEMBER 31,
ENDED ----------------------------------------------------------
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 1994 1993 1992
-------------------- ------------------- ------------------ ----------------- -----------------
% OF % OF % OF % OF % OF
TOTAL TOTAL TOTAL TOTAL TOTAL
AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE
-------- ------- ------- ------- -------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Television....... $144,637 90.3% $54,771 83.3% $ 98,771 86.0% $57,407 81.3% $45,302 78.2%
Recorded music
and
merchandising... 15,540 9.7% 10,947 16.7% 16,130 14.0% 13,215 18.7% 12,616 21.8%
-------- ------- ------- ------- -------- ------- ------- ------- ------- -------
160,177 100.0% 65,718 100.0% 114,901 100.0% 70,622 100.0% 57,918 100.0%
-------- ------- ------- ------- -------- ------- ------- ------- ------- -------
Expenses:
Television....... 114,980 71.8% 41,294 62.8% 75,196 65.5% 42,560 60.3% 32,078 55.4%
Recorded music
and
merchandising... 12,101 7.5% 7,102 10.8% 10,750 9.4% 9,780 13.8% 9,250 16.0%
Selling, general
&
administrative... 18,094 11.3% 15,472 23.5% 21,523 18.7% 16,074 22.8% 13,471 23.3%
Goodwill
amortization... 1,606 1.0% 430 0.7% 971 0.8% 133 0.2% 138 0.2%
-------- ------- ------- ------- -------- ------- ------- ------- ------- -------
146,781 91.6% 64,298 97.8% 108,440 94.4% 68,547 97.1% 54,937 94.9%
-------- ------- ------- ------- -------- ------- ------- ------- ------- -------
Operating income... 13,396 8.4% 1,420 2.2% 6,461 5.6% 2,075 2.9% 2,981 5.1%
Other expense...... 6,401 4.0% 3,952 6.0% 5,676 4.9% 1,520 2.1% 191 0.3%
-------- ------- ------- ------- -------- ------- ------- ------- ------- -------
Income (loss) from
continuing
operations before
income taxes..... $ 6,995 4.4% $(2,532) (3.8%) $ 785 0.7% $ 555 0.8% $ 2,790 4.8%
======== ======= ======= ======= ======== ======= ======= ======= ======= =======
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1994
Revenues. The Company's total revenues increased by $94.5 million or 144%
to $160.2 million for the nine months ended September 30, 1995 from $65.7
million for the nine months ended September 30, 1994. Revenues from television
operations increased by $89.9 million or 164% to $144.6 million for the nine
months ended September 30, 1995 from $54.8 million for the nine months ended
September 30, 1994. This increase was due primarily to the inclusion of the
AAFII revenues of $53.1 million for the full nine months ended September 30,
1995 compared to $16.1 million for two months (from the date of the Fremantle
Acquisition) through September 30, 1994; the initial recognition of Baywatch
strip syndication revenue of $33.9 million; the recognition of $10.5 million
from the new one-hour series Baywatch Nights, reflecting the delivery of ten of
the 22 episodes for the 1995/1996 broadcast season; and a $9.0 million or 45%
increase in distribution revenues to $28.9 million for the nine months ended
September 30, 1995 from $19.9 million for the nine months ended September 30,
1994. AAFII revenues from the production and distribution of television
programming in Germany contributed $40.4 million, 76% of AAFII revenues. On a
pro forma basis, AAFII revenues, assuming a full nine months, increased by $6.5
million, or 14%, to $53.1 million for the nine months ended September 30, 1995
due to the commencement of production operations in Germany during that time
period.
Recorded music division revenues increased by $4.6 million, or 42%, to
$15.5 million during the nine months ended September 30, 1995 from $10.9 million
during the nine months ended September 30, 1994. This increase was primarily
attributable to higher sales of new releases in the nine months ended September
30, 1995, as compared with sales of new releases in the nine months ended
September 30, 1994, and merchandising revenues of $1.8 million for the nine
months ended September 30, 1995 as compared to no
26
<PAGE> 29
comparable revenues in the nine months ended September 30, 1994 period.
Partially offsetting these revenue increases is a decrease in foreign licensing
advances received in the nine months ended September 30, 1995 as compared with
the nine months ended September 30, 1994.
Operating Expenses. Total operating expenses increased by $82.5 million or
128% to $146.8 million for the nine months ended September 30, 1995 from $64.3
million for the nine months ended September 30, 1994 due primarily to the
inclusion of AAFII operating expenses which increased by $37.0 million or 340%
to $47.9 million for the full nine months ended September 30, 1995 (including
AAFII overhead and $1.5 million of goodwill amortization) from $10.9 million for
the two months (from the date of the Fremantle Acquisition) through September
30, 1994 and additional amortization of television program costs of $76.4
million for the nine months ended September 30, 1995, an increase of $54.3
million or 245%, from $22.1 million for the nine months ended September 30,
1994, due to the higher television revenues. Selling, general and administrative
expenses, including corporate overhead and goodwill amortization, increased by
$3.8 million or 24% to $19.7 million for the nine months ended September 30,
1995 from $15.9 million for the nine months ended September 30, 1994 due
principally to the inclusion of AAFII overhead, including goodwill amortization,
for nine months in 1995 as compared with two months in 1994.
The Company's television expenses increased by $73.7 million or 178% to
$115.0 million (79% of total television revenues) for the nine months ended
September 30, 1995 from $41.3 million (75% of total television revenues) for the
nine months ended September 30, 1994. The increase was primarily due to an
increase in AAFII expenses of $32.6 million or 333%, to $42.4 million (80% of
AAFII revenues) for the nine months ended September 30, 1995 from $9.8 million
for the two months (from the date of the Fremantle Acquisition) through
September 30, 1994 and increased amortization of television program costs
attributable to increased revenues. The increase in television expense as a
percentage of revenue is attributable, in general, to a diversification in
product mix to include the results of AAFII as well as new product with lower
gross margins than longer-running established shows such as Baywatch. The
Company expects this trend to continue as it develops and introduces new
programming. Television selling, general and administrative expenses during the
nine months ended September 30, 1995 increased by $3.0 million or 44%, to $9.8
million from $6.8 million for the nine months ended September 30, 1994 due
primarily to the $3.2 million increase in AAFII charges of $4.0 million for the
nine months ended September 30, 1995 from $0.8 million for two months (from the
date of the Fremantle Acquisition) through September 30, 1994. On a pro forma
basis, AAFII expenses, assuming a full nine months, increased by $6.8 million,
or 19%, to $42.4 million for the nine months ended September 30, 1995 from $35.6
million for the pro forma nine months ended September 30, 1994. Such increase
was related to the commencement of production operations in Germany during that
time period.
Goodwill amortization for the nine months ended September 30, 1995
increased by $1.2 million or 273% to $1.6 million from $0.4 million for the nine
months ended September 30, 1994 due to the inclusion of goodwill amortization
related to the Fremantle Acquisition of $1.5 million for the nine months ended
September 30, 1995, an increase of $1.2 million or 390% from $0.3 million for
the two months (from the date of the Fremantle Acquisition) ended September 30,
1994. Corporate overhead of $3.4 million for the nine months ended September 30,
1995 decreased by $0.8 million or 20% from $4.2 million for the nine months
ended September 30, 1994 due primarily to certain one-time employment
terminations taken in 1994.
The Company's recorded music and merchandising expenses increased $5.0
million or 70% to $12.1 million (78% of total recorded music and merchandising
revenues) for the nine months ended September 30, 1995 from $7.1 million (65% of
total recorded music and merchandising revenues) for the nine months ended
September 30, 1994. This increase was primarily due to an increase in artist
cost amortization including the amortization of costs incurred for new artists
which increased by $1.3 million or 191% to $2.0 million for the nine months
ended September 30, 1995 from $0.7 million for the nine months ended September
30, 1994 and merchandising costs of $1.3 million as compared with no costs in
the comparable prior period.
Operating Income. Total operating income for the Company increased by $12.0
million or 843%, to $13.4 million for the nine months ended September 30, 1995
from $1.4 million for the nine months ended September 30, 1994 due principally
to increases in television operating income. Operating income from television
operations increased by $12.0 million or 194%, to $18.2 million for the nine
months ended
27
<PAGE> 30
September 30, 1995 from operating income of $6.3 million for the nine months
ended September 30, 1994. This increase in television operating income, which
was primarily attributable to the increases in revenues and expenses discussed
above, was partially offset by increases in amortization of goodwill and
overhead.
The Company's recorded music operations recognized an operating loss of
$1.4 million (after inclusion of selling, general and administrative expenses of
$4.8 million) for the nine months ended September 30, 1995 as compared to an
operating loss of $0.5 million (after inclusion of selling, general and
administrative expenses of $4.4 million) for the nine months ended September 30,
1994. Such increase in the operating loss was primarily attributable to
increased artist cost amortization and decreased foreign licensing advances
offset by merchandising income.
Foreign Currency Exchange Gain. The Company recognized a foreign currency
exchange gain of $0.2 million for the nine months ended September 30, 1995 as
compared to a foreign currency exchange loss of $0.3 million at September 30,
1994 which resulted from the settlement and valuation of certain licensing
agreements, denominated in foreign currencies, into U.S. dollars as of September
30, 1995 and 1994. The Company has not entered into any foreign currency swap
agreements or any other foreign currency hedging activities. The Company has
experienced in the past, and may experience in the future, gains and losses as a
result of fluctuations in exchange rates.
Interest Expense. Interest expense, net of interest capitalized ($1.0
million) and interest income ($0.3 million), increased $2.9 million, or 80% to
$6.6 million for the nine months ended September 30, 1995 from $3.7 million, net
of interest capitalized ($0.2 million) and interest income ($0.2 million), for
the nine months ended September 30, 1994, due to increased borrowings in
connection with the Fremantle Acquisition and as a result of increased
production activities. The Company expects that the trend of increased interest
cost will continue in part as a result of increased borrowings in connection
with the Mark Goodson Acquisition.
Income Taxes. The Company recorded a tax provision for the nine months
ended September 30, 1995 in the amount of $3.0 million which reflects an
expected effective tax rate for 1995 of 42%. During the nine months ended
September 30, 1994, the Company recorded income taxes of $0.1 million,
representing foreign taxes withheld at the source and minimum state franchise
taxes.
Net Income. The net income increased by $6.7 million to $4.1 million for
the nine months ended September 30, 1995 from a net loss of $2.7 million for the
nine months ended September 30, 1994. The variance is attributable to matters
discussed above. Earnings per share increased to $.50 per primary share and $.43
per fully diluted share for the nine months ended September 30, 1995 as compared
to a loss of ($.54) per primary and fully diluted share for the nine months
ended September 30, 1994 due to the period to period increase in net income
partially offset by an increase in the outstanding number of weighted average
common shares and common shares equivalents. Such increase of shares is due to
the inclusion of the shares of stock issued in connection with the Fremantle
Acquisition for nine months through September 1995 as compared with two months
through September 1994 as well as an increase in the number of equivalent shares
of outstanding options and other warrants determined using the treasury method.
FISCAL YEAR ENDED DECEMBER 31, 1994 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1993
Revenues. The Company's total revenues increased by $44.3 million, or 63%,
to $114.9 million for the year ended December 31, 1994 from $70.6 million for
the year ended December 31, 1993. Revenues from television operations increased
by $41.4 million, or 72%, to $98.8 million for the year ended December 31, 1994
from $57.4 million for the year ended December 31, 1993. The growth in revenues
from television operations was primarily due to the Fremantle Acquisition, which
contributed $31.8 million in revenues from the date of acquisition (August 3,
1994 through December 31, 1994), and an increase in the number of Baywatch
episodes delivered during 1994 from 22 in 1993 to 28 in 1994 (as well as an
increase in the ratings of the series). The Company delivered 22 new one-hour
episodes of Baywatch for the 1994/1995 television broadcast season in 1994.
Additionally, six episodes of the 1993/1994 television broadcast season were
delivered in the first quarter of 1994.
28
<PAGE> 31
Recorded music revenues increased by $2.9 million, or 22%, to $16.1 million
for the year ended December 31, 1994 from $13.2 million during the year ended
December 31, 1993. This increase was due in part to an increase in units sold in
1994 from 1993, principally attributable to sales of the new artist 12 Gauge.
During the year ended December 31, 1994, the Company sold approximately 240,000
albums and 767,000 singles of the new artist 12 Gauge. The increase in revenues
for 1994 was partially offset by a decline in the number of units sold of "Weird
Al" Yankovic, who released compilation material in 1994 compared to an album
containing primarily new original compositions in 1993, and a decline in the
amount of publishing revenue recognized, due to the partial sale and
administration transaction relating to Baywatch publishing rights, from $1.0
million in 1993 to $.5 million in 1994.
Operating Expenses. Total operating expenses increased by $39.8 million,
or 58%, to $108.4 million for the year ended December 31, 1994 from $68.6
million for the year ended December 31, 1993. AAFII contributed $24.9 million to
such increase with respect to the period August 3, 1994 through December 31,
1994. Selling, general and administrative expenses increased $5.4 million, or
34% to $21.5 million for the year ended December 31, 1994 from $16.1 million for
the year ended December 31, 1993 due to the additional overhead related to the
operations of AAFII which were acquired during the third quarter of 1994 and
certain increases in corporate overhead.
Television expenses increased by $32.6 million, or 77%, to $75.2 million
(76% of total television revenues) for the year ended December 31, 1994 from
$42.6 million (74% of total television revenues) for the year ended December 31,
1993. This increase was primarily due to the inclusion of AAFII operating
expenses of $21.7 million (68% of AAFII revenues) from the date of the Fremantle
Acquisition, an increase in revenues from certain delivered programming which
had lower gross profit percentages than the overall mix of the Company's other
distributed programming, lower than expected revenues from Sirens and lower than
expected ratings on one of the Company's daily series.
Recorded music expenses increased $1.0 million, or 10%, to $10.8 million
(67% of total recorded music revenues) for the year ended December 31, 1994 from
$9.8 million (74% of total recorded music revenues) for the year ended December
31, 1993. The increase in recorded music expenses corresponds to increases in
revenues for the year.
Corporate overhead increased by $1.6 million, or 41%, to $5.6 million for
the year ended December 31, 1994 from $4.0 million for the year ended December
31, 1993. Such increase was primarily attributable to charges related to certain
employment terminations and an increase in certain consulting and professional
fees. Approximately $2.5 million of overhead was capitalized to productions in
each of 1994 and 1993.
Goodwill amortization increased by $.9 million to $1.0 million for the year
ended December 31, 1994 from $.1 million for the year ended December 31, 1993
due to commencement, following the Fremantle Acquisition, of amortization of
goodwill of $50.3 million attributable to such Fremantle Acquisition. Such
goodwill is being amortized over 25 years and during 1994 amortization expense
of $.8 million has been recorded from the date of acquisition (August 3, 1994
through December 31, 1994). Amortization expense will be higher in 1995
(approximately $2.1 million in total) as goodwill related to the Fremantle
Acquisition will be amortized for a full year as compared with approximately
five months during 1994.
Operating Income. Total operating income for the Company increased by $4.4
million to $6.5 million for the year ended December 31, 1994 from $2.1 million
for the year ended December 31, 1993 due primarily to the inclusion of AAFII
results from the date of the Fremantle Acquisition.
Operating income from television increased $5.5 million, or 79%, to $12.5
million for the year ended December 31, 1994 from $7.0 million for the year
ended December 31, 1993. This increase is attributable to the inclusion of AAFII
results from the date of acquisition and increased earnings from the Company's
series Baywatch offset by increased television expenses as discussed above.
The recorded music division recognized an operating loss of $.5 million for
the year ended December 31, 1994 as compared to an operating loss of $.9 million
for the year ended December 31, 1993. The decrease in the operating loss was
primarily due to increased revenues as discussed above.
29
<PAGE> 32
Interest Expense. Interest expense increased $4.2 million to $5.9 million
for the year ended December 31, 1994 from $1.7 million for the year ended
December 31, 1993, due to the effect of higher average borrowings including the
inclusion of the Notes (as defined below), issued in October 1993, for a full
year, higher average borrowings under its bank facilities, including increased
borrowings in connection with the Fremantle Acquisition. Interest expense is
expected to be higher in 1995 due to the planned increase in production spending
and a full year's interest on borrowings incurred in connection with the
Fremantle Acquisition and incurred in connection with the Mark Goodson
Acquisition.
Income Taxes. The provision for income taxes was $.3 million (42% of
pre-tax income) and $.2 million (32% of pre-tax income) for the years ended
December 31, 1994 and 1993, respectively. The increase in 1994 was partially
attributed to higher foreign tax withholding resulting from the inclusion of
AAFII.
Net Income Applicable To Common Stockholders. The net income applicable to
common stockholders decreased to $.5 million (or $.07 per share) for the year
ended December 31, 1994 from $4.2 million (or $.87 per share) for the year ended
December 31, 1993. The net income applicable to common stockholders for 1993
reflected a one-time increase in net income in the amount of $6.1 million which
represents the excess of the carrying value of the Redeemable Shares over the
price paid for their purchase offset by accretion and dividends on redeemable
stock of $2.2 million. No comparable items existed in 1994. See Notes 1 and 6 of
Notes to Consolidated Financial Statements.
FISCAL YEAR ENDED DECEMBER 31, 1993 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1992
Revenues. The Company's total revenues increased by $12.7 million, 22%, to
$70.6 million for the year ended December 31, 1993 from $57.9 million for the
year ended December 31, 1992. Revenues from television operations increased by
$12.1 million, or 27%, to $57.4 million for the year ended December 31, 1993
from $45.3 million for the year ended December 31, 1992. The growth in revenues
from television operations was due to an increase in the number of programs
cleared for syndication and to a 20% increase in Nielsen Media Ratings achieved
by Baywatch, as well as increases in catalog revenues related to programming
acquisitions. The Company produced 22 new one-hour episodes of Baywatch for the
1993/1994 television broadcast season. As of December 31, 1993, 16 episodes for
the 1993/1994 season had been delivered and the remaining six episodes were
completed and delivered in the first quarter of 1994. The Company acquired LBS
during the first quarter of 1993 which contributed $5.3 million of revenues
during the year ended December 31, 1993.
Recording revenues increased by $.6 million, or 5%, to $13.2 million for
the year ended December 31, 1993 from $12.6 million during the year ended
December 31, 1992. This increase was due to $1.0 million in publishing revenue
accrued in the fourth quarter of 1993, partially offset by a reduction in units
sold in 1993 from 1992. Sales during the year ended December 31, 1992 included
the release of "Weird Al" Yankovic's album titled Off The Deep End in the second
quarter of 1992, which sold 680,000 units as compared to the release of "Weird
Al" Yankovic's album titled Alapalooza in the third quarter of 1993 which had
sales of 590,000 units during 1993. The Company has shipped an additional 30,000
units of Alapalooza in the first quarter of 1994. During the year ended December
31, 1993, the Company also recognized $1.0 million in foreign revenues related
to delivery of albums in the second and third quarters pursuant to a foreign
distribution agreement. The Company recognized $.8 million of such revenue in
the year ended December 31, 1992.
Operating Expenses. Total operating expenses increased by $13.6 million,
or 25%, to $68.5 million for the year ended December 31, 1993 from $54.9 million
for the year ended December 31, 1992. Selling, general and administrative
expenses increased $2.6 million, or 19% to $16.1 million for the year ended
December 31, 1993 from $13.5 million for the year ended December 31, 1992
primarily due to the additional overhead related to the operations of LBS which
were acquired during the first quarter of 1993. Approximately $2.5 million of
overhead was capitalized to productions during 1993 as compared to $.9 million
in 1992.
Television expenses increased by $10.5 million, or 33%, to $42.6 million
for the year ended December 31, 1993 from $32.1 million for the year ended
December 31, 1992. As a percentage of television revenues, television expenses
increased from 71% for the year ended December 31, 1992 to 74% for the year
ended
30
<PAGE> 33
December 31, 1993. This increase was primarily due to an increase in revenues
from certain programming which was delivered, which had lower gross profit
percentages than the overall mix of the Company's other distributed programming
and due to lower than expected revenues on Acapulco H.E.A.T.
The Company's recording expenses increased $.5 million, or 6%, to $9.8
million for the year ended December 31, 1993 from $9.3 million for the year
ended December 31, 1992. The increase in recording expenses is primarily
attributable to $.5 million of costs associated with the publishing revenue
accrued in the fourth quarter.
Operating Income. Total operating income for the Company decreased $.9
million, or 30%, to $2.1 million for the year ended December 31, 1993 from $3.0
million for the year ended December 31, 1992. Operating income from television
operations decreased $2.0 million, or 22%, to $7.0 million for the year ended
December 31, 1993 from $9.0 million for the year ended December 31, 1992. This
decrease is primarily attributable to increased selling, general and
administrative expense resulting from the inclusion of the operations of LBS
which was acquired in the first quarter of 1993 and the factors discussed above,
offset partially by the increased earnings from sublicense of the Company's
Baywatch and Heathcliff series.
The Company's recorded music division recognized an operating loss of $.9
million for the year ended December 31, 1993 as compared to operating loss of
$2.7 million for the year ended December 31, 1992. The decrease in the operating
loss was primarily due to lower marketing and overhead costs incurred during the
year ended December 31, 1993, partially offset by an increase in artist costs
expense during 1993.
Interest Expense. Interest expense increased $1.2 million to $1.7 million
for the year ended December 31, 1993 from $.5 million for the year ended
December 31, 1992, due to the effect of higher average borrowings including the
issuance of the Notes (as defined below) during the period. Interest income
remained relatively constant for both the year ended December 31, 1993 and 1992.
Income Taxes. The provision for income taxes was $.2 million and $.9
million for the years ended December 31, 1993 and 1992, respectively. The
provision for income taxes for the year ended December 31, 1992 was net of a tax
benefit of $.6 million related to the loss from discontinued operations for that
period.
Net Income. Net income decreased to $.4 million for the year ended
December 31, 1993 from $.9 million for the year ended December 31, 1992 due to
lower than expected revenues on Acapulco H.E.A.T., increased selling, general
and administrative expenses in connection with the LBS acquisition and increased
interest costs in connection with the issuance by the Company of its $60.0
million Notes.
Net Income Applicable To Common Stockholders. The net income applicable to
common stockholders increased to $4.2 million for the year ended December 31,
1993 from a net loss of $1.8 million for the year ended December 31, 1992. The
net income applicable to common stockholders for 1993 reflected a one-time
increase in net income in the amount of $6.1 million which represents the excess
of the carrying value of the redeemable stock over the price paid for their
purchase, offset by accretion and dividends on redeemable stock of $2.2 million.
The net loss applicable to stockholders for 1992 in the amount of $1.8 million
reflected a reduction in net income in the amount of $2.8 million for preferred
dividends paid during 1992 of $.8 million and an accrual of the mandatory
redemption value. See Notes 1 and 6 of Notes to Consolidated Financial
Statements for the year ended December 31, 1994. In October 1993, the Company
issued its 6 1/2% Convertible Subordinated Notes Due 2003 (the "Notes") in the
aggregate principal amount of $60.0 million. The Company received net proceeds
of approximately $56.8 million which were used, in part, to repurchase and
retire all of the Company's redeemable Series A Preferred Stock and redeemable
Common Stock.
QUARTERLY RESULTS OF OPERATIONS
A large percentage of a television program's revenues is recognized when
the program is delivered, or, in the case of syndicated reruns, available for
broadcast. As a result, significant fluctuations in the Company's total revenues
and net income can occur from period to period depending on the delivery or
availability dates of programs. The Company's television distribution revenues
have historically been higher in the third and fourth quarters as a result of
the commencement of the television broadcast season in the fall of each year.
Pursuant to the Company's accounting policy, as required under generally
accepted accounting principles,
31
<PAGE> 34
capitalized television program costs are reviewed on a quarterly basis and any
portion of such costs that subsequently appear not to be fully recoverable from
future revenues are charged to expense during the period in which the loss
becomes evident. As a result, some quarters or years will have fluctuating
levels of expenses due to such losses. The Company's recorded music operations
are also subject to fluctuations due to the timing of album releases (which may
generate significant revenues in the period in which the release occurs) and to
the timing of the recognition of artist cost expense (which may occur during a
period prior to determination of actual sales of an album).
The following table sets forth selected data by quarter included in the
Company's Consolidated Statements of Operations (unaudited).
<TABLE>
<CAPTION>
QUARTERS ENDED IN 1995 QUARTERS ENDED IN 1994 QUARTERS ENDED IN 1993
--------------------------- ------------------------------------- -------------------------------------
SEPTEMBER JUNE MARCH DECEMBER SEPTEMBER JUNE MARCH DECEMBER SEPTEMBER JUNE MARCH
30, 30, 31, 31, 30, 30, 31, 31, 30, 30, 31,
--------- ------- ------- -------- --------- ------- ------- -------- --------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Television........... $76,818 $33,875 $33,944 $44,000 $34,570 $ 4,103 $16,098 $20,681 $12,184 $10,118 $14,424
Recorded music and
merchandising...... 8,332 4,190 3,018 5,183 3,541 3,502 3,904 3,784 4,359 2,774 2,298
--------- ------- ------- -------- --------- ------- ------- -------- --------- ------- -------
85,150 38,065 36,962 49,183 38,111 7,605 20,002 24,465 16,543 12,892 16,722
--------- ------- ------- -------- --------- ------- ------- -------- --------- ------- -------
Expenses:
Television........... 60,672 26,259 28,049 33,902 25,682 3,630 11,982 17,409 8,579 6,334 10,238
Recorded music and
merchandising...... 6,438 3,799 1,864 3,648 2,366 2,275 2,461 3,403 2,856 2,098 1,423
Selling, general and
administrative..... 6,000 6,326 5,768 6,031 6,677 4,386 4,429 3,634 3,959 4,340 4,141
Goodwill
amortization....... 536 530 540 561 364 23 23 34 33 33 33
--------- ------- ------- -------- --------- ------- ------- -------- --------- ------- -------
73,646 36,914 36,221 44,142 35,089 10,314 18,895 24,480 15,427 12,805 15,835
--------- ------- ------- -------- --------- ------- ------- -------- --------- ------- -------
Operating income
(loss)............... 11,504 1,151 741 5,041 3,022 (2,709) 1,107 (15 ) 1,116 87 887
Other expenses......... 1,800 2,317 2,284 1,724 1,828 1,065 1,059 827 227 307 159
--------- ------- ------- -------- --------- ------- ------- -------- --------- ------- -------
Income (loss) from
continuing operations
before income
taxes................ $ 9,704 $(1,166) $(1,543) $ 3,317 $ 1,194 $(3,774) $ 48 $ (842 ) $ 889 $ (220) $ 728
======== ======= ======= ======== ======== ======= ======= ======== ======== ======= =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its cash flow requirements through
cash flows generated from operations, the issuance of securities and third party
and bank financings. The proceeds from these financings and securities offerings
were used to complete the Mark Goodson Acquisition, the Fremantle Acquisition
and the LBS Acquisition, to finance the Company's operations, including the
production of Baywatch and Baywatch Nights, and for general operating expenses.
In April 1995, the Company secured a new $110.0 million, subsequently
increased to $135.0 million, senior credit facility (the "Senior Credit Facility
Agreement"), with a syndicate of lenders led by Chemical Bank. This facility
currently consists of five tranches: (A) a term loan of $30.0 million (the "Term
Loan" or "Tranche A") which was utilized to refinance existing bank debt
incurred in connection with the Fremantle Acquisition; (B) a revolving credit
facility of up to $20.0 million in the aggregate to be utilized for production
and distribution of Baywatch, of which $14.0 million was initially utilized to
refinance existing bank debt related to production of Baywatch for the 1994/1995
and 1995/1996 broadcast seasons (the "Baywatch Production Line" or "Tranche B");
(C) a revolving credit facility of up to $20.0 million in the aggregate for
production and distribution of Baywatch Nights (the "Baywatch Nights Production
Line" or "Tranche C"); (D) a revolving credit facility of up to $40.0 million to
be utilized to finance certain working capital needs of the Company, of which
$10.0 million was initially primarily used to refinance existing bank debt
related to the Company's working capital needs and to pay certain fees in
connection with the Senior Credit Facility Agreement (the "Working Capital Line"
or "Tranche D") and (E) the $25.0 million Tranche E term loan described below.
The Working Capital Line together with the Baywatch Production Line and the
Baywatch Nights Production Line are referred to collectively as the "Chemical
Bank Facilities." In connection with the Mark Goodson Acquisition, the Company
effected a credit utilization of its working capital line in the form of
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<PAGE> 35
a letter of credit (the "Letter of Credit") from Chemical Bank to fund its $25.0
million cash portion of the total purchase price. On November 13, 1995, the
Senior Credit Facility Agreement was amended to provide an additional $25.0
million term loan under this facility ("Tranche E"), which increased the total
facility to a maximum of $135.0 million, in order to refinance the Company's
reimbursement obligations under the Letter of Credit. See
"Business -- Acquisitions." The obligations of the Company under the Chemical
Bank Facilities, the Tranche A term loan and the Tranche E term loan are
cross-collateralized. The Tranche A term loan matures on December 31, 1998. The
Chemical Bank Facilities mature on April 13, 1999. The Tranche E term loan
matures on April 13, 1999. Under the terms of the Senior Credit Facility
Agreement, the amounts the Company may borrow under Tranche B, C, D are based
upon the value of the collateral in the borrowing base which consists
principally of accounts receivable of the Company. Borrowings under the Senior
Credit Facility Agreement bear interest, at the Company's option, either (i) at
LIBOR plus 2 3/4% (8.56% as of December 7, 1995) or (ii) at the Alternate Base
Rate (which is the greater of Chemical Bank's Prime Rate, its Base CD Rate plus
1%, or the Federal Funds Effective Rate plus 1/2%) plus 1 3/4% (10.5% as of
December 7, 1995), subject to reduction if certain financial ratios are
satisfied. As of December 7, 1995 the Company has outstanding borrowings of
$27.5 million under the Tranche A term loan, $25.0 million under the Tranche E
term loan, $52.0 million under the Chemical Bank Facilities, and approximately
$26.1 million was available for borrowing under the Chemical Bank Facilities. As
an interim measure, the Company expects to repay certain amounts borrowed under
the revolving Chemical Bank Facilities from a portion of the net proceeds of
this offering. See "Use of Proceeds." Amounts repaid under the Chemical Bank
Facilities may be reborrowed subject to the Company having an adequate borrowing
base and meeting the conditions precedent to each borrowing.
The Senior Credit Facility Agreement imposes a number of financial and
other conditions upon the Company, including limitations on indebtedness,
restrictions on the disposition of assets, restrictions on making certain
payments (including dividends), restrictions on acquisitions and certain
financial tests. In particular, the exercise by the Company of the Interpublic
Option or consummation of any other acquisition may be subject to obtaining bank
consent under the Senior Credit Facility Agreement. The Baywatch Production Line
and the Baywatch Nights Production Line provide that certain conditions must be
satisfied before funding of each season of the respective series and such
conditions have been met for the 1995/1996 broadcast season of Baywatch and
Baywatch Nights. The Tranche E term loan imposes a separate set of financial and
other conditions upon the Company, including a requirement that "International
Cash Flow," defined to mean all payments due to the LLC under the terms of its
primary license agreement (other than with respect to the domestic exploitation
of programs), be maintained at specified levels (or, in lieu thereof, that the
Tranche E term loan be prepaid to specified levels). See
"Business -- Acquisitions."
Except to the extent set forth below, under the terms of the Senior Credit
Facility Agreement substantially all of the Company's cash collections are
required to be paid into accounts maintained by Chemical Bank and applied to the
repayment of the Company's obligations under the Chemical Bank Facilities. All
of AAFII's cash collections are required to be paid into accounts maintained by
Chemical Bank and applied, subject to certain exceptions for working capital, to
interest and principal amounts outstanding under the Tranche A term loan until
such time as the Term Loan is repaid in full. The Tranche A term loan is
repayable in thirteen quarterly principal installments as follows: September
1995, $2.5 million (which amount was paid); December 1995, $2.5 million; March
1996, $.5 million; June 1996, $.5 million; September 1996, $3.0 million;
December 1996, $3.0 million; March 1997, $1.0 million; June 1997, $1.0 million;
September 1997, $3.0 million; December 1997, $3.0 million; March 1998, $1.0
million; June 1998, $1.0 million; September 1998, $4.0 million and a final
installment due on the last business day of December 1998 (each such payment
being subject to reduction from certain prepayments). The amount the Company is
able to reborrow under the Chemical Bank Facilities is subject to the collateral
pledged to the lenders having sufficient borrowing base value to support such
borrowings. Substantially all of the Company's assets other than real property
are pledged under the Senior Credit Facility Agreement.
Under the $25.0 million Tranche E term loan which refinanced the cash
portion of the purchase price payable by the Company in connection with the Mark
Goodson Acquisition, the borrower is All American Goodson, Inc. ("AAG"), a
newly-formed wholly-owned subsidiary of All American and the licensee of the
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<PAGE> 36
world-wide distribution rights of the LLC, subject to certain existing licenses.
Under the Tranche E facility, substantially all of the cash flow available to
AAG from exploiting the Mark Goodson assets will be available, after reserving
for earn-out payments to the Sellers and certain administrative, tax and other
distributions to the LLC, to repay the Tranche E term loan. The Company has
agreed to a "make whole" provision so that following the repayment in full of
the Tranche E term loan (or earlier, in the case of certain acceleration
events), each of the other members of the LLC will have received its equal share
of LLC cash flow, together with interest to the extent that the Company received
disproportionate use of cash. The "make-whole" will be payable out of the LLC's
cash flow or, if accelerated in accordance with its terms, at the Company's
option, in cash, shares of Common Stock or shares of Class B Common Stock
(subject, in the latter case, to certain liquidity tests being met). Interpublic
also has the benefit of certain "put" rights and the Company has the benefit of
certain "call" rights and the Interpublic Option, with respect to Interpublic's
membership interest in the LLC, the exercise of which could substantially reduce
the Company's liquidity. See "Business -- Acquisitions." The Company's
obligations to Interpublic are supported by guarantees by AAG and certain
related licensees and secured by a second priority security interest, subject
only to the first priority security interest of the lenders with respect to the
Tranche E term loan in the assets and shares of AAG and the related licensees
and the Company's direct or indirect membership interest in the LLC. In this
connection, the lenders and Interpublic have entered into an Intercreditor
Agreement with the Company relating to their respective rights in connection
with the Tranche E term loan.
In October 1993, the Company issued its 6 1/2% Convertible Subordinated
Notes due 2003 (the "Notes") in the aggregate principal amount of $60.0 million.
The Company received net proceeds of approximately $56.8 million from the
issuance of the Notes. A portion of the proceeds were used to repurchase and
retire all of the issued and outstanding shares of redeemable Series A Preferred
Stock and redeemable Common Stock of the Company, to temporarily repay all
amounts outstanding under its commercial bank facilities, and for general
corporate purposes.
The Notes were issued pursuant to a Fiscal Agency Agreement, dated as of
October 6, 1993 (the "Fiscal Agency Agreement"), between the Company and
BankAmerica National Trust Company, as Fiscal Agent (the "Fiscal Agent"). The
Notes bear interest from October 6, 1993 at the rate of 6 1/2% per annum,
payable semiannually in arrears on each April 1 and October 1. Interest on the
Notes will be paid on the basis of a 360-day year of twelve 30-day months. The
Notes will mature on October 1, 2003.
The Notes are subordinated in right of payment to the prior payment in full
of all Senior Indebtedness (as defined in the Notes and the Fiscal Agency
Agreement) of the Company.
The Notes are convertible into Common Stock, initially at a conversion
price of $11.50 per share (equivalent to 86.957 shares of Common Stock for each
$1,000 principal amount of Notes), prior to redemption or maturity. As of
November 10, 1995, holders of $2.3 million principal amount of the Notes
converted, or requested to convert, such Notes into 197,388 shares of Common
Stock. The conversion price is subject to adjustment in certain events as set
forth in the Fiscal Agency Agreement. The shares underlying certain of the Notes
have been registered with the Securities and Exchange Commission (the
"Commission") pursuant to an effective registration statement.
The Notes may be redeemed, at the option of the Company, in whole or in
part, at any time on or after October 1, 1996, at redemption prices commencing
at 104.643% of par and declining each year thereafter to 100% of par in 2001
together with accrued but unpaid interest thereon through the date of
redemption. The Notes may be redeemed at any time, as a whole but not in part,
in the event of certain changes in United States tax laws. In case of any such
redemption, the redemption price will be 100% of the principal amount of the
Notes, together in each case with accrued interest to the date of redemption.
The Notes are also subject to mandatory prepayment at 101% of par in the event
(i) the Common Stock is not listed for trading on any exchange or Nasdaq for 10
consecutive trading days or (ii) any person, other than certain executive
officers and directors of the Company, acquires more than 50% of the total
voting power of the Common Stock (with certain exceptions).
During the nine months ended September 30, 1995, the Company used cash of
$16.2 million in its operations which was an increase in cash usage of $7.5
million compared with the $8.7 million of net cash used
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<PAGE> 37
by its operations for the nine months ended September 30, 1994. This negative
cash flow from operations was due primarily to an increase in accounts
receivables of $40.0 million (primarily from the strip syndication of Baywatch)
and net additions to television program costs of $7.6 million (primarily related
to the 1995/1996 broadcast season), partially offset by an increase in accounts
payable, accrued expenses and royalties payable and due to producers and
participations payable. The Company experienced a net increase in cash flow from
financing activities of $25.4 million during the first nine months of 1995,
primarily due to an increase in borrowings under the Company's production and
working capital loans in excess of repayments. The Company expects, from time to
time, to continue to experience negative cash flow from operations. Any such
uses of cash flows are expected to be funded, pending receipt of anticipated
licensing revenues, out of its lines of credit or outside sources.
As described more fully below, the Company will have substantial capital
requirements during the next twelve months principally arising from the
acquisition, production and distribution of television programming and the
continued release of record albums requiring related marketing, promotion and
recording expenses. The commencement of the production of television programming
for the 1995/1996 broadcast season has required the Company to incur substantial
production costs in advance of generating revenues and receipts. Similarly, the
Company plans to incur significant costs associated with its television
distribution operations. The Company believes that its existing working capital
together with net proceeds from the offering, borrowings under its bank line of
credit, anticipated cash flows from operations and other available funding
sources will be sufficient to meet its expected and resulting working capital
needs for at least the next twelve months.
The Company from time to time considers the acquisition of program rights
and the expansion of its business through the acquisition of businesses
complementary to the current operations of the Company. Consummation of any such
acquisition or other expansion of the business conducted by the Company, if
beyond the Company's capital resources, would be subject to the Company securing
additional financing to the extent required.
Television Production and Distribution
In order to obtain television programming for distribution, the Company may
be required to make advance cash payments to the producers of such programming.
However, the Company generally attempts to avoid advance payment requirements by
making minimum guarantees to producers or owners in connection with the
acquisition of television programming. In addition, the Company has obtained
letters of credit and other sources of bank financing to facilitate certain
programming acquisitions. The Company may acquire domestic or foreign
distribution rights to a particular television program in exchange for a minimum
guarantee against a specified percentage of future licensing and/or advertising
sales revenue less certain costs of distribution. These guarantees are typically
subject to delivery of the completed programs. While the Company generally
anticipates that it will recoup payments made under its guarantees from
licensing fees and the sale of advertising time, the Company often is required
to make payments under such guarantees in advance of generating revenues and
receipts. Any expansion of the Company's business could require the Company to
make substantially increased advance payments or provide guarantees to third
parties. Further, there can be no assurance that such amounts will be recouped
by the Company and, if not recouped, that such payments will not have a material
adverse affect on the Company. In addition, the Company's working capital
requirements in connection with its development and production activities
relating to potential network programming are expected to substantially increase
as a result of the Company's agreement, effective August 1995, with The David
Gerber Company. See "Business -- Television Operations -- Domestic Television
Production."
Recorded Music Operations
In the course of its distribution activities, the Company is responsible
for funding all distribution activities, including producing, marketing,
promoting and manufacturing recorded music for domestic distribution. In order
to perform this responsibility, the Company has significant personnel and other
overhead and marketing expenses, which require substantial capital.
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The Company currently has a roster of 15 active recording artists.
Additionally, the Company contracts from time to time with other artists or
entities for the production of recorded music for its special projects division.
Such growth has required the Company to fund artist advances and recording
costs. Artist advances, recording costs, recording studio and other overhead and
marketing expenses are funded with cash flows from operations and by the
Company's working capital credit facility.
Minimum contractual commitments to existing artists totaled approximately
$.4 million at November 13, 1995 and the Company will be required to spend
additional sums for recording and marketing expenses for several artists in its
current roster. The Company's receipt of periodic advances from its foreign
distributors is dependent upon the Company meeting certain minimum delivery
requirements under its foreign distribution agreement.
Inflation
The Company believes that the impact of inflation has not been significant
to its financial condition or results of operations.
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BUSINESS
The Company is a diversified entertainment company with significant
operations in television production and distribution and recorded music
production and distribution. The Company is a leading independent supplier of
television programing, including the production and domestic distribution of
Baywatch, currently one of the highest rated one-hour series in first-run
syndication and seen in more than 100 countries around the world. In addition,
the Company is one of the world's largest distributors of television game shows
outside of the United States. In October 1995, in order to further strengthen
its position in the game show business, the Company agreed to form a joint
venture, which acquired substantially all of the assets of Mark Goodson
Productions, L.P. and The Child's Play Company, including rights to The Price Is
Right, Match Game, Password, Beat the Clock, Family Feud, Card Sharks, What's My
Line, To Tell the Truth and other Goodson game show formats. The Company also
distributes an extensive library of programming and has operated as an
independent record producer since 1981.
BUSINESS STRATEGY
All American's principal business strategies are to (i) develop, produce
and distribute quality television programming on a world-wide basis; (ii)
increase its library of programming for television distribution by both internal
production and acquisition of rights from third parties; (iii) acquire assets or
businesses complementary to its current operations; and (iv) develop its
recorded music operations through acquiring both new and established artists and
increasing sales from its catalog. The Company's acquisition strategy to date
has resulted in the LBS Acquisition in February 1993, the Fremantle Acquisition
in August 1994 and the Mark Goodson Acquisition in October 1995.
TELEVISION OPERATIONS
The Television Industry
The television industry may be broadly divided into three major segments:
production, involving the development, financing and making of television shows;
distribution, involving the promotion and exploitation of completed television
shows; and broadcast, involving the airing or broadcast of programming over
network affiliated stations, independent stations and cable or satellite
television. The United States broadcast television market is served principally
by network affiliated stations, independent stations and cable and satellite
television operators. During prime time hours (primarily 8:00 P.M. to 11:00 P.M.
in the Eastern and Pacific time zones and 7:00 P.M. to 10:00 P.M. in the Central
and Mountain time zones), network affiliates primarily broadcast programming
produced for the networks. In non-prime time, network affiliates telecast
network programming, off-network programming (reruns), first-run programming
(programming produced for distribution on a syndicated basis) and local
programming produced by the local stations themselves. Independent television
stations, during both prime and non-prime time, telecast self produced
programming, off-network programming or first-run programming from independent
producers or "syndicators." In general terms, a syndicator is a company that
sells programming to independent television stations and network affiliates.
Programming acquired by stations on a syndicated basis is acquired either for a
cash license fee or in exchange for a certain amount of commercial advertising
time within the program which is retained by the syndicator for sale thereby to
advertisers ("barter"), or for a combination of cash and barter.
Domestic Television Production
In May 1991, the Company acquired the rights to produce the weekly action
drama series Baywatch starring David Hasselhoff. Baywatch is currently one of
the highest rated series in first-run syndication in the United States. In
December 1991, the Company also acquired the domestic rights to distribute the
original episodes on a strip basis (i.e., Monday through Friday). The original
23 episodes were produced by a third party and aired on the NBC network during
the 1989/1990 broadcast season. Broadcast of the Baywatch episodes produced by
the Company commenced in the United States in September 1991. Since it began
producing Baywatch for the 1991/1992 broadcast season the Company has produced
and delivered an aggregate of 88 episodes of Baywatch through the 1994/1995
broadcast season.
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The Company has completed production of 22 episodes and delivered ten
episodes of Baywatch for the 1995/1996 broadcast season through September 30,
1995. Additionally, the Company has recently launched the domestic rerun
syndication of 111 previously aired episodes of Baywatch on a strip basis to
commence during the 1995/1996 broadcast season. See "-- Domestic Television
Distribution."
Based upon the success of its Baywatch series and the popularity of its
star, David Hasselhoff, the Company is producing a Baywatch spin-off, Baywatch
Nights for exhibition in first-run syndication. Baywatch Nights has been
licensed for the 1995/1996 broadcast season to television stations covering more
than 96% of the U.S. market, and the Company is the exclusive domestic and,
through AAFII, the exclusive international distributor of the series. Through
September 30, 1995 the Company has produced and delivered ten of the planned 22
episodes of Baywatch Nights.
The Company is also a producer of several hour-long dramatic series,
numerous specials and movies of the week and musically oriented television
programs. The Company's production approach has been and continues to be to
focus on the one-hour action drama format with each format based around a well
known television star to ensure both domestic and international appeal. The
Company's production philosophy has been and continues to be to keep production
costs low through cost effective production techniques and then to secure
advance foreign commitments and pre-sell advertising time to cover production
costs up front.
In July 1995, the Company entered into an arrangement with The Gerber
Company ("TGC") pursuant to which the operations of TGC will be incorporated
into the Company's future television development and production operations for a
two-year term commencing in August 1995, subject to a one-year renewal option in
favor of the Company. Pursuant to this arrangement David Gerber will render
exclusive services to the Company, subject only to his involvement with certain
pre-existing projects. The Company will pay TGC specified fees in consideration
for David Gerber's services with respect to projects produced during the term of
the agreement. In addition, TGC is entitled, with respect to network projects,
to maximum specified percentages of adjusted gross receipts or net profits after
taking into account certain third party participations and, with respect to
domestic syndication projects, to a maximum specified percentage of net profits
after taking into account total third party participations. Mr. David Gerber,
formerly a senior executive of both Columbia Pictures Television and MGM
Television, has assumed the position of President, All American Television
Production, Inc., a wholly-owned subsidiary of the Company, and heads a team of
up to eight additional production personnel. Mr. Gerber is responsible for
developing programming for both network television and, to a lesser extent,
first-run syndication. While head of television programming at a major studio,
Mr. Gerber was responsible for television projects such as thirtysomething and
In The Heat Of The Night. TGC is currently developing movies-for-television and
episodic series for potential network exhibition.
Domestic Television Distribution
In addition to producing Baywatch, the Company distributes the show
domestically to independent broadcast stations. During the 1994/1995 broadcast
season, the Company licensed the show to independent broadcast stations covering
approximately 99% of the United States television market. The 1995/1996
broadcast season represents the fifth consecutive season for which the Company
has produced and domestically distributed the show. Through November 10, 1995,
Baywatch had been licensed for the 1995/1996 broadcast season to television
stations covering approximately 99% of the United States television market.
The Company has launched a domestic rerun ("strip") syndication package of
111 previously aired Baywatch episodes (23 episodes originally produced by a
third party and 88 episodes by the Company) for broadcast during the 1995/1996
and 1996/1997 broadcast seasons ending September 1997 (at which time such
episodes are licensed to USA Networks pursuant to the license described below).
Domestic rerun syndication typically involves the exhibition of programming five
days a week on local television stations and/or cable services after first-run
exhibition. Typically, to be successful in rerun syndication, a television
series must have at least 65 episodes (the equivalent of three full television
seasons). Through November 7, 1995, the rerun syndication package has been
licensed to television stations covering more than 93% of the United States
television market on a cash and barter basis and the Company continues to
actively market the
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package. As of November 10, 1995, the Company has generated approximately $19.0
million of cash sales (i.e., excluding barter) related to the domestic strip
licensing of Baywatch and, in addition, will generally retain three minutes of
advertising time per telecast. The cash sales will be collected ratably over the
term of the strip license period.
In addition to producing the new series Baywatch Nights, the Company is
distributing the show domestically and internationally. Through November 10,
1995, Baywatch Nights had been licensed for the 1995/1996 broadcast season to
television stations covering more than 96% of the United States television
market. The Company has entered into a sublicensing agreement for the
distribution of the show throughout Continental Europe.
The Company has entered into an exclusive license agreement dated as of May
1, 1995 with USA Networks in regard to the licensing of up to 110 episodes of
Baywatch, 22 episodes of Sirens, and 22 episodes of Acapulco H.E.A.T. and, under
certain circumstances, up to 22 episodes of Baywatch Nights. The license
agreement is exclusive in the United States, its territories and possessions
(including Puerto Rico) over all forms of transmission by all means (including,
without limitation, free over-the-air broadcasts, basic and pay cable, or via
video on demand), other than via continuous first-run syndication and other than
the rerun strip syndication of the first 110 episodes of Baywatch during the
period commencing June 26, 1995 through September 19, 1997. The initial term of
the license agreement commenced in May 1995 for Acapulco H.E.A.T. and October
1995 for Sirens, and will commence in September 1996 for Baywatch Nights
(subject to further agreement between the parties if the series is renewed for
the 1996/1997 broadcast season) and September 1997 for Baywatch with a common
termination date of September, 2000 for all four shows. Revenue will be
recognized on commencement of the license period for each show. The minimum
license fee aggregates $25.3 million payable in 36 equal monthly installments of
approximately $.7 million commencing September, 1997 through August, 2000. The
license agreement also provides that in the event Baywatch is produced for
first-run syndication during the 1996/1997 or the 1997/1998 broadcast seasons
and certain conditions concerning the availability of the leading performers of
the series are met (or waived by USA Networks), USA Networks is obligated to
extend the license to include such broadcast seasons and the minimum license fee
is increased by specified amounts. USA Networks also has certain options to
extend the term of the license for up to four years for additional specified
consideration.
In January 1995, the Company reached an understanding with United
Television/Chris Craft Industries, Inc. ("Chris Craft") whereby the Company was
engaged commencing with the then remaining portion of the 1994/1995 broadcast
season through September 1997 as the exclusive domestic television distributor
for The Richard Bey Show, a daily afternoon one-hour talk show. Chris Craft has
retained the right, which right must be exercised on or prior to December 1,
1995, to buy-out the Company's distribution of the show during the 1996/1997
broadcast season at a price equal to the Company's distribution fee that season.
Chris Craft has agreed to deliver 39 weeks of original one-hour programs during
each 52 week broadcast season and to air The Richard Bey Show on Chris Craft's
six owned and operated stations (WWOR New York, KCOP Los Angeles, KBWK San
Francisco, KMSP Minneapolis, KUTP Phoenix, and KPTV Portland).
Fremantle International
In August 1994, the Company completed the Fremantle Acquisition. As a
result of the Fremantle Acquisition, the Company currently produces and
distributes approximately 90 game shows in 28 countries. The Company's
programming outside the United States has expanded to include the foreign
distribution rights to such shows as The Price Is Right, The Dating Game,
$25,000 Pyramid, Jeopardy and Let's Make a Deal. The Company now distributes,
and in some cases locally produces, game shows throughout Europe, Asia,
Australia and South America. The Company believes that it is one of the world's
largest suppliers of television game shows outside the United States.
During the 1960's, Fremantle (founded in 1952) pioneered the international
production of U.S.-created television formats with Romper Room which was
produced in local versions by Fremantle in 29 countries and 9 languages. During
this period, Fremantle also became involved with game show formats through an
affiliation with Mark Goodson Productions, LP, among others. Fremantle licensed
and, in some cases, locally
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produced such shows as The Price Is Right, Family Feud, Password and
Concentration in various European countries. During the 1970's and 1980's,
Fremantle developed licensing arrangements with a number of the largest game
show producers in the U.S. In the late 1980's, a minority stake in Fremantle was
acquired by Interpublic whose subsidiary advertising agencies, Ammirati, Puris &
Lintas Worldwide, McCann-Erickson Worldwide and The Lowe Group, are among
substantial buyers of television time in Europe. Interpublic increased its
interest in Fremantle to an 80% interest in 1991 and, immediately prior to the
time of the Fremantle Acquisition, acquired the 20% balance in Fremantle owned
by the original founder of Fremantle.
The Company distributes and, in some cases, produces game shows pursuant to
licensing contracts ("producer contracts") with various producers who control
the rights to specific game show formats (e.g., The Price Is Right, The Newlywed
Game, Let's Make A Deal, etc.). The Company licenses the right to create and/or
to distribute game shows on a local basis in various international territories
using the successful U.S. format. Thus, for example, the Company produces German
language versions of The Price Is Right and Let's Make A Deal which include
German hosts and contestants and which are televised in the German market.
The rights derived from the producer contracts are sub-licensed to
broadcast outlets in mostly Western European territories ("sub-license
contracts") with major television exhibitors. These sub-license contracts have
terms which generally range from one to three years with renewal options. While
the sub-license contracts are generally of a short term nature, the risk of
their non-renewal is, as historically determined, largely a function of ratings
performance. In a number of cases, the Company's programs are among the top
rated programs in their time slots in their markets. There is no assurance that
the Company can continue to achieve the ratings necessary to cause the programs
to be renewed or that the programs will be renewed. The producer contracts
generally include provisions or are subject to a course of dealing which allow
Fremantle or the Company to retain distribution rights indefinitely (except in
certain circumstances where there is a specific outside term) under expired
producer contracts on stations in those territories in which the show is already
being broadcast. In such a case, the Company would not have the right to sell
the show into new territories unless a new contract were negotiated, thereby
limiting certain growth opportunities. By virtue of the Mark Goodson
Acquisition, the Company will be in a position to expand Fremantle's business
with respect to Goodson game show formats in new territories. See "-- Mark
Goodson Productions."
Developing strong international distribution capabilities has complemented
the Company's existing production business. For example, the Company is
self-distributing Baywatch Nights in both the domestic and international
marketplace. Fremantle's management is broadly experienced in the various facets
of international television production and distribution, and it has strong links
with the advertising community.
Mark Goodson Productions
Mark Goodson Productions, L.P. ("Goodson"), has been a well-known producer
of television game show programs. Since 1946, Goodson has produced over 30,000
episodes of television programming, totaling approximately 17,000 broadcast
hours. Goodson was the creator of and, pursuant to the Mark Goodson Acquisition,
has transferred ownership rights to the following game show formats to a limited
liability company (the "LLC") jointly owned by the Company and Interpublic (and
managed by the Company):
<TABLE>
<S> <C> <C> <C>
Beat The Clock Get The Message Password Plus The Better Sex
Blockbusters He Said, She Said Play Your Hunch The Match Game
Body Language Hit the Jackpot Rate Your Mate The Name's The Same
By Popular Demand It's News To Me Say When! The Price Is Right
Call My Bluff! Judge For Yourself Showoffs To Tell the Truth
Card Sharks Make The Connection Snap Judgment Trivia Trap
Child's Play Mindreaders Split Personality Two For The Money
Choose Up Sides Missing Links Spin to Win Winner Take All
Double Dare Now You See It Super Password What's My Line?
Family Feud Number Please Tattletales What's Going On
New Family Feud Password That's My Line
</TABLE>
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<PAGE> 43
Goodson produced television programming for network broadcast and
television syndication in the United States, and licensed the rights to its game
show formats to international licensees for local television production outside
the United States. Currently the only Goodson show in initial network exhibition
is "The Price Is Right", in its 24th season, hosted by Bob Barker and exhibited
on the CBS Television Network as a day-time program. The Company expects that
negotiations will commence with CBS with respect to the 1996/1997 broadcast
season in early 1996 although there is no assurance that the series will be
continued. During the 1994/1995 broadcast season, Goodson also produced "New
Family Feud" hosted by Richard Dawson and exhibited in first-run syndication
through All American.
The LLC currently licenses the rights to its game show formats to
international licensees (including Fremantle) who produce local versions of the
shows for broadcast outside the United States. The Price Is Right, for example,
is licensed for production in eight foreign countries and is known as Le Juste
Prix in France, Der Preis Ist Heiss in Germany and El Precio Justo in Spain.
The Goodson game show formats are currently broadcast in approximately 26
foreign markets. Many formats, including Blockbusters, Card Sharks, Family Feud,
Now You See It, The Price Is Right and To Tell the Truth, are licensed in more
than one foreign country.
In addition to rights to the use of its formats for new production, Goodson
also transferred ownership to the LLC of a library of tapes of previous game
show episodes. This library, which includes almost 17,000 broadcast hours of
programming and approximately 30,000 episodes, is one of the largest game show
libraries in the world. Goodson has maintained high-quality tapes covering a
substantial proportion of its production. Prior to the Mark Goodson Acquisition,
Goodson entered into a license agreement with the Sony Game Show Channel, which
license has been assigned to the LLC. The Sony Game Show Channel (the "Channel")
is a cable service dedicated to the broadcast of game show material. For
existing episodes, the Goodson license to the Channel provides for certain
exclusivity rights in the United States and Canada in favor of the Channel other
than for standard broadcast television. The license also covers new episodes
produced by third parties under format licenses. For certain other new game show
series, the Channel has certain first negotiation rights. The term of the
license expires on October 11, 1997 unless extended or renewed. See
"-- Acquisitions" for a description of the Mark Goodson Acquisition.
Library
Television programming currently distributed or represented by the Company
consists of a library of more than 135 motion pictures, including contemporary
titles such as Split Decision starring Gene Hackman, The Long Walk Home starring
Whoopi Goldberg and Sissy Spacek, and Defenseless starring Sam Shepard and
Barbara Hershey, various specials and 11 Bob Hope classic titles. The Company
distributes All American Feature Theater, a package of feature length motion
pictures acquired by the Company in separate agreements with Vision
International, Skouras Pictures and New Visions Entertainment, among others. The
Company also distributes other programming including a mini-series titled
Sherlock Holmes: Incident at Victoria Falls, and documentary series. In
addition, the Company acquired certain programming rights from Blair
Entertainment Corporation and John Blair Communications, Inc. (collectively
"Blair") in June 1992, including distribution rights to Divorce Court.
The Company distributes children's television programming consisting of
both television series and animated feature films including Heathcliff and
Inspector Gadget. In February 1993, the Company entered into a long term
sublicense agreement with The Family Channel for the animated series Heathcliff
for the domestic cable and syndication markets.
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<PAGE> 44
The Company has been building an extensive library of programming to
support its distribution activities. The Company currently distributes,
represents or owns participation interests in more than 135 motion pictures and
more than 50 television series, and a variety of children's programming and
live-event specials. The table below sets forth certain of these properties as
of the date hereof:
<TABLE>
<S> <C>
SERIES Baywatch, Baywatch Nights, Acapulco H.E.A.T., America's Top Ten,
BeachClash, Divorce Court, Sirens, Stuntmasters, Tales From The
Darkside
GAME SHOWS Mark Goodson Productions Library, The Dating Game, $25,000 Pyramid
CHILDREN'S SERIES Bots Master, Heathcliff, Inspector Gadget, M.A.S.K.
MOTION PICTURES Agatha, Bad Influence, Care Bears Movie, Care Bears Movie II, Eye of
the Tiger, Lady Beware, Defenseless, Eddie and the Cruisers II, Freeze
Frame, The Gate, Ghostwriter, The Grey Fox, Hansel and Gretel, Heat,
He's My Girl, It Nearly Wasn't Christmas, The Long Walk Home, Split
Decision, Straight Time, Sword of Gideon, Wild Orchid, The Wraith
BOB HOPE CLASSIC
FILMS My Favorite Brunette, Road to Rio, The Great Lover, The Lemon Drop Kid,
Son of Paleface, Road to Bali, Seven Little Foys, Cancel My
Reservation, How to Commit Marriage, The Private Navy of Sgt.
O'Farrell, Paris Holiday
SPECIALS The Boy King, Christmas at the Movies, The Elvis Files, Exploring
Psychic Powers, Madonna Exposed, Mysteries of the Pyramids, Remembering
Marilyn, Return to the Titanic, The Royal Family -- In Crisis, The JFK
Conspiracy, The Kennedy Assassinations
MINI-SERIES Around the World in 80 Days, Sherlock Holmes: Incident at Victoria
Falls, Sherlock Holmes and the Leading Lady
</TABLE>
The distribution terms and rights vary as to media and geographic area for
each program, but are generally for representation or distribution throughout
the United States except for the game shows, which are for distribution
internationally. Extensions of the term may be available in certain cases if the
Company meets pre-defined performance standards. The Company intends to seek
extensions of the distribution periods for these properties on satisfactory
economic terms although there is no assurance the Company will be able to do so.
Acquisition of Properties for Distribution
The Company generally acquires properties for television distribution by
entering into agreements with producers/owners or by producing or co-producing
its own programs. The Company's distribution agreements generally provide that
the revenues derived from the program are allocated between the producer and the
Company on a pre-negotiated basis. Acquisitions are based on projected station
demand and acceptance as well as expected advertiser sponsorship.
Under some arrangements, the Company will guarantee that the producer's
share of revenues will not be less than a specified dollar amount. In other
instances, the Company will provide the producer with a production advance, in
which case the Company usually recoups such advance before making any remittance
of the producer's share of revenues. Where possible, the Company has endeavored
to limit its risk by arranging for other distribution or major station groups to
provide production, financing and/or distribution services in exchange for a
portion of the Company's fees.
In addition to United States television broadcast rights, the Company also
acquires, where available on acceptable terms, world-wide broadcast television
and non-standard television distribution rights (such as cable and videocassette
rights) to the programs it distributes. These acquisitions are typically on a
long-term exclusive basis, often between three and twelve years, in some cases
with various renewal options, and may provide that the Company has the right to
undertake production of the program in the event the producer fails to deliver
the contracted programming.
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<PAGE> 45
Competition; Concentration
Competition in the production and distribution of television programming is
intense. The Company's programming competes with other first-run programming,
network reruns and programs produced by local television stations. The Company
competes with many other companies that have been acquiring, producing and
distributing programs for longer than the Company, and most of these companies
have greater financial resources than those of the Company. These competitors
include large television and film studios such as the Walt Disney Company,
Paramount Communications Inc., Columbia Pictures Television, 20th Century Fox
Film Corp., MCA Inc., and Warner Bros. Inc., as well as other television
distribution companies such as King World Productions, Inc. The Company also
competes with other companies for the sale of television advertising time,
including Tribune Broadcasting Co./Entertainment Co., Viacom International, Inc.
and King World Productions, Inc.
The Company's success is highly dependent upon such various unpredictable
factors as the viewing preferences of television audiences. Public taste is
unpredictable and a shift in demand could cause the Company's programming to
lose its appeal. Television programming also competes for audiences with many
other forms of entertainment and leisure time activities, some of which include
new areas of technology (e.g., video games and home video), the impact of which
on the Company's operations cannot be predicted.
During the years ended December 31, 1994, 1993 and 1992, The Fremantle
Corporation, a corporation not affiliated with the Company, accounted for 13%,
17% and 20% of consolidated revenues, respectively. In 1994, licensing contracts
with three producers represented 75% of gross revenues of AAFII; the Goodson
license represented 44% of such gross revenues and expired in December 1994
(subject to certain provisions which maintain the continuing effectiveness of
such license as to existing programming in existing territories); the Hatos Hall
license represented 24% of such gross revenues and will expire in March 1996;
and the Columbia license represented 7% of such gross revenues and expired in
1992. As of October 1995, in connection with the Mark Goodson Acquisition, a
wholly-owned subsidiary obtained world-wide distribution rights to the formats
and tapes in the Mark Goodson Productions Library, subject to certain existing
licenses. See "-- Acquisitions."
ANCILLARY BUSINESSES
The Company generates additional revenue by merchandising certain of its
television properties, principally Baywatch, and developing on-line and
interactive applications as well. The Company also retains music publishing
rights with respect to its television and recorded music products to the extent
possible.
ACQUISITIONS
The Company from time to time considers the acquisition of program rights
and the expansion of its business through the acquisition of assets or
businesses of other entities engaged in businesses complementary to the current
operations of the Company. As part of the implementation of its strategy to
acquire assets that increase production and distribution capabilities, the
Company significantly expanded its international television production and
distribution operations with the Fremantle Acquisition in August 1994 and its
potential world-wide expansion in the television game show business with the
Mark Goodson Acquisition consummated in October 1995.
The price for the stock and assets of Fremantle consisted of $31.5 million
in cash, 630,000 shares of Common Stock and 25,200 shares of newly created
Series B Convertible Preferred Stock (which have been converted into 2,520,000
shares of Class B Common Stock) (collectively, these securities represent an
approximate 23% interest in the Company on a fully diluted basis). Additionally,
the Company incurred transaction costs of $1.0 million. Upon consummation of the
Fremantle Acquisition, certain international programming rights (excluding
programming rights under the Goodson contract) were transferred to the Company
and 100% of the non-voting equity of Fremantle (representing 99% of total
outstanding equity) was transferred to the Company.
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<PAGE> 46
As of October 6, 1995, the Company consummated an Asset Purchase Agreement
pursuant to which a newly-formed limited liability company (the "LLC"), jointly
owned, directly or indirectly by the Company and Interpublic, acquired
substantially all of the assets (excluding assets relating to the lottery
business) and to assume certain specified liabilities (the "Mark Goodson
Acquisition") of Mark Goodson Productions, L.P. and The Child's Play Company
(collectively, the "Sellers"). The purchase price consisted of payment by the
Company of $25.0 million in cash and issuance by Interpublic of $25.0 million in
its common stock to the Sellers, together with a contingent earn-out described
below. Under the earn-out, the LLC will initially pay to an assignee of the
Sellers a specified percentage of "Domestic Net Profits" (i.e. generally gross
receipts less production costs, if applicable, a distribution fee to the Company
under certain circumstances and residual payments) realized from the
exploitation in the U.S. and Canada (currently, primarily consisting of "The
Price Is Right") of the Goodson game shows and other purchased television
formats during the five-year period following October 6, 1995 (which period is
subject to extension for an additional five years if total earn-out payments do
not equal $48.5 million, in which case the earn-out shall be payable in neither
a minimum nor a maximum amount). The specified percentage of Domestic Net
Profits payable to the Sellers with respect to "The Price Is Right" is 75%
during the network exhibition of the program during the five years after October
6, 1995 and otherwise the specified percentage is generally 50% for other
programs. However, the earn-out does not apply to any net profits realized from
the international exploitation of any of the purchased game shows or other
purchased television formats.
The LLC has entered into a long-term license with a wholly-owned subsidiary
of the Company which will exploit, in consideration of customary distribution
fees and recoupment of certain out-of-pocket expenses, all of the Goodson
formats world-wide. Accordingly, while the Company's ownership interest
resulting from the Mark Goodson Acquisition will be limited to a 50% interest,
the Company controls the world-wide exploitation of the underlying rights,
subject only to the rights under existing licenses including the existing
Fremantle license. The Company's wholly-owned subsidiary has entered into a
sublicense of the right to continuously exploit "The Price Is Right" on U.S.
network television during the earn-out period to a wholly-owned subsidiary of
Interpublic, which has hired an affiliate of Goodson as producer of the show on
a "for hire" basis under an agreed-upon production budget.
Interpublic and the Company have entered into an agreement pursuant to
which the Company has a six-month option to acquire Interpublic's undivided 50%
share in the LLC commencing April 30, 1996 for $25.9 million (increasing during
the option exercise period at a rate of 7% per annum). No determination has been
made by the Company whether or not to exercise the Interpublic Option, which
determination may be based upon, among other things, the availability of
sufficient resources to exercise the option, the renewal or non-renewal of The
Price Is Right and management's business judgment as to the best use of the
Company's resources during the option exercise period.
In addition, under the operative documents relating to the LLC, Interpublic
has certain rights to "put" its interest in the LLC to the Company and the
Company has certain additional rights to "call" Interpublic's interests, under
the circumstances specified below. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
In the event that the Company merges or consolidates with another entity
and the Company is not the surviving entity or if any person other than Anthony
J. Scotti (together with certain members of his immediate family) beneficially
owns more than fifty percent (50%) of the Company's Common Stock (a "Change in
Control"), Interpublic shall have the right to "put" (the "Change in Control
Put") or the Company will have the right to "call" (the "Change in Control
Call") Interpublic's interest in the LLC for an amount equal to Interpublic's
net capital contribution together with a rate of return equal to 12% per year
based on Interpublic's average outstanding capital contribution. In addition,
Interpublic will also have an additional "put" right (the "Ordinary Put") to the
Company following the time when it has been "made whole" by the LLC from
ordinary distributions (subject to acceleration of such rights in the event of a
"make whole default" (as defined) by the Company or a "change in ownership"
(i.e. beneficial ownership by Anthony J. Scotti, Benjamin J. Scotti and related
persons of less than 10% of the outstanding shares of Common Stock). The "put"
purchase price of the Ordinary Put will be based upon a specified multiple of
the LLC's "average operating income" (as defined), together with any unpaid
"make whole," and will be payable by the Company
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<PAGE> 47
in cash as follows: 50% immediately, with the balance (plus interest) in three
equal annual installments. The Company also has the right to an additional
"call" at any time after the second anniversary of the escrow closing for an
amount equal to $25.0 million plus the then unpaid "make whole" due to
Interpublic. Interpublic can reject the foregoing "call" by the Company in which
case the future right to exercise an Ordinary Put shall expire.
RECORDED MUSIC OPERATIONS
The Recorded Music Industry
According to statistics released by the Recording Industry Association of
America, Inc., sales in the United States recorded music industry increased 20%
during 1994 to $12 billion, based in part on the shipment of 1.1 billion units
of records, tapes, compact discs ("CDs") and music videos. Industry wide unit
shipments of CDs grew 33.6% compared to new shipments in 1993. CDs also
generally have a higher wholesale price and per unit gross profit margin than
vinyl records and tapes. However, recordable CD, digital audio tape ("DAT") and
digital compact cassette ("DCC") technology has recently been introduced into
the marketplace and enables consumers to make high quality duplicates from
original CDs and DATs. In the absence of adequate copyright protection,
recordable CD, DAT and DCC technology may affect industry sales of CDs, DATs and
DCCs. It is not possible to predict the extent to which such sales will be
affected.
Recorded Music Artists and Catalog
The Company's recorded music division has been in business for
approximately 14 years, nine years as a custom label and approximately the last
five years as a full service operation. During this period, the Company has
released approximately 140 albums of individual artists, groups and motion
picture soundtracks. The Company's current roster is comprised of 15 active
artists, including soul singer James Brown and music humorist "Weird Al"
Yankovic, whose latest album, entitled Permanent Record (Box Set), includes the
separately released single Headline News which is also the subject of a music
video produced by the Company. The Company has recently changed the product mix
of its new recorded music product to focus more on urban and alternative music,
due in part to the success of these music styles and in this connection has
launched a new label named Street Life which markets and promotes urban and rap
records. The following table sets forth certain of the albums in the Company's
catalog:
<TABLE>
<S> <C>
"WEIRD AL" YANKOVIC Permanent Record (Box Set), Greatest Hits Vol. II, Alapalooza, Dare to
be Stupid, Even Worse, The Food Album, Greatest Hits, In 3-D, Off the
Deep End, Polka Party
JAMES BROWN Gravity, Greatest Hits of the Fourth Decade, Greatest Hits-Live, I'm
Real, Living in America, Love Overdue, Universal James, Live at the
Apollo
SKEE-LO I Wish
SURVIVOR Caught in the Game, Eye of the Tiger, Greatest Hits, Moment of Truth,
Premonition, Vital Signs, When Seconds Count
E.L.O. PART II Electric Light Orchestra Part 2, Greatest Hits-Live
THE NYLONS Four on the Floor, Live to Love, Because, Harmony (The Christmas LP)
SWEET SABLE Old Time's Sake
12 GAUGE 12 Gauge, Let Me Ride Again
FREDDIE JACKSON Private Party
COUNT BASIE, Jazz Fest Masters
SARAH VAUGHN,
DIZZY GILLESPIE
EDDIE & THE CRUISERS Eddie: The Unreleased Tapes
</TABLE>
45
<PAGE> 48
<TABLE>
<S> <C>
JOHN CAFFERTY & Roadhouse, Tough All Over
THE BEAVER BROWN BAND
SOUNDTRACKS Baywatch, Never Talk to Strangers, Another 48 Hours, Cliffhanger,
Cobra, Eddie & The Cruisers, Eddie & The Cruisers II: Eddie Lives,
Rambo III, Revenge of the Nerds, Rocky IV, The Transformers, UHF
</TABLE>
Music Distribution
Music distribution includes the sale and physical delivery of product to
retailers and the collection of the related receivables. Generally, the recorded
music industry attempts to restrict the return to the distributor of products
that remain unsold through the use of penalties on the percentage of delivered
products that are returned.
Since September 1990, the Bertlesmann Music Group ("BMG") has provided
certain distribution functions (including physical delivery of the product,
collection of receivables and certain sales functions) pursuant to a five year
(twice extended to December 31, 1995) domestic distribution agreement with the
Company for which BMG receives a distribution fee. The Company is responsible
for all other activities, including producing, marketing, promoting and
manufacturing recorded music product for domestic distribution. This arrangement
requires the Company to fund various costs and, as a result, is riskier to the
Company than its previous "custom label" arrangement. However, this arrangement
has the potential for resulting in increased per unit gross profit to the
Company. The Company, at its option, may permit its agreement with BMG to
continue past December 31, 1995 under the existing terms of such agreement until
such time as the Company has provided BMG with ninety (90) days prior notice of
its intent to terminate the term of the agreement. The Company notified BMG of
its intent to terminate the BMG contract unless a new agreement can be reached
on more favorable terms to the Company. Although the Company believes that it
will be able to renegotiate the BMG contract or enter into a new contract with a
different distributor on more favorable terms, no assurance can be given that
the Company will be able to obtain such a contract. BMG has the right to
withhold certain amounts in reserve upon notification of termination of this
agreement. The Company owns 64-track digital and 24-track recording facilities
which enable the Company to produce recordings at a reduced cost in comparison
with the cost of using outside facilities. The agreement with BMG may also be
terminated by BMG if Anthony J. Scotti ceases to perform certain managerial
functions in respect of artists and promotion in the recorded music operations
of the Company. During the years ended December 31, 1994, 1993 and 1992, sales
through BMG accounted for approximately 11%, 14% and 20% of consolidated
revenues, respectively.
The Company has extended, effective July 1, 1995, its existing foreign
record distribution agreement with PolyGram S.A. ("PolyGram") solely with
respect to current catalog product for five years, expiring June 30, 2000.
PolyGram provides the Company with distribution and collection of record sales
for which the Company earns a royalty based on records sold throughout the world
(net of reserves for returns), excluding the United States, Canada and Japan.
PolyGram is responsible for all costs and expenses in connection with
manufacturing, marketing, promotion and distribution in its territories.
The Company has entered into arrangements with other companies for
distribution of the Company's recorded music products in Canada (Attic) and
Japan (Pony/Canyon, Inc.). These arrangements provide for advances to the
Company against royalties to be earned by the Company on records sold. The
Company is in discussion with other companies concerning the distribution of new
product in the PolyGram territories.
Marketing and Promotion
Marketing involves advertising and otherwise gaining exposure for
recordings and artists through public performances and magazines, radio and
television, other media and point-of-sale material. Promotion consists of
efforts to obtain air play by radio stations of the recordings in coordination
with the marketing and distribution programs. Under its arrangement with BMG,
the Company is responsible for all such domestic activities and expenses.
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<PAGE> 49
Because the success of recording artists and releases is highly dependent
upon consumer tastes and critical response, as well as public awareness of
recording artists, the level of marketing and promotional activities and
expenses necessary in any particular instance cannot be predicted with
certainty.
The production of music videos to accompany certain major record releases
has become a promotional necessity and an additional financial burden to the
releasing company. These videos may significantly increase the losses on any
individual release should such recording not be successful, or increase revenues
on a successful recording.
Concentration and Competition
There are six major record distribution companies: WEA, Inc., Sony Music,
BMG, PolyGram, Capitol Records/EMI (CEMA) and MCA Records, Inc. (UNI). The
combined sales of these companies (with the inclusion of their independent
distribution) represent substantially all of the sales in the record industry.
Significant consolidation has occurred through the acquisition by these major
companies of smaller recorded music companies, such as the acquisitions by
PolyGram, the Company's primary foreign distributor, of A&M, Island Records and
Motown Record Corp.
The success of any musical release depends upon unpredictable and changing
factors such as the individual tastes of critics and consumers. The capital
resources, artist rosters and retail penetration of the "major" recorded music
companies are significantly greater than those of the Company. The greater
capital resources of the "majors" would permit them to withstand longer periods
of low rates of successful releases.
The relatively large number of artists under contract with a "major" could
tend to increase the absolute number of profitable records produced by such a
company; however, there are also inherent risks of producing relatively large
numbers of unsuccessful products. While the Company has several successful
artists under contract, each of the "majors" have far larger numbers of such
artists under contract and may therefore be less affected than the Company by a
single success or failure.
Through the Company's arrangement for distribution with BMG and PolyGram,
the Company seeks to take advantage of the distribution facilities of two of the
"majors" and their inherently greater market penetration.
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<PAGE> 50
MANAGEMENT
Directors of the Company are elected annually by the stockholders to serve
for a term of one year or until their successors are duly elected and qualified.
Set forth below is certain information concerning each person who is presently
an executive officer or director of the Company.
<TABLE>
<CAPTION>
NAME POSITION AGE
- ----------------------------- ---------------------------------------------------------- ---
<S> <C> <C>
Anthony J. Scotti**.......... Chief Executive Officer and Chairman of the Board 55
Myron I. Roth**.............. President, Chief Operating Officer and Director 62
Thomas Bradshaw**............ Chief Financial Officer, Senior Executive Vice President 53
and Director
Sydney D. Vinnedge........... Senior Executive Vice President and Director 51
Benjamin J. Scotti........... Senior Executive Vice President, Executive Vice 58
President -- Records Group and Director
Lawrence E. Lamattina........ Chief Executive Officer and President -- All 50
American/Fremantle Television Group and Director
Gordon C. Luce*+............. Director 70
R. Timothy O'Donnell*+++..... Director 40
David A. Mount*+++........... Director 52
Eugene P. Beard.............. Director 60
</TABLE>
- ---------------
* Member of Stock Option Committee
** Member of Executive Committee
+ Member of Compensation Committee
++ Member of Audit Committee
Each of the persons listed above (other than Messrs. Lamattina, O'Donnell,
Mount and Beard) assumed the positions listed above on February 25, 1991, the
date SBEI merged (the "Merger") into All American Television, Inc., the legal
predecessor to the Company. Prior to such date, Anthony J. Scotti and Mr.
Vinnedge were already Directors of such predecessor.
ANTHONY J. SCOTTI was a co-founder of the Company and has been a director
of the Company since its inception in 1982. He became Chief Executive Officer
and Chairman of the Board on February 25, 1991. In 1974, he co-founded the
predecessor to SBEI and served as Chief Executive Officer and Co-Chairman of
SBEI from 1974 through February 25, 1991. Mr. Scotti is the non-executive
Chairman of the Board of LIVE Entertainment Inc. (entertainment software) and
also served as a consultant to Carolco Pictures Inc. Mr. Scotti's services,
under the terms of his employment agreement with the Company, are rendered on a
full time basis during normal working conditions; provided, however, that Mr.
Scotti is entitled to devote such reasonable amount of time, as Mr. Scotti shall
determine, on certain business activities in addition to Mr. Scotti's services
to the Company and such activities may be conducted by Mr. Scotti in various
areas of the entertainment industry.
MYRON ROTH joined SBEI in December 1990 as President and Chief Operating
Officer, and he assumed the same titles and became a director of the Company on
February 25, 1991. From November 1988 to November 1990, Mr. Roth was Senior Vice
President and General Manager for CBS Records West Coast, where he was
responsible for coordinating all of the activities of CBS's West Coast
operations in the records division. Prior to joining CBS Records, Mr. Roth was
President of MCA Records from May 1986 to November 1988, and Executive Vice
President of MCA Records from May 1983 to May 1986. Mr. Roth is a member of the
Board of Directors of the Record Industry Association of America.
THOMAS BRADSHAW was a director, Senior Executive Vice President and Chief
Financial Officer of SBEI from 1985 and, on February 25, 1991, he assumed the
same positions at the Company. Prior to 1985, Mr. Bradshaw was involved in
entertainment business management for ten years. In addition, Mr. Bradshaw
48
<PAGE> 51
was a director of LIVE Home Video Inc. (home video distribution) from 1987 to
1988 and was a director of LIVE Entertainment Inc. from December 1988 to
November 1993.
SYDNEY D. VINNEDGE was a co-founder of the Company and has been a director
of the Company since its inception in 1982. Since February 25, 1991, Mr.
Vinnedge has served as Senior Executive Vice President of the Company. From 1966
to 1970 he was Supervisor of Broadcasting at J. Walter Thompson. From 1970 to
1975 he was Vice President and Head of Television and Radio Programming at Grey
Advertising. In 1975 he founded his own production company, where he served as
its President until 1979 when he became Senior Executive Vice President of the
Company.
BENJAMIN J. SCOTTI co-founded the predecessor to SBEI in 1974 and served as
Co-Chairman of SBEI until February 25, 1991. Since February 25, 1991, Mr. Scotti
has been Senior Executive Vice President and Executive Vice President -- Records
Group and a director of the Company.
LAWRENCE E. LAMATTINA became Chief Executive Officer and President of All
American/Fremantle Television Group, an operating division of the Company on
August 3, 1994 and a director on October 12, 1994. Since May 1989 he has been
Chairman of the Board of Fremantle International, Inc., and Chairman and Chief
Executive Officer of EC TV, a division of Interpublic. Mr. Lamattina also
continues to act as a consultant to Interpublic with respect to areas that are
not competitive with the Company.
GORDON C. LUCE is a senior advisor to Eastman & Benirschke Financial Group
(financial planning and insurance brokerage), a position he has held from July
1990 to the present. Mr. Luce was Chairman of the Board and Chief Executive
Officer of Great American First Savings Bank (formerly San Diego Federal
Savings) from 1970 until his retirement in June 1990. The bank was put into a
conservatorship in August 1991. Mr. Luce has had a career in public service and
was a member of the President's Foreign Intelligence Advisory Board from 1988 to
1990 and the Presidential Board of Advisors on Private Sector Initiative from
1985 to 1988. Mr. Luce was also the Alternate Delegate to the United Nations
with the rank of Ambassador in 1982 and 1983, and served as California's
Secretary of Business and Transportation from 1967 to 1969. Mr. Luce is a member
of the Board of Directors of PS Group (a diversified investment company),
Molecular Biosystems, Inc. (a medical research enterprise), and Carolco
Pictures, Inc. In addition, from October 1988 to October 1991, Mr. Luce was
Chairman of the Board of Trustees of the Scripps Clinic and Research Foundation
of La Jolla, California and he is currently a member of the Board of Trustees of
the University of Southern California. He became a director of the Company on
February 25, 1991.
R. TIMOTHY O'DONNELL was elected to the Company's Board of Directors
effective January 2, 1992. He is President of Jefferson Capital Group, Ltd., a
privately held investment banking group co-founded by Mr. O'Donnell in September
1989. From July 1988 until September 1989, Mr. O'Donnell served as Vice
President, Acquisitions of CCA Industries Inc., a privately held diversified
investment company. From April 1983 through June 1988, Mr. O'Donnell was
associated with Paine Webber Incorporated, a diversified investment company,
most recently as First Vice President. Mr. O'Donnell has been a Director of LIVE
Entertainment Inc. since 1988 and was a director of LIVE Home Video Inc. from
1987 to 1988. In addition, Mr. O'Donnell has been a Director of Shorewood
Packaging Corporation (packager for records, videos and cassettes) since October
1991 and a Director of Cinergi Pictures Entertainment Inc. since March 1994.
DAVID A. MOUNT was appointed to the Board of Directors on May 5, 1994. In
March 1995, Mr. Mount was named Chairman and Chief Executive Officer of Warner
Media Manufacturing and Distribution. Prior thereto, Mr. Mount had been
President and Chief Executive Officer of WEA Corporation, a division of Time
Warner, Inc., since October 1, 1993. Mr. Mount was President and Chief Executive
Officer of LIVE Entertainment Inc. from August 1, 1988 to September 30, 1993. In
addition, Mr. Mount served as a director of LIVE Entertainment in 1989 and from
January 1992 to the present. On February 2, 1993, LIVE Entertainment filed a
voluntary petition under Chapter 11 of the U.S. Bankruptcy Code and emerged
pursuant to a plan of reorganization on March 17, 1993. From August 1989 to June
1993, Mr. Mount was President of LIVE Home Video Inc., a subsidiary of LIVE
Entertainment, Inc. He was Chief Executive Officer of LIVE Home Video, Inc. from
August 1989 to October 1993.
49
<PAGE> 52
EUGENE P. BEARD became a member of the Board of Directors on October 12,
1994. Mr. Beard has been the Vice Chairman -- Finance & Operations of
Interpublic since October 1985 and has served as a director of Interpublic since
1982. Mr. Beard is a member of the Board of Directors of Brown Brothers Harriman
59 Wall Street Fund, Inc. (diversified investment fund), National Westminster
Bancorp Inc. (commercial bank) and Micrografx, Inc. (computer software).
Interpublic has entered into a voting agreement with certain management
stockholders of the Company (including Anthony J. Scotti) to vote for the
election of one member of the Company's Board of Directors nominated by
Interpublic. In addition, in connection with the Mark Goodson Acquisition, the
Company will establish a conflicts committee of the Board consisting of Messrs.
Scotti, Beard and Mount to determine whether any particular future game show
project pursued by the Company apart from the LLC infringes upon the formats
acquired in the Mark Goodson Acquisition.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements commencing February 25,
1991, with each of Anthony J. Scotti, Myron Roth, Thomas Bradshaw, and Sydney D.
Vinnedge. Each of these agreements have a term of five years, ending in February
1996, other than the agreement with Mr. Roth, which expires in December 1995
(following which it is currently expected that Mr. Roth will continue to be
employed by the Company without a specific term); Anthony J. Scotti's agreement
was amended May 1, 1994 and was extended until February 1999. The Company also
entered into an employment agreement with Lawrence E. Lamattina commencing
August 3, 1994 for a term of five years. Under these agreements, the current
annual salaries of Messrs. Scotti, Roth, Bradshaw, Vinnedge, and Lamattina are
$825,000, $425,000, $422,000, $400,000 and $550,000, respectively. The base
salaries of each of these executives increases by 5% per year, except that Mr.
Scotti receives a 10% annual increase (subject to an overall maximum base salary
not to exceed $1,000,000), and Mr. Vinnedge receives a $25,000 annual increase.
Each of the foregoing executives are provided with an automobile expense
reimbursement allowance and an annual allowance to cover premiums for life,
health and disability insurance. Messrs. Roth, Bradshaw and Vinnedge are
entitled to an annual bonus under their employment agreements in an amount equal
to the annual payments under certain stock purchase notes previously executed by
each of them. Mr. Lamattina is entitled to receive annual incentive compensation
of up to $550,000 per year if certain operating income targets are achieved by
the Company. Mr. Scotti is entitled to expense reimbursement for certain
business related expenses. Mr. Scotti is entitled to receive annual 100,000
stock option grants, commencing in 1994, as long-term incentive compensation.
Mr. Lamattina is entitled to receive annual 25,000 stock option grants (up to
100,000 shares in total) commencing in 1994. Messrs. Scotti's and Lamattina's
options will vest upon the achievement of certain performance criteria by the
Company.
50
<PAGE> 53
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information concerning the beneficial
ownership of the Common Stock and the Class B Common Stock as of December 6,
1995 and as adjusted to reflect the sale of 4,000,000 shares of Class B Common
Stock offered hereby by the Company, by (i) each person who is known to the
Company to be a beneficial owner of more than 5% of each class of the
outstanding Common Stock or Class B Common Stock, (ii) each of the current
directors of the Company and (iii) all current directors and named executive
officers of the Company as a group. The table also assumes, on an as adjusted
basis, the sale of the maximum number of shares of Class B Common Stock offered
by the Selling Stockholders if the over-allotment option granted to the
Underwriters is exercised in full (and the proposed simultaneous exchange by
such stockholders with the Company of an equal number of shares of Common Stock
for shares of Class B Common Stock to effectuate such over-allotment option).
Unless otherwise specified, the address of each beneficial owner listed below is
2114 Pico Boulevard, Santa Monica, California 90405.
<TABLE>
<CAPTION>
SHARES OF CLASS B ADJUSTED TO
PERCENT OF CLASS B COMMON STOCK REFLECT COMMON PERCENT OF
COMMON COMMON COMMON OFFERED GIVING STOCK COMMON STOCK
STOCK STOCK STOCK EFFECT TO BENEFICIALLY BENEFICIALLY
BENEFICIALLY BENEFICIALLY BENEFICIALLY EXCHANGE OF OWNED AFTER OWNED AFTER
OWNED OWNED OWNED COMMON STOCK(1) OFFERING OFFERING
------------ ------------ ------------ ----------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Anthony J. Scotti(2)....... 2,383,866 42.10% -- 232,466 2,040,833 40.32%
Benjamin J. Scotti(3)...... 1,437,995 25.43% -- 223,452 1,214,543 24.02%
Myron Roth(4).............. 340,850 6.03% -- 52,965 287,885 5.70%
Thomas Bradshaw(5)......... 315,850 5.59% -- 49,080 266,770 5.28%
Sydney D. Vinnedge(6)...... 141,975 2.51% -- 22,062 119,913 2.37%
Lawrence E. Lamattina(7)... 55,000 * -- -- 55,000 1.08%
Gordon C. Luce(8).......... 600 * -- -- 600 *
David A. Mount(8).......... 600 * -- -- 600 *
R. Timothy O'Donnell(9).... 96,200 1.68% -- -- 96,200 1.88%
Jefferson Capital Group,
Ltd.
One James Center
901 East Cary Street
Suite 1400
Richmond, Virginia 23219
Eugene P. Beard(10)........ -- -- -- -- -- --
The Interpublic Group of
Companies, Inc.
1271 Avenue of the
Americas
New York, New York 10020
The Interpublic Group of
Companies,
Inc.(11)(12)............. 630,000 11.14% 2,520,000(13) -- 630,000 12.47%
1271 Avenue of the
Americas
New York, New York 10020
FMR Corp.(14).............. 660,003 10.45% -- -- 660,003 11.55%
82 Devonshire Street
Boston, Massachusetts
02109
Credit Suisse(15).......... 695,656 10.96% -- -- 695,656 12.10%
Paradeplatz 8
8070 Zurich, Switzerland
All Directors and Named
Officers as a group (10
persons)................. 3,978,011 69.14% -- 641,478(16) 3,364,464 65.29%
</TABLE>
- ---------------
* less than 1%
(1) Represents the number of shares being offered by such Selling Stockholder
only in the event the Underwriters' over-allotment option is exercised and
assumes such option is exercised in full. If such option is exercised in
part, such shares offered by such Selling Stockholder shall be
proportionately decreased. The Company will not receive any proceeds from
the sale of shares by any Selling Stockholder.
(2) Includes 879,175 shares (768,608 shares assuming full exercise of the
Underwriters' over-allotment option) owned by Messrs. Roth, Bradshaw,
Vinnedge, Lamattina and certain other employees which Anthony J. Scotti has
a proxy to vote. Includes 8,696 shares issuable upon conversion of the
Notes registered under a registration statement. Excludes 200,000
performance based options not yet vested or subject to vesting in the next
60 days and additional annual performance based options which Mr. Scotti
will receive pursuant to his employment agreement.
51
<PAGE> 54
(3) Excludes 18,000 time vesting options not yet vested or subject to vesting
in the next 60 days.
(4) 315,850 of such shares are subject to a voting proxy granted to Anthony J.
Scotti. Excludes 100,000 performance based options not yet vested or
subject to vesting in the next 60 days.
(5) 315,850 of such shares are subject to a voting proxy granted to Anthony J.
Scotti. Excludes 70,000 performance based options not yet vested or subject
to vesting in the next 60 days.
(6) 108,225 of such shares are subject to a voting proxy granted to Anthony J.
Scotti. Excludes 12,000 performance based options not yet vested or subject
to vesting in the next 60 days.
(7) Mr. Lamattina owns 30,000 shares of restricted Common Stock which vest in
July 1998 and is vested in 25,000 time vested options. All such shares are
subject to a voting proxy granted to Anthony J. Scotti. Excludes 100,000
time vesting and 50,000 performance based options not yet vested or subject
to vesting in the next 60 days and additional annual performance based
options which Mr. Lamattina will receive pursuant to his employment
agreement.
(8) Excludes 5,400 time vesting options not yet vested or subject to vesting in
the next 60 days.
(9) Mr. O'Donnell owns 33,100 shares of Common Stock and his affiliate,
Jefferson Capital Group, Ltd., owns warrants to purchase 62,500 shares.
Excludes 5,400 time vesting options not yet vested or subject to vesting in
the next 60 days.
(10) Mr. Beard was appointed to the Board of Directors on October 12, 1994 to
fill a vacancy. Mr. Beard does not own any shares directly and disclaims
beneficial ownership of the 630,000 shares of Common Stock and the
2,520,000 shares of Class B Common Stock owned by Interpublic.
(11) As disclosed on a Schedule 13D, dated August 12, 1994.
(12) Represents 38.7% (approximately 23% on a fully-diluted basis) of capital
stock when Common Stock and Class B Common Stock are aggregated as one
class prior to the offering.
(13) Interpublic currently beneficially owns 100% of the outstanding Class B
Common Stock. See "Description of Capital Stock -- Class B Common Stock".
(14) As disclosed on a Schedule 13G, dated February 13, 1995; includes shares
issuable upon conversion of the Notes registered under a Registration
Statement.
(15) As disclosed on a Schedule 13G dated as of February 3, 1995; includes
shares issuable upon conversion of the Notes registered under a
Registration Statement.
(16) An additional 19,975 shares are being offered in the aggregate as part of
the over-allotment option by George Back and Fred Scotti.
52
<PAGE> 55
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 40,000,000 shares
of Common Stock, consisting of (i) 20,000,000 shares of Common Stock having a
par value of $0.0001 per share and (ii) 20,000,000 shares of Class B Common
Stock having a par value of $0.0001 per share, and 5,000,000 shares of preferred
stock, par value $0.01 per share. As of December 6, 1995, 5,623,359 shares of
Common Stock and 2,520,000 shares of Class B Common Stock were issued and
outstanding and at the date hereof, there are no shares of preferred stock which
have been issued and which are currently outstanding. The Board of Directors,
without further action by the stockholders, is authorized to issue preferred
stock in one or more series and to designate as to any such series the dividend
rate, redemption prices, preferences on liquidation or dissolution, sinking fund
terms, conversion rights, voting rights and any other preferences or special
rights and qualifications.
COMMON STOCK
The Common Stock has no preemptive rights and no redemption, sinking fund
or conversion provisions. All shares of Common Stock have one vote on any matter
submitted to the vote of stockholders. The Common Stock does not have cumulative
voting rights. Upon any liquidation of the Company, the holders of Common Stock
are entitled to receive, share for share with the holders of shares of Common
Stock on a pro rata basis, all assets then legally available for distribution
after payment of debts and liabilities and preferences on preferred stock, if
any. Holders of Common Stock are entitled to receive dividends share for share
with the holders of shares of Common Stock when and as declared by the Board of
Directors out of funds legally available therefor (subject to the prior rights
of preferred stock, if any). All shares of Common Stock are fully paid and
nonassessable. As of December 7, 1995 there were approximately 77 registered
holders of Common Stock.
CLASS B COMMON STOCK
The Class B Common Stock has no preemptive rights and no redemption,
sinking fund or conversion provisions. Except as otherwise required by law, the
shares of Class B Common Stock have no voting rights. Under Delaware law,
holders of Class B Common Stock are permitted to vote on amendments to the
Company's certificate of incorporation, whether or not entitled to vote thereon
by the certificate of incorporation, if such amendment would, among other
things, alter or change powers, preferences, or special rights of such class.
The Class B Common Stock shall be automatically converted into shares of Common
Stock on a share for share basis (i) if there does not exist on Nasdaq or other
exchange or over-the-counter market, a public float of at least 1,000,000 shares
of Class B Common Stock on or prior to August 1, 1999; or (ii) upon certain
changes in control (as defined) of the Company. Consummation of this offering
will eliminate the first such requirement. As defined a "change in control"
shall mean (i) the beneficial ownership (as determined pursuant to Rule 13d-3
under the Securities Exchange Act of 1934, as amended) of Anthony J. Scotti (and
of members of his immediate family, including Benjamin J. Scotti and his
immediate family) and Related Parties (which includes shares of Common Stock as
to which Anthony J. Scotti, from time to time, holds a proxy and any shares of
Common Stock beneficially owned by Interpublic) is less than 30% of the
outstanding Common Stock (prior to any conversion of the Notes), (ii) the
beneficial ownership of Anthony J. Scotti and Related Parties is less than 20%
of the outstanding Common Stock following conversion of any of the Notes (which
percentage applies as a result of the conversion of a portion of the Notes prior
to the date hereof), or (iii) if any person other than Anthony J. Scotti or any
Related Person acquires more than 50% of the Common Stock. Upon any liquidation
of the Company, the holders of Class B Common Stock are entitled to receive,
share for share with the holders of shares of Common Stock on a pro rata basis,
all assets then legally available for distribution after payment of debts and
liabilities and preferences on preferred stock, if any. Holders of Class B
Common Stock are entitled to receive dividends share for share with the holders
of shares of Common Stock when and as declared by the Board of Directors out of
funds legally available therefor (subject to the prior rights of preferred
stock, if any). All shares of Class B Common Stock are fully paid and
nonassessable. As of December 7, 1995 there was one registered holder of Class B
Common Stock.
53
<PAGE> 56
In addition, the Company agreed with Interpublic, in connection with the
Fremantle Acquisition, that Interpublic has the right to exchange a
proportionate number of shares (calculated on a fully diluted basis) of Class B
Common Stock acquired by Interpublic pursuant to the Fremantle Acquisition for
shares of Common Stock in the event the Company consummates an acquisition of a
business pursuant to which the Company issues shares of Common Stock in exchange
for the assets or the capital stock of such business (a "Transaction"),
provided, however, such shares shall not be exchangeable until the Company
issues, in one or more Transactions, an aggregate of 1,000,000 shares (subject
to proportionate increase or decrease for stock splits, stock dividends or
combinations) of Common Stock. This contractual exchange right applies to
Interpublic only and will not apply to any of the holders of Class B Common
Stock acquired in the offering.
The Board of Directors of the Company has approved an amendment to the
Company's Restated Certificate of Incorporation, subject to stockholder
approval, which would permit holders of Common Stock to convert each share of
Common Stock held by such holder into one share of Class B Common Stock. Holders
of Common Stock who choose to convert their shares will not receive any
consideration for such conversion, other than shares of Class B Common Stock,
which shares will be identical to the Class B Common Stock offered hereby. The
Company intends to seek stockholder approval of the amendment at its next
stockholders' meeting. No assurance can be made, however, that any necessary
approvals in connection with such proposed amendment, including any necessary
approval by Nasdaq in connection with the listing of the Class B Common Stock,
will be obtained.
WARRANTS
In accordance with the terms of the LBS Acquisition, the Company issued
warrants to acquire up to an aggregate of 281,250 shares of its Common Stock to
certain creditors of LBS and other third parties as follows: warrants to
purchase 31,250 shares of Common Stock were issued to each of International
Family Entertainment, Inc. and the unsecured creditors of LBS at an exercise
price of $11.00 per share and warrants to acquire an aggregate of up to 218,750
shares of Common Stock were issued to the former senior secured creditor of LBS,
The Bank of New York. The Bank of New York received the following put options:
(i) with respect to warrants to acquire up to an aggregate of 156,250 shares of
Common Stock, at $8.00 per warrant if the Company's reported cumulative pre-tax
earnings reach $30.0 million at any time during the period beginning January 1,
1993 and ending December 31, 1995, for a total obligation of $1.3 million, and
(ii) with respect to warrants to acquire up to an aggregate of 62,500 shares of
Common Stock, at $4.00 per warrant beginning after December 31, 1993, for a
total obligation of $.3 million (which put was exercised resulting in the
cancellation of such warrant). The remaining Bank of New York warrant was sold,
without the remaining put option, to accounts managed by Arnhold and S.
Bleichroeder, Inc., one of the Representatives. None of the foregoing warrants
are publicly tradable.
INDEMNIFICATION
In accordance with Delaware General Corporation Law, the Company's Restated
Certificate of Incorporation eliminates in certain circumstances the liability
of directors of the Company for monetary damages for breach of their fiduciary
duty as directors. This provision does not eliminate the liability of a director
(i) for a breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions by the director not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for a
willful or negligent declaration of an unlawful dividend, stock purchase or
redemption or (iv) for transactions from which the director derived an improper
personal benefit.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Class B Common Stock is
Continental Stock Transfer & Trust Company.
54
<PAGE> 57
SHARES AVAILABLE FOR FUTURE SALE
The prevailing market price of the Class B Common Stock could be adversely
affected by the availability of shares for sale or actual sales of substantial
amounts of Class B Common Stock or Common Stock by existing stockholders. Upon
completion of this offering, there will be 6,520,000 shares of Class B Common
Stock outstanding (assuming no exercise of the Underwriters' over-allotment
option). There is currently one holder of Class B Common Stock, Interpublic,
which has 2,520,000 shares, all of which are "restricted securities" subject to
Rule 144 promulgated under the Securities Act of 1933, as amended; however,
Interpublic has demand and piggyback registration rights with respect to all of
such shares. Interpublic has agreed with the Underwriters that it will not
publicly offer for sale, sell, distribute, grant any option for the sale of, or
otherwise encumber or dispose of, directly or indirectly, or exercise
registration rights with respect to, any shares of Common Stock or Class B
Common Stock (or any securities convertible into, exercisable for or
exchangeable for such shares), for a period of 180 days from the date hereof
without the prior written consent of the Company and the Representatives. Sales
of substantial numbers of shares of Class B Common Stock on the public market
(or the perception that such sales would occur), pursuant to a registration
statement, Rule 144 or otherwise, could adversely affect the market price of the
Class B Common Stock and could impair the Company's future ability to raise
capital through a public offering of additional equity securities.
Upon completion of this offering, there will be 5,623,359 shares of Common
Stock outstanding (after reflecting the conversion of $2.3 million principal
value of the Notes into 197,388 shares of Common Stock for which the Company had
received conversion notices as of December 6, 1995) prior to conversion of any
of the Notes (which are convertible at $11.50 per share into 5,020,000 shares of
Common Stock subject to adjustment under certain circumstances) and assuming no
exercise of the Underwriters' over-allotment option (in connection with which up
to 600,000 outstanding shares of Common Stock would be exchanged for an equal
number of newly-issued shares of Class B Common Stock and retired). The number
of shares of Common Stock is also subject to increase upon exercise of
outstanding options and warrants. Of the currently outstanding shares of Common
Stock, 1,229,594 shares are freely tradeable by non-affiliates without
restriction under the Securities Act and holders of an additional 4,393,765
outstanding shares of Common Stock may sell their shares at any time subject to
the volume, timing and manner of sale limitations under Rule 144 of the
Securities Act. All of the 5,020,000 shares of Common Stock currently issuable
upon conversion of the Notes are freely tradeable upon issuance without
restriction under the Securities Act pursuant to an effective registration
statement or exemption from registration. An additional 1,273,063 shares of
Common Stock are issuable pursuant to options and warrants, of which 404,863
shares are vested and are freely tradeable upon issuance without restriction
under the Securities Act. The Company plans to file a Registration Statement on
Form S-8 to register all of the shares granted pursuant to the Company's
employee stock option plans.
Officers and directors of the Company holding an aggregate amount of
3,763,765 shares of Common Stock and the holders of options and warrants
exercisable for an aggregate of 657,500 shares of Common Stock, of which 91,300
shares are currently vested, have agreed not to offer for sale, sell,
distribute, grant any option for the sale of or otherwise encumber or dispose
of, directly or indirectly, such shares (or any securities convertible into,
exercisable for or exchangeable for such shares), other than in connection with
an exercise by the Underwriters of the over-allotment option, so long as such
persons are employees of the Company, for a period of 180 days after the date of
this Prospectus without the prior written consent of the Representatives.
55
<PAGE> 58
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
among the Company, the Selling Stockholders and Oppenheimer & Co., Inc. and
Arnhold and S. Bleichroeder, Inc. as the Representatives of the Underwriters,
each of the Underwriters named below has severally agreed to purchase from the
Company, and the Company has agreed to sell to the several Underwriters, the
shares of Class B Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
------------------------------------------------------------- ----------------
<S> <C>
Oppenheimer & Co., Inc. .....................................
Arnhold and S. Bleichroeder, Inc. ...........................
---------
4,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase all of the above shares
of Class B Common Stock if any are purchased.
The Underwriters propose to offer the shares of Class B Common Stock
directly to the public at the public offering price set forth on the cover page
of this Prospectus, and at such price less a concession not in excess of $ per
share to certain dealers, of which a concession not in excess of $ per share
may be reallowed to certain other dealers. After the public offering, the public
offering price and other selling terms may be changed by the Underwriters.
The Underwriters have advised the Company that they do not intend to
confirm sales of Class B Common Stock offered hereby to accounts over which they
exercise discretionary authority.
The Underwriters have been granted a 30-day over-allotment option to
purchase from the Selling Stockholders up to an aggregate of 600,000 additional
shares of Class B Common Stock, exercisable at the public offering price less
the underwriting discount. If the Underwriters exercise such over-allotment
option, then each of the Underwriters will have a firm commitment, subject to
certain conditions, to purchase approximately the same percentage thereof as the
number of shares of Class B Common Stock to be purchased by it as shown in the
above table bears to the total number of shares of Class B Common Stock offered
hereby. The Underwriters may exercise such option only to cover over-allotments
made in connection with the sale of the shares of Class B Common stock offered
hereby. In the event that any Selling Stockholder fails to deliver shares of
Class B Common Stock to cover his or her portion of the over-allotment option,
the Company has agreed to sell a corresponding number of shares of Class B
Common Stock to the Underwriters to cover such shortfall.
Officers and directors of the Company holding an aggregate amount of
3,763,765 shares of Common Stock and the holders of options and warrants
exercisable in an aggregate of 657,500 shares of Common Stock, of which 91,300
shares of Common Stock are currently vested, have agreed that they will not
offer for sale, sell, distribute, grant any option for the sale of or otherwise
encumber or dispose of, directly or indirectly, or exercise registration rights
with respect to, any shares of Common Stock or Class B Common Stock (or any
securities convertible into, exercisable for, or exchangeable for such shares),
other than in connection with an exercise by the Underwriters of the
over-allotment option, so long as such persons are employees of the
56
<PAGE> 59
Company, for a period of 180 days after the date of this Prospectus, without the
prior written consent of the Representatives.
The Company has agreed not to offer for sale, sell, distribute or otherwise
dispose of, directly or indirectly, shares of Common Stock or Class B Common
Stock (or any securities convertible into, exercisable for or exchangeable for
such shares) for a period of 180 days after the date of this Prospectus without
the prior written consent of the Representatives; provided however, that the
Company may issue shares of Common Stock or Class B Common Stock, as the case
may be, (i) in connection with this offering or the Underwriters' over-allotment
option, (ii) pursuant to any employee benefit plan, (iii) upon conversion of the
Notes or exercise of outstanding options or warrants, (iv) upon conversion of
shares of Common Stock into Class B Common Stock (following amendment of the
Company's charter), (v) pursuant to a merger, acquisition or other business
combination or in a private placement to one or more strategic investors (as
determined in good faith by the Company's Board of Directors) or (vi) pursuant
to a prior agreement with a specified individual in an amount not to exceed
15,000 shares.
Interpublic has agreed with the Representatives that it will not publicly
offer for sale, sell, distribute, grant any option for the sale of, or otherwise
encumber or dispose of directly or indirectly, or exercise registration rights
with respect to, any shares of Common Stock or Class B Common Stock or any
securities convertible into, exercisable for or exchangeable for such shares for
a period of 180 days after the date of this Prospectus, without the prior
written consent of the Company and the Representatives.
The Company has agreed to indemnify the Underwriters and the Selling
Stockholders against certain liabilities, losses and expenses, including
liabilities under the Securities Act, or to contribute to payments that the
Underwriters or the Selling Stockholders may be required to make in respect
thereof.
Prior to this offering, there has been no previous public market for the
Class B Common Stock. The public offering price for the Class B Common Stock
offered hereby has been determined by negotiation among the Company and the
Representatives with reference to the market price for the Common Stock.
The rules of the Commission generally prohibit the Underwriters or other
members of the selling group from making a market in the Company's Common Stock
during the "cooling off" period immediately preceding the commencement of sales
in the offering. The Commission has, however, adopted an exemption from these
rules that permits passive market making under certain conditions. These rules
permit an Underwriter or other member of the selling group to continue to make a
market in the Company's Common Stock subject to the conditions, among others,
that its bid not exceed the highest bid by a market maker not connected with the
offering and that its net purchases on any one trading day not exceed prescribed
limits. Pursuant to these exemptions, certain Underwriters and other members of
the selling group intend to engage in passive market making in the Company's
Common Stock during the "cooling off" period.
LEGAL MATTERS
The validity of the shares of Class B Common Stock offered hereby will be
passed upon for the Company by Kaye, Scholer, Fierman, Hays & Handler, Los
Angeles, California. Certain legal matters will be passed upon for the
Underwriters by Morgan, Lewis & Bockius LLP, Los Angeles, California.
EXPERTS
The consolidated financial statements of All American Communications, Inc.
at December 31, 1994 and 1993, and for each of the three years in the period
ended December 31, 1994, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon appearing elsewhere herein and in the Registration
Statements, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
57
<PAGE> 60
The statements of net assets of The Game Show Division of Mark Goodson
Productions and Affiliates at December 31, 1994 and 1993 and the statements of
operating income and cash flows for each of the years in the three year period
ended December 31, 1994 included in this Form S-2, Registration Statement, have
been included herein in reliance upon the report of Coopers & Lybrand L.L.P.,
certified public accountants, given on the authority of such firm as experts in
accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates by reference the following documents heretofore
filed with the Commission pursuant to the Exchange Act:
1. Quarterly Report of the Company on Form 10-Q for the fiscal quarter
ended September 30, 1995.
2. Current Report on Form 8-K dated October 12, 1995.
3. Amendment to Quarterly Report of the Company on Form 10-Q/A for the
fiscal quarter ended June 30, 1995.
4. Quarterly Report of the Company on Form 10-Q for the fiscal quarter
ended June 30, 1995.
5. Quarterly Report of the Company on Form 10-Q for the fiscal quarter
ended March 31, 1995.
6. Annual Report of the Company on Form 10-K for the year ended
December 31, 1994.
7. Current Report on Form 8-K dated August 3, 1994, as amended on
August 4, 1994 and October 14, 1994.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute part of this Prospectus.
Copies of all documents incorporated by reference herein (other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference herein) will be provided without charge to each person, including any
beneficial owner, who receives a copy of this Prospectus on the request of such
person made to All American Communications, Inc., 2114 Pico Boulevard, Santa
Monica, California 90405, Attention: Thomas Bradshaw, Senior Executive Vice
President and Chief Financial Officer.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following regional offices: 7 World Trade
Center, 13th Floor, New York, New York 10048 and 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 at prescribed rates.
Reports, proxy materials and other information concerning the Company may also
be inspected at the offices of the National Association of Securities Dealers,
Inc. at 1735 K Street, N.W., Washington, D.C. 20006-1500.
Additional information regarding the Company and the Class B Common Stock
offered hereby is contained in the Registration Statement on Form S-2 (of which
this Prospectus is a part) and the exhibits thereto filed with the Commission
under the Securities Act. This Prospectus does not contain all the information
set forth in the Registration Statement, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission. For further
information pertaining to the Company and the Class B Common Stock offered
hereby, reference is made to the Registration Statement, and to the exhibits and
schedules thereto and the financial statements filed as a part thereof.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance such
statements are qualified in their entirety by reference to the copy of such
contract or other document filed as an exhibit to the Registration Statement or
the documents incorporated by reference herein.
58
<PAGE> 61
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
ALL AMERICAN COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets at September 30, 1995 (Unaudited) and December
31, 1994......................................................................... F-2
Condensed Consolidated Statements of Operations for the Three Months ended September
30, 1995 and 1994 (Unaudited).................................................... F-3
Condensed Consolidated Statements of Operations for the Nine Months ended September
30, 1995 and 1994 (Unaudited).................................................... F-4
Condensed Consolidated Statements of Cash Flows for the Nine Months ended September
30, 1995 and 1994 (Unaudited).................................................... F-5
Notes to Unaudited Condensed Consolidated Financial Statements -- September 30,
1995............................................................................. F-6
Report of Independent Auditors...................................................... F-14
Consolidated Balance Sheets at December 31, 1994 and 1993........................... F-15
Consolidated Statements of Operations for Years ended December 31, 1994, 1993 and
1992............................................................................. F-16
Consolidated Statements of Stockholders' Equity for Years ended December 31, 1994,
1993 and 1992.................................................................... F-17
Consolidated Statements of Cash Flows for Years ended December 31, 1994, 1993 and
1992............................................................................. F-19
Notes to Consolidated Financial Statements -- December 31, 1994..................... F-20
THE GAME SHOW DIVISION OF MARK GOODSON PRODUCTIONS AND AFFILIATES
Combined Statements of Net Assets at September 30, 1995 (Unaudited)................. F-38
Combined Statements of Operating Income for the Nine Months ended September 30, 1995
and 1994 (Unaudited)............................................................. F-39
Combined Statements of Cash Flows for the Nine Months ended September 30, 1995 and
1994 (Unaudited)................................................................. F-40
Notes to the Combined Financial Statements.......................................... F-41
Report of Independent Auditors, dated September 8, 1995............................. F-45
Combined Statements of Net Assets as of December 31, 1994 and 1993.................. F-46
Combined Statements of Operating Income for the Years ended December 31, 1994, 1993
and 1992......................................................................... F-47
Combined Statements of Cash Flows for the Years ended December 31, 1994, 1993 and
1992............................................................................. F-48
Notes to the Combined Financial Statements.......................................... F-49
</TABLE>
F-1
<PAGE> 62
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER
31,
1994
SEPTEMBER -----------
30,
1995 (NOTE)
------------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents.......................................... $ 10,629 $ 1,662
Restricted cash.................................................... 4,719 10,246
Trade receivables, less allowances of $2,657 and $3,855 at
September 30, 1995 and December 31, 1994, respectively........... 86,855 62,338
Unbilled receivables, less imputed interest of $2,128 at September
30, 1995......................................................... 14,398 --
Inventory of recorded music product, net........................... 1,306 1,423
Advances to recording artists, net................................. 947 1,801
Television program costs, less accumulated amortization of $214,935
and $138,541 at September 30, 1995 and December 31, 1994,
respectively..................................................... 76,025 68,437
Property and equipment, less accumulated depreciation and
amortization..................................................... 3,876 3,772
Goodwill, less accumulated amortization of $2,848 and $1,242 at
September 30, 1995 and December 31, 1994, respectively........... 49,939 51,545
Deferred income taxes.............................................. -- 235
Other.............................................................. 6,967 6,548
-------- --------
Total assets....................................................... $255,661 $ 208,007
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable................................................. $ 7,766 $ 6,826
Accrued expenses................................................. 21,399 10,652
Royalties payable................................................ 4,326 2,477
Deferred revenues................................................ 7 257
Due to producers................................................. 25,547 27,278
Participations payable........................................... 28,869 17,091
Notes payable.................................................... 135,300 115,343
-------- --------
Total liabilities.................................................. 223,214 179,924
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, authorized 5,000,000 shares, none issued........ -- --
Common stock, voting, $.0001 par value, authorized 20,000,000
shares, issued 5,455,971 in 1995 and 1994 (including treasury
shares)....................................................... 1 1
Common stock, Class B non-voting, $.0001 par value, authorized
20,000,000 shares, issued 2,520,000 in 1995 and 1994.......... -- --
Additional paid-in capital......................................... 28,751 28,751
Common stock in treasury, at cost, 30,000 shares in 1995 and
1994............................................................. (135) (135)
Stock subscriptions receivable..................................... (68) (153)
Retained earnings (accumulated deficit)............................ 3,748 (309)
Currency translation adjustment.................................... 150 (72)
-------- --------
Total stockholders' equity......................................... 32,447 28,083
-------- --------
Total liabilities and stockholders' equity......................... $255,661 $ 208,007
======== ========
</TABLE>
Note: The balance sheet at December 31, 1994 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes to unaudited condensed consolidated financial statements
F-2
<PAGE> 63
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------
1995 1994
------- -------
(UNAUDITED)
<S> <C> <C>
Revenues:
Television............................................................. $76,818 $34,570
Recorded music and merchandising....................................... 8,332 3,541
------- -------
85,150 38,111
------- -------
Expenses:
Television............................................................. 60,672 25,682
Recorded music and merchandising....................................... 6,438 2,366
Selling, general and administrative.................................... 6,000 6,657
Goodwill amortization.................................................. 536 384
------- -------
73,646 35,089
------- -------
Operating income......................................................... 11,504 3,022
Other income (expense):
Interest income........................................................ 218 56
Interest expense, net of amounts capitalized........................... (2,132) (1,613)
Other.................................................................. 114 (271)
------- -------
(1,800) (1,828)
------- -------
Income before provision for income taxes................................. 9,704 1,194
Provision for income taxes............................................... 4,076 104
------- -------
Net income............................................................... $ 5,628 $ 1,090
======= =======
Primary:
Net income per share................................................... $ 0.68 $ 0.16
======= =======
Weighted average number of common shares and
common share equivalents outstanding................................ 8,296 6,865
======= =======
Fully diluted:
Net income per share................................................... $ 0.46 $ 0.14
======= =======
Weighted average number of common shares and
common share equivalents outstanding................................ 13,610 12,082
======= =======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-3
<PAGE> 64
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1995 1994
-------- -------
(UNAUDITED)
<S> <C> <C>
Revenues:
Television............................................................ $144,637 $54,771
Recorded music and merchandising...................................... 15,540 10,947
-------- -------
160,177 65,718
-------- -------
Expenses:
Television............................................................ 114,980 41,294
Recorded music and merchandising...................................... 12,101 7,102
Selling, general and administrative................................... 18,094 15,472
Goodwill amortization................................................. 1,606 430
-------- -------
146,781 64,298
-------- -------
Operating income........................................................ 13,396 1,420
Other income (expense):
Interest income....................................................... 262 152
Interest expense, net of amounts capitalized.......................... (6,904) (3,833)
Other................................................................. 241 (271)
-------- -------
(6,401) (3,952)
-------- -------
Income (loss) before provision for income taxes......................... 6,995 (2,532)
Provision for income taxes.............................................. 2,938 135
-------- -------
Net income (loss)....................................................... $ 4,057 $(2,667)
======== =======
Primary:
Net income (loss) per share........................................... $ 0.50 $ (0.54)
======== =======
Weighted average number of common shares and
common share equivalents outstanding............................... 8,083 4,960
======== =======
Fully diluted:
Net income (loss) per share........................................... $ 0.43 $ (0.54)
======== =======
Weighted average number of common shares and
common share equivalents outstanding............................... 13,610 4,960
======== =======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-4
<PAGE> 65
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1995 1994
--------- --------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)..................................................... $ 4,057 $ (2,667)
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization of property, equipment and goodwill... 2,011 774
Amortization of television program costs............................ 76,394 22,141
Increase (decrease) in allowance for doubtful accounts.............. 70 (63)
Increase (decrease) in allowance for sales returns.................. 22 (231)
Increase (decrease) in make goods reserve........................... (1,290) 1,217
Increase in imputed interest discount............................... 2,128 --
Changes in operating assets and liabilities:
Restricted cash.................................................. 137 (2,524)
Trade receivables, unbilled receivables, inventory and advances
to
recording artists.............................................. (38,875) 956
Additions to television program costs............................ (83,982) (23,159)
Deferred income tax benefit...................................... 235 --
Accounts payable, accrued expenses and royalties payable......... 13,537 (4,739)
Due to producers and participations payable...................... 10,047 (2,255)
Deferred revenues................................................ (250) 2,154
Other assets..................................................... (419) (277)
--------- --------
Net cash used by operating activities................................. (16,178) (8,673)
--------- --------
INVESTING ACTIVITIES
Purchase of property and equipment, net............................. (509) (310)
Purchase of AAFII, net of cash acquired............................... -- (32,300)
--------- --------
Net cash used in investing activities................................. (509) (32,610)
--------- --------
FINANCING ACTIVITIES
Repurchase of redeemable warrants................................... -- (250)
Payments on stock subscriptions receivable............................ 85 197
Proceeds from borrowings.............................................. 140,505 16,638
Repayments of borrowings.............................................. (120,548) (3,487)
Restricted cash used for repayment of borrowings...................... 5,390 (4,778)
Proceeds from borrowings -- purchase of AAFII, net of issuance
costs............................................................... -- 33,884
--------- --------
Net cash provided by financing activities............................. 25,432 42,204
--------- --------
Effect of exchange rate changes on cash............................... 222 (241)
--------- --------
Increase in cash...................................................... 8,967 680
Cash and cash equivalents at beginning of period...................... 1,662 3,264
--------- --------
Cash and cash equivalents at end of period............................ $ 10,629 $ 3,944
========= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized............................. $ 4,697 $ 4,671
========= ========
Income taxes..................................................... $ 245 $ 275
========= ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-5
<PAGE> 66
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business:
All American Communications, Inc. ("AAC") and its wholly-owned
subsidiaries, All American Television, Inc. ("AATV"), All American Television
Production, Inc., ("AATP"), Scotti Brothers Entertainment Industries, Inc.
("SBEI"), All American Fremantle International, Inc. ("AAFII"), All American FDF
Holdings, Inc. ("AAFDF") and All American Goodson, Inc. ("AAG") (and together
with their respective wholly-owned subsidiaries collectively, the "Company" or
"All American"), produce and/or distribute, market and promote television
programs and recorded music product both domestically and internationally.
Fremantle Acquisition:
In August 1994, the Company acquired (the "Fremantle Acquisition") certain
assets and securities and assumed certain liabilities of Fremantle
International, Inc. ("Fremantle") through the Company's newly formed
wholly-owned subsidiary, AAFII. The consideration for the Fremantle Acquisition
consisted of 630,000 shares of the Company's Common Stock, 2,520,000 shares of
nonvoting Class B Common Stock and $31,500,000 in cash funded by a term loan
from Chemical Bank (See Note 2). The Company has accounted for the Fremantle
Acquisition as a purchase and has allocated the purchase price based on the
estimated fair value of assets and liabilities acquired. The total consideration
of $52,527,000 (including expenses related to the acquisition of $1,027,000)
exceeded the estimated fair value of net assets acquired by $50,267,000
(goodwill); such goodwill is being amortized over 25 years. Results of
operations of AAFII have been included in the Company's results from August 3,
1994.
It is the Company's policy to evaluate the recovery of its intangible
assets (principally goodwill) and to recognize impairment if it is probable that
the recorded amounts are not recoverable from future undiscounted cash flows, or
if there is an event or change in circumstances which establish the existence of
impairment indicators.
The pro forma unaudited results from operations for the nine months ended
September 30, 1994 assuming consummation of the Fremantle Acquisition at January
1, 1994 follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1994
---------------------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C>
Revenues.................................................. $96,282
Operating income.......................................... $ 1,691
Net loss.................................................. $(4,224)
Loss per share............................................ $ (.52)
</TABLE>
The pro forma information presented above is prepared for comparative
purposes only and does not purport to be indicative of what would have occurred
had the Fremantle Acquisition been made at January 1, 1994, or of the results
which may occur in the future.
Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements
include the accounts of AAC and its direct and indirect subsidiaries. All
significant intercompany transactions have been eliminated.
F-6
<PAGE> 67
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1995
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and the
applicable rules of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation have been included. Operating results for the
three and nine month periods ended September 30, 1995 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1995. These financial statements should be read in conjunction with the
consolidated financial statements and related footnotes included in the
Company's latest Annual Report on Form 10-K.
Restricted Cash:
Pursuant to the Company's lending agreement, subject to certain exceptions
for working capital, substantially all cash collected is required to be paid
into accounts maintained by Chemical Bank and applied to the repayment of the
outstanding borrowings as specified in the lending agreement (See Note 2). The
cash held for repayment is included as restricted cash. Additionally, amounts
held in an interest bearing reserve account with respect to a dispute have been
included as restricted cash (See Note 5).
Unbilled Receivables:
Unbilled receivables represent amounts due under cash (excluding barter)
television syndication contracts which will be billed over the contractual terms
of the agreements, generally ranging from one to five years.
Imputed Interest Discount:
The Company records an imputed interest discount on contracted cash
(excluding barter) receivables with original payment terms extending beyond one
year. The discount is determined using the Company's incremental borrowing rate
of 8.63% at September 30, 1995 at the time of revenue recognition. The discount
is amortized over the underlying contracts' payment stream using the interest
method and is credited to interest income.
Foreign Currency:
The operations of all foreign entities are principally measured in local
currencies. Assets and liabilities are translated into United States ("U.S.")
dollars using exchange rates in effect at the end of each reporting period.
Revenues and expenses are translated at the average exchange rates prevailing
during the period. Adjustments resulting from translating the financial
statements of foreign entities into U.S. dollars are recorded as a separate
component of stockholders' equity.
Share Information -- Income/(Loss) Per Share:
Primary net income/(loss) per share is based on the weighted average number
of common shares (including Common Stock and Class B Common Stock) outstanding
and dilutive common stock equivalents determined using the treasury stock
method.
Fully diluted net income per share reflects the assumed conversion of the
Company's 6 1/2% Convertible Subordinated Notes due 2003 (the "Notes") (See Note
2) and results in an increase to net income for the
F-7
<PAGE> 68
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1995
assumed after tax reduction in interest expense of $606,000 and $627,000 for the
quarters ended September 30, 1995 and 1994, respectively and $1,818,000 for the
nine months ended September 30, 1995. Such assumed conversion is anti-dilutive
for the nine months ended September 30, 1994.
Income Taxes:
Income tax expense for 1995 has been determined using the expected annual
effective tax rates of 42%. Amounts recorded for 1994 represent foreign taxes
withheld at the source and minimum state franchise taxes.
2. NOTES PAYABLE
Notes payable and amounts due to banks are comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Convertible subordinated notes, 6 1/2% $ 60,000 $ 60,000
Notes payable to banks............................. 75,300 55,343
-------- --------
$ 135,300 $115,343
======== ========
</TABLE>
In October 1995, $1,260,000 of the Notes were converted into 109,562 shares
of the Company's common stock, $.0001 par value, resulting in a decrease in
convertible subordinated notes, 6 1/2% of $1,260,000, a decrease in capitalized
debt issuance costs related to the Notes of $60,000 and an increase in
additional paid in capital of $1,320,000.
In April 1995, the Company secured a new $110,000,000, subsequently
increased to $135,000,000, senior credit facility (the "Senior Credit Facility
Agreement"), with a syndicate of lenders led by Chemical Bank consisting of the
following five tranches: (A) a term loan of $30,000,000 (the "Term Loan" or
"Tranche A") which was utilized to refinance existing bank debt incurred in
connection with the Fremantle Acquisition; (B) a revolving credit facility of up
to $20,000,000 in the aggregate to be utilized for production and distribution
of Baywatch, of which $14,000,000 was initially utilized to refinance existing
bank debt related to production of Baywatch for the 1994/1995 and 1995/1996
broadcast seasons (the "Baywatch Production Line" or "Tranche B"); (C) a
revolving credit facility of up to $20,000,000 in the aggregate for production
and distribution of Baywatch Nights (the "Baywatch Nights Production Line" or
"Tranche C"); (D) a revolving credit facility of up to $40,000,000 to be
utilized to finance certain working capital needs of the Company, of which
$10,000,000 was initially used to primarily refinance existing bank debt related
to the Company's working capital needs and to pay certain fees in connection
with the Senior Credit Facility Agreement (the "Working Capital Line" or
"Tranche D") and (E) the $25,000,000 Goodson Term Loan described below. The
Working Capital Line together with the Baywatch Production Line and the Baywatch
Nights Production Line are referred to collectively as the "Chemical Bank
Facilities". In connection with the Mark Goodson Acquisition, the Company
effected a credit utilization of the Working Capital Line in the form of a
letter of credit (the "Letter of Credit") from Chemical Bank to fund its
$25,000,000 cash portion of the total purchase price. On November 13, 1995, the
Senior Credit Facility was amended to provide an additional $25,000,000 Term
Loan under this facility ("Tranche E" or the "Goodson Term Loan"), which
increased the total facility to a maximum of $135,000,000, in order to refinance
the Company's reimbursement obligations under the Letter of Credit.
The obligations of the Company under the Chemical Bank Facilities, the Term
Loan and the Goodson Term Loan are cross-collateralized. The Term Loan matures
on December 31, 1998. The Chemical Bank
F-8
<PAGE> 69
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1995
Facilities and the Goodson Term Loan mature on April 13, 1999. Under the terms
of the Senior Credit Facility Agreement, the amount the Company may borrow under
Tranche B, C and D is based upon the value of the collateral in the borrowing
base which consists principally of accounts receivable of the Company.
Borrowings under the Senior Credit Facility Agreement bear interest, at the
Company's option, either (i) at LIBOR plus 2-3/4% (8.56% as of November 13,
1995), or (ii) at the Alternate Base Rate (which is the greater of Chemical
Bank's Prime Rate, its Base CD Rate plus 1%, or the Federal Funds Effective Rate
plus 1/2%) plus 1 3/4% (10.50% as of November 13, 1995), subject to reduction
if certain financial ratios are satisfied. As of September 30, 1995, the Company
has outstanding borrowings of $27,500,000 under the Term Loan and approximately
$47,800,000 under the Chemical Bank Facilities with approximately $25,600,000
available for borrowing under the Chemical Bank Facilities.
The Senior Credit Facility Agreement imposes a number of financial and
other conditions upon the Company, including limitations on indebtedness,
restrictions on the disposition of assets, restrictions on making certain
payments (including dividends), restrictions on acquisitions and certain
financial tests. Additionally, the Baywatch Production Line and the Baywatch
Nights Production Line provide that certain conditions must be satisfied before
funding of each season of the respective series and such conditions have been
met for the 1995/1996 broadcast season of Baywatch and Baywatch Nights. The
Goodson Term Loan imposes a separate set of financial and other conditions upon
the Company, including a requirement that "International Cash Flow," defined to
mean all payments due to the LLC (as defined in Note 6) under the terms of its
primary license agreement (other than with respect to the domestic exploitation
of programs), be maintained at specified levels (or, in lieu thereof, that the
Goodson Term Loan be prepaid to specified levels).
Except to the extent set forth below, under the terms of the Senior Credit
Facility Agreement substantially all of the Company's cash collections are
required to be paid into accounts maintained by Chemical Bank and applied to the
repayment of the Company's obligations under the Chemical Bank Facilities. All
of AAFII's cash collections are required to be paid into accounts maintained by
Chemical Bank and applied, subject to certain exceptions for working capital, to
interest and principal amounts outstanding under the Term Loan until such time
as the Term Loan is repaid in full. The Term Loan is repayable in thirteen
quarterly principal installments as follows: September 1995, $2,500,000 (which
amount was paid); December 1995, $2,500,000; March 1996, $500,000; June 1996,
$500,000; September 1996, $3,000,000; December 1996, $3,000,000; March 1997,
$1,000,000; June 1997, $1,000,000; September 1997, $3,000,000; December 1997,
$3,000,000; March 1998, $1,000,000; June 1998, $1,000,000; September 1998,
$4,000,000 and a final installment due on the last borrower's day of December
1998 (each such payment being subject to reduction from certain prepayments).
The amount the Company is able to reborrow under the Chemical Bank Facilities is
subject to the collateral pledged to the lenders having sufficient borrowing
base value to support such borrowings. Substantially all of the Company's assets
other than real property are pledged under the Senior Credit Facility Agreement.
Under the Goodson Term Loan, substantially all of the cash flow available
to AAG from exploiting the Mark Goodson assets will be available, after
reserving for earn-out payments to the Sellers and certain administrative, tax
and other distributions to the LLC, to repay the Goodson Term Loan. The Company
has agreed to a "make whole" provision so that following the repayment in full
of the Goodson Term Loan (or earlier, in the case of certain acceleration
events), each of the other members of the LLC will have received its equal share
of LLC cash flow, together with interest to the extent that the Company received
disproportionate use of cash. The "make whole" will be payable out of LLC cash
flow or, if accelerated in accordance with its terms, at the Company's option,
in cash, shares of Common Stock or shares of Class B Common Stock (subject, in
the latter case, to certain liquidity tests being met). Interpublic also has the
benefit of certain "put" rights and the Company has been granted certain "call"
rights and, if granted, the proposed Interpublic
F-9
<PAGE> 70
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1995
Option, with respect to Interpublic's membership interest in the LLC, the
exercise of which could substantially reduce the Company's liquidity. The
Company's obligations to Interpublic will be supported by guarantees by AAG and
certain related licensees and secured by a second priority security interest,
subject only to the first priority security interest of the lenders with respect
to the Goodson Term Loan in the assets and shares of AAG and the related
licensees and Company's direct or indirect membership interests in the LLC. In
this connection, the lenders and Interpublic have entered into an Intercreditor
Agreement with the Company relating to their respective rights in connection
with the Goodson Term Loan.
3. TELEVISION PROGRAM COSTS
Costs for television programs are comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
30, 31,
1995 1994
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
Released, less accumulated amortization.............. $ 75,241 $64,780
In process and development........................... 784 3,657
------- -------
$ 76,025 $68,437
======= =======
</TABLE>
The Company capitalizes interest, using the Company's effective borrowing
rate, and overhead on television programs in production. Included in television
program costs for the quarter ended September 30, 1995 and 1994 is capitalized
interest of $645,000 and $140,000, respectively and capitalized overhead of
$884,000 and $505,000, respectively. For the nine months ended September 30,
1995 and 1994, the Company capitalized $1,006,000 and $155,000 of interest,
respectively and $2,197,000 and $1,681,000 of overhead, respectively.
4. RELATED PARTY TRANSACTIONS
Certain officers/stockholders of the Company have issued to the Company
promissory notes in consideration for shares of the Company's Common Stock.
Principal and interest under such notes are payable in five equal annual
installments. The principal balance outstanding on such notes as of September
30, 1995 was approximately $68,000.
During 1994 the Company loaned $250,000 to an officer of the Company, which
loan is secured by a pledge of shares of Common Stock of the Company owned by
such officer. The loan bears interest at a rate of 8.0% per annum (equal to the
rate then in effect under the Company's working capital loan) and will mature
upon expiration of the officer's employment agreement which is currently
February 1996. The loan has been included with other assets in the accompanying
condensed consolidated balance sheet at September 30, 1995.
5. COMMITMENTS AND CONTINGENCIES
All American Television entered into an exclusive license agreement dated
as of May 1, 1995 with USA Networks in regard to the licensing of 110 episodes
of Baywatch, 22 episodes of Sirens, and 22 episodes of Acapulco H.E.A.T. and,
under certain circumstances up to 22 episodes of Baywatch Nights. The license
agreement is exclusive in the United States, its territories and possessions
(including Puerto Rico) over all forms of transmission by all means (including,
without limitation, free over-the-air broadcasts, basic and pay cable, or via
video on demand), other than via continuous first run syndication, and other
than the strip syndication of the first 110 episodes of Baywatch produced by the
Company, during the period commencing June 26, 1995 through September 19, 1997.
The initial term of the license agreement commenced in
F-10
<PAGE> 71
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1995
May 1995 for Acapulco H.E.A.T. and will commence in October 1995 for Sirens,
September 1996 for Baywatch Nights and September 1997 for Baywatch with a common
termination date of September, 2000 for all four shows. Revenue will be
recognized on commencement of the license period for each show. The initial
minimum license fee aggregates $25,300,000 payable in 36 equal monthly
installments of approximately $703,000 commencing September, 1997 through
August, 2000. The license agreement also contains certain additional obligations
and rights of USA Networks regarding additional episodes of Baywatch and the
right to extend the term of the license for up to four years for additional
specified consideration.
In June 1995, the Company commenced principal photography (for the sixth
season) of the Company's weekly drama series Baywatch, consisting of 22 new one
hour episodes for the 1995/1996 television broadcast season. The total
production budget of approximately $22,000,000 for the 1995/1996 broadcast
season is expected to be funded through a combination of borrowings under the
Baywatch Production Line and cash payments pursuant to its foreign distribution
agreement. Through September 30, 1995, the Company has spent approximately
$15,000,000 towards the production of 22 episodes of Baywatch for the 1995/1996
broadcast season, of which ten have been completed and delivered.
The Company has begun production of a spin-off of Baywatch, Baywatch
Nights, which commenced principal photography in April 1995 and which has
initially aired in first-run syndication in September 1995 for the 1995/1996
broadcast season. The Company is self-distributing Baywatch Nights both
domestically and internationally. The total revised production budget for the 22
planned new one-hour episodes for the 1995/1996 broadcast season of
approximately $23,000,000 is expected to be funded through borrowings under the
Baywatch Nights Production Line or by obtaining funding from licensing of the
program. Through September 30, 1995, the Company has spent approximately
$12,500,000 towards the production of ten of 22 episodes of Baywatch Nights for
the 1995/1996 broadcast season, all ten of which have been completed and
delivered.
Minimum commitments for advances to recording artists at September 30, 1995
amounted to approximately $545,000.
In September 1994, the Company filed a complaint, as amended, against the
producers of the series Acapulco H.E.A.T. in the Superior Court of the State of
California alleging, among other things, breach of contract and fraud. The
Company had entered into an agreement, dated as of October 7, 1992, with the
producers for the Company to distribute the series Acapulco H.E.A.T. in the
domestic television market. Subject to the fulfillment of certain terms by the
producer, the Company agreed to pay a distribution advance of $6,600,000 (plus
an additional amount per episode under certain circumstances) payable over ten
months commencing November 30, 1993. As of September 1994, the Company had made
payments totaling approximately $4,698,000 at which time a dispute with the
producers with regard to the non-fulfillment of certain terms by the producers
was raised by the Company and the Company discontinued making such advance
payments. The unpaid portion of the advance payments, totaling approximately
$2,452,000, has been placed in an interest-bearing restricted cash account
pending resolution of the dispute. The producers have filed an answer and
cross-complaint alleging, among other things, breach of contract and fraud in
connection with the agreement to distribute Acapulco H.E.A.T. and breach of
contract and fraud in connection with the Company's barter distribution of
certain theatrical films unrelated to Acapulco H.E.A.T. The Company intends to
vigorously pursue its claim and defend against the cross-complaint. The Court
has indicated that a settlement conference has been set for January 1996 and a
trial date has been set for April 1996. Discovery has been held in abeyance
while settlement discussions are ongoing. Management does not believe the
ultimate outcome of this matter will result in a materially adverse effect on
the Company's financial condition or results
F-11
<PAGE> 72
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1995
of operations. However, there can be no assurance that the Company will be
successful on the merits of the lawsuit.
On May 31, 1995, Credit Lyonnais Bank Nederland N.V. ("CLBN") made demand
upon SBEI under a Guarantee dated July 29, 1986 (the "SBEI Guarantee"), (a) for
payment of approximately $916,000 plus interest accrued since October 31, 1994
under a Loan and Security Assignment dated July 29, 1986 (the "Loan Agreement")
between CLBN and various former subsidiaries of SBEI relating to the
discontinued motion picture operations of the Company, and (b) for payment of
$2,667,000 plus interest accruing since September 30, 1994 under an alleged
unmemorialized amendment of the Loan Agreement. This demand superseded an
earlier demand, made on December 12, 1994, for payment of $3,742,000 plus
interest or costs booked since November 11, 1994. SBEI rejected the foregoing
May 31, 1995 demand based upon, among other reasons, the following: (a) that in
a January 1993 agreement CLBN agreed to release all liens and any interests in
any property or assets of SBEI, which in effect released SBEI from any
obligations under the SBEI Guarantee; (b) that the loan purportedly guaranteed
has been repaid; and (c) that SBEI in any event is not a party to and was not
bound by the alleged "unmemorialized" amendment to the Loan Agreement.
In addition, since approximately November 1993, CLBN and its
representatives have been reviewing certain books and records relating to the
distribution and production of certain motion pictures by Minority Pictures,
Inc. (formerly Scotti Brothers Pictures, Inc.) or its subsidiaries for which
CLBN provided financing. In October 1994, and again in June 1995, CLBN requested
that Minority Pictures, Inc. and various of its current and former affiliates
(including the Company and certain of its subsidiaries) execute a tolling
agreement which would have tolled claims which CLBN may have against such
persons, including but not limited to causes of action based on such financing.
The Company has declined to enter into a tolling agreement because based upon
the information thus far provided by CLBN, or the lack thereof, it is extremely
unclear whether there are any tenable claims against the Company and its
subsidiaries. While the Company believes that SBEI has meritorious defenses with
respect to the SBEI Guarantee and any other claims which CLBN may assert, and
that the ultimate outcome of this matter will not result in a materially adverse
effect on the Company's financial condition or results of operations, there can
be no assurance that the Company ultimately will prevail.
The Company is party to certain other legal proceedings which are routine
and incidental to the business. The Company believes that the results of such
litigation will not have a material adverse effect on the Company's financial
condition or results of operations.
6. SUBSEQUENT EVENTS
Mark Goodson Acquisition:
As of October 6, 1995, the Company consummated an Asset Purchase Agreement
pursuant to which a newly-formed limited liability company (the "LLC"), jointly
owned, directly or indirectly by the Company and The Interpublic Group of
Companies, Inc. ("Interpublic"), acquired substantially all of the assets
(excluding assets relating to the lottery business) and to assume certain
specified liabilities (the "Mark Goodson Acquisition") of Mark Goodson
Productions, L.P. and The Child's Play Company (collectively the "Sellers"). The
purchase price consists of a payment by the Company of $25,000,000 in cash and
issuance by Interpublic of $25,000,000 in its common stock to the Sellers,
together with a contingent earn-out described below. Under the earn-out, the LLC
will initially pay to an assignee of the Sellers a specified percentage of
"Domestic Net Profits" (i.e., generally gross receipts less production costs if
from the exploitation in the U.S. and Canada (currently, consisting of "The
Price Is Right") of the Goodson game shows and other purchased television
formats during the five-year period following October 6, 1995, which period is
subject to extension
F-12
<PAGE> 73
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1995
for an additional five years if total earn-out payments do not equal
$48,500,000, in which case the earn-out shall be payable in neither a minimum
nor a maximum amount). The specified percentage of Domestic Net Profits payable
to the Sellers with respect to "The Price Is Right" is 75% during the network
exhibition of the program during the five years after October 6, 1995 and
otherwise the specified percentage is generally 50% for other programs. However,
the earn-out does not apply to any net profits realized from the international
exploitation of any of the purchased game shows or other purchased television
formats.
Based upon a preliminary review and evaluation, substantially all of the
Company's $25,000,000 portion of the initial purchase price has been allocated
to goodwill. The contingent purchase price, to the extent earned, will be
treated as an increase in goodwill and will be amortized coterminously with the
original goodwill over a 25 year period. Management of the Company is in the
process of reviewing the allocation of the purchase price and, when completed,
may modify its preliminary allocation. The Mark Goodson Acquisition will be
accounted for by the Company under the equity method of accounting. See "Notes
Payable". As a result of the Mark Goodson Acquisition, the Company expects, in
future quarters, to recognize in net income its 50% or the LLC's operating
results utilizing the equity method of accounting.
Common Stock:
On October 18, 1995 the Company filed a Form S-2 Registration Statement
with the Securities and Exchange Commission for purposes of registering a
proposed underwritten public offering of 4,500,000 shares of the Company's Class
B Common Stock, of which 500,000 shares are to be offered for sale by a selling
stockholder. 675,000 additional shares, subject to an over-allotment option in
favor of the underwriters, are to be offered for sale by certain officers and
employees of the Company (subject to being covered by the Company under certain
circumstances). There is no assurance that the offering will be consummated or,
if consummated, that the terms thereof will not be modified .
F-13
<PAGE> 74
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
All American Communications, Inc.
We have audited the accompanying consolidated balance sheets of All
American Communications, Inc. and subsidiaries as of December 31, 1994 and 1993,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits 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 consolidated financial position of
All American Communications, Inc. and subsidiaries at December 31, 1994 and
1993, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
--------------------------------------
ERNST & YOUNG LLP
Los Angeles, California
March 8, 1995
F-14
<PAGE> 75
ALL AMERICAN COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
-------- --------
<S> <C> <C>
Cash and cash equivalents................................................ $ 1,662 $ 3,264
Restricted cash -- Notes 1 and 11........................................ 10,246 140
Trade receivables, less allowances of $3,855 and $3,241 at December 31,
1994
and 1993, respectively -- Note 11...................................... 62,338 43,226
Inventory, net........................................................... 1,423 1,050
Advances to recording artists, net....................................... 1,801 3,047
Television program costs, less accumulated amortization of $114,269 and
$81,735 at December 31, 1994 and 1993, respectively -- Note 4.......... 68,437 52,381
Property and equipment, less accumulated depreciation
and amortization -- Note 3............................................. 3,772 2,658
Goodwill, less accumulated amortization of $1,242 and $271 at
December 31, 1994 and 1993, respectively -- Note 1..................... 51,545 2,395
Deferred income tax benefits -- Note 9................................... 235 --
Other -- Note 8.......................................................... 6,548 4,360
-------- --------
Total assets................................................... $208,007 $112,521
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable....................................................... $ 6,826 $ 3,133
Accrued expenses....................................................... 10,652 4,536
Royalties payable...................................................... 2,477 2,615
Deferred revenues...................................................... 257 786
Due to producers....................................................... 27,278 22,086
Participations payable................................................. 17,091 11,094
Notes payable -- Note 5................................................ 115,343 60,424
Deferred taxes payable -- Note 9....................................... -- 94
-------- --------
Total liabilities.............................................. 179,924 104,768
Redeemable stock -- Notes 6 and 7:
Series A preferred stock, none issued and outstanding in 1994 and
1993................................................................ -- --
Common stock, none issued and outstanding in 1994 and 1993............. -- --
Redeemable warrants.................................................... -- 250
Commitments and contingencies -- Note 10
Stockholders' equity -- Notes 5, 6, 7 and 8:
Preferred stock, authorized 5,000,000 shares........................... -- --
Common stock, voting, $.0001 par value, authorized 20,000,000 shares,
issued 5,455,971 in 1994 and 4,825,971 in 1993 (including treasury
shares)............................................................. 1 1
Common stock, Class B non-voting, $.0001 par value, authorized
20,000,000 shares, issued 2,520,000 in 1994 and 0 in 1993........... -- --
Additional paid-in capital.......................................... 28,751 9,096
Common stock in treasury, at cost, 30,000 shares in 1994 and 1993...... (135) (135)
Stock subscriptions receivable and deferred compensation............... (153) (695)
Accumulated deficit.................................................... (309) (764)
Currency translation adjustment........................................ (72) --
-------- --------
Total stockholders' equity..................................... 28,083 7,503
-------- --------
Total liabilities and stockholders' equity..................... $208,007 $112,521
======== ========
</TABLE>
See accompanying notes.
F-15
<PAGE> 76
ALL AMERICAN COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Television............................................... $ 98,771 $ 57,407 $ 45,302
Recorded music........................................... 16,130 13,215 12,616
---------- ---------- ----------
114,901 70,622 57,918
---------- ---------- ----------
Expenses:
Television............................................... 75,196 42,560 32,078
Recorded music........................................... 10,750 9,780 9,250
Selling, general and administrative...................... 21,523 16,074 13,471
Goodwill amortization.................................... 971 133 138
---------- ---------- ----------
108,440 68,547 54,937
---------- ---------- ----------
Operating income........................................... 6,461 2,075 2,981
Other income (expense):
Interest income.......................................... 204 91 114
Interest expense......................................... (5,929) (1,688) (501)
Other.................................................... 49 77 196
---------- ---------- ----------
(5,676) (1,520) (191)
---------- ---------- ----------
Income from continuing operations before income taxes...... 785 555 2,790
Provision for income taxes -- Note 9....................... 330 175 927
---------- ---------- ----------
Income from continuing operations.......................... 455 380 1,863
Discontinued operations -- film segment -- Note 2:
Loss from operations of film segment, net of income tax
benefit............................................... -- -- (861)
Estimated loss on disposal, net of taxes................. -- -- (80)
---------- ---------- ----------
Loss from discontinued operations........................ -- -- (941)
---------- ---------- ----------
Net income............................................... 455 380 922
Accretion and dividends on redeemable stock --
Notes 1, 5 and 6....................................... -- (2,208) (2,728)
Excess of carrying value of redeemable shares over
purchase price -- Notes 1, 5 and 6.................... -- 6,070 --
---------- ---------- ----------
Net income (loss) applicable to common stockholders...... $ 455 $ 4,242 $ (1,806)
========== ========== ==========
Earnings (loss) per share -- primary -- Note 1:
Continuing operations.................................... $ .07 $ .87 $ (.18)
Discontinued operations.................................. -- -- (.20)
---------- ---------- ----------
Net earnings (loss)...................................... $ .07 $ .87 $ (.38)
========== ========== ==========
Weighted average number of common shares outstanding....... 6,201,000 4,874,000 4,752,000
========== ========== ==========
Earnings (loss) per share -- fully diluted -- Note 1:
Continuing operations.................................... $ .07 $ .78 $ (.18)
Discontinued operations.................................. -- -- (.20)
---------- ---------- ----------
Net earnings (loss)...................................... $ .07 $ .78 $ (.38)
========== ========== ==========
Weighted average number of common shares outstanding....... 6,201,000 6,275,000 4,752,000
========== ========== ==========
</TABLE>
See accompanying notes.
F-16
<PAGE> 77
ALL AMERICAN COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------------------
CLASS B
(NON-VOTING)
SHARES ISSUED SHARES ISSUED ADDITIONAL COMMON
AND AND PAID-IN STOCK IN
OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL TREASURY
------------- ------ ------------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991......... 4,066,974 $ 1 -- $ -- $ 350 $ (135)
Public offering of common stock.... 750,000 -- -- -- 5,143 --
Accretion on redeemable stock...... -- -- -- -- (786) --
Dividends on preferred stock....... -- -- -- -- (400) --
Amortization of deferred
compensation.................... -- -- -- -- -- --
Options issued in conjunction with
debt............................ -- -- -- -- 100 --
Additions to stock subscriptions... 9,000 -- -- -- 77 --
Payments on stock subscriptions
receivable...................... -- -- -- -- -- --
Fractional shares attributable to
stock split..................... (3) -- -- -- -- --
Net income......................... -- -- -- -- -- --
--------- --- --------- --- ------- -----
Balance at December 31, 1992......... 4,825,971 1 -- -- 4,484 (135)
--------- --- --------- --- ------- -----
Excess of carrying value of
redeemable stock over purchase
price........................... -- -- -- -- 6,070 --
Accretion on redeemable stock...... -- -- -- -- (1,608) --
Payments on stock subscriptions
receivable...................... -- -- -- -- -- --
Amortization of deferred
compensation.................... -- -- -- -- -- --
Dividends on preferred stock....... -- -- -- -- (600) --
Issuance of employee stock
options......................... -- -- -- -- 750 --
Net income......................... -- -- -- -- -- --
--------- --- --------- --- ------- -----
Balance at December 31, 1993......... 4,825,971 1 -- -- 9,096 (135)
--------- --- --------- --- ------- -----
Stock issued in connection with the
Fremantle Acquisition........... 630,000 -- 2,520,000 -- 20,000 --
Payments on stock subscriptions
receivable...................... -- -- -- -- -- --
Amortization of deferred
compensation.................... -- -- -- -- -- --
Cancellation of deferred
compensation.................... -- -- -- -- (345) --
Currency translation adjustment.... -- -- -- -- -- --
Net income......................... -- -- -- -- -- --
--------- --- --------- --- ------- -----
Balance at December 31, 1994......... 5,455,971 $ 1 2,520,000 $ -- $ 28,751 $ (135)
========= === ========= === ======= =====
</TABLE>
See accompanying notes.
F-17
<PAGE> 78
ALL AMERICAN COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
STOCK
SUBSCRIPTIONS RETAINED
RECEIVABLE EARNINGS CURRENCY
AND DEFERRED (ACCUMULATED TRANSLATION
COMPENSATION DEFICIT) ADJUSTMENT TOTAL
------------- ------------ ----------- -------
<S> <C> <C> <C> <C>
Balance at December 31, 1991...................... $(574) $ (524) $ -- $ (882)
Public offering of common stock................. -- -- -- 5,143
Accretion on redeemable stock................... -- (1,142) -- (1,928)
Dividends on preferred stock.................... -- (400) -- (800)
Amortization of deferred compensation........... 32 -- -- 32
Options issued in conjunction with debt......... -- -- -- 100
Additions to stock subscriptions................ (77) -- -- --
Payments on stock subscriptions receivable...... 94 -- -- 94
Fractional shares attributable to stock split... -- -- -- --
Net income...................................... -- 922 -- 922
----- ------- ---- -------
Balance at December 31, 1992...................... (525) (1,144) -- 2,681
----- ------- ---- -------
Excess of carrying value of redeemable stock
over purchase price.......................... -- -- -- 6,070
Accretion on redeemable stock................... -- -- -- (1,608)
Payments on stock subscriptions receivable...... 119 -- -- 119
Amortization of deferred compensation........... 146 -- -- 146
Dividends on preferred stock.................... -- -- -- (600)
Issuance of employee stock options.............. (435) -- -- 315
Net income...................................... -- 380 -- 380
----- ------- ---- -------
Balance at December 31, 1993...................... (695) (764) -- 7,503
----- ------- ---- -------
Stock issued in connection with the Fremantle
Acquisition.................................. -- -- -- 20,000
Payments on stock subscriptions receivable...... 137 -- -- 137
Amortization of deferred compensation........... 60 -- -- 60
Cancellation of deferred compensation........... 345 -- -- --
Currency translation adjustment................. -- -- (72) (72)
Net income...................................... -- 455 -- 455
----- ------- ---- -------
Balance at December 31, 1994...................... $(153) $ (309) $ (72) $28,083
===== ======= ==== =======
</TABLE>
See accompanying notes.
F-18
<PAGE> 79
ALL AMERICAN COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income...................................................................... $ 455 $ 380 $ 922
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization of property and equipment and goodwill.......... 1,450 454 535
Amortization of television program costs...................................... 32,534 33,236 21,389
Increase in allowance for doubtful accounts................................... 287 37 165
Increase (decrease) in allowance for sales returns............................ 204 (209) 401
Increase in makegoods reserve................................................. 123 28 1,006
Changes in operating assets and liabilities:
Restricted cash............................................................. (2,590) 360 (198)
Trade receivables, inventory and advances to recording artists.............. (5,423) (13,623) (12,862)
Deferred income tax benefits................................................ (235) -- --
Accounts payable, accrued expenses and royalties payable.................... (1,469) (686) 6,532
Due to producers and participations payable................................. 4,797 6,152 6,696
Additions to television program costs....................................... (43,490) (45,578) (26,867)
Deferred revenues........................................................... (1,680) (767) (251)
Deferred taxes payable...................................................... (94) 94 --
Other assets................................................................ 457 872 (1,714)
-------- -------- --------
Net cash used by operating activities........................................... (14,674) (19,250) (4,246)
INVESTING ACTIVITIES
Purchase of property and equipment, net of book value of assets retired......... (497) (135) (66)
Purchase of short term investments.............................................. -- -- (10,183)
Sale of short term investments.................................................. -- -- 10,183
Purchase of LBS, net of cash acquired........................................... -- (3,626) --
Purchase of Fremantle........................................................... (32,527) -- --
Payment of net liabilities of the film division................................. -- (3,553) --
-------- -------- --------
Net cash used by investing activities........................................... (33,024) (7,314) (66)
FINANCING ACTIVITIES
Dividends paid.................................................................. $ -- $ (600) $ (800)
Repurchase of redeemable warrants............................................... (250) -- --
Proceeds from public offering of common stock................................... -- -- 5,143
Proceeds from issuance of Notes, net of related costs........................... -- 56,793 --
Repurchase of redeemable stock, including related costs......................... -- (15,746) --
Payments on stock subscriptions receivable...................................... 137 119 93
Proceeds from borrowings........................................................ 38,768 55,281 17,828
Repayments of borrowings........................................................ (18,849) (66,091) (18,371)
Restricted cash held for repayment of borrowings................................ (7,516) -- --
Proceeds from borrowings -- purchase of Fremantle, net of issuance costs........ 33,878 -- --
-------- -------- --------
Net cash provided by financing activities....................................... 46,168 29,756 3,893
Effect of exchange rate changes on cash......................................... (72) -- --
-------- -------- --------
Increase (decrease) in cash..................................................... (1,602) 3,192 (419)
Cash and cash equivalents at beginning of period................................ 3,264 72 491
-------- -------- --------
Cash and cash equivalents at end of period...................................... $ 1,662 $ 3,264 $ 72
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net of amount capitalized......................................... $ 5,552 $ 765 $ 1,789
======== ======== ========
Income taxes................................................................ $ 247 $ 81 $ 144
======== ======== ========
</TABLE>
See accompanying notes.
F-19
<PAGE> 80
ALL AMERICAN COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business
All American Communications, Inc. ("AAC") and its wholly-owned
subsidiaries, All American Television, Inc. ("AATV"), Scotti Brothers
Entertainment Industries, Inc. ("SBEI") and All American Fremantle
International, Inc. ("AAFII") (collectively, the "Company" or "All American"),
produce and/or distribute, market and promote television programs and recorded
music both domestically and internationally.
Acquisitions
On August 3, 1994, the Company acquired (the "Fremantle Acquisition")
certain assets and securities and assumed certain liabilities of Fremantle
International, Inc. ("Fremantle") through the Company's newly formed
wholly-owned subsidiary, All American Fremantle International, Inc. ("AAFII").
The consideration for the Fremantle Acquisition consisted of 630,000 shares of
the Company's Common Stock, 25,200 shares of newly created Series B Convertible
Preferred Stock with an aggregate fair market value of $20,000,000 and
$31,500,000 in cash funded by the Fremantle Loan (See Note 5). The 25,200 shares
of Series B Convertible Preferred Stock have been converted into 2,520,000
shares of nonvoting Class B Common Stock following stockholder approval, in
December 1994, of the amendment to the Company's certificate of incorporation to
authorize creation of the Class B Common Stock. The shares of Class B Common
Stock are identical to the existing Common Stock except that they are nonvoting
other than as may be required by law. The Company has accounted for the
Fremantle Acquisition as a purchase and has allocated the purchase price based
on the estimated fair value of assets and liabilities acquired. The total
consideration of $52,527,000 (including expenses related to the acquisition of
$1,027,000) exceeds the estimated fair value of net assets acquired by
$50,267,000 (goodwill); such goodwill is being amortized over 25 years. Results
of operations of AAFII have been included in the Company's results from August
3, 1994.
The pro forma unaudited results from operations for the years ended
December 31, 1994 and 1993 assuming consummation of the Fremantle Acquisition at
January 1, 1993 follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1993
-------- --------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Revenues....................................................... $145,465 $131,464
Operating income............................................... $ 6,732 $ 13,370
Net income (loss).............................................. $ (1,102) $ 4,936
Earnings (loss) per share...................................... $ (.14) $ .62
</TABLE>
The pro forma information presented above is prepared for comparative
purposes only and does not purport to be indicative of what would have occurred
had the acquisition been made at January 1, 1993, or of the results which may
occur in the future.
On February 8, 1993 the Company completed the acquisition (the "LBS
Acquisition") of LBS Communications, Inc. ("LBS"), under an agreement ("LBS
Agreement") wherein the Company agreed, subject to various terms and conditions,
to purchase 100% of LBS' Class A Common Stock, constituting 100% of the
outstanding shares of capital stock of LBS. LBS is a company engaged in the
television syndication business. The purchase was made under an LBS plan of
reorganization ("Plan") as confirmed by the U.S. Bankruptcy Court for the
Southern District of New York ("Bankruptcy Court") on September 30, 1992. LBS is
operated as a subsidiary of AATV.
F-20
<PAGE> 81
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The purchase price paid by the Company for the stock of LBS consisted of
the following: (i) cash payment of $5,161,000 of which (x) $2,786,000 was paid
by the Company at closing, (y) $2,250,000 was obtained through a licensing
agreement between LBS and International Family Entertainment, Inc. with respect
to the animated series Heathcliff, and (z) $125,000 which was paid in January,
1994 by AATV under the terms of a non-interest bearing promissory note; and (ii)
the issuance of Common Stock warrants to certain creditors of LBS and other
third parties to acquire an aggregate of 281,250 shares of the Company's Common
Stock, $0.0001 par value per share ("Common Stock") at an exercise price of $11
per share. The Company also incurred approximately $3,000,000 of additional
costs and expenses related to the LBS Acquisition. In addition, the Company
became responsible for a portion of the occupancy expenses under LBS' office
lease in New York for a term which expired on October 31, 1993. The Company
satisfied an obligation of LBS by issuing a note payable for $299,000 with
interest at 8%, principal and interest due January 31, 1994 to a producer of a
television series in lieu of issuing such producer 36,000 shares of the
Company's Common Stock. Such note was fully paid in January, 1994.
The Company granted to The Bank of New York demand registration rights for
shares acquired through the exercise of its warrants obtained in connection with
the above LBS acquisition. In addition, the Company granted put rights
obligating it (i) to pay The Bank of New York $4.00 per warrant upon the Bank's
exercise of its put right after December 31, 1993 in respect of the warrants for
62,500 shares (such option was put to the Company in January, 1994 for $250,000)
and (ii) to pay $1,250,000 to The Bank of New York upon exercise of the put with
respect to the warrants for 156,250 shares during the 30-day period following
the first public release by the Company on Form 10-K or Form 10-Q on or prior to
December 31, 1995 showing that the Company has earned cumulative net pre-tax
income (net of losses) during the period from January 1, 1993, through the date
of the public report of $30,000,000.
The acquisition of LBS has been accounted for by the Company under the
purchase method of accounting. Accordingly, LBS' results of operations are
included in the Company's results from February 8, 1993, the date of purchase.
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
AAC and subsidiaries; all significant intercompany balances and transactions
have been eliminated.
Recognition of Revenues
Minimum guaranteed amounts from domestic television sales generally are
recognized when the license period begins and the program becomes available
pursuant to the terms of the license agreement. Advertising revenues are
recognized upon the commencement of the license period of the program and when
the advertising time has been sold pursuant to non-cancelable agreements,
provided the program is available for its first broadcast. Foreign minimum
guaranteed amounts or outright fees are recorded as revenues and contracts
receivable on the date of the license agreement unless the program is not yet
available for exhibition. Revenues under foreign production agreements are
recognized as completed episodes are delivered. Deferred revenues consist
principally of advance payments received on television contracts for which the
program materials are not yet available for broadcast or exploitation.
The portion of recognized revenue which is to be shared with the producers
and owners of the licensed program material (participations payable and due to
producers) is accrued as the revenue is recognized.
In certain instances, the Company guarantees viewer ratings for its
syndicated programs. Applicable revenue is recorded net of estimated shortfalls,
which are settled either by additional advertising time (make goods) or cash
refunds to the advertiser. The Company provides for the full amount of the
estimated shortfall.
F-21
<PAGE> 82
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Domestic revenues from recorded music are recognized as units are shipped
to customers. The Company provides for estimated future returns of recorded
music product at the time the products are initially sold. These provisions are
based upon historical experience. Actual returns are charged against the
reserve. Foreign distribution of recorded music is effected through a
distributor in exchange for guaranteed nonrefundable advances against future
royalties. Nonrefundable guarantees from foreign sales are recognized as product
is delivered to the Company's foreign distributor.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less and investments in money market funds
to be cash equivalents.
Restricted Cash
Pursuant to the Company's lending agreements, substantially all cash
collected is required to be paid into accounts maintained by Chemical Bank and
applied to the repayment of the outstanding borrowings as specified in the
lending agreements (See Note 5). The cash held for repayment is included as
restricted cash. Additionally, amounts held in an interest bearing reserve
account with respect to Acapulco H.E.A.T. have been included as restricted cash
(See Note 10).
Inventory
Inventory consists of recorded music product and is carried at the lower of
cost or estimated net realizable value. Pursuant to the Company's distribution
agreement with Bertelsmann Music Group ("BMG"), BMG has a security interest in
the Company's master recordings at any time the Company owes money to BMG.
Television Program Costs
Television program costs consist of direct production costs, production
overhead, capitalized interest and certain exploitation costs, less accumulated
amortization. Such costs are stated at the lower of unamortized cost or
estimated net realizable value. Selling costs and other distribution costs which
are not recoverable from the producers share of revenues are charged to expense
as incurred.
Television program costs, and estimated total costs of participations and
residuals, are amortized under the individual film forecast method in the ratio
that current period revenue recognized bears to management's estimate of
remaining gross revenue to be recognized. Such estimates are re-evaluated
quarterly in connection with a review of the Company's inventory of television
product, and estimated losses, if any, are provided for in full.
Artist Compensation Cost
Royalties earned by artists from sales of recorded music are charged to
expense as the related revenues are recognized. Advances to artists against
future royalties are recorded as assets if the Company estimates the amount of
the advances will be recoverable from future royalties to be earned by the
artist, based upon the past performance and current popularity of the artist to
whom the advance is made. Such advances are applied against subsequent royalties
earned by the artist.
Depreciation and Amortization
Property and equipment are carried at cost and depreciation is computed
using accelerated and straight line methods over the estimated useful lives of
the assets; thirty years for the building and ranging from three to seven years
for the remaining assets. Leasehold improvements are amortized over the lesser
of the term of the lease or the estimated useful lives of the improvements.
F-22
<PAGE> 83
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill is amortized on a straight-line basis over periods ranging from 10
to 25 years (principally 25 years).
Income Taxes
Effective January 1, 1993, the Company records its income tax provision in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS No. 109"). Prior to the adoption of SFAS No. 109,
income tax expense was determined using the liability method prescribed by
Statement of Financial Accounting Standards No. 96 ("SFAS No. 96") which was
superseded by SFAS No. 109. Among other changes, SFAS No. 109 changes the
recognition and measurement criteria for deferred tax assets included in SFAS
No. 96. Adoption of SFAS No. 109 did not have a material impact on the Company's
financial position or results of operations (See Note 9).
Deferred income taxes under the liability method arise primarily from the
differences in the timing of the recognition of certain television and recorded
music revenue and expense items for book and tax purposes.
The Company uses the flow-through method of accounting for unused
investment credits.
Share Information; Earnings Per Share
Primary earnings per share represents the per share income or loss
applicable to common stockholders and is computed based on the weighted average
common shares outstanding and dilutive Common Stock equivalents. The net income
for 1993 and 1992 have been adjusted for the dividend paid to Series A Preferred
stockholders and the accretion required to increase the carrying values of the
redeemable Series A Preferred and redeemable Common Stock to their mandatory
redemption amounts (See Notes 6 and 7). In addition, net income applicable to
common stockholders for the year ended December 31, 1993 includes $6,070,000
which represents the excess of the carrying value of the Redeemable Shares over
the price paid for their purchase; such treatment is in accordance with
Securities and Exchange Commission guidelines.
The fully diluted per share computation for 1993 reflects the effect of the
assumed conversion of the Company's 6 1/2% Convertible Subordinated Notes due
2003 (See Note 5) and increases net income applicable to common stockholders by
$666,000 for the elimination of interest expense on such notes, net of tax
benefits. Such assumed conversion is anti-dilutive for 1994.
Foreign Currency
The operations of all foreign entities are measured in local currencies.
Assets and liabilities are translated into United States ("U.S.") dollars using
exchange rates in effect at the end of each reporting period. Revenues and
expenses are translated at the average exchange rates prevailing during the
period. Adjustments resulting from translating the financial statements of
foreign entities into U.S. dollars are recorded as a separate component of
stockholders' equity.
Reclassifications
Certain reclassifications have been made to the 1993 and 1992 financial
statements to conform to the current year's presentation.
2. DISCONTINUED OPERATIONS
On December 1, 1992 the Company approved a formal plan to discontinue its
motion picture division which operations consisted of the production of feature
films. On February 8, 1993 the Company transferred its ownership of certain
indirect subsidiaries (Film Companies) which held rights to eight motion
pictures produced and/or distributed by the Film Companies to an unrelated third
party. The transferee acquired all of
F-23
<PAGE> 84
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the issued and outstanding stock of the Film Companies subject to certain
secured indebtedness in favor of Credit Lyonnais Bank Nederland (CLBN).
Revenues of the discontinued motion picture division were $2,132,000 for
the year ended December 31, 1992. In conjunction with the discontinuance, the
Company recorded a loss from discontinued operations and estimated loss on
disposal of $941,000, net of $629,000 in income tax benefits. The actual loss on
disposal approximated the Company's estimate.
3. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land............................................................. $ 403 $ 403
Building and improvements........................................ 1,462 1,288
Sound studio and related equipment............................... 1,540 1,535
Office furniture and fixtures.................................... 3,079 1,658
Automobiles...................................................... 163 163
Other............................................................ 30 37
------- -------
6,677 5,084
Less accumulated depreciation and amortization................... (2,905) (2,426)
------- -------
$ 3,772 $ 2,658
======= =======
</TABLE>
4. TELEVISION PROGRAM COSTS
Costs for television programs are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Released, less accumulated amortization.......................... $64,780 $46,921
In process and development....................................... 3,657 5,460
------- -------
$68,437 $52,381
======= =======
</TABLE>
Based on management's estimates of gross revenues as of December 31, 1994,
approximately 76% of the unamortized costs applicable to released television
programming will be amortized during the three years ending December 31, 1997.
Interest capitalized to television program costs during the periods ended
December 31, 1994, 1993 and 1992 was approximately $399,000, $259,000 and
$277,000, respectively.
F-24
<PAGE> 85
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. NOTES PAYABLE
Notes payable are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Notes payable to banks.......................................... $ 55,343 $ 125
Note payable to LBS creditor, 8%................................ -- 299
Convertible Subordinated Notes, 6 1/2%.......................... 60,000 60,000
-------- -------
$115,343 $60,424
======== =======
</TABLE>
In connection with the Fremantle Acquisition, the Company entered into a
Credit, Security, Guaranty and Pledge Agreement by and among the Company and
Chemical Bank (the "Fremantle Loan Agreement"), whereby AAFII obtained a term
loan in the aggregate amount of $35,000,000, from Chemical Bank (the "Fremantle
Loan"). The Fremantle Loan bears interest, at the Company's option, at either
(i) the London Interbank Offered Rate ("LIBOR") plus 3%, or (ii) at the
Alternate Base Rate (which is the greater of Chemical Bank's Prime Rate, its
Base CD Rate plus 1 1/4%, or the Federal Funds Effective Rate plus 1/2%) plus
2% (10.875% as of December 31, 1994). The applicable interest rate spread is
subject to an increase of 1/8 of 1% at six month intervals up to a maximum
increased spread of 2%. The Fremantle Loan is repayable in quarterly principal
installments of $1,500,000 commencing December 1994, increasing to $3,000,000 in
December 1995, and increasing again to $4,250,000 in December 1996 with a final
installment of $4,250,000 due August 1997 (each payment being subject to
reduction from certain prepayments). Interest is payable (i) on the last day of
the Interest Period (as defined in the Fremantle Loan Agreement) in the case of
Eurodollar Loans but no less often than quarterly or (ii) on the last business
day of each calendar quarter (commencing September 1994) in the case of
Alternate Base Rate Loans. The Fremantle Loan Agreement imposes a number of
financial and other conditions upon the Company, including limitations on
indebtedness, restrictions on the disposition of assets, restrictions on making
certain payments (including dividends) and certain financial tests. The
obligation is cross-collateralized with borrowings of the Company under the
Working Capital Loan Agreement and Production Loan Agreement as defined below.
Substantially all of AAFII's cash collections and certain payments from
Fremantle are required to be paid into accounts maintained by Chemical Bank and
applied, subject to certain exceptions for working capital and production costs,
to interest and principal amounts outstanding under the Fremantle Loan until
such time as the loan is repaid in full. As of December 31, 1994 payments of
$1,500,000 had been made to reduce the $35,000,000 principal balance.
Additionally, as of December 31, 1994, the Company is holding approximately
$7,516,000 in restricted cash balances from AAFII, a substantial portion of
which will be used to reduce the Fremantle Loan balance.
On February 8, 1993, the Company entered into a Credit, Security, Guaranty
and Pledge Agreement among the Company and Chemical Bank (the "Working Capital
Loan Agreement"), whereby the Company obtained a revolving credit facility, the
total commitment of which is $7,500,000, from Chemical Bank (the "Working
Capital Loan"). Concurrently with the execution of the Working Capital Loan
Agreement, the Company also entered into a Credit, Security, Guaranty and Pledge
Agreement among the Company and a syndicate of lenders led by Chemical Bank and
including De Nationale Investeringsbank N.V. and Kredietbank S.A.
Luxembourgeoise (the "Production Loan Agreement"), pursuant to which the Company
has obtained a revolving credit facility with commitments of up to $17,500,000
in the aggregate for production of Baywatch (the "Production Line"). On August
2, 1993, an additional lender was included in the Production Line facility and
the line was increased to a maximum of $20,000,000. The obligations of the
Company under the Working Capital Loan Agreement are cross-collateralized with
those of the Company under the Production Loan Agreement.
F-25
<PAGE> 86
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the Working Capital Loan Agreement and the Production Loan Agreement,
the terms and conditions of which are substantially similar, the amount the
Company may borrow is based upon the value of the collateral in the borrowing
base which consists principally of accounts receivable and certain other assets
of the Company (although the Production Line borrowing base is calculated
independently of the Working Capital Loan borrowing base and is based only on
Baywatch accounts receivable). Borrowings bear interest either (i) at LIBOR plus
3%, or (ii) at the Alternate Base Rate (which is the greater of Chemical Bank's
Prime Rate, its Base CD Rate plus 1 1/4%, or the Federal Funds Effective Rate
plus 1/2%) plus 2% (10.875% as of December 31, 1994), and were originally
scheduled to mature on October 31, 1994. In July 1994, the Company extended the
maturity date of the Production Line to October 1995. In October 1994, the
Company extended the maturity date of the Working Capital Loan to January 31,
1995 and in January 1995 the Working Capital Loan was extended to April 28,
1995. In addition, the Working Capital Loan Agreement provides for the issuance
of letters of credit on behalf of the Company. These facilities impose a number
of financial and other conditions upon the Company, including limitations on
indebtedness, restrictions on the disposition of assets, restrictions on making
certain payments (including dividends except to the extent dividends are
required to be paid on the Company's Series A Preferred Stock) and certain
financial tests. Additionally, the Production Loan Agreement provides that
certain conditions precedent must be satisfied before funding of each season of
the Baywatch series.
Substantially all of the Company's cash collections are required to be paid
into accounts maintained by Chemical Bank and applied to the repayment of the
Company's revolving credit obligations under the Working Capital Loan Agreement
and the Production Loan Agreement. The amount the Company is able to reborrow
under these facilities is subject to the ability of the Company to pledge
collateral to the banks with sufficient value to collateralize such borrowings.
Substantially all of the Company's assets are pledged under the Working Capital
and Production Loan Agreements except the real property owned by the Company and
certain physical record inventory. At December 31, 1994, the Company had
$2,072,000 and $3,585,000 available for borrowing under the Working Capital Loan
and the Production Line, respectively, and $5,428,000 was outstanding under the
Working Capital Loan and $16,415,000 was outstanding under the Production Line.
During the third quarter of 1993, the Company issued a note payable for
$299,000 to a creditor of LBS in lieu of issuing 36,000 shares of the Company's
Common Stock to such creditor. Such amount was repaid during the first quarter
of 1994.
In October 1993, the Company issued its 6 1/2% Convertible Subordinated
Notes Due 2003 (the "Notes") in the aggregate principal amount of $60,000,000.
The Company received net proceeds of approximately $56,793,000 from the issuance
of the Notes. A portion of the proceeds were used to repurchase and retire all
of the issued and outstanding shares of redeemable Series A Preferred Stock and
redeemable Common Stock of the Company (collectively, the "Redeemable Shares"),
to temporarily repay all amounts outstanding under the Chemical Facilities, and
for general corporate purposes.
The Notes were issued pursuant to a Fiscal Agency Agreement, dated as of
October 6, 1993 (the "Fiscal Agency Agreement"), between the Company and
BankAmerica National Trust Company, as Fiscal Agent (the "Fiscal Agent"). The
following description of the Notes summarizes the detailed provisions of the
Notes and the Fiscal Agency Agreement.
The Notes bear interest from October 6, 1993 at the rate of 6 1/2% per
annum, payable semiannually in arrears on each April 1 and October 1, commencing
on April 1, 1994. Interest on the Notes will be paid on the basis of a 360-day
year of twelve 30-day months. The Notes will mature on October 1, 2003 and upon
maturity will be redeemed at 100% of the principal amount thereof.
The Notes are subordinated in right of payment to the prior payment in full
of all Senior Indebtedness (as defined in the Notes and the Fiscal Agency
Agreement) of the Company.
F-26
<PAGE> 87
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Except for certain limitations, the Notes are convertible into Common
Stock, initially at a conversion price of $11.50 per share (equivalent to 86.957
shares of Common Stock for each $1,000 principal amount of Notes) prior to
redemption or maturity. The conversion price is subject to adjustment in certain
events as set forth in the Fiscal Agency Agreement. The underlying shares have
been registered with the Securities and Exchange Commission (the "Commission")
pursuant to a registration statement filed on Form S-1 declared effective by the
Commission in February, 1994.
The Notes may be redeemed, at the option of the Company, in whole or in
part, at any time on or after October 1, 1996, at redemption prices commencing
at 104.643% of par and declining to 100% in 2001 together with accrued but
unpaid interest thereon through the date of redemption. The Notes may be
redeemed at any time, as a whole but not in part, in the event of certain
changes in United States tax laws. In case of any such redemption, the
redemption price will be 100% of the principal amount of the Notes, together in
each case with accrued interest to the date of redemption.
In January 1994, the Company paid a note payable of $125,000 to the Bank of
New York that was due December 31, 1993.
The Company is currently in negotiations for a new senior credit facility
(the "Senior Credit Facility Agreement"), with a syndicate of lenders led by
Chemical Bank consisting of the following four tranches: (A) a term loan, the
total commitment of which is expected to be $30,000,000 (the "Term Loan" or
"Tranche A") and which will be utilized to refinance existing bank debt incurred
in connection with the Fremantle Acquisition; (B) a revolving credit facility of
up to $20,000,000 in the aggregate to be utilized for production of Baywatch and
a portion of which is expected to be initially utilized to refinance existing
bank debt related to production of Baywatch during the 1994/1995 broadcast
season (the "Baywatch Production Line" or "Tranche B"); (C) a revolving credit
facility, of up to $20,000,000 in the aggregate for production of Baywatch
Nights (the "Baywatch Nights Production Line" or "Tranche C"); and (D) a
revolving credit facility of up to $40,000,000 to be utilized to finance certain
working capital needs of the Company and a portion of which is expected to be
initially used to refinance existing bank debt related to the Company's working
capital needs (the "Working Capital Line" or "Tranche D"). The Working Capital
Line together with the Term Loan, the Baywatch Production Line and the Baywatch
Nights Production Line are referred to collectively as the "Chemical Bank
Facilities". The obligations of the Company under the Chemical Bank Facilities
are to be cross-collateralized with one another and mature on December 31, 1998.
Under the expected terms of the Senior Credit Facility Agreement, the amount the
Company may borrow under Tranche B, C and D will be based upon the value of the
collateral in the applicable borrowing base which consists principally of
accounts receivable and certain other assets of the Company. Borrowings under
the Chemical Bank Facilities are expected to bear interest, at the Company's
option, either (i) at LIBOR plus 2 3/4%, or (ii) at the Alternate Base Rate
(which is the greater of Chemical Bank's Prime Rate, its Base CD Rate plus 1%,
or the Federal Funds Effective Rate plus 1/2%) plus 1 3/4%, subject to
reduction if certain financial ratios are satisfied. The Chemical Bank
Facilities are expected to impose a number of financial and other conditions
upon the Company, similar to the provisions under the Company's existing
Chemical Bank facilities, including limitations on indebtedness, restrictions on
the disposition of assets, restrictions on making certain payments (including
dividends) and certain financial tests.
Under the terms of the Chemical Bank Facilities substantially all of the
Company's cash collections will be required to be paid into accounts maintained
by Chemical Bank and applied to the repayment of the Company's revolving credit
obligations under the Chemical Bank Facilities. The amount the Company will be
able to reborrow under the Chemical Bank Facilities is subject to the ability of
the Company to pledge collateral to the banks with sufficient value to
collateralize such borrowings. Substantially all of the Company's assets will be
pledged under the Chemical Bank Facilities except the real property owned by the
Company and certain physical record inventory. It is currently expected that the
Chemical Bank Facilities will be consummated in April 1995. The Company's
ability to meet its working capital requirements for its planned
F-27
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ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
production and distribution activities is dependent, in part, upon the
completion of the Chemical Bank Facilities or the availability of other similar
financing or refinancing. There is no assurance that the Company will be
successful in obtaining the Chemical Bank Facilities on or prior to April 28,
1995, the maturity date of the Working Capital Loan, or that in the event
thereof, the Company will be able to further extend the maturity date of the
Working Capital Loan.
6. CAPITAL STOCK
In August 1994, in connection with the Fremantle Acquisition, the Company
issued 630,000 shares of its Common Stock and 2,520,000 shares of its Class B
non-voting Common Stock (See Note 1).
In October, 1993, the Company used part of the net proceeds from issuance
of the Notes (See Note 5) to repurchase and retire all of the Redeemable Shares.
As a consequence of the repurchase and retirement of such stock, the difference
between the current carrying value and the repurchase price (including related
costs) in the amount of $6,070,000 was credited to additional paid-in capital.
During 1993 and 1992, the carrying value of the Redeemable Shares was
adjusted to reflect the accretion required to increase the carrying values to
their mandatory redemption amounts. The increase in the carrying amount for the
years ended December 31, 1993 and 1992 totaled $1,608,000 and $1,928,000,
respectively. The Redeemable Shares were repurchased by the Company in October
1993.
In 1992, an employee and relative of an officer issued a promissory note in
the amount of $77,000 in consideration for shares of the Company's Common Stock.
The note bears interest at 6.35% and is payable in 5 annual equal installments
through 1997. In 1990, three officers of the Company issued the Company
promissory notes in the aggregate amount of $510,000 in consideration for shares
of the Company's Common Stock. The notes bear interest at rates ranging from
8.5% to 10.4% and are payable in five annual equal installments through 1995.
7. STOCK OPTIONS AND WARRANTS
The Company's 1994 Incentive Stock Option Plan (the "1994 Plan") provides
for the granting of stock incentive awards ("Awards") for up to 1,250,000 shares
of its Common Stock to eligible employees, directors and consultants. The 1994
Plan, which will terminate June 21, 2004, is administered by a committee
appointed by the Board of Directors (the "Committee") which determines the
number of shares to be covered by an award, the term and exercise price, if any,
of the award and other terms and provisions of awards.
Awards can be Stock Options ("Options"), Stock Appreciation Rights
("SARs"), Performance Share Awards ("PSAs") and Restricted Stock Awards
("RSAs"). The number and kind of shares available under the 1994 Plan are
subject to adjustment in certain events. Shares relating to Options or SARs
which are not exercised, shares relating to RSAs which do not vest and shares
relating to PSAs which are not issued will again be available for issuance under
the 1994 Plan.
An Option may be an incentive stock option ("ISO") or a non-qualified
Option. The exercise price for Options is to be determined by the Committee, but
in the case of an ISO is not to be less than fair market value on the date the
Option is granted (110% of fair market value in the case of an ISO granted to
any person who owns more than 10% of the Common Stock). The purchase price is
payable in any combination of cash, shares of Common Stock already owned by the
participant for at least six months or, if authorized by the Committee, a
promissory note secured by the Common Stock issuable upon exercise. In addition,
the award agreement may provide for "cashless" exercise and payment. Subject to
early termination or acceleration provisions, an Option is exercisable, in whole
or in part, from the date specified in the related award agreement (which may be
six months after the date of grant) until the expiration date determined by the
Committee. The aggregate fair market value (determined on the date of grant) of
the shares of Common Stock for which ISOs may be granted to any participant
under the 1994 Plan and any other plan by the Company or its
F-28
<PAGE> 89
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
affiliates which are exercisable for the first time by such participant during
any calendar year may not exceed $100,000.
The Options granted under the 1994 Plan become exercisable on such dates as
the Committee determines in the terms of each individual Option. Options become
immediately exercisable in full in the event of a disposition of all or
substantially all of the assets or capital stock of the Company by means of a
sale, merger, consolidation, reorganization, liquidation or otherwise, unless
the Committee arranges for the optionee to receive new Options covering shares
of the corporation purchasing or acquiring the assets or stock of the Company,
in substitution of the Options granted under the Plan (which Options shall
thereupon terminate). The Committee in any event may, on such terms and
conditions as it deems appropriate, accelerate the exercisability of Options
granted under the Plan. An ISO to a holder of more than 10% of the total
combined voting power of all classes of stock of the Company must expire no
later than five years from the date of grant. A non-qualified Option must expire
no later than ten years from the date of the grant.
The Options granted under the 1994 Plan are not transferable other than by
will or the laws of descent and distribution. Unexercised Options generally
lapse three months after termination of employment other than by reason of
retirement, disability or death in which case it terminates one year thereafter.
An SAR is the right to receive payment based on the appreciation in the
fair market value of Common Stock from the date of grant to the date of
exercise. In its discretion, the Committee may grant an SAR concurrently with
the grant of an Option. An SAR is only exercisable at such time, and to the
extent, that the related Option is exercisable. Upon exercise of an SAR, which
was issued concurrent with an Option, the holder receives for each share with
respect to which the SAR is exercised an amount equal to the difference between
the exercise price under the related Option and the fair market value of a share
of Common Stock on the date of exercise of the SAR. The Committee in its
discretion may pay the amount in cash, shares of Common Stock, or a combination
thereof.
An RSA is an award of a fixed number of shares of Common Stock subject to
restrictions. The Committee specifies the prices, if any, the recipient must pay
for such shares. Shares included in an RSA may not be sold, assigned,
transferred, pledged or otherwise disposed of or encumbered until they have
vested. These restrictions may not terminate earlier than six months after the
award date. The recipient is entitled to dividend and voting rights pertaining
to such RSA shares even though they have not vested, so long as such shares have
not been forfeited.
A PSA is an award of a fixed number of shares of Common Stock, the issuance
of which is contingent upon the attainment of such performance objectives, and
the payment of such consideration, if any, as is specified by the Committee.
Issuance shall in any case not be earlier than six months after the award date.
The 1994 Plan also provides for certain stock depreciation protections, tax
offset bonuses and tax withholding using shares of Common Stock instead of cash.
Upon the date a participant is no longer employed by the Company for any
reason, shares subject to the participant's RSAs which have not become vested by
that date or shares subject to the participant's PSAs which have not been issued
shall be forfeited in accordance with the terms of the related Award agreements.
Options which have become exercisable by the date of termination of employment
or of service on the Committee must be exercised within certain specified
periods of time from the date of termination, the period of time to depend on
the reason for termination. Options which have not yet become exercisable on the
date the participant terminates employment or service on the Committee for a
reason other than retirement, death or total disability shall terminate on that
date.
In the event a change in control occurs, all of the outstanding options may
be accelerated. The 1994 Plan defines a change in control to have occurred if a
"person," as defined in Section 13(d) and 14(d) under the
F-29
<PAGE> 90
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Securities Exchange Act of 1934, as amended, acquires 20% or more of the
outstanding shares of Common Stock of the Company unless waived in advance by
Committee.
The 1994 Plan provides for anti-dilution adjustments in the event of a
reorganization, merger, combination recapitalization, reclassification, stock
dividend, stock split or reverse stock split; however, no such adjustment need
be made if it is determined that the adjustment may result in the receipt of
federally taxable income to optionees of the holders of Common Stock or other
classes of the Company's securities. Upon the dissolution or liquidation of the
Company, or upon a reorganization, merger or consolidation of the Company as a
result of which the Company is not the surviving entity, the Plan shall
terminate, and any outstanding awards shall terminate and be forfeited unless
assumed by the successor corporation.
The Company's 1991 Incentive Stock Option Plan (the "1991 Plan"), as
amended, provides for the granting of options for up to 1,200,000 shares of its
Common Stock to eligible employees and directors. Under the 1991 Plan, options
are granted at no less than fair market value on the date of grant. The period
during which these options are exercisable is fixed by the Stock Option
Committee at the time of grant. Options generally expire if not exercised within
ten years (or five years in the case of an employee owning 10% or more of the
Company's stock on the date of grant).
The following table summarizes stock option transactions under the 1991
Plan and 1994 Plan (the "Plans") for the remaining unexercised stock options and
remaining unexercised warrants and stock options granted outside of the Plans:
<TABLE>
<CAPTION>
1991 PLAN AND 1994 PLAN OUTSIDE OF THE PLANS
--------------------------- ---------------------------
NUMBER OF NUMBER OF
SHARES PRICE PER SHARE SHARES PRICE PER SHARE
--------- --------------- --------- ---------------
<S> <C> <C> <C> <C>
Outstanding at December 31,
1991........................ 23,063 $11.00 - $30.00 375,000 $4.00
Granted....................... 80,000 2.63 - 7.25 357,143 7.50
Exercised..................... -- --
Canceled...................... -- --
------- --------------- --------- --------------
Outstanding at December 31,
1992........................ 103,063 2.63 - 30.00 732,143 4.00 - 7.50
Granted....................... 5,000 7.00 306,250 4.00 - 18.00
Exercised..................... -- --
Canceled...................... (18,750) 7.25 (25,000) 12.00 - 18.00
------- --------------- --------- --------------
Outstanding at December 31,
1993........................ 89,313 2.63 - 30.00 1,013,393 4.00 - 11.00
Granted....................... 490,500 7.63 - 8.50 --
Exercised..................... -- (62,500) 4.00
Canceled...................... (12,500) 11.00 (633,929) 4.00 - 7.50
------- --------------- --------- --------------
Outstanding at December 31,
1994........................ 567,313 2.63 - 30.00 316,964 4.00 - 11.00
------- --------------- --------- --------------
</TABLE>
Options and warrants exercisable at December 31,
<TABLE>
<CAPTION>
UNDER THE 1991 PLAN
AND 1994 PLAN OUTSIDE OF THE PLANS
------------------- --------------------
<S> <C> <C>
1994............................................. 63,063 316,964
1993............................................. 51,813 983,393
</TABLE>
As of July 6, 1994, in connection with the employment agreement of an
officer (such officer also being a Director), the Company granted an RSA for
30,000 shares with a vesting date of July 5, 1998. The RSA
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<PAGE> 91
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares are subject to the terms of the 1994 Plan and the officer's employment
agreement. Based on a closing bid price on July 6, 1994 of $7.25 per share, this
grant is expected to generate expense of approximately $218,000 through July 5,
1998.
As of December 31, 1994, there have been no other SARs, PSAs or RSAs
granted.
Shares of the Company's Common Stock reserved for issuance follow:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1993
------- ------
(IN THOUSANDS)
<S> <C> <C>
1991 Plan and 1994 Plan............................................. 2,450 1,200
Non-Plan options and warrants granted............................... 317 1,013
Common Stock Class B -- non-voting.................................. 2,520 --
6 1/2% Convertible Subordinated Notes............................... 5,217 5,217
------ -----
10,504 7,430
====== =====
</TABLE>
8. RELATED PARTY TRANSACTIONS
During 1994 the Company loaned $250,000 to Thomas Bradshaw, the Company's
Chief Financial Officer, which loan is secured by a pledge of shares of Common
Stock of the Company owned by Mr. Bradshaw. The loan bears interest at a rate of
8.0% per annum (equal to the rate then in effect under the Company's Working
Capital Loan) and will mature upon expiration of Mr. Bradshaw's employment
agreement which is currently February 1996. The loan has been included with
other assets in the accompanying consolidated balance sheet at December 31,
1994.
The Company engaged Jefferson Capital Group ("JCG") to provide investment
banking services to the Company in connection with the Fremantle Acquisition,
including valuation of the transaction, pricing and financing for fees and
expenses totaling $319,000. A member of the Company's Board of Directors is the
President and a significant stockholder of JCG. The Company also agreed to
indemnify JCG against any liabilities it incurs in connection with the
acquisition of Fremantle, except due to JCG's gross negligence or willful
misconduct.
The Company engaged JCG to provide investment banking services to the
Company in connection with the LBS Acquisition, including valuation of the
transaction, pricing and financing for a fee of $100,000. During 1991 and 1992
in consideration for certain services the Company issued to JCG warrants to
acquire 98,214 shares of Common Stock at exercise prices ranging from $4.00 to
$7.50 per share, which may be exercised for up to five years from the date of
issuance. The Company has also agreed to indemnify JCG against any liabilities
it incurs in connection with the LBS Acquisition, except due to JCG's gross
negligence or willful misconduct.
One officer/stockholder/director and one director of AAC are members of the
Board of Directors of LIVE. A subsidiary of LIVE distributed certain films
produced in prior years by the Company in the domestic video market. AAC had
revenues from sales to LIVE and its affiliates of approximately $1,500,000
during the year ended December 31, 1992. The film operations were discontinued
effective December 1992. (See Note 2 regarding discontinued film operations).
Certain officers/stockholders of the Company have issued to SBEI promissory
notes in consideration for the shares of SBEI Common Stock purchased by them
before the Merger. Principal and interest under the notes are payable in five
equal annual installments. The principal balance outstanding on such notes as of
December 31, 1994 was approximately $153,000.
F-31
<PAGE> 92
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SBEI currently leases a building from two officers/members of the Board of
Directors of the Company at a cost to SBEI of approximately $4,400 per month,
which the Company believes is a market rate. This building is used for office
and warehouse space for the Company's recorded music operations.
9. INCOME TAXES
The provision for income taxes related to continuing operations is
comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993 1992
----- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.................................................... $ -- $ -- $ --
State and local............................................ 13 14 11
Foreign.................................................... 646 67 127
----- ---- ----
659 81 138
Deferred:
Federal.................................................... (329) 67 632
State...................................................... -- 27 157
----- ---- ----
(329) 94 789
----- ---- ----
$ 330 $175 $927
===== ==== ====
</TABLE>
Components of deferred income taxes as calculated under SFAS 109 as of
December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Amortization and depreciation.................................... $(9,627) $(7,283)
Accruals not currently deductible for tax purposes............... 6,874 5,901
Deferred revenues................................................ 103 314
Net operating loss carryover..................................... 2,466 672
Foreign tax and investment tax credit carryover.................. 1,384 1,205
------- -------
1,200 809
Valuation allowance.............................................. (965) (903)
------- -------
$ 235 $ (94)
======= =======
</TABLE>
Components of deferred income taxes for the year ended December 31, 1992
are as follows:
<TABLE>
<S> <C>
Amortization and depreciation................................................ $ 775
Accruals not previously deductible for tax expense........................... (371)
Inventory capitalization..................................................... 162
Accelerated deductions....................................................... 111
Other........................................................................ 112
-----
$ 789
=====
</TABLE>
F-32
<PAGE> 93
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reconciliation of effective rate of income taxes related to continuing
operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1993 1992
----- ---- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for income taxes at statutory federal rate of
35%....................................................... $ 275 $189 $ 949
State and local income taxes................................ 9 9 111
Foreign income taxes........................................ 646 67 127
Utilization of net operating losses, foreign and investment
tax credits............................................... (329) -- (343)
Tax deductible items and other items........................ (271) (90) 83
----- ---- -----
Provision for income taxes.................................. $ 330 $175 $ 927
===== ==== =====
</TABLE>
Foreign taxes withheld on revenues were utilized for financial reporting
purposes in determining the provision for income taxes. These amounts withheld
in the periods ended December 31, 1994, 1993 and 1992 were $646,000, $67,000 and
$127,000, respectively.
At December 31, 1994, the Company had available for federal income tax
purposes a net operating loss carryover of approximately $6,165,000 expiring
through 2009, unused investment tax credits of approximately $238,000 expiring
in 2001 and 2002 and unused foreign tax credits of approximately $1,146,000
expiring from 1995 to 1999.
10. COMMITMENTS AND CONTINGENCIES
The Company has exercised its option with the producers of Baywatch to
produce 22 episodes of Baywatch for the 1995/1996 broadcast season. As of
December 31, 1994, two of the episodes for the 1995/ 1996 broadcast season have
been completed. The total production budget of approximately $22,000,000 for the
1995/1996 broadcast season is expected to be funded through a combination of:
(i) borrowings under the proposed Chemical Bank Facilities; (ii) cash payments
by The Fremantle Corporation (an unrelated company); and (iii) working capital.
The Company has entered into an agreement to produce a spin-off of
Baywatch, Baywatch Nights, which is currently scheduled to commence production
in March 1995 for initial airing in first-run syndication in the 1995/1996
broadcast season. The Company currently plans to self-distribute Baywatch Nights
both domestically and internationally. The total production budget for the 22
planned new one-hour episodes for the 1995/ 1996 broadcast season of
approximately $22,000,000 is expected to be funded through (i) borrowings under
the proposed Chemical Bank Facilities, (ii) foreign sales agreements and (iii)
working capital.
The Company is distributing the series The New Family Feud for the
1994/1995 broadcast season and distributed the series for the 1993/1994
broadcast season. The Company guaranteed the producers, $6,300,000 and
$7,500,000 for the 1993/1994 and 1994/1995 broadcast seasons, respectively. As
of November 1, 1994, the 1993/1994 guarantee had been satisfied through a
combination of payments by the Company and collections of cash license fees by
the producer. With respect to the 1994/1995 broadcast season, the Company's
guarantee is payable in 15 monthly installments of $500,000 each, which
commenced on July 15, 1994, reducible by a certain amount if the Company
exercises its right to reduce the number of new one-hour programs from 26 to 23
and an additional $120,000 upon the occurrence of certain other specified
conditions. Through March 10, 1995, $4,000,000 of the 1994/1995 guarantee has
been satisfied by the Company. The Company has elected not to exercise its
option to continue distributing the show for the 1995/1996 broadcast season.
In January 1995, the Company structured an arrangement with United
Television/Chris Craft Industries, Inc. ("Chris Craft") whereby the Company was
engaged through September 1997 as the exclusive domestic television distributor
for The Richard Bey Show, a five day per week one-hour talk show. Chris Craft
has
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ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
retained the right, which right must be exercised on or prior to December 1,
1995, to buy-out the Company's distribution of the show during the 1996/1997
broadcast season at a price equal to the Company's distribution fee that season.
Chris Craft has agreed to deliver 39 weeks of original one-hour programs during
each 39 week broadcast season and to air The Richard Bey Show on Chris Craft's
six owned and operated stations (WWOR-TV New York, KCOP Los Angeles, KBWK San
Francisco, KMSP Minneapolis, KUTP Phoenix, and KPTV Portland).
In June 1993, the Company entered into an agreement with Richard and Esther
Shapiro pursuant to which the Company was granted a six-month period to arrange
for the development, production and exploitation of a television series
presently entitled The Malibu Branch. In February 1995, the ABC Network agreed
to pay a license fee of $2,850,000 for the production of a two-hour pilot and
retained the right to order production and licensing of a minimum of 13 episodes
of the series for the 1995/1996 broadcast season. The estimated production
budget of the two-hour pilot is approximately $3,200,000 which the Company
expects to finance through the ABC Network license fee and distribution in
certain international markets. Production of the pilot commenced in March 1995
and the Company anticipates delivery of the completed pilot to the ABC Network
in May 1995. There can be no assurance that the ABC Network will exercise its
series option.
In December 1993, the Company entered into an arrangement with DIC
Productions, L.P. ("DIC") pursuant to which the Company was engaged as the
domestic broadcast television distributor (excluding Puerto Rico) for SuperHuman
Samurai Syber Squad for the 1994/1995 broadcast season. The arrangement called
for the Company to make certain payments towards the costs of media buying and
certain other miscellaneous costs against a percentage of the producer's future
royalties. The parties shall mutually determine on or prior to December 31 of
each subsequent broadcast season whether to produce additional new episodes for
such broadcast season. The parties have determined that DIC shall not produce
any new episodes for the 1995/1996 broadcast season. The Company will have the
right to continue to distribute the previously produced episodes in the
1995/1996 broadcast season and in subsequent broadcast seasons if the Company
exercises its option to do so on or prior to April 15th and if the show is being
syndicated to a minimum of 70% of the domestic television market. As of March
10, 1995, the 1995/1996 broadcast season of SuperHuman Samurai Syber Squad had
been cleared in approximately 56% of the domestic television market. The Company
continues to seek additional clearances for this show. There can be no
assurance, however, that the Company will be able to obtain additional
clearances or that it will continue to distribute the show.
In November 1993, the Company entered into an agreement with Telescene Film
Group ("Telescene") for Telescene to produce 22 episodes of Sirens, a weekly
one-hour action drama series and for the Company to distribute the series Sirens
throughout the world (excluding Canada) for the 1994/1995 broadcast season. The
original 13 episodes of Sirens initially aired on the ABC Network in the
1992/1993 broadcast season. Through March 10, 1995, Sirens had been syndicated
to approximately 80% of the domestic television market. The Company guaranteed
the producers approximately $434,000 per episode for the 22 episodes produced
for the 1994/1995 broadcast season (for an aggregate of $9,548,000). As of March
10, 1995, the Company has made guarantee payments to the producers totaling
$8,144,000. Pursuant to the Company's agreement with Telescene, the Company has
determined that it will not distribute the series for the 1995/1996 broadcast
season.
Minimum commitments for advances to recording artists at December 31, 1994
amounted to approximately $1,129,000.
In September 1994, the Company filed a complaint as amended against the
producers of the series Acapulco H.E.A.T. in the Superior Court of the State of
California alleging, among other things, breach of contract and fraud. The
Company had entered into an agreement, dated as of October 7, 1992, with the
producers for the Company to distribute the series Acapulco H.E.A.T. in the
domestic television market. Subject to the fulfillment of certain terms by the
producer, the Company agreed to pay a distribution advance of $6,600,000 (plus
an additional amount per episode under certain circumstances) payable over ten
months
F-34
<PAGE> 95
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
commencing November 30, 1993. The Company has discontinued making such advance
payments. As of December 31, 1994, the Company had made payments totaling
approximately $4,698,000 at which time a dispute with the producers with regard
to the non-fulfillment of certain terms by the producers was raised by the
Company. The unpaid portion of the advance payments, totaling approximately
$2,476,000, has been placed in an interest-bearing restricted cash account
pending resolution of the dispute. The producers have filed an answer and
cross-complaint alleging, among other things, breach of contract and fraud in
connection with the agreement to distribute Acapulco H.E.A.T. and breach of
contract and fraud in connection with the Company's barter distribution of
certain theatrical films unrelated to Acapulco H.E.A.T. The Company did not
exercise its option, to distribute any additional new episodes of Acapulco
H.E.A.T. for the 1994/1995 broadcast. The Company intends to vigorously pursue
its claim and defend against the cross-complaint. The litigation is currently in
the discovery phase and depositions continue to be scheduled. Management does
not believe the ultimate outcome of this matter will result in a materially
adverse effect on the Company's financial condition or results of operations.
However, there can be no assurance that the Company will be successful on the
merits of the lawsuit.
On December 12, 1994, Credit Lyonnais Bank Nederland N.V. ("CLBN") made
demand upon SBEI under a Guarantee dated July 29, 1986 (the "SBEI Guarantee"),
for payment of approximately $3,742,000 plus interest accrued or costs booked
since November 11, 1994 under a Loan and Security Assignment dated July 29, 1986
between CLBN and various former subsidiaries of SBEI relating to the
discontinued motion picture operations of the Company. See Note 2. In a letter
dated December 22, 1994, SBEI rejected the foregoing demand based upon, among
other reasons, the following: (a) that in a January 1993 agreement CLBN agreed
to release all liens and any interests in any property or assets of SBEI, which
in effect released SBEI from any obligations under the SBEI Guarantee; (b) that
the loan purportedly guaranteed has been repaid; and (c) that SBEI is not a
party to and was not bound by a material amendment to the above-referenced Loan
and Security Assignment.
In addition, since approximately November 1993, CLBN and its
representatives have been reviewing certain books and records relating to the
distribution and production of certain motion pictures by Minority Pictures,
Inc. (formerly Scotti Brothers Pictures, Inc.) or its subsidiaries for which
CLBN provided financing. In October 1994, CLBN requested that Minority Pictures,
Inc. and various of its current and former affiliates (including All American
Communications, Inc. and certain of its subsidiaries) execute a tolling
agreement which would have tolled any claims which CLBN may have against such
persons, including but not limited to causes of action based on such financing.
In December 1994, the Company responded that based upon the information provided
by CLBN, or the lack thereof, it was extremely unclear whether there were any
tenable claims against the Company and its subsidiaries and that the Company was
therefore unwilling to enter into any tolling agreement. While the Company
believes that SBEI has good and meritorious defenses with respect to the SBEI
Guarantee and any related claims which CLBN may assert, and that the ultimate
outcome of this matter will not result in a materially adverse effect on the
Company's financial condition or results of operations, there can be no
assurance that the Company ultimately will prevail.
The Company is party to legal proceedings which are routine and incidental
to the business. The Company believes that the results of such litigation will
not have a material adverse effect on the Company's financial condition or
results of operations.
F-35
<PAGE> 96
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company leases office and production studio space under operating
leases expiring at various dates through 2005. Renewal options are available on
certain of these leases. The minimum lease payments, net of minimum sublease
income, under noncancellable operating leases at December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
MINIMUM AMOUNTS
-----------------------------------
LEASE SUBLEASE NET LEASE
PAYMENTS INCOME PAYMENTS
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
1995.......................................... $ 1,438 $ 64 $ 1,374
1996.......................................... 1,993 258 1,735
1997.......................................... 1,785 258 1,527
1998.......................................... 1,690 65 1,625
1999.......................................... 1,298 -- 1,298
Thereafter.................................... 4,974 -- 4,974
------- ---- -------
$13,178 $645 $12,533
======= ==== =======
</TABLE>
Rent expense of approximately $912,000, $702,000 and $297,000 is net of
sublease income of $57,000, $45,000 and $0 in the years ended December 31, 1994,
1993 and 1992, respectively.
11. FINANCIAL INSTRUMENTS
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, restricted cash and
trade receivables.
The Company maintains its cash and restricted cash balances at various
financial institutions. These financial institutions are throughout the world
and Company policy is designed to limit exposure to any one institution. The
Company performs periodic evaluations of the relative credit standing of those
financial institutions holding significant account balances. As of December 31,
1994, a significant concentration of credit risk exists only with respect to the
interest bearing restricted cash account held, pending resolution of a dispute
(See Note 10), with a single financial institution other than the Company's
primary lender. The balance of such account is $2,478,000 at December 31, 1994.
As of December 31, 1993, the Company had no significant concentration of credit
risk with respect to cash or restricted cash balances.
The Company produces and sells television programs, and recorded music
product to domestic and foreign distributors. Sales of advertising time retained
in television programming sold are to agencies representing national
advertisers, primarily in the consumer products industry. The Company generally
does not require collateral on trade receivables. Concentrations of credit risk
on trade receivables exist only with respect to the domestic recorded music
trade receivable. The Company's domestic recorded music trade receivable
($4,775,000 at December 31, 1994) is with BMG, one of the six major record
companies. Credit losses and returns of recorded music product have consistently
been within management's expectations.
Fair Value of Financial Instruments
The carrying value of the Company's financial instruments approximate their
fair value with the exception of the Company's $60,000,000, 6 1/2% Convertible
Subordinated Notes ("Notes"). The Notes, which have a carrying value of
$60,000,000, had a fair value of approximately $44,400,000 and $57,600,000 at
December 31, 1994 and 1993, respectively. Such fair value was determined using
the quoted market prices for the Notes as of December 31, 1994 and 1993.
F-36
<PAGE> 97
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company's activities consist of two business segments -- television
production and distribution, and recorded music production and distribution.
Summaries of financial information by business segment follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
--------------------------------------------------
RECORDED
TELEVISION MUSIC CORPORATE TOTAL
---------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues......................................... $ 98,771 $ 16,130 $ -- $114,901
Operating income (loss).......................... 12,523 (450) (5,612) 6,461
Identifiable assets.............................. 190,064 8,949 8,994 208,007
Depreciation and amortization.................... 33,783 141 60 33,984
Expenditures for property and equipment.......... 377 20 100 497
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
--------------------------------------------------
RECORDED
TELEVISION MUSIC CORPORATE TOTAL
---------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues.......................................... $ 57,407 $ 13,215 $ -- $ 70,622
Operating income (loss)........................... 7,012 (949) (3,988) 2,075
Identifiable assets............................... 92,387 9,887 10,247 112,521
Depreciation and amortization..................... 33,635 -- 55 33,690
Expenditures for property and equipment........... 119 16 -- 135
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1992
-------------------------------------------------
RECORDED
TELEVISION MUSIC CORPORATE TOTAL
---------- -------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues........................................... $ 45,302 $ 12,616 $ -- $57,918
Operating income (loss)............................ 8,990 (2,722) (3,287) 2,981
Identifiable assets................................ 61,850 6,084 6,196 74,130
Depreciation and amortization...................... 21,494 352 78 21,924
Expenditures for property and equipment............ 25 16 25 66
</TABLE>
A summary of geographic financial information is presented for 1994. Prior
to 1994, the Company had operations in the United States only.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
-----------------------------
UNITED
STATES EUROPE TOTAL
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues........................................................ $ 83,135 $31,766 $114,901
Operating income................................................ (388) 6,849 6,461
Identifiable assets............................................. 129,231 78,776 208,007
Depreciation and amortization................................... 32,882 1,102 33,984
Expenditures for property and equipment......................... 273 224 497
</TABLE>
Revenues related to the television series Baywatch amounted to $35,328,000,
$29,185,000 and $24,758,000 for the years ended December 31, 1994, 1993 and
1992, respectively.
During the years ended December 31, 1994, 1993 and 1992, one customer of
the recorded music segment accounted for 11%, 14% and 20%, respectively, and one
customer of the television segment accounted for 13%, 17% and 20%, respectively
of consolidated revenues.
Included in United States sales are export sales in the years ended
December 31, 1994, 1993 and 1992 of $20,821,000, $14,921,000 and $12,509,000,
respectively.
F-37
<PAGE> 98
THE GAME SHOW DIVISION OF MARK GOODSON PRODUCTIONS
AND AFFILIATES (NOTE 1)
COMBINED STATEMENT OF NET ASSETS
ASSETS (NOTE 1):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
(UNAUDITED)
------------------
(IN THOUSANDS)
<S> <C>
Current assets:
Accounts receivable....................................................... $5,134
Deferred production costs................................................. 216
Prepaid expenses and other current assets................................. 28
------
Total current assets.............................................. 5,378
Property and equipment, net of accumulated depreciation of $412 (Note 2).... 266
Deferred tape library costs, net of accumulated amortization of $370 (Note
3)........................................................................ 1,633
Programs in the process of development...................................... 2
Other assets................................................................ 103
------
Total assets...................................................... 7,382
------
LIABILITIES (NOTE 1):
Current liabilities:
Accounts payable and accrued expenses..................................... 481
------
Total current liabilities......................................... 481
------
Total liabilities................................................. 481
Commitments and contingencies (Note 4)......................................
------
Net assets........................................................ $6,901
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE> 99
THE GAME SHOW DIVISION OF MARK GOODSON PRODUCTIONS
AND AFFILIATES (NOTE 1)
COMBINED STATEMENTS OF OPERATING INCOME
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
Revenues (Note 1):
Network........................................................... $10,255 $ 9,584
Syndication....................................................... 5,193 5,954
Advertising....................................................... 343 410
Foreign royalties................................................. 5,152 5,078
Music and other royalties......................................... 376 306
------- -------
Total operating revenues.................................. 21,319 21,332
Operating expenses (Note 1):
Production costs.................................................. 7,030 7,401
General and administrative........................................ 6,844 8,314
Depreciation and amortization..................................... 305 74
------- -------
Total operating expenses.................................. 14,179 15,789
------- -------
Operating income before loss on sale of fixed assets...... 7,140 5,543
Other:
Loss on sale of fixed assets...................................... (32)
------- -------
Operating income.......................................... $ 7,140 $ 5,511
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE> 100
THE GAME SHOW DIVISION OF MARK GOODSON PRODUCTIONS
AND AFFILIATES (NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------
1995 1994
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
(IN THOUSANDS)
Cash flows from operating activities:
Operating income.................................................. $ 7,140 $ 5,511
Adjustments to reconcile operating income to net cash provided
by operating activities:
Depreciation and amortization.................................. 305 74
Loss on disposal of property and equipment..................... 32
Changes in:
Accounts receivable.......................................... 958 3,410
Prepaid expenses............................................. (28) (57)
Deferred production costs.................................... 1,769 (1,455)
Programs in the process of development....................... 324 (2)
Other assets................................................. 9 21
Accounts payable and accrued expenses........................ (3,002) 739
Deferred syndication revenue................................. (692) 1,008
------- -------
Net cash provided by operating activities................. 6,783 9,281
------- -------
Cash flows from investing activities:
Purchase of property and equipment................................ (2) (115)
Deferred tape library costs....................................... (562) (813)
------- -------
Net cash used in investing activities..................... (564) (928)
------- -------
Cash flows from financing activities:
Cash distribution to Parent....................................... (6,219) (8,353)
------- -------
Net cash used in financing activities..................... (6,219) (8,353)
------- -------
Net cash and cash equivalents............................. $ -- $ --
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE> 101
THE GAME SHOW DIVISION OF MARK GOODSON PRODUCTIONS
AND AFFILIATES (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES AND TRANSACTIONS
(a) Basis of Presentation:
The Game Show Division of Mark Goodson Productions and Affiliates (the
"Division") is not a separate legal entity, but was operated as part of the
overall business of Mark Goodson Productions, L.P., The Childs Play Company and
certain affiliates under common control (collectively the "Parent" or "Owner").
The Division is in the business of producing and licensing television game shows
(primarily Price is Right and Family Feud), for network and syndicated
broadcasters, in domestic and foreign markets. The Parent sold the Division's
net assets in an Asset Purchase Agreement dated October 6, 1995, as set out in
Note 5. Under the terms of the agreement, the Parent sold substantially all of
the Assets of the Division, which excludes the assets relating to the operation
of the Video Lottery Business, the Sony Game Show Channel and other assets as
specified in the agreement.
The accompanying statements have been prepared from the books and records
of Mark Goodson Productions, L.P., The Childs Play Company and certain
affiliates under common control and present substantially all the revenues and
expenses of the Division for the nine months ended September 30, 1995 and 1994
and the net assets of the Division at September 30, 1995. The unaudited nine
month financial statements ended September 30, 1995 and 1994 include all
adjustments, consisting only of normal recurring adjustments which in the
opinion of the Division's management, are necessary for a fair presentation of
the results of operations for the nine months presented. The results for the
nine months ended September 30, 1995 are not indicative of the results which may
be expected for the entire year ending December 31, 1995.
The statements of net assets and statements of operations and cash flows
may not necessarily be indicative of the financial position or results of
operations that would have resulted had the Division been operated as a
stand-alone entity. General and administrative expenses, deemed reasonable by
management, totaling $6,844,000 in 1995, and $8,314,000 in 1994, are net of
expenses allocated by the Parent to the Video Lottery Business and the Sony Game
Show Channel in the amounts of $1,094,000 and $1,031,000 for 1995, and 1994,
respectively. The allocation procedures include various bases such as employee
numbers and estimated time spent. Taxes on income have not been allocated to the
Division as the Parent is comprised of S-Corporations and Partnerships and
therefore is not subject to Federal or state income taxes. The Parent made no
cash contributions, net investments in or advances to the Division during the
nine months ended September 30, 1995 and 1994. During the nine months ended
September 30, 1995 and 1994, the Division made cash distributions to its Parent
of $6,219,000 and $8,353,000, respectively. Rental expense incurred by the
Division amounted to $837,000 in 1995, and $859,000 in 1994. These amounts are
included in administrative expenses.
The financial statements do not include any purchase adjustments which may
result from the consummation of the agreement of sale.
(b) Revenue Recognition:
Revenue from television licensing agreements is recognized in the
accounting period in which the game shows become available for broadcast or when
identified and broadcast according to the terms of the license agreements.
Foreign, music and other royalty income are recognized upon receipt of earnings
reports from licensees. Advertising revenue is recognized when the
advertisements are broadcast. Deferred revenues consist of advance payments
received on television contracts for which the revenue has not yet been
recognized.
(c) Production Costs:
Game show production costs are recognized in a manner consistent with the
revenue recognition policies. Program development costs are deferred unless
management's estimates indicate that such costs are non-recoverable, in which
case the costs are charged against operations currently.
F-41
<PAGE> 102
THE GAME SHOW DIVISION OF MARK GOODSON PRODUCTIONS
AND AFFILIATES (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(d) Property and Equipment:
Property and equipment are stated at cost. Depreciation and amortization
are recorded by the declining-balance method for furniture and equipment, and by
the straight-line method for leasehold improvements, over the shorter of lease
term or estimated useful lives of the assets.
(e) Income Taxes:
No provision for income taxes has been reflected in the accompanying
statement of operating income because income tax expense is not allocated by the
Parent to the Division.
(f) Division Equity:
For cash flow purposes, all transfers of cash between the Division and the
Parent are recorded through Division Equity.
2. PROPERTY AND EQUIPMENT
The components of property and equipment are:
<TABLE>
<CAPTION>
1995 ESTIMATED LIFE
---- ----------------------------
<S> <C> <C>
Office furniture and equipment............... $410 5 to 7 years
Automobiles.................................. 126 5 years
7 shorter of lease term or
Leasehold improvements....................... 142 life of assets
----
678
Less: Accumulated depreciation and
amortization 412
----
Property and equipment, net.................. $266
====
</TABLE>
Depreciation and amortization expense for the nine months ended September
30, 1995 and 1994 amounted to $32,000 and $41,000, respectively.
3. DEFERRED TAPE LIBRARY COSTS
Deferred tape library costs consists of costs incurred to upgrade and copy
the Division's program library. Amortization of these costs is provided by the
straight-line method over a five-year period and amounted to $273,000 and
$33,000 for the nine months ended September 30, 1995 and 1994.
4. COMMITMENTS AND CONTINGENCIES
(a) Talent Agreements:
The Division is committed under four talent agreements relating to the game
show productions. The gross compensation due on the agreements, which extend
through the end of the 1995-1996 broadcast year is $5,453,000 (net of network
reimbursements -- $894,000).
(b) Litigation:
In the opinion of management and its counsel, the Division is not a party
to any litigation that would have a material adverse effect on its business,
results of operations, or financial condition if settled in an unfavorable
manner.
F-42
<PAGE> 103
THE GAME SHOW DIVISION OF MARK GOODSON PRODUCTIONS
AND AFFILIATES (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. SUBSEQUENT EVENT
As of October 6, 1995, the Parent entered into an Asset Purchase Agreement
(the "Agreement") pursuant to which a newly-formed limited liability company
(the "LLC"), jointly owned, directly or indirectly by All American
Communications, Inc. ("AACI") (which is the Division's US Family Feud broadcast
licensee and European and Middle Eastern foreign format and broadcast licensee)
and The Interpublic Group of Companies, Inc. ("Interpublic"), agreed to acquire
substantially all of the assets and to assume certain specified liabilities of
the Division. The Agreement provides that the purchase price will consist of
payment by AACI of $25,000,000 in cash and issuance by Interpublic of
$25,000,000 in its common stock, together with a contingent earn-out. Under the
earn-out, the LLC will initially pay to an assignee of the Parent a specified
percentage of "Domestic Net Profits" realized from the exploitation in the U.S.
and Canada (currently, primarily consisting of "The Price is Right") of the
Goodson game shows and other purchased television formats during the five-year
period following October 6, 1995. Generally, Domestic Net Profits are gross
receipts less production costs, if applicable, a distribution fee to the Company
under certain circumstances and residual payments. The specified percentage of
Domestic Net Profits payable to the Parent with respect to "The Price is Right"
is 75% for the network exhibition of the program during the five years after
October 6, 1995. However, the earn-out does not apply to any net profits
realized from the international exploitation of any of the purchased game shows
or other purchased television formats.
F-43
<PAGE> 104
THE GAME SHOW DIVISION OF MARK GOODSON PRODUCTIONS
AND AFFILIATES (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. QUARTERLY FINANCIAL INFORMATION:
For the quarter ended September 30, 1995 and 1994, the Company's results of
operations were:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
SEPTEMBER 30,
---------------------------
1994
-----------
1995 (UNAUDITED)
-----------
(UNAUDITED)
<S> <C> <C>
Revenues (Note 1):
Network........................................... $ 4,160 $ 3,998
Syndication....................................... 1,443 2,525
Advertising....................................... 67 243
Foreign royalties................................. 2,231 1,646
Music and other royalties......................... 148 131
------ ------
Total operating revenues.................. 8,049 8,543
------ ------
Operating expenses (Note 1):
Production costs.................................. 2,044 3,259
General and administrative........................ 2,068 2,703
Depreciation and amortization..................... 111 46
------ ------
Total operating expenses.................. 4,223 6,008
------ ------
Operating income.......................... $ 3,826 $ 2,535
====== ======
</TABLE>
F-44
<PAGE> 105
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Mark Goodson Productions, L.P.,
The Childs Play Company and Affiliates:
We have audited the accompanying combined statements of net assets of THE
GAME SHOW DIVISION of MARK GOODSON PRODUCTIONS and AFFILIATES (the "Division")
as of December 31, 1994 and 1993, and the related combined statements of
operating income and cash flows for the years ended December 31, 1994, 1993 and
1992. These financial statements are the responsibility of the Division's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
As indicated in Note 1, the combined financial statements have been
prepared from the books and records of certain commonly controlled entities and
reflect significant assumptions and allocations of costs and expenses.
Accordingly, they are not necessarily indicative of the financial position or
results of operations of the Division had it operated as a stand alone entity.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined net assets of the Game Show
Division of Mark Goodson Productions and Affiliates at December 31, 1994 and
1993, and the combined operating income and their combined cash flows for the
years ended December 31, 1994, 1993 and 1992, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
September 8, 1995.
F-45
<PAGE> 106
THE GAME SHOW DIVISION OF MARK GOODSON PRODUCTIONS
AND AFFILIATES (NOTE 1)
COMBINED STATEMENTS OF NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1993
------ ------
<S> <C> <C>
ASSETS (NOTE 1)
Current assets:
Accounts receivable...................................................... $6,091 $6,231
Deferred production costs................................................ 1,985 1,541
Prepaid expenses and other current assets................................ 82
------ ------
Total current assets............................................. 8,076 7,854
Property and equipment, net of accumulated
depreciation of $381 and $2,033 (Note 2)................................. 296 275
Deferred tape library costs, net of accumulated amortization
of $97 (Note 3).......................................................... 1,344
Programs in the process of development..................................... 326 338
Other assets............................................................... 113 88
------ ------
Total assets..................................................... 10,155 8,555
------ ------
LIABILITIES (NOTE 1)
Current liabilities:
Accounts payable and accrued expenses.................................... 3,483 2,096
Deferred syndication revenue............................................. 692
------ ------
Total current liabilities........................................ 4,175 2,096
------ ------
Total liabilities................................................ 4,175 2,096
Commitments and contingencies (Note 4)
------ ------
Net assets....................................................... $5,980 $6,459
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE> 107
THE GAME SHOW DIVISION OF MARK GOODSON PRODUCTIONS
AND AFFILIATES (NOTE 1)
COMBINED STATEMENTS OF OPERATING INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Revenues (Note 1):
Network..................................................... $12,720 $18,808 $20,105
Syndication................................................. 11,454 7,405 6,746
Advertising................................................. 1,111 460 1,440
Foreign royalties........................................... 6,890 8,503 8,047
Music and other royalties................................... 487 447 630
----- ----- -----
Total operating revenues............................ 32,662 35,623 36,968
Operating expenses (Note 1):
Production costs............................................ 14,023 12,873 13,847
General and administrative.................................. 11,278 12,919 18,255
Depreciation and amortization............................... 156 653 1,662
----- ----- -----
Total operating expenses............................ 25,457 26,445 33,764
----- ----- -----
Operating income before loss on sale of fixed
assets............................................ 7,205 9,178 3,204
Other:
Gain/(loss) on sale of fixed assets......................... (30) 2,665
----- ----- -----
Operating income.................................... $ 7,175 $11,843 $ 3,204
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE> 108
THE GAME SHOW DIVISION OF MARK GOODSON PRODUCTIONS
AND AFFILIATES (NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------
1994 1993 1992
------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Operating income........................................... $ 7,175 $ 11,843 $ 3,204
Adjustments to reconcile operating income to net cash
provided by operating activities:
Depreciation and amortization........................... 156 653 1,662
(Gain)/loss on disposal of property and equipment....... 30 (2,665)
Changes in:
Accounts receivable................................... 140 (1,111) (836)
Prepaid expenses...................................... 83 82 (90)
Deferred production costs............................. (444) (185) 215
Programs in the process of development................ 12 (79) 400
Other assets.......................................... (25) 1 15
Accounts payable and accrued expenses................. 1,387 (788) (1,062)
Deferred syndication revenue.......................... 692 (72)
------- -------- -------
Net cash provided by operating activities.......... 9,206 7,751 3,436
------- -------- -------
Cash flows from investing activities:
Purchase of property and equipment......................... (116) (21) (73)
Sale of marketable securities.............................. 1,008
Proceeds from sale of property and equipment............... 5 4,532
Deferred tape library costs................................ (1,441)
------- -------- -------
Net cash used in investing
activities....................................... (1,552) 5,519 (73)
------- -------- -------
Cash flows from financing activities:
Repayment of long term debt................................ (4,224) (426)
Cash distribution to Parent................................ (7,654) (9,046) (2,937)
------- -------- -------
Net cash used in financing
activities....................................... (7,654) (13,270) (3,363)
------- -------- -------
Net cash and cash equivalents...................... $ -- $ -- $ --
======= ======== =======
Non cash distribution to Parent.............................. (220)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE> 109
THE GAME SHOW DIVISION OF MARK GOODSON PRODUCTIONS
AND AFFILIATES (NOTE 1)
NOTES TO THE COMBINED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES AND TRANSACTIONS
(A) BASIS OF PRESENTATION:
The Game Show Division of Mark Goodson Productions and Affiliates (the
"Division") is not a separate legal entity, but was operated as part of the
overall business of Mark Goodson Productions, L.P., The Childs Play Company and
certain affiliates under common control (collectively the "Parent" or "Owner").
The Division is in the business of producing and licensing television game shows
(primarily Price is Right, Family Feud and Concentration), for network and
syndicated broadcasters, in domestic and foreign markets. The Parent is
currently negotiating an Asset Purchase Agreement for the sale of the Division's
net assets. Under the terms of the proposed agreement, the Parent will sell
substantially all the assets of the Division, except the assets relating to the
operations of the Video Lottery Business, the Sony Game Show Channel and other
assets as specified in the agreement.
The accompanying statements have been prepared from the books and records
of Mark Goodson Productions, L.P., The Childs Play Company and certain
affiliates under common control and present substantially all the revenues and
expenses of the Division for the years ended December 31, 1994, 1993 and 1992
and the net assets of the Division at December 31, 1994 and 1993.
The statements of net assets and statements of operations and cash flows
may not necessarily be indicative of the financial position or results of
operations that would have resulted had the Division been operated as a
stand-alone entity. General and administrative expenses, deemed reasonable by
management, totaling $11,278,000 in 1994, $12,919,000 in 1993 and $18,255,000 in
1992, are net of expenses allocated by the Parent to the Video Lottery Business
and the Sony Game Show Channel in the amounts of $1,228,000, $939,000 and
$444,000 for 1994, 1993 and 1992, respectively. The allocation procedures
include various bases such as employee numbers and estimated time spent. Taxes
on income have not been allocated to the Division as the Parent is comprised of
S-Corporations and Partnerships and is therefore not subject to Federal or state
income taxes. The Parent made no cash contributions, net investments in or
advances to the Division during the years ended December 31, 1994, 1993 or 1992.
During the years ended December 31, 1994, 1993 and 1992 the Division made cash
distributions to its Parent of $7,654,000, $9,046,000 and $2,937,000,
respectively. Interest expense incurred for an airplane financing amounted to
$208,000 in 1993 and $334,000 in 1992. Rental expense incurred by the Division
amounted to $1,138,000 in 1994, $1,325,000 in 1993 and $1,532,000 in 1992. These
amounts are included in general and administrative expenses.
The financial statements do not include any purchase adjustments which may
result from the consummation of the agreement of sale.
(B) REVENUE RECOGNITION:
Revenue from television licensing agreements is recognized in the
accounting period in which the game shows become available for broadcast or when
identified and broadcast according to the terms of the license agreements.
Foreign, music and other royalty income is recognized upon receipt of earnings
reports from licensees. Advertising revenue is recognized when the
advertisements are broadcast. Deferred revenues consists of advance payments
received on television contracts for which the revenue has not yet been
recognized.
(C) PRODUCTION COSTS:
Game show production costs are recognized in a manner consistent with the
revenue recognition policies. Program development costs are deferred unless
management's estimates indicate that such costs are non-recoverable, in which
case the costs are charged against operations currently.
F-49
<PAGE> 110
THE GAME SHOW DIVISION OF MARK GOODSON PRODUCTIONS
AND AFFILIATES (NOTE 1)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
(D) PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation and amortization
are recorded by the declining-balance method for furniture and equipment, and by
the straight-line method for leasehold improvements, over the shorter of lease
term or estimated useful lives of the assets.
(E) INCOME TAXES
No provision for income taxes has been reflected in the accompanying
statement of operating income because income tax expense is not allocated by the
Parent to the Division.
(F) DIVISION EQUITY
For cash flow purposes, all transfers of cash between the Division and the
Parent are recorded through Division Equity.
2. PROPERTY AND EQUIPMENT
The components of property and equipment are:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- ESTIMATED
1994 1993 LIFE
---- ------ --------------
<S> <C> <C> <C>
Office furniture and equipment........................ $411 $1,937 5 to 7 years
Automobiles........................................... 126 147 5 years
Leasehold improvements................................ 140 224 7 shorter of
lease term or
life of assets
---- ------
677 2,308
Less: Accumulated depreciation and amortization..... 381 2,033
---- ------
Property and equipment, net................. $296 $ 275
==== ======
</TABLE>
Depreciation and amortization expense for the years ended December 31, 1994
and 1993 amounted to $59,000 and $653,000 respectively.
3. DEFERRED TAPE LIBRARY COSTS
Deferred tape library costs consists of costs incurred to upgrade and copy
the Division's program library. Amortization of these costs is provided by the
straight-line method over a five-year period and amounted to $97,000 in 1994.
4. COMMITMENTS AND CONTINGENCIES
(A) TALENT AGREEMENTS:
The Division is committed under four talent agreements relating to the game
show productions. The gross compensation due on the agreement, which extend
through the end of the 1995-1996 broadcast year is $6,193,000 (net of network
reimbursements -- $1,102,000).
(B) LITIGATION:
In the opinion of management and its counsel, the Division is not a party
to any litigation that would have a material adverse effect on its business,
results of operations, or financial condition if settled in an unfavorable
manner.
F-50
<PAGE> 111
LOGO
<TABLE>
<S> <C> <C>
ALL AMERICAN TELEVISION, INC. ALL AMERICAN COMMUNICATIONS, INC. ALL AMERICAN/FREMANTLE
1325 AVENUE OF THE AMERICAS CORPORATE HEADQUARTERS 57 JAMESTOWN ROAD
NEW YORK, NEW YORK 10019 2114 PICO BOULEVARD LONDON, NW1 7DB
SANTA MONICA, CALIFORNIA 90405 UNITED KINGDOM
</TABLE>
<PAGE> 112
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, ANY UNDERWRITER OR ANY SELLING STOCKHOLDER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED,
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 7
The Company............................... 13
Use of Proceeds........................... 13
Market For Common Stock and Dividends..... 15
Capitalization............................ 16
Selected Consolidated Financial Data...... 17
Certain Pro Forma Information............. 18
Management's Discussion and
Analysis of Financial Condition and
Results of Operations................... 23
Business.................................. 37
Management................................ 48
Principal and Selling Stockholders........ 51
Description of Capital Stock.............. 53
Underwriting.............................. 56
Legal Matters............................. 57
Experts................................... 57
Incorporation of Certain Documents
by Reference............................ 58
Available Information..................... 58
Index to Financial Statements............. F-1
</TABLE>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
4,000,000 SHARES
LOGO
ALL AMERICAN
COMMUNICATIONS, INC.
CLASS B COMMON STOCK
--------------------
PROSPECTUS
--------------------
OPPENHEIMER & CO., INC.
ARNHOLD AND S. BLEICHROEDER, INC.
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 113
GRAPHIC PRESENTATION MATERIAL
Inside Front Cover of Prospectus
A fold out collage of photographs of game shows and television
series produced and distributed by the Company. The captions list the names
of the shows and the countries in which the shows are produced. The name of
the Company is listed across the top of the page.
The Company's logo is on the outside flap.
Inside Back Cover of Prospectus
A fold out collage of twelve album covers produced and distributed by
the Company. The Company's logo is on the bottom of the page and "All American
Music Group" is on the top of the page.
A chart of 35 logos representing the various game shows produced by
Mark Goodson Productions, L.P. The Company's logo is on the bottom of the page
and "Mark Goodson Productions" is on the top of the page.
The Company's logo is on the outside flap.
<PAGE> 114
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth costs and expenses, other than underwriting
discounts and commissions, payable in connection with the sale and distribution
of the securities being registered. All amounts are estimated except the
Securities and Exchange Commission registration fee.
<TABLE>
<CAPTION>
ITEM
- --------------------------------------------------------------------------------
<S> <C>
Registration fee................................................................ $ 21,748.38
NASD Filing fee................................................................. $ 6,807.00
Blue Sky fees and expenses...................................................... $ 15,000.00
Legal fees and expenses......................................................... $250,000.00
Printing expenses............................................................... $125,000.00
Accounting fees and expenses.................................................... $175,000.00
NNM listing expenses............................................................ $ 52,200.00
Miscellaneous................................................................... $ 29,244.62
-----------
Total................................................................. $675,000.00
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of Section 145 of the General Corporation Law of Delaware
empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he believed to be in or not opposed to the best
interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine that, despite the adjudication of liability, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
Section 145 further provides that to the extent a director, officer,
employee or agent of a corporation has been successful in the defense of any
action, suit or proceeding referred to in subsections (a) and (b) or in the
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith that indemnification provided for by Section 145 shall not
be deemed exclusive of any other rights to which the indemnified party may be
entitled; and that the corporation is empowered to purchase and maintain
insurance on behalf of a director, officer, employee or agent of the corporation
against any liability asserted him or incurred by him in any such capacity or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liability under Section 145.
II-1
<PAGE> 115
Article IV of the Registrant's Bylaws provides, in substance, for the
indemnification of directors and officers of the Registrant to the fullest
extent permitted by Delaware law.
The Registrant refers to the Underwriting Agreement filed as Exhibit 1.1 to
this Registration Statement, which provides for indemnification, under certain
circumstances, of the Registrant, certain of its directors and officers and
persons who control the Registrant against certain liabilities in connection
with this offering, including liabilities under the Securities Act.
The Registrant also refers to the indemnification provisions in the
employment agreements filed as Exhibits 10.1 through 10.6.1 to this Registration
Statement, which provide for the indemnification by the Company of certain
officers and directors of the Registrant against certain liabilities in
connection with this offering, including liabilities under the Securities Act.
See Item 17 of this Registration Statement regarding the opinion of the
Securities and Exchange Commission as to indemnification for liabilities arising
under the Securities Act.
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement.
2.1 Agreement dated as of June 30, 1994 as amended and restated as of August 3, 1994 by
and among the Company, Fremantle International, Inc. and The Interpublic Group of
Companies, Inc. (incorporated by reference to Exhibit 99.2 of the Company's Form
8-K/A dated August 3, 1994).
3.1 Restated Certificate of Incorporation of the Registrant filed on February 25, 1991
with the Secretary of State of the State of Delaware (incorporated by reference to
the same numbered Exhibit to the March 1991 Form 10-Q).
3.2 Restated Bylaws of the Registrant dated February 25, 1991 (incorporated by reference
to the same numbered Exhibit to the March 1991 Form 10-Q).
3.3 Certificate of Designations, Preferences and Relative, Participating, Optional or
Other Special Rights of Series A Convertible Preferred Stock of the Company filed on
February 25, 1991 with the Secretary of State of the State of Delaware (incorporated
by reference to the same numbered Exhibit to the March 1991 Form 10-Q).
3.4 Certificate of Amendment to Restated Certificate of Incorporation of the Registrant
filed on March 20, 1992 with the Secretary of State of the State of Delaware
(incorporated by reference to the same numbered Exhibit to the Registrant's
Amendment No. I to Form S-1 Registration Statement filed with the Securities and
Exchange Commission on April 3, 1992 (the "Amendment No. I to Form S-1")).
3.5 Certificate of the Voting Powers, Designations, Preferences, Rights, Qualifications,
Limitations and Restrictions of the Series B Convertible Preferred Stock of the
Company filed on August 2, 1994 with the Secretary of State of the State of Delaware
(incorporated by reference to Exhibit 3.1 to the Registrants' June 30, 1994 Form
10-Q (the "June 30, 1994 Form 10-Q").
4.1 Specimen Certificate for Common Stock (incorporated by reference to the same
numbered Exhibit to the Amendment No. 1 to Form S-l).
4.2 1994 Stock Incentive Plan (incorporated by reference to the same numbered Exhibit to
the June 30, 1994 Form 10-Q).
5.1 Opinion of Kaye, Scholer, Fierman, Hays & Handler.
9.1 Shareholders Voting Agreement dated August 3, 1994 between The Interpublic Group of
Companies, Inc. the Company and certain of the Companies shareholders (incorporated
by reference to the same numbered Exhibit to the June 30, 1994 Form 10-Q).
9.2 Shareholders Agreement dated as of February 25, 1991 between the Company, Anthony J.
Scotti, Benjamin J. Scotti, Thomas Bradshaw, Myron Roth, Sydney D. Vinnedge, George
Back and Joseph E. Kovacs (incorporated by reference to the same numbered Exhibit to
the December 31, 1990 Form 10-K).
</TABLE>
II-2
<PAGE> 116
<TABLE>
<S> <C>
10.1 Employment Agreement dated as of February 25, 1991 between All American
Communications, Inc. and Anthony J. Scotti (incorporated by reference to the same
numbered Exhibit to the December 31, 1990 Form 10-K).
10.1.1 Amendment to Employment Agreement dated as of February 25,1991 between All American
Communications, Inc. and Anthony J. Scotti (incorporated by reference to the same
numbered Exhibit to the Registrant's Form S-1 Registration Statement filed with the
Securities and Exchange Commission on January 27, 1992 as thereafter amended and
declared effective on May 7, 1992 (the "1992 Form S-1")).
10.1.2 Second Amendment to Employment Agreement dated as of February 25, 1991 between All
American Communications, Inc. and Anthony J. Scotti (incorporated by reference to
the same numbered Exhibit to the December 31, 1994 Form 10-K).
10.1.3 Third Amendment dated May 1, 1995 to Employment Agreement dated as of February 25,
1991 between All American Communications, Inc. and Anthony J. Scotti (incorporated
by reference to the same numbered Exhibit to the December 31, 1994 Form 10-K).
10.2 Employment Agreement dated as of February 26, 1991 between All American
Communications, Inc. and Myron Roth (incorporated by reference to the same numbered
Exhibit to the December 31, 1990 Form 10-K).
10.2.1 Amendment to Employment Agreement dated as of February 26, 1991 between All American
Communications, Inc. and Myron Roth (incorporated by reference to the same numbered
Exhibit to the 1992 Form S-1).
10.3 Employment Agreement dated as of February 25, 1991 between All American
Communications, Inc. and Thomas Bradshaw (incorporated by reference to the same
numbered Exhibit to the December 31, 1990 Form 10-K).
10.3.1 Amendment to Employment Agreement dated as of February 25, 1991 between All American
Communications, Inc. and Thomas Bradshaw (incorporated by reference to the same
numbered Exhibit to the 1992 Form S-1).
10.4 Employment Agreement dated as of February 25, 1991 between All American
Communications, Inc. and Benjamin J. Scotti (incorporated by reference to the same
numbered Exhibit to the December 31, 1990 Form 10-K).
10.4.1. Amendment to Employment Agreement dated as of February 25, 1991 between All American
Communications, Inc. and Benjamin J. Scotti (incorporated by reference to the same
numbered Exhibit to the 1992 Form S-1).
10.5 Employment Agreement dated as of February 25, 1991 between All American
Communications, Inc. and Sydney Vinnedge (incorporated by reference to the same
numbered to the December 31, 1990 Form 10-K).
10.5.1 Amendment to Employment Agreement dated as of February 25, 1991 between All American
Communications, Inc. and Sydney Vinnedge (incorporated by reference to the same
numbered Exhibit to the 1992 Form S-1).
10.5.2 Second Amendment to Employment Agreement dated as of January 7, 1992 between All
American Communications, Inc. and Sydney Vinnedge (incorporated by reference to the
same numbered Exhibit to the Amendment No. 1 to 1992 Form S-1).
10.6 Employment Agreement, dated as of July 1, 1990, between All American Television,
Inc. and George Back (incorporated by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-K for the fiscal quarter ended June 30, 1990 (the "June
1990 Form 10-K").
10.6.1 Second Amendment to Employment Agreement dated January 7, 1992 between All American
Communications, Inc. and George Back (incorporated by reference to the same numbered
Exhibit to the Amendment No. 1 to Form S-1).
10.7 Credit, Security, Guaranty and Pledge Agreement, dated as of April 13, 1995 by and
among All American Communications, Inc., All American Fremantle International, Inc.,
The Baywatch Production Company, The Baywatch Nights Production Company and Chemical
Bank, as agent and Fronting Bank for the lenders named therein (incorporated by
reference to Exhibit 10.8 of the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995 (the "March 31, 1995 Form 10-Q")).
</TABLE>
II-3
<PAGE> 117
<TABLE>
<S> <C>
10.7.1 Amendment No. 1 dated as of April 13, 1995 to Credit, Security, Guaranty and Pledge
Agreement, among All American Communications, Inc., All American Fremantle
International, Inc., The Baywatch Production Company, The Baywatch Nights Production
Company, the guarantors named therein, and Chemical Bank, as Agent and Fronting Bank
for the lenders named therein (incorporated by reference to Exhibit 10.8.1 of the
March 31, 1995 Form 10-Q).
10.7.2 Amendment No. 2 dated as of November 13, 1995 to Credit, Security, Guaranty and
Pledge Agreement, among All American Communications, Inc., All American Fremantle
International, Inc., The Baywatch Production Company, The Baywatch Nights Production
Company, the guarantors named therein, and Chemical Bank, as Agent and Fronting Bank
for the lenders named therein.*
10.8 Shared Facilities and Services Agreement dated as of August 2, 1994 by and between
All American Communications, Inc. and Fremantle International, Inc. (incorporated by
reference to Exhibit 10.10 to the December 31, 1994 Form 10-K).
10.9 Registration Rights Agreement dated as of August 3. 1994 by and between All American
Communications, Inc. and The Interpublic Group of Companies, Inc. (incorporated by
reference to Exhibit 10.11 to the December 31, 1994 Form 10-K).
10.10 Option Letter, dated August 3, 1994, from The Interpublic Group of Companies, Inc.
and Fremantle International, Inc. to All American Communications, Inc. (incorporated
by reference to Exhibit 10.12 to the December 31, 1994 Form 10-K).
10.11 Exclusive License Agreement dated as of December 15, 1994 between The Baywatch
Nights Production Company and Taurus Film & Co. (confidential treatment granted)
(incorporated by reference to Exhibit 10.13 to the December 31, 1994 Form 10-K).
10.12 Letter Agreement dated as of June 10, 1994 to that certain Outline of Terms dated
May 10, 1991 as amended by that certain letter dated February 16, 1993 by and
between The Baywatch Nights Production Company, on the one hand, and Michael Berk,
Douglas Schwartz and Gregory Bonann, on the other hand (incorporated by reference to
Exhibit 10.2 to the Registrant's September 30, 1994 Form 10-Q (the "September 30,
1994 Form 10-Q").
10.13 Standard Industrial Lease Agreement dated October 31, 1994 between All American
Communications, Inc. and Wilshire Lincoln Properties (incorporated by reference to
Exhibit 10.3 to the September 30, 1994 Form 10-Q).
10.14 Secured Promissory Note dated October 19, 1994 between All American Communications,
Inc. and Thomas Bradshaw (incorporated by reference to Exhibit 10.4 to the September
30, 1994 Form 10-Q).
10.15 Second Modification of Warrant and Warrant Agreement dated as of November 5, 1993
between All American Communications, Inc. and Jefferson Capital Group, Ltd.
(incorporated by reference to Exhibit 10.35.2 to the 1994 Form S-1).
10.16 Office Building Lease dated December 13, 1991 for 5301 Beethoven Street, Los
Angeles, California between All American Television Production, Inc. and Harvey
Capital Corp. (incorporated by reference to Exhibit 10.6 to the 1992 Form S-l).
10.17 Amendment No. 1 dated April 20, 1992, Amendment No. 2 dated September 14, 1993 and
Amendment No. 3 dated March 14, 1994, in each case, to the Office Building Lease
dated December 13, 1991 for 5301 Beethoven Street, Los Angeles, California
(incorporated by reference to Exhibit 10.40.1 to the Registrants Annual Report on
Form 10-K for the year ended December 31, 1993) Amendment No. 4 dated October 11,
1994 and Amendment No. 5 dated November 16, 1994 to the Office Building Lease dated
December 13, 1991 for 5301 Beethoven Street, Los Angeles, California (incorporated
by reference to Exhibit 10.19 to the December 31, 1994 Form 10-K).
10.18 Industrial-Commercial Lease dated May 28, 1991 (and amendment) for 5433 Beethoven
Street, Los Angeles, California between The Baywatch Production Company and Jerome
Cohen, Trustee of the Fannie Delman 1983 Trust et. al. (incorporated by reference to
Exhibit 10.41 to the 1992 Form S-1).
10.19 Modification of Agreement of Sublease, dated as of February 8, 1993, for 875 Third
Avenue, New York, New York between Grey Advertising, Inc. and LBS Communications,
Inc. (incorporated by reference to Exhibit number 10.62 to the December 31, 1992
Form 10-K).
</TABLE>
II-4
<PAGE> 118
<TABLE>
<S> <C>
10.20 Fiscal Agency Agreement dated October 6, 1993, between the Company and BankAmerica
National Trust Company, as Fiscal Agent and Form of Note attached thereto as Exhibit
A (incorporated by reference to the Exhibit 10.69 to Amendment No. 3, dated February
4, 1994 to the 1994 Form S-1).
10.22 Lease, dated as of December 7, 1993, for 1325 Avenue of the Americas between All
American Television, Inc. and 1325 Limited Partnership (incorporated by reference to
the Exhibit 10.13 to the 1994 Form S-1).
10.23 Asset Purchase Agreement dated as of October 6, 1995 between and among Mark Goodson
Productions, L.P., The Child's Play Company, Mark Goodson Productions, LLC, The
Interpublic Group of Companies, Inc., the Co-Executors of the Estate of Mark Goodson
and All American Communications, Inc. (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K dated October 12, 1995 (the "Form 8-K")).
10.24 License Agreement between Mark Goodson Productions, LLC and All American Goodson,
Inc, dated as of October 6, 1995 (incorporated by reference to Exhibit 10.3 to the
Form 8-K).
10.25 Network License Agreement between All American Goodson, Inc. and Interpublic Game
Shows, Inc, dated as of October 6, 1995 (incorporated by reference to Exhibit 10.2
to the Form 8-K).
10.26 Operating Agreement between All American Communications, Inc. and All American
Goodson, Inc. dated as of October 6, 1995 (incorporated by reference to Exhibit 10.5
to the Form 8-K).
10.27 Amended and Restated Operating Agreement among All American Communications, Inc.,
All American Goodson, Inc., The Interpublic Group of Companies, Inc. and Infoplan
International, Inc., dated as of October 6, 1995 (incorporated by reference to
Exhibit 10.6 to the Form 8-K).
10.28 Network Production Agreement between Interpublic Game Shows, Inc. and TPIR LLC,
dated as of October 6, 1995 (incorporated by reference to Exhibit 10.4 to the Form
8-K).
10.29 Option Agreement, dated as of October 6, 1995 by and between All American
Communications, Inc., All American Goodson, Inc., The Interpublic Group of
Companies, Inc. and Infoplan International, Inc.
10.30 Agreement dated as of May 1, 1995 between USA NETWORKS and All American Television.
10.31 Intercreditor Agreement dated as of October 6, 1995 among Chemical Bank, The
Interpublic Group of Companies, Inc., All American Goodson, Inc., All American
Communications, Inc., All American Fremantle II, Inc., All American Television II,
Inc., and Mark Goodson Productions, LLC.
10.32 All American Fremantle II, Inc. Guaranty dated November 20, 1995.
10.33 All American Goodson, Inc. Guaranty dated November 20, 1995.
10.34 All American Television II, Inc. Guaranty dated November 20, 1995.
10.35 General Security Agreement [All American Fremantle II, Inc.] dated as of November
20, 1995.
10.36 General Security Agreement [All American Goodson, Inc.] dated as of November 20,
1995.
10.37 General Security Agreement [All American Television II, Inc.] dated as of November
20, 1995.
10.38 Pledge Agreement dated as of November 20, 1995 by and between All American
Communications, Inc. and The Interpublic Group of Companies, Inc.
10.39 Pledge Agreement dated as of November 20, 1995 by and between All American
Fremantle, Inc. and The Interpublic Group of Companies, Inc.
10.40 Pledge Agreement dated as of November 20, 1995 by and between All American Goodson,
Inc. and The Interpublic Group of Companies, Inc.
10.41 Pledge Agreement dated as of November 20, 1995 by and between All American
Television, Inc. and The Interpublic Group of Companies, Inc.
11 Statement re Computation of Per Share Earnings (incorporated by reference to the
same numbered exhibit to the December 31, 1994 Form 10-K).
11.1 Statement re Computation of Per Share Earnings -- Pro Forma Information, Nine Months
Ended September 30, 1995.
11.2 Statement re Computation of Per Share Earnings -- Pro Forma Information, Year Ended
December 31, 1994.
</TABLE>
II-5
<PAGE> 119
<TABLE>
<S> <C>
11.3 Statement re Computation of Per Share Earnings -- Pro Forma Information, Nine Months
Ended September 30, 1994.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Coopers & Lybrand, LLP.
23.3 Consent of Kaye, Scholer, Fierman, Hays & Handler (included in Exhibit 5.1).
24.1 Power of Attorney (previously filed).
</TABLE>
- ---------------
* Previously filed.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under Securities Act of
1933, as amended (the "Securities Act"), may be permitted as to directors,
officers, and controlling persons of the Registrant pursuant to the provisions
described in Item 15 or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
A. To file during any period in which offers or sales are being made, a
post-effective amendment to the registration statement: (1) to include any
prospectus required by Section 10(a)(3) of the Securities Act; (2) to reflect in
the prospectus any fact or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; (3) to include any material
information with respect to the plan of distribution not previously disclosed in
the registration statement or any material change to such information in the
registration statement.
B. That, for the purpose of determining liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
securities at that time shall be deemed to be the initial bona fide offering
thereof.
C. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
D. That: (1) for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus as filed as
part of the registration statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective, and (2) for the
purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-6
<PAGE> 120
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Amendment No. 2 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Santa Monica, State of California, on December
8, 1995.
ALL AMERICAN COMMUNICATIONS, INC.,
By: /s/ THOMAS BRADSHAW
------------------------------------
Thomas Bradshaw
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ ------------------
<S> <C> <C>
* Chairman of the Board December 8, 1995
- ------------------------------------------ Chief Executive Officer
Anthony J. Scotti (principal executive officer)
/s/ THOMAS BRADSHAW Director, Chief Financial December 8, 1995
- ------------------------------------------ Officer
Thomas Bradshaw and Treasurer
(principal financial officer
and principal accounting
officer)
* Director December 8, 1995
- ------------------------------------------
Eugene P. Beard
* Director December 8, 1995
- ------------------------------------------
Lawrence E. Lamattina
* Director December 8, 1995
- ------------------------------------------
Gordon Luce
* Director December 8, 1995
- ------------------------------------------
R. Timothy O'Donnell
Director
- ------------------------------------------
David A. Mount
* Director December 8, 1995
- ------------------------------------------
Myron I. Roth
* Director December 8, 1995
- ------------------------------------------
Benjamin J. Scotti
* Director December 8, 1995
- ------------------------------------------
Sydney D. Vinnedge
*By: /s/ THOMAS BRADSHAW
-------------------------------------
Thomas Bradshaw
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 121
INDEX TO EXHIBITS
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1.1 Form of Underwriting Agreement.
2.1 Agreement dated as of June 30, 1994 as amended and restated as of August
3, 1994 by and among the Company, Fremantle International, Inc. and The
Interpublic Group of Companies, Inc. (incorporated by reference to
Exhibit 99.2 of the Company's Form 8-K/A dated August 3, 1994).
3.1 Restated Certificate of Incorporation of the Registrant filed on February
25, 1991 with the Secretary of State of the State of Delaware
(incorporated by reference to the same numbered Exhibit to the March 1991
Form 10-Q).
3.2 Restated Bylaws of the Registrant dated February 25, 1991 (incorporated
by reference to the same numbered Exhibit to the March 1991 Form 10-Q).
3.3 Certificate of Designations, Preferences and Relative, Participating,
Optional or Other Special Rights of Series A Convertible Preferred Stock
of the Company filed on February 25, 1991 with the Secretary of State of
the State of Delaware (incorporated by reference to the same numbered
Exhibit to the March 1991 Form 10-Q).
3.4 Certificate of Amendment to Restated Certificate of Incorporation of the
Registrant filed on March 20, 1992 with the Secretary of State of the
State of Delaware (incorporated by reference to the same numbered Exhibit
to the Registrant's Amendment No. I to Form S-1 Registration Statement
filed with the Securities and Exchange Commission on April 3, 1992 (the
"Amendment No. I to Form S-1")).
3.5 Certificate of the Voting Powers, Designations, Preferences, Rights,
Qualifications, Limitations and Restrictions of the Series B Convertible
Preferred Stock of the Company filed on August 2, 1994 with the Secretary
of State of the State of Delaware (incorporated by reference to Exhibit
3.1 to the Registrants' June 30, 1994 Form 10-Q (the "June 30, 1994 Form
10-Q").
4.1 Specimen Certificate for Common Stock (incorporated by reference to the
same numbered Exhibit to the Amendment No. 1 to Form S-l).
4.2 1994 Stock Incentive Plan (incorporated by reference to the same numbered
Exhibit to the June 30, 1994 Form 10-Q).
5.1 Opinion of Kaye, Scholer, Fierman, Hays & Handler.
9.1 Shareholders Voting Agreement dated August 3, 1994 between The
Interpublic Group of Companies, Inc. the Company and certain of the
Companies shareholders (incorporated by reference to the same numbered
Exhibit to the June 30, 1994 Form 10-Q).
9.2 Shareholders Agreement dated as of February 25, 1991 between the Company,
Anthony J. Scotti, Benjamin J. Scotti, Thomas Bradshaw, Myron Roth,
Sydney D. Vinnedge, George Back and Joseph E. Kovacs (incorporated by
reference to the same numbered Exhibit to the December 31, 1990 Form
10-K).
10.1 Employment Agreement dated as of February 25, 1991 between All American
Communications, Inc. and Anthony J. Scotti (incorporated by reference to
the same numbered Exhibit to the December 31, 1990 Form 10-K).
10.1.1 Amendment to Employment Agreement dated as of February 25,1991 between
All American Communications, Inc. and Anthony J. Scotti (incorporated by
reference to the same numbered Exhibit to the Registrant's Form S-1
Registration Statement filed with the Securities and Exchange Commission
on January 27, 1992 as thereafter amended and declared effective on May
7, 1992 (the "1992 Form S-1")).
</TABLE>
<PAGE> 122
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10.1.2 Second Amendment to Employment Agreement dated as of February 25, 1991
between All American Communications, Inc. and Anthony J. Scotti
(incorporated by reference to the same numbered Exhibit to the December
31, 1994 Form 10-K).
10.1.3 Third Amendment dated May 1, 1995 to Employment Agreement dated as of
February 25, 1991 between All American Communications, Inc. and Anthony
J. Scotti (incorporated by reference to the same numbered Exhibit to the
December 31, 1994 Form 10-K).
10.2 Employment Agreement dated as of February 26, 1991 between All American
Communications, Inc. and Myron Roth (incorporated by reference to the
same numbered Exhibit to the December 31, 1990 Form 10-K).
10.2.1 Amendment to Employment Agreement dated as of February 26, 1991 between
All American Communications, Inc. and Myron Roth (incorporated by
reference to the same numbered Exhibit to the 1992 Form S-1).
10.3 Employment Agreement dated as of February 25, 1991 between All American
Communications, Inc. and Thomas Bradshaw (incorporated by reference to
the same numbered Exhibit to the December 31, 1990 Form 10-K).
10.3.1 Amendment to Employment Agreement dated as of February 25, 1991 between
All American Communications, Inc. and Thomas Bradshaw (incorporated by
reference to the same numbered Exhibit to the 1992 Form S-1).
10.4 Employment Agreement dated as of February 25, 1991 between All American
Communications, Inc. and Benjamin J. Scotti (incorporated by reference to
the same numbered Exhibit to the December 31, 1990 Form 10-K).
10.4.1. Amendment to Employment Agreement dated as of February 25, 1991 between
All American Communications, Inc. and Benjamin J. Scotti (incorporated by
reference to the same numbered Exhibit to the 1992 Form S-1).
10.5 Employment Agreement dated as of February 25, 1991 between All American
Communications, Inc. and Sydney Vinnedge (incorporated by reference to
the same numbered to the December 31, 1990 Form 10-K).
10.5.1 Amendment to Employment Agreement dated as of February 25, 1991 between
All American Communications, Inc. and Sydney Vinnedge (incorporated by
reference to the same numbered Exhibit to the 1992 Form S-1).
10.5.2 Second Amendment to Employment Agreement dated as of January 7, 1992
between All American Communications, Inc. and Sydney Vinnedge
(incorporated by reference to the same numbered Exhibit to the Amendment
No. 1 to 1992 Form S-1).
10.6 Employment Agreement, dated as of July 1, 1990, between All American
Television, Inc. and George Back (incorporated by reference to Exhibit
10.1 of the Company's Quarterly Report on Form 10-K for the fiscal
quarter ended June 30, 1990 (the "June 1990 Form 10-K").
10.6.1 Second Amendment to Employment Agreement dated January 7, 1992 between
All American Communications, Inc. and George Back (incorporated by
reference to the same numbered Exhibit to the Amendment No. 1 to Form
S-1).
10.7 Credit, Security, Guaranty and Pledge Agreement, dated as of April 13,
1995 by and among All American Communications, Inc., All American
Fremantle International, Inc., The Baywatch Production Company, The
Baywatch Nights Production Company and Chemical Bank, as agent and
Fronting Bank for the lenders named therein (incorporated by reference to
Exhibit 10.8 of the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995 (the "March 31, 1995 Form 10-Q")).
</TABLE>
<PAGE> 123
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10.7.1 Amendment No. 1 dated as of April 13, 1995 to Credit, Security, Guaranty
and Pledge Agreement, among All American Communications, Inc., All
American Fremantle International, Inc., The Baywatch Production Company,
The Baywatch Nights Production Company, the guarantors named therein, and
Chemical Bank, as Agent and Fronting Bank for the lenders named therein
(incorporated by reference to Exhibit 10.8.1 of the March 31, 1995 Form
10-Q).
10.7.2 Amendment No. 2 dated as of November 13, 1995 to Credit, Security,
Guaranty and Pledge Agreement, among All American Communications, Inc.,
All American Fremantle International, Inc., The Baywatch Production
Company, The Baywatch Nights Production Company, the guarantors named
therein, and Chemical Bank, as Agent and Fronting Bank for the lenders
named therein.*
10.8 Shared Facilities and Services Agreement dated as of August 2, 1994 by
and between All American Communications, Inc. and Fremantle
International, Inc. (incorporated by reference to Exhibit 10.10 to the
December 31, 1994 Form 10-K).
10.9 Registration Rights Agreement dated as of August 3. 1994 by and between
All American Communications, Inc. and The Interpublic Group of Companies,
Inc. (incorporated by reference to Exhibit 10.11 to the December 31, 1994
Form 10-K).
10.10 Option Letter, dated August 3, 1994, from The Interpublic Group of
Companies, Inc. and Fremantle International, Inc. to All American
Communications, Inc. (incorporated by reference to Exhibit 10.12 to the
December 31, 1994 Form 10-K).
10.11 Exclusive License Agreement dated as of December 15, 1994 between The
Baywatch Nights Production Company and Taurus Film & Co. (confidential
treatment granted) (incorporated by reference to Exhibit 10.13 to the
December 31, 1994 Form 10-K).
10.12 Letter Agreement dated as of June 10, 1994 to that certain Outline of
Terms dated May 10, 1991 as amended by that certain letter dated February
16, 1993 by and between The Baywatch Nights Production Company, on the
one hand, and Michael Berk, Douglas Schwartz and Gregory Bonann, on the
other hand (incorporated by reference to Exhibit 10.2 to the Registrant's
September 30, 1994 Form 10-Q (the "September 30, 1994 Form 10-Q").
10.13 Standard Industrial Lease Agreement dated October 31, 1994 between All
American Communications, Inc. and Wilshire Lincoln Properties
(incorporated by reference to Exhibit 10.3 to the September 30, 1994 Form
10-Q).
10.14 Secured Promissory Note dated October 19, 1994 between All American
Communications, Inc. and Thomas Bradshaw (incorporated by reference to
Exhibit 10.4 to the September 30, 1994 Form 10-Q).
10.15 Second Modification of Warrant and Warrant Agreement dated as of November
5, 1993 between All American Communications, Inc. and Jefferson Capital
Group, Ltd. (incorporated by reference to Exhibit 10.35.2 to the 1994
Form S-1).
10.16 Office Building Lease dated December 13, 1991 for 5301 Beethoven Street,
Los Angeles, California between All American Television Production, Inc.
and Harvey Capital Corp. (incorporated by reference to Exhibit 10.6 to
the 1992 Form S-l).
</TABLE>
<PAGE> 124
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10.17 Amendment No. 1 dated April 20, 1992, Amendment No. 2 dated September 14,
1993 and Amendment No. 3 dated March 14, 1994, in each case, to the
Office Building Lease dated December 13, 1991 for 5301 Beethoven Street,
Los Angeles, California (incorporated by reference to Exhibit 10.40.1 to
the Registrants Annual Report on Form 10-K for the year ended December
31, 1993) Amendment No. 4 dated October 11, 1994 and Amendment No. 5
dated November 16, 1994 to the Office Building Lease dated December 13,
1991 for 5301 Beethoven Street, Los Angeles, California (incorporated by
reference to Exhibit 10.19 to the December 31, 1994 Form 10-K).
10.18 Industrial-Commercial Lease dated May 28, 1991 (and amendment) for 5433
Beethoven Street, Los Angeles, California between The Baywatch Production
Company and Jerome Cohen, Trustee of the Fannie Delman 1983 Trust et. al.
(incorporated by reference to Exhibit 10.41 to the 1992 Form S-1).
10.19 Modification of Agreement of Sublease, dated as of February 8, 1993, for
875 Third Avenue, New York, New York between Grey Advertising, Inc. and
LBS Communications, Inc. (incorporated by reference to Exhibit number
10.62 to the December 31, 1992 Form 10-K).
10.20 Fiscal Agency Agreement dated October 6, 1993, between the Company and
BankAmerica National Trust Company, as Fiscal Agent and Form of Note
attached thereto as Exhibit A (incorporated by reference to the Exhibit
10.69 to Amendment No. 3, dated February 4, 1994 to the 1994 Form S-1).
10.22 Lease, dated as of December 7, 1993, for 1325 Avenue of the Americas
between All American Television, Inc. and 1325 Limited Partnership
(incorporated by reference to the Exhibit 10.13 to the 1994 Form S-1).
10.23 Asset Purchase Agreement dated as of October 6, 1995 between and among
Mark Goodson Productions, L.P., The Child's Play Company, Mark Goodson
Productions, LLC, The Interpublic Group of Companies, Inc., the
Co-Executors of the Estate of Mark Goodson and All American
Communications, Inc. (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K dated October 12, 1995 (the "Form
8-K")).
10.24 License Agreement between Mark Goodson Productions, LLC and All American
Goodson, Inc, dated as of October 6, 1995 (incorporated by reference to
Exhibit 10.3 to the Form 8-K).
10.25 Network License Agreement between All American Goodson, Inc. and
Interpublic Game Shows, Inc, dated as of October 6, 1995 (incorporated by
reference to Exhibit 10.2 to the Form 8-K).
10.26 Operating Agreement between All American Communications, Inc. and All
American Goodson, Inc. dated as of October 6, 1995 (incorporated by
reference to Exhibit 10.5 to the Form 8-K).
10.27 Amended and Restated Operating Agreement among All American
Communications, Inc., All American Goodson, Inc., The Interpublic Group
of Companies, Inc. and Infoplan International, Inc., dated as of October
6, 1995 (incorporated by reference to Exhibit 10.6 to the Form 8-K).
10.28 Network Production Agreement between Interpublic Game Shows, Inc. and
TPIR LLC, dated as of October 6, 1995 (incorporated by reference to
Exhibit 10.4 to the Form 8-K).
</TABLE>
<PAGE> 125
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10.29 Option Agreement, dated as of October 6, 1995 by and between All American
Communications, Inc., All American Goodson, Inc., The Interpublic Group
of Companies, Inc. and Infoplan International, Inc.
10.30 Agreement dated as of May 1, 1995 between USA NETWORKS and All American
Television.
10.31 Intercreditor Agreement dated as of October 6, 1995 among Chemical Bank,
The Interpublic Group of Companies, Inc., All American Goodson, Inc., All
American Communications, Inc., All American Fremantle II, Inc., All
American Television II, Inc., and Mark Goodson Productions, LLC.
10.32 All American Fremantle II, Inc. Guaranty dated November 20, 1995.
10.33 All American Goodson, Inc. Guaranty dated November 20, 1995.
10.34 All American Television II, Inc. Guaranty dated November 20, 1995.
10.35 General Security Agreement [All American Fremantle II, Inc.] dated as of
November 20, 1995.
10.36 General Security Agreement [All American Goodson, Inc.] dated as of
November 20, 1995.
10.37 General Security Agreement [All American Television II, Inc.] dated as of
November 20, 1995.
10.38 Pledge Agreement dated November 20, 1995 by and between All American
Communications, Inc. and The Interpublic Group of Companies, Inc.
10.39 Pledge Agreement dated as of November 20, 1995 by and between All
American Fremantle, Inc. and The Interpublic Group of Companies, Inc.
10.40 Pledge Agreement dated as of November 20, 1995 by and between All
American Goodson, Inc. and The Interpublic Group of Companies, Inc.
10.41 Pledge Agreement dated as of November 20, 1995 by and between All
American Television, Inc. and The Interpublic Group of Companies, Inc.
11 Statement re Computation of Per Share Earnings (incorporated by reference
to the same numbered exhibit to the December 31, 1994 Form 10-K).
11.1 Statement re Computation of Per Share Earnings -- Pro Forma Information,
Nine Months Ended September 30, 1995.
11.2 Statement re Computation of Per Share Earnings -- Pro Forma Information,
Year Ended December 31, 1994.
11.3 Statement re Computation of Per Share Earnings -- Pro Forma Information,
Nine Months Ended September 30, 1994.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Coopers & Lybrand, LLP.
23.3 Consent of Kaye, Scholer, Fierman, Hays & Handler (included in Exhibit
5.1).
24.1 Power of Attorney (previously filed).
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
4,000,000 Shares EXHIBIT 1.1
All American Communications, Inc.
Class B Common Stock
UNDERWRITING AGREEMENT
December , 1995
Oppenheimer & Co., Inc.
Arnhold and S. Bleichroeder, Inc.
c/o Oppenheimer & Co., Inc.
Oppenheimer Tower
World Financial Center
New York, New York 10281
As Representatives of the
several Underwriters named in
Schedule I attached hereto.
Ladies and Gentlemen:
All American Communications, Inc., a Delaware corporation (the
"Company"), proposes to sell to you and the other underwriters named in Schedule
I to this Agreement (the "Underwriters"), for whom you are acting as
representatives (the "Representatives"), an aggregate of 4,000,000 shares (the
"Firm Shares") of the Company's Class B common stock, $.0001 par value (the
"Common Stock") which shares are to be issued and sold by the Company. In
addition, certain other stockholders named in Schedule II of this Agreement (the
"Option Selling Stockholders") propose to grant to the Underwriters an option to
purchase up to an additional 600,000 shares (the "Option Shares") of Common
Stock from them for the purpose of covering over-allotments in connection with
the sale of the Firm Shares. The Firm Shares and the Option Shares are together
called the "Shares."
1. Sale and Purchase of the Shares. On the basis of the
representations, warranties and agreements contained in, and subject to the
terms and conditions of, this Agreement:
(a) The Company agrees to sell to each of the Underwriters, and each
of the Underwriters agrees, severally and not jointly, to purchase from the
Company, at $ per share (the "Initial Price"), the number of Firm Shares
set forth opposite the name of such Underwriter in Schedule I to this
Agreement.
<PAGE> 2
(b) The Option Selling Stockholders, severally and not jointly, grant
to the several Underwriters an option to purchase, severally and not
jointly, all or any part of the Option Shares at the Initial Price. The
number of Option Shares to be purchased by each Underwriter shall be the
same percentage (adjusted by the Representatives to eliminate fractions) of
the total number of Option Shares to be purchased by the Underwriters as
such Underwriter is purchasing of the Firm Shares. Such option may be
exercised only to cover over-allotments in the sales of the Firm Shares by
the Underwriters and may be exercised in whole or in part at any time on or
before 12:00 noon, New York City time, on the business day before the Firm
Shares Closing Date (as defined below), and only once thereafter within 30
days after the date of this Agreement, in each case upon written or
telegraphic notice, or verbal or telephonic notice confirmed by written or
telegraphic notice, by the Representatives to the Company no later than
12:00 noon, New York City time, on the business day before the Firm Shares
Closing Date or at least two business days before the Option Shares Closing
Date (as defined below), as the case may be, setting forth the number of
Option Shares to be purchased and the time and date (if other than the Firm
Shares Closing Date) of such purchase which shall be not more than three
business days following the date of the exercise of the option. The Company
agrees that if any Option Selling Stockholder fails to deliver the number
of Option Shares to be purchased by the Underwriters hereunder, then the
Company shall, at the request of the representatives and upon the same
terms and conditions hereof as relate to the sale of the Option Shares by
the Option Selling Stockholders, on the Option Shares Closing Date deliver
to the Underwriters the number of Option Shares that such Option Selling
Stockholder failed to deliver.
2. Delivery and Payment. Delivery by the Company of the Firm Shares
to the Representatives for the respective accounts of the Underwriters, and
payment of the purchase price by certified or official bank check or checks
payable in New York Clearing House (next day) funds to the Company, shall take
place at the offices of Morgan, Lewis & Bockius LLP, 801 South Grand Avenue, Los
Angeles, California, at 7:00 a.m., Los Angeles time, on the third business day
following the date of this Agreement, provided, however, that if the Shares sold
hereunder are priced after 1:30 p.m., Los Angeles time, on any business day,
payment and delivery in respect of the Firm Shares shall take place on the
fourth business day following the date of this Agreement; in either case unless
another time shall be agreed upon by the Company and the Representatives (such
time and date of delivery and payment are called the "Firm Shares Closing
Date").
In the event the option with respect to the Option Shares is
exercised, delivery by the Option Selling Stockholders
-2-
<PAGE> 3
of the Option Shares to the Representatives for the respective accounts of the
Underwriters and payment of the purchase price by certified or official bank
check or checks payable in New York Clearing House (next day) funds to an
Attorney-in-fact named in Section 4(B)(a) hereof shall take place at the offices
of Morgan, Lewis & Bockius LLP specified above at the time and on the date
(which may be the same date as, but in no event shall be earlier than, the Firm
Shares Closing Date) specified in the notice referred to in Section 1(b) (such
time and date of delivery and payment are called the "Option Shares Closing
Date"). The Firm Shares Closing Date and the Option Shares Closing Date are
called, individually, a "Closing Date" and, together, the "Closing Dates."
Certificates evidencing the Shares shall be registered in such names
and shall be in such denominations as the Representatives shall request at least
two full business days before the Firm Shares Closing Date or, in the case of
Option Shares, on the day of notice of exercise of the option as described in
Section 1(b) and shall be made available to the Representatives for checking and
packaging, at such place as is designated by the Representatives, at least one
full business day before the Firm Shares Closing Date (or the Option Shares
Closing Date in the case of the Option Shares).
3. Registration Statement and Prospectus; Public Offering. The
Company has prepared in conformity with the requirements of the Securities Act
of 1933, as amended (the "Securities Act"), and the published rules and
regulations thereunder (the "Rules") adopted by the Securities and Exchange
Commission (the "Commission"), a registration statement on Form S-2 (No.
33-63509), including a preliminary prospectus relating to the Shares, and has
filed with the Commission the Registration Statement and such amendments thereto
as may have been required to the date of this Agreement. Copies of such
Registration Statement (including all amendments thereto) and of the related
preliminary prospectus have heretofore been delivered by the Company to you. The
term "Registration Statement" means the Registration Statement as amended at the
time and on the date it becomes effective (the "Effective Date"), including all
information incorporated by reference therein and all exhibits and information,
if any, deemed to be part of the Registration Statement pursuant to Rule 424(a)
and Rule 430A of the Rules. The term "preliminary prospectus" means any
preliminary prospectus (as described in Rule 430 of the Rules) included at any
time as a part of the Registration Statement, including all information
incorporated by reference therein. The term "Prospectus" means the prospectus,
including all information incorporated by reference therein, in the form first
used to confirm sales of the Shares (whether such prospectus was included in the
Registration Statement at the time of effectiveness or was subsequently filed
with the Commission pursuant to Rule 424(b) of the Rules).
-3-
<PAGE> 4
The Company understands that the Underwriters propose to make a public
offering of the Shares, as set forth in and pursuant to the Prospectus, as soon
after the Effective Date and the date of this Agreement as the Representatives
deem advisable. The Company hereby confirms that the Underwriters and dealers
have been authorized to distribute or cause to be distributed each preliminary
prospectus and are authorized to distribute the Prospectus (as from time to time
amended or supplemented if the Company furnishes amendments or supplements
thereto to the Underwriters).
4. Representations and Warranties of the Company. (A) The Company
hereby represents and warrants to each Underwriter as follows:
(a) On the Effective Date, the Registration Statement complied, and,
on the date of the Prospectus, on the date any post-effective amendment to
the Registration Statement shall become effective, on the date any
supplement or amendment to the Prospectus is filed with the Commission and
on each Closing Date, the Registration Statement and the Prospectus (and
any amendment thereof or supplement thereto) will comply, in all material
respects, with the applicable provisions of the Securities Act and the
Rules and the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules and regulations of the Commission thereunder; the
Registration Statement did not, as of the Effective Date, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading; and on the other dates referred to in this
subparagraph (a) above neither the Registration Statement nor the
Prospectus, nor any amendment thereof or supplement thereto, will contain
any untrue statement of a material fact or will omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein not misleading. When any related preliminary prospectus
was first filed with the Commission (whether filed as part of the
Registration Statement or any amendment thereto or pursuant to Rule 424(a)
of the Rules) and when any amendment thereof or supplement thereto was
first filed with the Commission, such preliminary prospectus as amended or
supplemented complied in all material respects with the applicable
provisions of the Securities Act and the Rules and did not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading. The Company makes no representation or warranty as
to the paragraphs with respect to stabilization and passive market making
on the inside front cover page of the Prospectus and the statements
contained in the third and fourth paragraphs under the caption
"Underwriting" in the Prospectus. The Company and the Option Selling
-4-
<PAGE> 5
Stockholders acknowledge that such statements constitute the only
information furnished in writing by the Representatives on behalf of the
several Underwriters specifically for inclusion in the Registration
Statement, any preliminary prospectus or the Prospectus.
(b) All contracts, documents and other information required to be
filed as exhibits to the Registration Statement have been filed with the
Commission as exhibits to the Registration Statement as so required. The
documents incorporated by reference in the Registration Statement or the
Prospectus, at the time they were or hereafter are filed or last amended,
as the case may be, with the Commission, complied and will comply in all
material respects with the requirements of the Exchange Act, and the rules
and regulations of the Commission thereunder.
(c) The consolidated financial statements of the Company (including
all notes and schedules thereto) included or incorporated by reference in
the Registration Statement and Prospectus comply as to form in all material
respects with the requirements of the Securities Act and the Exchange Act
and fairly present the financial position, the results of operations and
cash flows and the stockholders' equity and the other information purported
to be shown therein of the Company at the respective dates and for the
respective periods to which they apply; and such financial statements have
been prepared in conformity with generally accepted accounting principles,
except as noted therein, consistently applied throughout the periods
involved, and all adjustments necessary for a fair presentation of the
results for such periods have been made; and the other financial and
statistical information and the supporting Schedules included or
incorporated by reference in the Prospectus and in the Registration
Statement present fairly, in all material respects, the information
required to be stated therein.
(d) Ernst & Young LLP, whose reports are filed with the Commission as
a part of the Registration Statement, are and, during the periods covered
by their reports, were independent public accountants as required by the
Securities Act and the Rules.
(e) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware. The
Company has no subsidiary or subsidiaries and does not control, directly or
indirectly, any corporation, partnership, joint venture, association or
other business organization other than All American FDF Holdings, Inc., a
Delaware corporation ("FDF"), Fremantle (Deutschland) Fernseh Produktions,
GmbH, a German corporation ("FFP"), All American Television,
-5-
<PAGE> 6
Inc., a Delaware corporation ("AAT"), The Baywatch Production Company, a
California corporation ("BPC"), The Baywatch Nights Production Company, a
California corporation ("BNP"), LBS Communications, Inc., a New York
corporation ("LBS"), All American Television Production, Inc., a California
corporation ("AATP"), The Malibu Branch Production Company, a California
corporation ("MBP"), Scotti Brothers Entertainment Industries, Inc., a
Delaware corporation ("SBEI"), Santa Monica Sound Recorders , Inc., a
California corporation ("SMSR"), SBSVTV, Inc., a California corporation
("SBSVTV"), Scotti Brothers Records, Inc., a California corporation
("SBR"), All American Fremantle International, Inc., a Delaware corporation
("AAFI"), Fremantle International, Inc., a New York corporation ("FI"), All
American/Fremantle (U.K.) Productions, Ltd., a corporation in the United
Kingdom ("FP"), All American Goodson, Inc., a Delaware corporation ("AAG"),
Mark Goodson Productions, LLC, a New York limited liability company
("MGP"), All American Television II, Inc., a Delaware corporation ("AATII")
and All American Fremantle II, Inc., a Delaware corporation ("AAFII"), each
of which is a wholly-owned direct or indirect subsidiary of the Company
except as described in the Prospectus. The only subsidiaries that are
material to the business, results of operations or financial condition of
the Company are AAT, AAFI, SBEI, BNP, BPC, FFP, AAG, FDF, FP, AAFII and MGP
(collectively, the "Subsidiaries"). Each of the Subsidiaries is a validly
existing corporation in good standing under the laws of its state of
incorporation or organization. The Company and each of the Subsidiaries is
duly qualified to do business as a foreign corporation and in good standing
in each jurisdiction in which the character or location of its assets or
properties (owned, leased or licensed) or the nature of its business makes
such qualification necessary except for such jurisdictions where the
failure to so qualify would not have a material adverse effect on the
assets or properties, business, results of operations or financial
condition of the Company and its Subsidiaries taken as a whole (a "Material
Adverse Effect"). The Company and each of the Subsidiaries has all
requisite corporate power and authority, and all necessary authorizations,
approvals, consents, orders, licenses, certificates and permits of and from
all governmental or regulatory bodies or any other person or entity, to
own, lease and license its assets and properties and conduct its businesses
as now being conducted and as described in the Registration Statement and
the Prospectus; and the Company has all such corporate power and
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<PAGE> 7
authority, and such authorizations, approvals, consents, orders, licenses,
certificates and permits to execute and deliver this Agreement and to
perform its obligations under this Agreement and to issue and sell the
Shares (except as may be required under the Securities Act and state and
foreign Blue Sky laws).
(f) All of the issued and outstanding shares of capital stock of each
subsidiary have been duly authorized and validly issued, and, on the
Closing Date, FDF, AAT, AATP, SBEI, AAP and AAFI will be owned directly by
the Company and FFP will be owned directly by FDF, BPC, BNP, and LBS and
AATII will be owned directly by AAT, MBP will be owned directly by AATP,
SMSR, SBSVTV and SBR will be owned directly by SBEI and FI, AAFII and FP
will be owned directly by AAFI. All shares or other ownership interests in
each Subsidiary owned by the Company or any Subsidiaries are fully paid and
nonassessable, and are owned by the Company or such Subsidiary free and
clear of any security interest, mortgage, pledge, claim, lien, encumbrance
or adverse interest of any nature (each, a "Lien") except as contemplated
by the Credit, Security, Guaranty and Pledge Agreement dated as of April
13, 1995, as amended as of April 13, 1995, and as further amended as of
November 10, 1995, among the Company, the other borrowers named therein,
the other Guarantors named therein, the lender's named therein and Chemical
Bank, as Agent and Chemical Bank as Fronting Bank (as amended, the
"Chemical Bank Loan") and as disclosed in the Prospectus. Excepts as
disclosed in the Registration Statement, there are no outstanding
subscriptions, rights, warrants, options, calls, convertible or
exchangeable securities, commitments of sale, or Liens (except as
contemplated by the Chemical Bank Loan) related to or entitling any person
to purchase or otherwise to acquire any shares of the capital stock of, or
other ownership interests in, any Subsidiary.
(g) The Company and each of the Subsidiaries owns or possesses
adequate and enforceable rights to use each of the trademarks and
copyrights, referred to in the Registration Statement and the Prospectus
and, except as disclosed in the Registration Statement and the Prospectus,
owns or possesses adequate and enforceable rights to use all other patents,
patent applications, trademarks, trademark applications, service marks,
copyrights, copyright applications, licenses performing right, literary,
dramatic, musical, artistic, personal, private or contract right and other
similar rights (collectively, "Intangibles") necessary for the conduct of
its businesses as now being conducted and as described in the Registration
Statement and the Prospectus except where the failure to have any such
right would not singly, or in the aggregate, have a Material Adverse
Effect. Neither the Company nor any Subsidiary has infringed, is
infringing, or
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<PAGE> 8
has received any notice of infringement of, any Intangible of any other
person, that will have a Material Adverse Effect and the Company does not
know of any basis therefor. Except as disclosed in the Prospectus, there is
no claim, suit, action or proceeding pending or, to the best knowledge of
the Company, threatened against the Company or any of its Subsidiaries that
involves a claim of infringement of any Intangibles (except for such claims
as would not, singly or in the aggregate, have a Material Adverse Effect)
and the Company has no knowledge of any existing infringement by any other
person of any Intangible held by the Company or any of the Subsidiaries
that could result in a Material Adverse Effect.
(h) The Company and each of the Subsidiaries has good and marketable
title in fee simple to each of the items of real property and good title to
each of the items of personal property which are reflected in the financial
statements referred to in Section 4(c) (except as disposed of after the
date of such financial statements in the ordinary course of business) or
are referred to in the Registration Statement and the Prospectus as being
owned by it and valid and enforceable leasehold interests in each of the
items of real and personal property which are referred to in the
Registration Statement and the Prospectus as being leased by it, in each
case free and clear of all liens, encumbrances, claims, security interests
and defects, other than those described in the Registration Statement and
the Prospectus and those which do not and will not have a Material Adverse
Effect.
(i) Except as disclosed in the Registration Statement and the
Prospectus, there is no litigation or governmental or other proceeding or
investigation before any court or before or by any public body or board
pending or, to the Company's best knowledge, threatened (and the Company
does not know of any basis therefor) against or involving the assets,
properties or businesses of, the Company or any Subsidiary which if
determined adversely to the Company or any Subsidiary would have a Material
Adverse Effect.
(j) No action has been taken with respect to the Company or any of
its Subsidiaries, and no statute, rule or regulation or order has been
enacted, adopted or issued by any governmental agency which prevents the
issuance of the Shares, suspends the effectiveness of the Registration
Statement, prevents or suspends the use of preliminary prospectuses or
suspends the sale of the Shares in any jurisdiction referred to in Section
6(e) hereof; no injunction, restraining order or order of any nature by a
Federal or state court of competent jurisdiction has been issued with
respect to the Company or any of its Subsidiaries which would prevent the
issuance of the Shares,
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<PAGE> 9
suspend the effectiveness of the Registration Statement, prevent or suspend
the use of preliminary prospectuses or suspend the sale of the Shares in
any jurisdiction referred to in Section 6(e) hereof; no action, suit or
proceeding before any court or arbitrator or any governmental body, agency
or official (domestic or foreign), is pending against or, to the knowledge
of the Company, threatened against, the Company or any of its Subsidiaries
which, if adversely determined, could reasonably be expected to (a)
interfere with or adversely affect the issuance of the Shares, or (b) in
any manner invalidate this Agreement; and every request of the Commission,
or any securities authority or agency of any jurisdiction, for additional
information (to be included in the Registration Statement or the
Prospectuses or otherwise) has been complied with in all material respects
or responded to in a manner the Company believes to be acceptable to the
Commission or such securities authority.
(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as described
therein, there has not been any change in the assets or properties,
business, results of operations, prospects or financial condition of the
Company or any Subsidiary, whether or not arising from transactions in the
ordinary course of business which could have a Material Adverse Effect;
neither the Company nor any Subsidiary has sustained any loss or
interference with its assets, businesses or properties from fire,
explosion, earthquake, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or any court or legislative or other
governmental action, order or decree which could have a Material Adverse
Effect; and since the date of the latest balance sheet included in the
Registration Statement and the Prospectus, except as reflected therein,
neither the Company nor any Subsidiary has undertaken any liability or
obligation, direct or contingent, except (i) for liabilities or obligations
undertaken in the ordinary course of business, (ii) liabilities or
obligations that are not material to the business, operations or financial
condition of the Company and its subsidiaries taken as a whole, and (iii)
as disclosed in the Registration Statement and the Prospectus.
(l) Each agreement listed in the Exhibits to the Registration
Statement is in full force and effect and is valid and enforceable by the
Company or Subsidiary, as the case may be, in accordance with its terms,
assuming the due authorization thereof by each of the other parties
thereto, except (A) as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles. Except as disclosed in the Prospectus, none of the
Company, any
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<PAGE> 10
Subsidiary or to the best of the Company's knowledge, any other party is in
default in the observance or performance of any term or obligation to be
performed by it under any such agreement, and no event has occurred which
with notice or lapse of time or both would constitute such a default, which
default or event would have a Material Adverse Effect. No default exists,
and no event has occurred which with notice or lapse of time or both would
constitute a default, in the due performance and observance of any term,
covenant or condition, by the Company or any Subsidiary of any other
indenture, mortgage, deed of trust, note or any other agreement or
instrument to which the Company or any Subsidiary is a party or by which it
or its properties or businesses may be bound or affected, which default or
event would have a Material Adverse Effect.
(m) Neither the Company nor any Subsidiary is in violation of any
term or provision of its charter or by-laws or of any franchise, license,
permit, judgment, decree, order, statute, rule or regulation, where the
consequences of such violation would have a Material Adverse Effect.
(n) Neither the execution, delivery and performance of this Agreement
by the Company nor the consummation of any of the transactions contemplated
hereby (including, without limitation, the issuance and sale by the Company
of the Shares to be sold by the Company and the Option Selling Stockholders
of the Shares to be sold by them) will give rise to a right to terminate or
accelerate the due date of any payment due under, or conflict with or
result in the breach of any term or provision of, or constitute a default
(or an event which with notice or lapse of time or both would constitute a
default) under, or require any consent or waiver under, or result in the
execution or imposition of any lien, charge or encumbrance upon any
properties or assets of the Company or any Subsidiary pursuant to the terms
of, any indenture, mortgage, deed of trust or other agreement or instrument
to which the Company or any Subsidiary is a party or by which it or any its
properties or businesses is bound, or any franchise, license, permit,
judgment, decree, order, statute, rule or regulation applicable to the
Company or any Subsidiary or violate any provision of the charter or
by-laws of the Company or any Subsidiary, except for such consents or
waivers which have already been obtained in writing and are in full force
and effect, which could have a Material Adverse Effect or prevent the
consummation of any of the transactions contemplated hereby.
(o) The Company has authorized and outstanding capital stock as set
forth under the caption "Capitalization" in the Prospectus. All of the
outstanding shares of Common Stock, including the Shares to be purchased by
the Underwriters
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<PAGE> 11
from the Option Selling Stockholders at the time of sale to the
Underwriters, have been duly and validly issued and are fully paid and
nonassessable and none of them was issued in violation of any preemptive or
other similar right. The Shares, when issued (in the case of Shares to be
sold by the Company) and sold pursuant to this Agreement, will be duly and
validly issued, fully paid and nonassessable and none of them will be
issued in violation of any preemptive or other similar right. Except as
disclosed in the Registration Statement and the Prospectus, there is no
outstanding option, warrant or other right calling for the issuance of, and
no commitment, material plan or arrangement to issue, any share of capital
stock of the Company or any security convertible into, or exercisable or
exchangeable for, such capital stock. The Common Stock and the Shares
conform in all material respects to all statements in relation thereto
contained in the Registration Statement and the Prospectus.
(p) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as described
or referred to therein, neither the Company nor any Subsidiary has (i)
issued any securities or incurred any material liability or obligation,
direct or contingent, for borrowed money, (ii) entered into any material
transaction not in the ordinary course of business or (iii) declared or
paid any dividend or made any distribution on any shares of its capital
stock or redeemed, purchased or otherwise acquired or agreed to redeem,
purchase or otherwise acquire any shares of its capital stock.
(q) Except for the Shares to be sold by the Option Selling
Stockholders, no holder (except as disclosed in writing to the
Representatives) of any security of the Company or any Subsidiary
has any right which has not been waived in writing to have any security
owned by such holder included in the Registration Statement or any right
which has not been waived in writing to demand registration of any security
owned by such holder during the period ending 180 days from this Agreement.
The Company has obtained from all directors and executive officers of the
Company and certain other employee stockholders listed on Schedule III
hereto, who together hold 3,763,765 shares of Common Stock and holders of
options and warrants exercisable for an aggregate of 657,000 shares of
Common Stock (of which 91,300 shares are currently vested), their written
agreement that for a period of at least 180 days from the date of this
Agreement (so long as such persons are employees of the Company) they will
not, without the prior written consent of the Representatives, offer for
sale, sell, distribute, grant any option for the sale of or otherwise
encumber or dispose of, directly or indirectly, or exercise any
registration rights with respect to, any shares of capital stock of the
Company owned by them (other than the Option Shares).
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<PAGE> 12
(r) All necessary corporate action has been duly and validly taken by
the Company to authorize the execution, delivery and performance of this
Agreement and the issuance and sale of the Shares. This Agreement has been
duly and validly executed and delivered by the Company and constitutes and
will constitute the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except (A) as
the enforceability thereof may be limited to bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles and (B)
with respect to this Agreement, to the extent that rights to indemnify or
contribution under this Agreement may be limited by federal and state
securities laws or the public policy underlying such laws.
(s) The Company and each of the Subsidiaries is conducting its
business in compliance with all applicable laws, rules and regulations of
the jurisdictions in which it is conducting business, including, without
limitation, all applicable local, state and federal employment, truth-in-
advertising, franchising, immigration and environmental laws and
regulations, except where the failure to be so in compliance would not have
a Material Adverse Effect.
(t) No transaction has occurred between or among the Company, any
Subsidiary and any of their respective officers or directors or any
affiliate or affiliates of any such officer or director that is required to
be described in and is not described in the Registration Statement and the
Prospectus.
(u) The Company has not taken, nor will it take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of any of the Shares.
(v) The Company has filed all federal, state, local and foreign tax
returns which are required to be filed through the date hereof (except for
state, local or foreign tax returns the failure to file of which would not
have a Material Adverse Effect), or has received extensions thereof, and
has paid all taxes shown on such returns and
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<PAGE> 13
all assessments received by it to the extent that the same are material and
have become due.
(w) Neither the Company nor any of its Subsidiaries has, directly or
indirectly, paid or delivered any fee, commission or other sum of money or
item or property, however characterized, to any finder, agent, government
official or other party, in the United States or any other country, which
is in any manner related to the business or operations of the Company and
its Subsidiaries which the Company knows or has reason to believe to have
been illegal under any Federal, state or local laws of the United States or
any other country having jurisdiction; and neither the Company nor any of
its Subsidiaries has participated, directly or indirectly, in any boycotts
or other similar practices in contravention of law affecting any of its
actual or potential customers.
(x) Neither the Company nor any of its Subsidiaries has any knowledge
of any actionable violation of any Federal, state or local law relating to
employment and employment practices, discrimination in the hiring,
promotion or pay of employees nor any applicable wage or hour laws, nor any
provisions of the Employee Retirement Income Security Act of 1974 ("ERISA")
or the rules and regulations promulgated thereunder. There is (A) no
significant unfair labor practice complaint pending against the Company or
any of its Subsidiaries or, to the best knowledge of the Company,
threatened against either of them, before the National Labor Relations
Board or any state or local labor relations board, and no significant
grievance or significant arbitration proceeding arising out of or under any
collective bargaining agreement is pending against the Company or any of
its Subsidiaries or, to the best knowledge of the Company, threatened
against any of them, (B) no labor strike, dispute, slowdown or stoppage
("Labor Dispute") in which the Company or any of it Subsidiaries is
involved nor, to the best knowledge of the Company, is any Labor Dispute
imminent, other than routine disciplinary and grievance matters, the
Company is not aware of any existing or imminent Labor Dispute by the
employees of any of its principal suppliers, manufacturers or contractors
and (C) no question concerning union representation within the meaning of
the National Labor Relations Act existing with respect to the employees of
the Company or any of its Subsidiaries and, to the best knowledge of the
Company, no union organizing activities are taking place.
(y) Neither the Company nor the Subsidiary is an "investment company"
or a company "controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
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<PAGE> 14
(z) The Company and each of the Subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance
that (1) transactions are executed in accordance with management's general
or specific authorizations; (2) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; AND
(3) access to assets is permitted only in accordance with management's
general or specific authorization.
(aa) The Company's Restated Certificate of Incorporation, in the form
of Exhibit A hereto (the "Amended and Restated Certificate"), is in full
force and effect.
(ab) The Shares have been approved for quotation on the National
Association of Securities Dealers Automated Quotation ("Nasdaq") National
Market, subject to official notice of issuance.
(ac) The Company meets, and on the Effective Date of the Registration
Statement and on each Closing Date will meet, the conditions for use of
Form S-2 under the Securities Act and the Rules.
(ad) The board of directors of the Company does not have any
arrangement, commitment or agreement that, if consummated, would result in
a "Change of Control" as that term is defined in any agreement of the
Company or any Subsidiary.
(ae) The Company has complied with all of the requirements and filed
the required forms as specified in Florida Statutes Section 517.075.
(B) Each Option Selling Stockholder, severally and not jointly,
represents and warrants as to itself only to each Underwriter that:
(a) This Agreement and such Option Selling Stockholders' Custody
Agreement and Power of Attorney (the "Custody Agreement and Power of
Attorney") among such Option Selling Stockholder and Anthony J. Scotti and
Thomas Bradshaw, as attorneys-in-fact (the "Attorneys-in-Fact"),
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<PAGE> 15
and Thomas Bradshaw, as custodian (the "Custodian"), have been duly and
validly executed and delivered by each such selling stockholder and, in the
case of this Agreement, assuming the due execution and delivery of this
Agreement by the other parties hereto, each constitute the legal, valid and
binding obligation of such selling stockholder, enforceable against such
selling stockholder in accordance with their respective terms, except (i)
as the enforceability hereof and thereof may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles and (ii) to
the extent that rights to indemnity or contribution under this Agreement
may be limited by federal and state securities laws or the public policy
underlying such laws. The Attorneys-in-Fact, and each or any of them are
authorized to execute and deliver this Agreement on behalf of such Option
Selling Stockholder to determine the purchase price to be paid by the
Underwriters to such Option Selling Stockholder (subject to any pricing
limitation set forth in the Custody Agreement and Power of Attorney), as
provided in Section 1 hereof, to authorize the delivery of the Shares to be
sold by such Option Selling Stockholder hereunder, to accept payment
therefor, and otherwise to act on behalf of such Option Selling Stockholder
in connection with this Agreement.
(b) At the Option Shares Closing Date, each Option Selling
Stockholder will have valid title to the Shares to be sold by it pursuant
to this Agreement, with the legal right and full power and authority to
enter into this Agreement and to sell, transfer and deliver such Shares
hereunder and, upon the delivery of and payment for such Shares as
contemplated hereby, and assuming that the several Underwriters have taken
delivery of such Shares in good faith and without notice of any adverse
claim, the several Underwriters will receive valid title to its ratable
share of the Shares purchased by it from the Option Selling Stockholder in
each case free and clear of all liens, encumbrances, security interests,
restrictions or claims whatsoever, except for those created or imposed by
the Underwriters.
(c) All information with respect to such Option Selling Stockholder
contained in the Registration Statement and Prospectus is true and correct
in all material respects and does not omit to state any material fact
necessary to make such information not misleading.
(d) Such Option Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or which might reasonably be
expected to cause or result in, or which has constituted or which will
reasonably be expected to constitute, stabilization or manipulation of the
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<PAGE> 16
price of the Common Stock (or any other capital stock of the Company) to
facilitate the sale or resale of any of the Shares, and other than as
permitted by the Securities Act, no Option Selling Stockholder has
distributed and will not distribute any prospectuses or other offering
materials in connection with the offering and sale of the Shares.
(e) All authorizations, approvals and consents necessary for the
execution, delivery and performance of such Option Selling Stockholder of
the Custody Agreement and Power of Attorney, the execution, delivery and
performance by or on behalf of such Option Selling Stockholder of this
Agreement, and the sale and delivery by such Option Selling Stockholder to
the Underwriters of the Shares to be sold by such Option Selling
Stockholder hereunder (other than, at the time of the execution hereof, the
issuance of the order of the Commission declaring the Registration
Statement effective and such authorizations, approvals or consents as may
be necessary under state securities laws) have been obtained and are in
full force and effect; and such Option Selling Stockholder has all
requisite right, power and authority to enter into and perform its
obligations under this Agreement and the Custody Agreement and Power of
Attorney.
(f) Such Option Selling Stockholder hereby repeats and confirms as if
set forth in full herein each of the representations, warranties and
agreements made by such Option Selling Stockholder in the Custody Agreement
and Power of Attorney and agrees that such representations, warranties and
agreements are made hereby for the benefit of, and may be relied upon by,
(i) the Representatives, the Underwriters and Morgan, Lewis & Bockius LLP,
counsel to the Underwriters, (ii) the Company and Kaye, Scholer, Fierman,
Hays & Handler, counsel to the Company, (iii) Schwartzman, Weinstock,
Garelick & Mann, P.C. ("SWGM"), counsel to the Option Selling Stockholders,
(iv) each other Option Selling Stockholder.
(g) The Option Selling Stockholders shall have placed (i) either (A)
shares of the Company's common stock or (B) executed exercise notices
relating to the exercise of existing stock options for shares of the
Company's common stock, together with irrevocable instructions to the
Custodian to exercise such option upon the Representatives exercising the
over-allotment option set forth in Section 1(b) hereof and (ii) executed
copies of an exchange agreement between such Option Selling Stockholder and
the Company, providing for the exchange of such shares of common stock into
shares of Common Stock in custody with the Custodian for the purpose of
effecting delivery to the Underwriters hereunder.
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<PAGE> 17
5. Conditions of the Underwriters' Obligations. The obligations of
the Underwriters under this Agreement are several and not joint. The respective
obligations of the Underwriters to purchase the Shares are subject to each of
the following terms and conditions:
(a) The Registration Statement shall have become effective and the
Prospectus shall have been timely filed with the Commission in accordance
with Section 6(A)(a).
(b) No order preventing or suspending the use of any preliminary
prospectus or the Prospectus shall have been or shall be in effect and no
order suspending the effectiveness of the Registration Statement shall be
in effect and no proceedings for such purpose shall be pending before or
threatened by the Commission, and any requests for additional information
on the part of the Commission (to be included in the Registration Statement
or the Prospectus or otherwise) shall have been complied with to the
satisfaction of the Representatives as evidenced by the effectiveness of
the Registration Statement. No stop order suspending the sale of the Shares
in any jurisdiction shall have been issued and no proceeding for that
purpose shall have been commenced or shall be pending or threatened.
(c) The representations and warranties of the Company and the Option
Selling Stockholders contained in this Agreement and in the certificates
delivered pursuant to Section 5(d) and 5(e) shall be true and correct in
all material respects when made and on and as of each Closing Date as if
made on such date and the Company and the Option Selling Stockholders shall
have performed in all material respects all covenants and agreements and
satisfied all the conditions contained in this Agreement required to be
performed or satisfied by it or them at or before such Closing Date.
(d) The Representatives shall have received on each Closing Date an
Officers' Certificate, addressed to the Representatives and dated such
Closing Date, of the chief executive or chief operating officer and the
chief financial officer or chief accounting officer of the Company, to the
effect that the signers of such certificate have carefully examined the
Registration Statement, the Prospectus and this Agreement and that the
representations and warranties of the Company in this Agreement are true
and correct in all material respects on and as of such Closing Date with
the same effect as if made on such Closing Date (it being understood that
this condition is not intended to change any expressly stated date in any
such representation or warranty) and the Company has performed in all
material respects all covenants and agreements and satisfied all conditions
contained in this Agreement required to be
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<PAGE> 18
performed or satisfied by it at or prior to such Closing Date.
(e) The Representatives shall have received on such Closing Date a
certificate, addressed to the Representatives and dated such Closing Date,
of each Option Selling Stockholder to the effect that such Option Selling
Stockholder has carefully examined the Registration Statement, the
Prospectus and this Agreement and that the representations and warranties
of such Option Selling Stockholder in this Agreement are true and correct
on and as of such Closing Date with the same effect as if made on such
Closing Date and such Option Selling Stockholder has performed all
covenants and agreements and satisfied all conditions contained in this
Agreement required to be performed or satisfied by such Option Selling
Stockholder at or prior to such Closing Date.
(f) (i) The Representatives shall have received at the time this
Agreement is executed and on each Closing Date a letter or letters signed
by Ernst & Young LLP, addressed to the Representatives and dated,
respectively, the date of this Agreement and each such Closing Date, in
form and substance satisfactory to the Representatives, confirming that
they are independent accountants within the meaning of the Securities Act
and the Rules, that the response to Item 10 of the Registration Statement
is correct insofar as it relates to them and stating in effect that:
(A) in their opinion the audited financial statements and
financial statement schedules included and incorporated by reference
in the Registration Statement and the Prospectus and reported on by
them comply as to form in all material respects with the applicable
accounting requirements of the Securities Act and the Rules;
(B) on the basis of a reading of the amounts included in the
Registration Statement and the Prospectus under the headings "Summary
Selected Consolidated Financial Data", "Certain Pro Forma Data",
"Selected Consolidated Financial Data," and "Certain Pro Forma
Information" carrying out certain procedures (but not an examination
in accordance with generally accepted auditing standards) which would
not necessarily reveal matters of significance with respect to the
comments set forth in such letter, a reading of the minutes of the
meetings of the stockholders and directors of the Company, and
inquiries of certain officials of the Company who have responsibility
for financial and accounting matters of the Company as to transactions
and events subsequent to the date of the
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<PAGE> 19
latest audited financial statements, nothing came to their attention
which caused them to believe that:
1. the unaudited financial statements as of and for the
nine months ended September 30, 1995 included in the Registration
Statement (i) do not comply in form in all material respects with
the applicable accounting requirements of the Securities Act and
the Rules and (ii) are not in conformity with generally accepted
accounting principles applied on a basis substantially consistent
with that of the audited financial statements; or
2. (x) with respect to the Company there were, at a
specified date not more than five business days prior to the date
of the letter, any changes in the capital stock, increase in
long-term debt, or any decrease in consolidated net assets or
stockholders' equity of the consolidated companies, as compared
with the amounts shown on the Company's unaudited September 30,
1995 balance sheet included in the Registration Statement, or (y)
for the period from September 30, 1995 to such specified date not
more than five business days prior to the date of the letter,
there were any decrease, as compared with the corresponding
period in the preceding year, in consolidated net revenues or in
the total or per-share amounts of consolidated net income in
which case the Company shall deliver to the Representatives a
letter containing an explanation by the Company as to the
significance thereof unless said explanation is not deemed
necessary by the Representatives or is set forth in or
contemplated by the Registration Statement; and
(C) they have performed certain other procedures as a result of
which they determined that certain information of an accounting,
financial or statistical nature (which is limited to accounting,
financial or statistical information derived from the general
accounting records of the Company) set forth in and incorporated by
reference in the Registration Statement and the Prospectus and
reasonably specified by the Representatives agrees with the accounting
records of the Company, or in analyses prepared by the Company from
its accounting records.
(ii) The Representatives shall have received at the time this
Agreement is executed and on each Closing Date a letter signed by Price
Waterhouse LLP, addressed to the Representatives and dated, respectively,
the date of this
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Agreement and each Closing Date in form and substance satisfactory to the
Representatives.
References to the Registration Statement and the Prospectus in this paragraph
(f) are to such documents as amended and supplemented at the date of the letter.
Notwithstanding the foregoing, any changes noted in item (B)(2) above that are
not material to the business, operation or financial condition of the Company
and its subsidiaries taken as a whole, shall be deemed not to be a failure to
comply with the condition contained in this subsection (f).
(g) The Representatives shall have received on each Closing Date from
(i) Kaye, Scholer, Fierman, Hays & Handler, counsel for the Company, (ii)
Leonard Breijo, Esq., in-house counsel to the Company, and (iii)
________________, foreign counsel to the Company, an opinion, in each case
addressed to the Representatives and dated such Closing Date, substantially
in the form attached hereto as Exhibit B, Exhibit C, and Exhibit D,
respectively.
(h) The Representatives shall have received on the Option Shares
Closing Date from SWGH, counsel for each of the Option Selling
Stockholders, an opinion, addressed to the Representatives and dated such
Closing Date, and stating in effect that:
(A) If not an individual, such Option Selling Stockholder, as
the case may be, has been duly organized, validly existing and in good
standing under the laws of the state of the jurisdiction of its
organization. Such Option Selling Stockholder has all requisite power
and authority (corporate, partnership or otherwise) and all necessary
authorizations, approvals, consents, orders, licenses, certificates
and permits to enter into, deliver and perform this Agreement and the
Custody Agreement and Power of Attorney, and to sell the Shares to be
sold by it hereunder, other than those required under the Securities
Act and state and foreign Blue Sky laws. This Agreement, the Custody
Agreement and Power of Attorney, have each been duly and validly
authorized, executed and delivered by such Option Selling Stockholder
and constitute the legal and valid obligation of such Option Selling
Stockholder.
(B) No consent, approval, authorization or order of any federal
or state court or governmental agency or body is required for the
performance of this Agreement and the Custody Agreement and Power of
Attorney, by such Option Selling Stockholder or the sale of the
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<PAGE> 21
Shares to be sold by such Option Selling Stockholder, except such as
have been or will be obtained under the Securities Act and such as may
be required under state securities or Blue Sky laws in connection with
the purchase and distribution of such Shares by the several
Underwriters (as to which such counsel need express no opinion) and
such as may be required under the rules of the National Association of
Securities Dealers, Inc. with respect to the underwriting arrangements
reflected in this Agreement (as to which such counsel need express no
opinion).
(C) To the best of such counsel's knowledge, there is no
litigation or governmental or other proceeding or investigation before
any court or before or by any public body or board pending or
threatened against, or involving the assets, properties or business of
such Option Selling Stockholder which might have a material adverse
effect upon the ability of such stockholder to perform its obligations
under this Agreement.
(D) Upon delivery by the Option Selling Stockholder to the
several Underwriters of certificates representing the Shares being
sold hereunder by such Option Selling Stockholder and the payment by
the Underwriters of the purchase price therefore, assuming the
Underwriters take delivery of such Shares in good faith and without
notice of any adverse claim, each of the Underwriters will receive
valid title to the ratable share of the Shares purchased by it from
the Option Selling Stockholders in each case, free and clear of any
liens, encumbrances, security interests and claims whatsoever, except
for those created or imposed by the Underwriters.
(E) None of the execution, delivery and performance of this
Agreement, the sale of the Shares by such Option Selling Stockholder,
nor the performance of any of such Option Selling Stockholder's
obligations pursuant to this Agreement will (i) to the best knowledge
of such counsel, conflict with, result in a breach of, or constitute a
default under the terms of any material indenture or other agreement
or instrument to which such Option Selling Stockholder is a party or
bound, or constitute a default under, any applicable statute, rule or
regulation to which such Option Selling Stockholder is subject, or to
which any of the material properties of such Option Selling
Stockholder is subject, or order of any court or governmental agency
or body having jurisdiction over such Option Selling Stockholder or
any of its material properties or (ii) violate any of the provisions
of the charter or
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by-laws of or other organizational documents of such stockholder as in
effect on the date of the opinion (unless such stockholder is an
individual).
Notwithstanding anything herein to the contrary, counsel to
the Option Selling Stockholders shall not be required to opine as to
matters relating to compliance or filings required by any applicable
Federal or state securities laws.
To the extent deemed advisable by such counsel, they may rely as to
matters of fact on certificates of responsible officers of the Company, the
Option Selling Stockholders and public officials and with respect to the opinion
that this Agreement constitutes the legal and valid obligation of each of the
Option Selling Stockholders, counsel not admitted to practice in the State of
New York may assume without any inquiry that the law of the jurisdiction where
such counsel is admitted to practice is identical to the law of State of New
York without regard to conflicts of laws. Copies of such certificates shall be
furnished to the Representatives and counsel for the Underwriters.
(i) All proceedings taken in connection with the sale of the Firm
Shares and the Option Shares as herein contemplated shall be reasonably
satisfactory in form and substance to the Representatives and their counsel
and the Underwriters shall have received from Morgan, Lewis & Bockius LLP a
favorable opinion, addressed to the Representatives and dated such Closing
Date, with respect to the Shares, the Registration Statement and the
Prospectus and such other related matters as the Representatives may
reasonably request, and the Company and the Option Selling Stockholders
shall have furnished to Morgan, Lewis & Bockius LLP such documents as they
may reasonably request for the purpose of enabling them to pass upon such
matters.
(j) The Representatives shall have received on each Closing Date a
certificate, including exhibits thereto, addressed to the Representatives
and dated such Closing Date, of the Secretary or an Assistant Secretary of
the Company, signed in such officer's capacity as such officer, as to the
(i) certificate of incorporation and bylaws of the Company, (ii)
resolutions authorizing the execution and delivery of the Registration
Statement, this Agreement and the performance of the transactions
contemplated by this Agreement, the Registration Statement, the Prospectus
and the offering of the Shares and (iii) incumbency of the person or
persons authorized to execute and deliver the Registration Statement, this
Agreement and any other documents contemplated by the offering of the
Shares.
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<PAGE> 23
(k) The Representatives shall have received on each Closing Date
certificates of the Secretaries of States (or comparable officials) where
the Company and each Subsidiary is incorporated and doing business as to the
good standing of the Company and each Subsidiary, listing all charter
documents on file, qualification of the Company and each Subsidiary to do
business as a foreign corporation, payment of taxes and filing of annual
reports. In addition, the Representatives shall have received copies of all
charter documents of the Company and each Subsidiary certified by the
Secretary of State of the state of incorporation or organization.
(l) The Representatives shall have received on each Closing Date a
certificate, addressed to the Representatives, and dated such Closing Date,
of an executive officer of the Company to the effect that the signer of such
certificate has reviewed and understands the provisions of Section 517.075
of the Florida Statutes, and represents that the Company has complied, and
at all times will comply, with all provisions of Section 517.075 and
further, that as of such Closing Date, neither the Company nor any of its
affiliates does business with the government of Cuba or with any person or
affiliate located in Cuba.
(m) At each Closing Date, the Shares shall have been approved for
quotation on the Nasdaq National Market, subject to official notice of
issuance.
Notwithstanding the foregoing, the respective obligation of the Underwriters to
purchase the Firm Shares shall not be subject to (i) the representations and
warranties and covenants of the Option Selling Stockholder contained in Section
5(c) above, (ii) Section 5(e) above, (iii) Section 5(h) above, and (iv) the
proceeding taken in connection with the sale of the Option Shares as described
in Section 5(i) above.
6. Covenants of the Company and the Selling Stockholders. (A) The
Company, and where specifically stated to be a covenant of the Option Selling
Stockholders, each of the Option Selling Stockholders, covenants and agrees as
follows:
(a) The Company shall prepare the Prospectus in a form approved by the
Representatives and file such Prospectus (or a term sheet as permitted by
Rule 434(b) under the Securities Act) pursuant to Rule 424(b) under the
Securities Act not later than the Commission's close of business on the
second business day following the execution and delivery of this Agreement,
or, if such second business day would be more than fifteen business days
after the Effective Date of the Registration Statement or any post-effective
amendment thereto, such earlier date as would permit such Prospectus to be
filed without filing a post-effective amendment as set
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<PAGE> 24
forth in Rule 430A(a)(3) under the Securities Act, and shall promptly advise
the Representatives (i) when the Registration Statement shall have become
effective, (ii) when any amendment thereof shall have become effective,
(iii) of any request by the Commission for any amendment of the Registration
Statement or the Prospectus or for any additional information, (iv) of the
prevention or suspension of the use of any preliminary prospectus or the
Prospectus or of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the institution or
threatening of any proceeding for that purpose and (v) of the receipt by the
Company of any notification with respect to the suspension of the
qualification of the Shares for sale in any jurisdiction or the initiation
or threatening of any proceeding for such purpose. The Company shall not
file any amendment of the Registration Statement or amendment or supplement
to the Prospectus unless the Company has furnished the Representatives a
copy for its review prior to filing and shall not file any such proposed
amendment or supplement to which the Representatives reasonably object. The
Company shall use its best efforts to prevent the issuance of any such stop
order and, if issued, to obtain as soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Shares is
required to be delivered under the Securities Act and the Rules, any event
occurs as a result of which the Prospectus as then amended or supplemented
would include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it shall be
necessary to amend or supplement the Prospectus to comply with the
Securities Act or the Rules, the Company promptly shall (i) notify the
Representatives and (ii) prepare and file with the Commission, subject to
the second sentence of paragraph (a) of this Section 6(A), an amendment or
supplement which shall correct such statement or omission or an amendment
which shall effect such compliance.
(c) The Company shall make generally available to its security holders
and to the Representatives as soon as practicable, but not later than 45
days after the end of the 12-month period beginning at the end of the fiscal
quarter of the Company during which the Effective Date occurs (or 90 days if
such 12-month period coincides with the Company's fiscal year), an earnings
statement (which need not be audited) of the Company, covering such 12-month
period, which shall satisfy the provisions of Section 11(a) of the
Securities Act or Rule 158 of the Rules.
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<PAGE> 25
(d) The Company shall furnish to the Representatives and counsel for
the Underwriters, without charge, signed copies of the Registration
Statement (including all exhibits thereto and amendments thereof) and to
each other Underwriter a copy of the Registration Statement (without
exhibits thereto) and all amendments thereof and, so long as delivery of a
prospectus by an Underwriter or dealer may be required by the Securities Act
or the Rules, as many copies of any preliminary prospectus and the
Prospectus and any amendments thereof and supplements thereto as the
Representatives may reasonably request.
(e) The Company shall cooperate with the Representatives and their
counsel in endeavoring to qualify the Shares for offer and sale under the
Securities or "Blue Sky" laws of such jurisdictions as the Representatives
may designate and shall maintain such qualifications in effect so long as
required for the initial distribution of the Shares by the Underwriters;
provided, however, that neither the Company nor any Option Selling
Stockholder shall be required in connection therewith to qualify as a
foreign corporation or to execute a general consent to service of process in
any jurisdiction or subject itself to taxation as doing business in any
jurisdiction in which it is not otherwise subject.
(f) For a period of two years after the date of this Agreement,
the Company shall supply to the Representatives, and to each other
Underwriter who may so request in writing, copies of such financial
statements and other periodic and special reports as the Company may from
time to time distribute generally to the holders of any class of its capital
stock and furnish to the Representatives a copy of each annual or other
report it shall be required to file with the Commission.
(g) Without the prior written consent of the Representatives, for a
period of 180 days after the date of this Agreement, neither the Company nor
the Option Selling Stockholders shall issue, offer to sell, sell, distribute
or register with the Commission, or otherwise encumber or dispose of,
directly or indirectly, any equity securities of the Company (or any
securities convertible into, exercisable for or exchangeable for equity
securities of the Company), provided however, that the Company may issue
shares of Common Stock or Class B Common Stock, as the case may be, (i) in
connection with the offering of the Firm Shares and the Option Shares,
(ii) pursuant to any employee benefit plan, (iii) upon conversion of the
Notes (as defined in the Prospectus) or exercise of options or warrants
outstanding on the date hereof, (iv) upon conversion of shares of Common
Stock into Class B Common Stock pursuant to the terms of the Company's
Restated Certificate of Incorporation (following amendment
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<PAGE> 26
to the Company's Restated Certificate of Incorporation as contemplated by
the Prospectus) (v) pursuant to a merger, acquisition or other business
combination in exchange for stock or assets in any such merger, acquisition
or combination or in a private placement to one or more strategic investors
(as determined in good faith by the Company's Board of Directors) or (vi)
pursuant to an existing agreement with a specified individual in an amount
not to exceed 15,000 Shares.
(h) On or before completion of this offering, the Company shall make
all filings required under applicable securities laws and by the Nasdaq
National Market (including any required registrations and filings under the
Exchange Act) in a timely manner.
(i) The Company shall use the proceeds from the sale of the Shares in
the manner described in the Prospectus under the caption "Use of Proceeds."
(j) The Company will use its best efforts to do and perform all things
required to be done and performed under this Agreement by it prior to or
after each Closing Date and to satisfy all conditions precedent to the
delivery of the Shares.
(B) The Company agrees to pay, or reimburse if paid by the Representatives,
whether or not the transactions contemplated hereby are consummated or this
Agreement is terminated, all costs and expenses of the Company and the Option
Selling Stockholders incident to the public offering of the Shares and the
performance of the obligations of the Company and the Option Selling
Stockholders under this Agreement including those relating to (i) the
preparation, printing, filing and distribution of the Registration Statement
including all exhibits thereto, each preliminary prospectus, the Prospectus, all
amendments and supplements to the Registration Statement and the Prospectus, and
the printing, filing and distribution of this Agreement; (ii) the preparation
and delivery of certificates for the Shares to the Underwriters; (iii) the
registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the various jurisdictions referred to in Section
6(A)(e), including the reasonable fees and disbursements of counsel for the
Underwriters in connection with such registration and qualification and the
preparation, printing, distribution and shipment of preliminary and
supplementary Blue Sky memoranda; (iv) the furnishing (including costs of
shipping and mailing) to the Representatives and to the Underwriters of copies
of each preliminary prospectus, the Prospectus and all amendments or supplements
to the Prospectus, and of the several documents required by this Section to be
so furnished, as may be reasonably requested for use in connection with the
offering and sale of the Shares by the Underwriters or by dealers to whom Shares
may be sold; (v) the filing fees of the National Association of Securities
Dealers, Inc. in connection with its review of the
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<PAGE> 27
terms of the public offering; (vi) the furnishing (including costs of shipping
and mailing) to the Representatives and to the Underwriters of copies of all
reports and information required by Section 6(A)(f); and (vii) inclusion of the
Shares for quotation on the Nasdaq National Market.
(C) The Company and each Option Selling Stockholder agrees that it
will pay (i) all fees and expenses of such stockholder's counsel and (ii) all
stock transfer taxes, stamp duties and other similar taxes, if any, payable (A)
upon the sale or delivery of the Shares to be sold by such stockholder to the
Underwriters, (B) upon the purchase by the Underwriters of the Shares to be sold
by such stockholder, or (C) in connection with the consummation by such
stockholder of any of its obligations under this Agreement. The Company and
the Option Selling Stockholders may agree, as among themselves and without
limiting the rights and the Underwriters under this Agreement, as to the payment
of such expenses.
(D) Except as provided in (B) and (C) above, the Underwriters shall
pay their own costs and expenses.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act against
any and all losses, claims, damages, liabilities and expenses, joint or
several (including any reasonable investigation, legal and other expenses
incurred in connection with, and any amount paid in settlement of, any
action, suit or proceeding or any claim asserted), to which they, or any of
them, may become subject under the Securities Act, the Exchange Act or other
federal or state law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto, or arise out of
or are based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that (i) such
indemnity shall not inure to the benefit of any Underwriter (or any person
controlling such Underwriter) on account of any losses, claims, damages,
liabilities or expenses arising from the sale of the Shares to any person by
such Underwriter if such untrue statement or omission or alleged untrue
statement or omission was made in such preliminary prospectus, the
Registration Statement
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or the Prospectus, or such amendment or supplement, in reliance upon and in
conformity with information furnished in writing to the Company by the
Representatives on behalf of any Underwriter specifically for use therein,
and (ii) the Company will not be liable for such losses, claims, damages,
liabilities and expenses suffered by such Underwriter resulting from an
untrue statement or omission or alleged untrue statement or omission that
was contained or made in any preliminary prospectus and that was corrected
in the Prospectus if, and only if, such Underwriter failed to deliver a copy
of the Prospectus to such person with or pursuant to the confirmation of the
sale of the Shares. The Company may agree, as among themselves and without
limiting the rights of the Underwriters under this Agreement, as to their
respective amounts of such liability for which they each shall be
responsible. This indemnity agreement will be in addition to any liability
which the Company may otherwise have.
(b) Each Option Selling Stockholder, severally and not jointly,
agrees to indemnify and hold harmless each Underwriter and each person,
if any, who controls any Underwriter within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act to the same extent
as the foregoing indemnity from the Company to each Underwriter,
with respect to any losses, claims, damages, liabilities and expenses
arising out of or relating to the breach of any representation or warranty
made by such Option Selling Stockholder hereunder.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act, each director of the Company, and each officer of
the Company who signs the Registration Statement, to the same extent as
the foregoing indemnity from the Company to each Underwriter, but only
insofar as such losses, claims, damages or liabilities arise out of or are
based solely upon any untrue statement or omission or alleged untrue
statement or omission which was made in any preliminary prospectus, the
Registration Statement or the Prospectus, or any amendment thereof or
supplement thereto, contained in the last paragraph of the cover page, in
the paragraphs relating to stabilization and passive market making on the
inside front cover page of the Prospectus and the statements with respect to
the public offering of the Shares in paragraphs three and four under the
caption "Underwriting" in the Prospectus; provided, however, that the
obligation of each Underwriter to indemnify the Company (including any
controlling person, director or officer thereof) shall be limited to the net
proceeds received by the Company from such Underwriter.
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<PAGE> 29
(d) Any party that proposes to assert the right to be indemnified
under this Section will, promptly after receipt of notice of commencement of
any action, suit or proceeding against such party in respect of which a
claim is to be made against an indemnifying party or parties under this
Section, notify each such indemnifying party of the commencement of such
action, suit or proceeding, enclosing a copy of all papers served. No
indemnification provided for in Section 7(a) or 7(b) shall be available to
any party who shall fail to give notice as provided in this Section 7(c) if
the party to whom notice was not given was unaware of the proceeding to
which such notice would have related and was prejudiced by the failure to
give such notice, but the omission so to notify such indemnifying party of
any such action, suit or proceeding shall not relieve it from any liability
that it may have to any indemnified party for contribution or otherwise than
under this Section. In case any such action, suit or proceeding shall be
brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled
to participate in, and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election
so to assume the defense thereof and the approval by the indemnified party
of such counsel, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses, except as provided below
and except for the reasonable costs of investigation subsequently incurred
by such indemnified party in connection with the defense thereof. The
indemnified party shall have the right to employ its counsel in any such
action, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the employment of counsel by such
indemnified party has been authorized in writing by the indemnifying
parties, (ii) the indemnified party shall have reasonably concluded that
there may be a conflict of interest between the indemnifying parties and the
indemnified party in the conduct of the defense of such action (in which
case the indemnifying parties shall not have the right to direct the defense
of such action on behalf of the indemnified party) or (iii) the indemnifying
parties shall not have employed counsel to assume the defense of such action
within a reasonable time after notice of the commencement thereof, in each
of which cases the fees and expenses of counsel shall be at the expense of
the indemnifying parties. In no event shall the indemnifying parties be
liable for the expense of more than one separate counsel (in addition to
local counsel) in any one action. An indemnifying party shall not be liable
for any settlement of any action, suit, proceeding or claim effected without
its written consent.
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8. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 7 is due in accordance with its terms but for any reason is held to be
unavailable from the Company or the Underwriters, the Company and the
Underwriters shall contribute to the aggregate losses, claims, damages,
liabilities and expenses (including any investigation, legal and other expenses
reasonably incurred in connection with, and any amount paid in settlement of,
any action, suit or proceeding or any claims asserted, but after deducting any
contribution received by the Company from persons other than the Underwriters,
such as persons who control the Company within the meaning of the Securities
Act, officers of the Company who signed the Registration Statement and directors
of the Company, who may also be liable for contribution) to which the Company
and one or more of the Underwriters may be subject in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Option Selling Stockholders on the one hand and the Underwriters on the other
from the offering of the Shares or, if such allocation is not permitted by
applicable law or indemnification is not available as a result of the
indemnifying party not having received notice as provided in Section 7 hereof,
in such proportion as is appropriate to reflect not only the relative benefits
referred to above but also the relative fault of the Company and the Option
Selling Stockholders on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company the
Option Selling Stockholders and the Underwriters shall be deemed to be in the
same proportion as (x) the total proceeds from the offering (net of underwriting
discount and commissions but before deducting expenses) received by the Company
and the Option Selling Stockholders, as set forth in the table on the cover page
of the Prospectus, bear to (y) the underwriting discount and commissions
received by the Underwriters, as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company and the Underwriters shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact related to information supplied by the
Company, the Option Selling Stockholders or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 8
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above. Notwithstanding
the provisions of this Section 8, in no case shall any Underwriter (except as
may be provided in the Agreement Among Underwriters) be liable or responsible
for any amount in excess of the underwriting discount
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and commissions applicable to the Shares purchased by such Underwriter
hereunder. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section 8, each person, if any, who controls an Underwriter
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act shall have the same rights to contribution as such Underwriter, and
each person, if any, who controls the Company within the meaning of the Section
15 of the Securities Act or Section 20(a) of the Exchange Act, each officer of
the Company who shall have signed the Registration Statement and each director
of the Company shall have the same rights to contribution as the Company subject
in each case to clauses (i), and (ii) in the immediately preceding sentence of
this Section 8. Any party entitled to contribution will, promptly after receipt
of notice of commencement of any action, suit or proceeding against such party
in respect of which a claim for contribution may be made against another party
or parties under this Section, notify such party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
from whom contribution may be sought shall not relieve the party or parties from
whom contribution may be sought from any other obligation it or they may have
hereunder or otherwise than under this Section. No party shall be liable for
contribution with respect to any action, suit, proceeding or claim settled
without its written consent. The Underwriter's obligations to contribute
pursuant to this Section 8 are several in proportion to their respective
underwriting commitments and not joint.
9. Termination. This Agreement may be terminated with respect to the
Shares to be purchased on a Closing Date by the Representatives by notifying the
Company at any time
(a) in the sole discretion of the Representatives at or before any
Closing Date: (i) if on or prior to such date, any domestic or
international event or act or occurrence has materially disrupted, or in the
opinion of the Representatives will in the future materially disrupt, the
securities markets; (ii) if there has occurred any new outbreak or material
escalation of hostilities or other calamity or crisis the effect of which on
the financial markets of the United States is such as to make it, in the
judgment of the Representatives, inadvisable to proceed with the offering;
(iii) if there shall be such a material adverse change in general financial,
political or economic conditions or the effect of international conditions
on the financial markets in the United States is such as to make it, in the
judgment of the Representatives, inadvisable or impracticable to market the
Shares; (iv) if trading in the Shares has been suspended by the Commission
or trading generally on the New York Stock Exchange, Inc.,
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the American Stock Exchange, Inc. or the NASDAQ National Market has been
suspended or limited, or minimum or maximum ranges for prices for securities
shall have been fixed, or maximum ranges for prices for securities have been
required, by said exchanges or by order of the Commission, the National
Association of Securities Dealers, Inc., or any other governmental or
regulatory authority; or (v) if a banking moratorium has been declared by
any state or federal authority, or
(b) at or before any Closing Date, that any of the conditions
specified in Section 5 shall not have been fulfilled when and as required by
this Agreement.
If this Agreement is terminated pursuant to any of its provisions,
neither the Company nor any Option Selling Stockholder shall be under any
liability to any Underwriter, and no Underwriter shall be under any liability to
the Company or any Option Selling Stockholder, except that (y) if this Agreement
is terminated by the Representatives or the Underwriters because of any failure,
refusal or inability on the part of the Company or an Option Selling Stockholder
to comply with the terms or to fulfill any of the conditions of this Agreement,
the Company will reimburse the Underwriters for all out-of-pocket expenses
(including the reasonable fees and disbursements of their counsel) incurred by
them in connection with the proposed purchase and sale of the Shares or in
contemplation of performing their obligations hereunder and (z) no Underwriter
who shall have failed or refused to purchase the Shares agreed to be purchased
by it under this Agreement, without some reason sufficient hereunder to justify
cancellation or termination of its obligations under this Agreement, shall be
relieved of liability to the Company, the Option Selling Stockholders or to the
other Underwriters for damages occasioned by its failure or refusal.
10. Substitution of Underwriters. If one or more of the Underwriters
shall fail (other than for a reason sufficient to justify the cancellation or
termination of this Agreement under Section 9) to purchase on any Closing Date
the Shares agreed to be purchased on such Closing Date by such Underwriter or
Underwriters, the Representatives may find one or more substitute underwriters
to purchase such Shares or make such other arrangements as the Representatives
may deem advisable or one or more of the remaining Underwriters may agree to
purchase such Shares in such proportions as may be approved by the
Representatives, in each case upon the terms set forth in this Agreement. If no
such arrangements have been made by the close of business on the business day
following such Closing Date,
(a) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall not exceed 10% of the Shares that
all the Underwriters are obligated to purchase on such Closing Date, then
each of the
-32-
<PAGE> 33
nondefaulting Underwriters shall be obligated to purchase such Shares on the
terms herein set forth in proportion to their respective obligations
hereunder; provided, that in no event shall the maximum number of Shares
that any Underwriter has agreed to purchase pursuant to Section 1 be
increased pursuant to this Section 10 by more than one-ninth of such number
of Shares without the written consent of such Underwriter, or
(b) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Shares that all
the Underwriters are obligated to purchase on such Closing Date, then the
Company shall be entitled to an additional business day within which it may,
but is not obligated to, find one or more substitute underwriters reasonably
satisfactory to the Representatives to purchase such Shares upon the terms
set forth in this Agreement.
In any such case, either the Representatives or the Company shall
have the right to postpone the applicable Closing Date for a period of not more
than five business days in order that necessary changes and arrangements
(including any necessary amendments or supplements to the Registration Statement
or Prospectus) may be effected by the Representatives and the Company. If the
number of Shares to be purchased on such Closing Date by such defaulting
Underwriter or Underwriters shall exceed 10% of the Shares that all the
Underwriters are obligated to purchase on such Closing Date, and none of the
nondefaulting Underwriters or the Company shall make arrangements pursuant to
this Section within the period stated for the purchase of the Shares that the
defaulting Underwriters agreed to purchase, this Agreement shall terminate with
respect to the Shares to be purchased on such Closing Date without liability on
the part of any nondefaulting Underwriter to the Company, or any Option Selling
Stockholder and without liability on the part of the Company and the Option
Selling Stockholders, except in cases as provided in Sections 6(B), 7, 8 and 9.
The provisions of this Section shall not in any way affect the liability of any
defaulting Underwriter to the Company, the Option Selling Stockholders or the
non defaulting Underwriters arising out of such default. A substitute
underwriter hereunder shall become an Underwriter for all purposes of this
Agreement.
11. Miscellaneous. The respective agreements, representations,
warranties, indemnities and other statements of the Company or its officers, of
the Option Selling Stockholders and of the Underwriters set forth in or made
pursuant to this Agreement shall remain in full force and effect, regardless of
any investigation made by or on behalf of any Underwriter, any Option Selling
Stockholder or the Company or any of the officers, directors or controlling
persons referred to in Sections 7 and 8 hereof, and shall survive delivery of
and payment for the Shares.
-33-
<PAGE> 34
The provisions of Sections 6(B), 7, 8 and 9 shall survive the termination or
cancellation of this Agreement.
This Agreement has been and is made for the benefit of the
Underwriters, the Company and the Option Selling Stockholders and their
respective successors and assigns, and, to the extent expressed herein, for the
benefit of persons controlling any of the Underwriters, the Company or the
Option Selling Stockholders, and directors and officers of the Company and the
Option Selling Stockholders, if any, and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement. The term "successors and assigns" shall not include any
purchaser of Shares from any Underwriter merely because of such purchase.
All notices and communications hereunder shall be in writing and mailed
or delivered or by telephone or telegraph if subsequently confirmed in writing,
as follows:
if to the Representatives:
c/o Oppenheimer & Co., Inc.
Oppenheimer Tower
World Financial Center
New York, New York 10281
Attention: Mark A. Leavitt
if to the Company, to its agent for service as such agent's
address appears on the cover page of the Registration Statement,
if to the Option Selling Stockholders, to the address set forth in
the Custody Agreement and Power of Attorney.
This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
This Agreement may be signed in any number of counterparts, each
of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
-34-
<PAGE> 35
Please confirm that the foregoing correctly sets forth the
agreement among us.
Very truly yours,
ALL AMERICAN COMMUNICATIONS, INC.
By:
------------------------------------
Title: President and
Chief Executive Officer
THE OPTION SELLING STOCKHOLDERS NAMED ON
SCHEDULE II HERETO
By:
------------------------------------
Attorney-in-Fact
Confirmed:
OPPENHEIMER & CO., INC.
ARNHOLD AND S. BLEICHROEDER, INC.
Acting severally on behalf
of itself and as representative
of the several Underwriters
named in Schedule I annexed hereto.
By Oppenheimer & Co., Inc.
By
---------------------------------
Title: Managing Director
-35-
<PAGE> 36
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Firm Shares to
Name Be Purchased
--------------
<S> <C> <C>
1. Oppenheimer & Co. Inc.
2. Arnhold and S. Bleichroeder, Inc.
3. Bear, Stearns & Co., Inc.
4. Donaldson, Lufkin & Jenrette
Securities Corporation
5. Goldman, Sachs & Co.
6. Morgan Stanley & Co. Incorporated
7. Prudential Securities Incorporated
8. Schroder Wertheim & Co. Incorporated
9. Wasserstein Perella Securities Inc.
10. William Blair & Company
11. Crowell, Weedon & Co.
12. Cruttenden Roth Incorporated
13. Dain Bosworth Incorporated
14. Furman Selz Incorporated
15. Gabelli & Company, Inc.
16. Gerard Klauer Mattison & Co.
17. Hoefer & Arnett, Inc.
18. Jefferies & Company
19. Josephthal Lyon & Ross Incorporated
20. Legg Mason Wood Walker, Incorporated
21. McDonald & Company Securities, Inc.
22. Neuberger & Berman
23. Scott & Stringfellow, Inc.
24. The Seidler Companies Incorporated
25. Wheat First Butcher Singer
TOTAL SHARES
</TABLE>
-36-
<PAGE> 37
SCHEDULE II
OPTION SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
Number of Option
Name Shares to be Offered
---- --------------------
<S> <C>
TOTAL 600,000 shares
</TABLE>
-37-
<PAGE> 38
SCHEDULE III
DIRECTORS, OFFICERS AND STOCKHOLDERS
SIGNING LOCKUP AGREEMENT
<TABLE>
<CAPTION>
=========================================================================
Number of Shares Number of Options
Name of Common Stock and Warrants
Subject to Lockup Subject to Lockup
- -------------------------------------------------------------------------
<S> <C> <C>
Anthony J. Scotti 1,495,995 500,000
- -------------------------------------------------------------------------
Benjamin Scotti 1,435,995 20,000
- -------------------------------------------------------------------------
Myron Roth 340,850 100,000
- -------------------------------------------------------------------------
Thomas Bradshaw 315,850 70,000
- -------------------------------------------------------------------------
Sydney D. Vinnedge 141,975 1,200
- -------------------------------------------------------------------------
R. Timothy O'Donnell 33,100 62,500
- -------------------------------------------------------------------------
David A. Mount 0 600
- -------------------------------------------------------------------------
Gordon Luce 0 600
=========================================================================
TOTAL 3,763,765 754,900
=========================================================================
</TABLE>
-38-
<PAGE> 1
EXHIBIT 5.1
"KAYE, SCHOLER, FIERMAN, HAYS & HANDLER LETTERHEAD"
December 7, 1995
All American Communications, Inc.
2114 Pico Boulevard
Santa Monica, California 90405
Re: Shares of Class B Common Stock
of All American Communications, Inc.
Gentlemen:
We have acted as special counsel to All American Communications, Inc.,
a Delaware corporation (the "Company"), in connection with its Registration
Statement on Form S-2, as amended (the "Registration Statement"), filed
pursuant to the Securities Act of 1933, as amended (the "Act"), relating to the
proposed offering by the Company of an aggregate of 4,000,000 shares (the
"Shares") of the Company's Class B Common Stock, par value $.0001 per share
(the "Class B Common Stock").
In that connection, we have reviewed the Restated Certificate of
Incorporation of the Company, as amended, its Restated By-Laws, resolutions of
its Board of Directors and such other documents and records as we have deemed
appropriate.
On the basis of such review and having regard to legal considerations
that we deemed relevant, it is our opinion that the shares have been duly
authorized, and upon issuance, delivery and payment therefor in the manner
contemplated by the Registration Statement, will be validly issued, fully paid
and nonassessable.
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the prospectus included therein. In giving this opinion, we
do not thereby admit that we are within the category of persons whose consent
is required under Section 7 of the Act or the rules and regulations of the
Securities and Exchange Commission.
Very truly yours,
/s/ Kaye, Scholer, Fierman, Hays
& Handler
<PAGE> 1
EXHIBIT 10.29
OPTION AGREEMENT
THIS OPTION AGREEMENT ("this Agreement") is dated as of the
6th day of October 1995 by and between All American Communications, Inc., a
Delaware corporation (the "Optionee") on the one hand and The Interpublic Group
of Companies, Inc. ("Interpublic") and its wholly-owned subsidiary, Infoplan
International, Inc. on the other hand (collectively, "Optionors").
W I T N E S S E T H:
A. WHEREAS, Optionors, Optionee and All American
Goodson, Inc., a Delaware corporation, are parties to an Amended and Restated
Limited Liability Company Operating Agreement of Mark Goodson Productions, LLC
(the "Company") dated as of October 6, 1995 (the "Amended Operating Agreement")
(capitalized terms used herein without definition shall have the respective
meanings set forth in the Amended Operating Agreement);
<PAGE> 2
B. WHEREAS, Optionors will own in the aggregate a 50%
Interest in the Company as of the effective date of the Amended Operating
Agreement;
C. WHEREAS, Optionors desire to grant Optionee an option
to acquire Optionors' Interests in the Company on the terms set forth herein;
NOW THEREFORE, in consideration of the premises, the mutual
promises herein contained and, other good and valuable consideration had and
received, the parties hereto mutually agree as follows:
Section 1. The Option.
1.1 Upon and subject to the terms, conditions and other
provisions hereinafter set forth, Optionors hereby grant to Optionee an
irrevocable option (the "Option") to purchase the Interests of Optionors in the
Company at any time during the Option Period (as hereinafter defined) for a
purchase price of $25.875 million, subject to adjustment as set forth in
Section 1.2 hereof (the "Purchase Price"). The Option Period shall be the
period commencing on April 30, 1996 and ending at 5:00 P.M.,
2
<PAGE> 3
Los Angeles, California time, on October 31, 1996. The Option may be
exercised at any time during the Option Period for all, but not less than all,
of the Optionors' Interests.
1.2 To the extent the Option is exercised during the
Option Period on any date following April 30, 1996, the Purchase Price shall be
increased by a notional amount of $4,794.53 for each date during the Option
Period on which the Option is not exercised up to the Closing Date (as defined
below).
1.3 The Option may be exercised by the Optionee by
delivery to Optionors of an irrevocable notice in writing which shall (i) state
that the Optionee thereby is exercising the Option, and (ii) set forth and
designate a closing date (the "Closing Date"), which shall not be later than
the tenth (10th) business day after such notice is delivered to the Optionors.
Optionee's obligation to purchase the Interests upon any exercise of the Option
shall be subject to (i) the truth and correctness in all material respects of
Optionors' representations and warranties contained in this Agreement on and as
of the Closing Date, (ii) the compliance by Optionors in all material respects
with each covenant and agreement contained in this Agreement
3
<PAGE> 4
required to be performed by Optionors on or prior to the Closing, (iii) the
expiration of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended ("HSR Act"), if any,
with respect to the transaction and (iv) no injunction or restraining
order prohibiting the purchase of the Interests being in effect. Upon request
of Optionee, Optionors shall promptly take all action required to effect all
necessary filings under the HSR Act. Optionor's obligation to sell its
Interests shall be subject to the receipt of a release from the other parties
to the Intercreditor Agreement acknowledging the termination of such agreement
and releasing the Optionors from any liability thereunder.
1.4 Unless the parties hereto agree in writing to a
different time, place and/or date, the Closing shall take place at the
principal offices of Optionee on the Closing Date, which shall be the date
specified in the notice referred to in Section 1.3.
1.5 At the Closing:
1.5.1 The Optionors shall execute and deliver to the
Optionee such bills of sale, assignments, duly executed
4
<PAGE> 5
powers, and other instruments as shall be effective to vest in
such Optionee good, legal and valid title to the Interests free and
clear of all liens, charges, encumbrances and/or equities of any kind
whatsoever (other than liens, charges, encumbrances and/or equities
created solely by actions of Optionee) and shall cause all of their
respective designees to the Board of Directors (or equivalent body) of
All American Television II, Inc., All American Fremantle International
II, Inc. and the Company to resign immediately.
1.5.2 The Optionee shall deliver to Optionors, by wire
transfer of immediately available funds to an account designated
by Optionors two Business Days before the Closing Date, the
Purchase Price to be paid at the Closing by the Optionee.
1.5.3 Upon consummation of the Closing, Optionors shall
cease to be Members of the Company and Optionee shall succeed
to Optionors' membership Interests in the Company and all of their
rights and obligations under the Amended Operating Agreement and,
except as set forth herein, the related letter dated as of October 6,
1995 between the parties (the "Side
5
<PAGE> 6
Letter") shall terminate. Upon the consummation of the Closing,
neither Optionors nor Optionee shall have any rights, benefits,
privileges, liabilities, responsibilities or obligations under
the Side Letter (including, without limitation, with respect to
payments of Service Fees (as defined in the Side Letter) accrued after
the Closing), provided that, the provisions of (i) Section 5 of the
Side letter shall survive with respect to claims brought prior to the
Closing Date, (ii) Section 6 of the Side Letter shall survive with
respect to Service Fees accrued on or prior to the Closing Date and
(iii) Section 8 and the second sentence of Section 14 shall survive in
perpetuity. At such time, the Guarantor Obligations referred to under
the Intercreditor Agreement dated as of October 6, 1995 among the
parties and Chemical Bank as agent shall be deemed to have been
discharged in full, and the Guaranties and Security and Pledge
Agreements contemplated thereby shall be terminated. Notwithstanding
anything to the contrary herein, Interpublic Game Shows, Inc. shall
continue to have its rights and obligations under, and in accordance
with the terms of, the Network License Agreement and the Network
Production Agreement. Each party hereto shall, and shall cause their
respective Affiliates to, take such actions as are reasonably
requested by the other party to effectuate the
6
<PAGE> 7
intent of this Agreement, including entering into an appropriate
amendments to the Amended Operating Agreement, the Intercreditor
Agreement and the documents contemplated thereby.
Section 2. Restriction on Transfer
2.1 The Optionee represents and agrees that the Interests
deliverable to it upon exercise of the Option are being and will be acquired by
it for its own account for investment and without a view to distribution
thereof, except in accordance with law.
2.2 The Optionee represents and agrees that the Option to
which it is entitled pursuant to this Agreement is being acquired by it for its
own account for investment and without a view to distribution thereof, except
in accordance with law.
2.3 The Optionee understands and agrees: (i) that in
reliance upon its representation, the sale of Interests deliverable to it
pursuant to this Agreement may not be registered with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, or the Rules
and Regulations thereunder (such Act and Rules and Regulations being herein
7
<PAGE> 8
collectively called the "Act") and may be delivered to it in reliance upon an
exemption from such registration; (ii) that the Optionee must hold the
Interests so received indefinitely unless such Interests are subsequently
registered under the Act or an exemption from such registration is available
with respect to such Interests.
Section 3. Certain Representations, Warranties and
Covenants.
(A) Optionee represents and warrants to Optionors that (a)
Optionee is a corporation duly incorporated and in good standing under the laws
of the State of Delaware and has the requisite corporate power to enter into
and perform this Agreement; (b) this Agreement has been duly authorized by all
necessary corporate action on the part of Optionee and constitutes a legal,
valid and binding obligation of Optionee, enforceable in accordance with its
terms; (c) Optionee is not subject to or obligated under any provision of (i)
its Restated Certificate of Incorporation or By-Laws, (ii) any contract (other
than any necessary consent under Optionee's credit facility with Chemical Bank,
as agent for the lenders named therein which shall be obtained at or prior to
the Closing), (iii) any license,
8
<PAGE> 9
franchise or permit, or (iv) any order, judgment or decree, which would be
breached or violated by its execution, delivery and performance of this
Agreement and the consummation by it of the transactions contemplated hereby;
and (d) other than in connection with or in compliance with the provisions of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the HSR
Act (if any) and the securities or blue sky laws of the various states, no
authorization, consent or approval of, or filing with, any public body, court
or authority is necessary on the part of Optionee for the consummation by
Optionee of the transactions contemplated by this Agreement.
(B) Optionors represent and warrant to Optionee that (i) each Optionor
is a corporation duly incorporated and in good standing under the laws of its
state of incorporation; (ii) Optionors have full power and authority to enter
into and perform this Agreement; (iii) this Agreement has been duly executed by
Optionors and constitutes a legal, valid and binding obligation of Optionors,
enforceable in accordance with its terms; (iv) Optionors are not subject to or
obligated under any provision of (A) their respective certificates of
incorporation or by-laws, (B) any contract (other than the Intercreditor
Agreement), (C) any license, franchise or permit, or (D) any order, judgment
9
<PAGE> 10
or decree which would be breached or violated by its execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby; (v) other than in connection with or in compliance with
the provisions of the Exchange Act, the HSR Act (if any), and the securities or
blue sky laws of the various states, no authorization, consent or approval of,
or any filing with, any public body or authority is necessary for consummation
by Optionors of the transactions contemplated by this Agreement; (vi) the
Interests are not subject to any lien, encumbrance, security interest, charge,
option or warrant other than pursuant to this Agreement; (vii) when delivered
by Optionors to Optionee upon exercise of the Option, good, legal and valid
title in and to the Optionors' Interests will be vested in Optionee, free and
clear of any claims, liens, encumbrances, security interests and charges of any
nature whatsoever (other than any such claims, liens, encumbrances, security
interests and charges created solely by actions of Optionee); and (viii) the
Interests constitute all of the membership or equity interests over which
Optionors possess beneficial ownership or dispositive or voting power.
(C) Optionors and Optionee agree that the transactions subject to
this Agreement are not subject to the provisions on
10
<PAGE> 11
"Transfers" set forth in Article VI of the Amended Operating Agreement and, to
the extent necessary, this Agreement shall be deemed an amendment to the
Amended Operating Agreement.
Section 4. Notices
Any notice, waiver, demand or other communication required or
permitted by this Agreement must be in writing and shall be deemed to have been
given and received (i) if delivered by messenger: when delivered, or (ii) if
mailed: on the third (3) business day after deposit in the United States mail,
certified or registered postage prepaid, return receipt requested, or (iii) if
telecopied: twenty-four hours after being dispatched by telecopy, but if such
dispatch occurs after the normal business hours of the recipient, then at the
next opening of business of the recipient, and in every case addressed to the
party to be notified at the address or addresses set forth in the Amended
Operating Agreement, or at such other address as the party to be notified from
time to time may notify the other parties mentioned above.
Section 5. Miscellaneous.
11
<PAGE> 12
5.1 If any action is brought to enforce or interpret any
part of this Agreement or any other agreement or instrument provided for herein
or the rights or obligations of any party to this Agreement or such other
agreement or instrument, the prevailing party in such action shall be entitled
to recover as an element of such party's costs of suit, and not as damages, a
reasonable attorney's fee to be fixed by the court. The prevailing party shall
be the party who is entitled to recover its costs or attorney's fees.
5.2 The laws of the State of New York shall govern the
interpretation and effect of this Agreement. Each of the parties hereto
irrevocably waives any objection it may now or hereafter have to the laying of
venue in any such courts and any claim that any action or proceeding brought in
any such courts has been brought in an inconvenient forum.
5.3 The parties agree that the Interests are unique and
irreplaceable; that each of the provisions of this Agreement is necessary to
assure that Optionee will have the full benefit of the Interests as
contemplated hereby; and that any failure of Optionors to deliver the Interests
to Optionee in accordance with
12
<PAGE> 13
this Agreement or to perform Optionors' covenants and agreements herein
contained would not be compensable by the award of money damages alone.
Accordingly, the parties agree that this Agreement is specifically enforceable
by Optionee and Optionors shall not assert or allege otherwise.
5.4 This Agreement and the Option are not assignable by
Optionee without the consent of Optionors and shall be binding upon and inure
to the benefit of the respective successors and permitted assigns of Optionee.
5.5 This Agreement (together with the Amended Operating
Agreement and the documents contemplated thereby) embodies the entire
understanding between the parties hereto with respect to the subject matter
hereof and thereof, supersedes and merges all prior discussions or
communications between them as to the matters covered herein and therein, and
neither the Optionors nor Optionee shall be bound by any conditions, warranties
or representations with respect to the subject matter hereof other than
expressly stated in this Agreement (including Section 1.5.3 hereof) or set
forth in a writing signed by the Optionors and Optionee. This Agreement may be
amended, modified or
13
<PAGE> 14
supplemented only by written instrument signed by the Optionors and the
Optionee. This Agreement may be executed in two or more counterparts,
which shall, in the aggregate, be signed by all parties hereto. Each
counterpart shall be deemed an original instrument as against any party who has
signed it.
5.6 Each party hereto shall cooperate with each other
party and shall take such further action and shall execute and deliver such
further documents as may be necessary or desirable in order to carry out the
provisions and purposes of this Agreement.
14
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the date first above written.
OPTIONORS: OPTIONEE:
THE INTERPUBLIC GROUP OF ALL AMERICAN COMMUNICATIONS,
COMPANIES, INC. INC.
By:_________________________ By:____________________________
Name: Name:
Title: Title:
INFOPLAN INTERNATIONAL, INC.
By:________________________
Name:
Title:
15
<PAGE> 1
[USA NETWORKS LETTERHEAD]
EXHIBIT 10.30
July 13, 1995
All American Television
1325 Avenue of the Americas
New York, New York 10019
Attention: Mr. Rand Stoll
Gentlemen:
Reference is made to an agreement dated as of May 1, 1995 between USA
Networks ("USA") and All American Television ("All American") with respect to
the grant to USA of certain rights in four series of one hour television
programs, including BAYWATCH (the "Agreement"). All defined terms used herein
shall have the same meaning as set forth in the Agreement.
This letter will serve to clarify and amend Section 1(c) of the
Agreement. All American has represented and warranted to USA that David
Hasselhoff is obligated to appear in at least 17 of the 22 Baywatch Episodes
in each of the 5th and 6th television seasons of Baywatch Episodes, if such
seasons are produced. Provided that David Hasselhoff so appears in 17 of the
22 Baywatch Episodes during such season(s) (and also with respect to the
7th television season) as the "leading performer" then USA shall be obligated
to acquire the rights to transmit the Baywatch Episodes produced during such
season pursuant to the terms and conditions set forth in the Agreement. In
the event Hasselhoff does not appear as the "leading performer" in at least
17 of the 22 Baywatch Episodes produced during a season, USA shall not be
obligated to so acquire the right to transmit such season(s) of Baywatch
Episodes, but may elect in its sole discretion, to do so. In the event USA
does not acquire any Baywatch Episodes in a television season in which David
Hasselhoff is not the "leading performer" in at least 17 of the 22 Baywatch
Episodes for such season, All American still may not authorize or permit the
transmission of any such Baywatch Episodes within the Territory during or
prior to the Term other than over the USA Network Service, the Sci Fi Service
or as expressly permitted pursuant to Section 1(b) of the Agreement.
<PAGE> 2
Please acknowledge your acceptance and agreement with the foregoing by
signing all three copies of this letter in the space Accepted and Agreed
provided below. Please then return one fully-executed copy to USA. The other
two copies are for your files.
Very truly yours,
USA NETWORKS
By: /s/ Stephen A. Brenner
-----------------------
ACCEPTED AND AGREED TO:
ALL AMERICAN TELEVISION
By: /s/ John Storrier
-------------------------
<PAGE> 3
AGREEMENT dated as of May 1, 1995 between USA NETWORKS ("USA")'and
ALL-AMERICAN TELEVISION (the "Contractor"), with respect to the grant to USA
of certain rights in four (4) series of one-hour television programs as
follows: (i) BAYWATCH (each, a "Baywatch Episode"), (ii) ACAPULCO HEAT (each,
an "Acapulco Heat Episode"), (iii) SIRENS (each, a "Sirens Episode"), and (iv)
BAYWATCH NIGHTS (each, a "Baywatch Nights Episode"). All the Baywatch
Episodes, Acapulco Heat Episodes, Sirens Episodes and Baywatch Nights Episodes
together shall be referred to herein as the "Episodes" or the "Series." It is
specifically acknowledged by USA hereunder that there are 23 Baywatch hours
previously transmitted over NBC and 11 Sirens episodes previously transmitted
over ABC to which in each case Contractor does not control the distribution
rights. Such episodes shall not be included within the terms, "Baywatch
Episodes," "Sirens Episodes," "Episodes" and/or "Series" pursuant to this
Agreement.
1. The Episodes. (a) Contractor represents and warrants that it
owns and controls the exclusive right to distribute and license all the
Episodes of the Series and that through the 1995-96 television season there
are, or will be, 110 Baywatch Episodes, 22 Acapulco Heat Episodes, 22 Sirens
Episodes, and up to 22 Baywatch Nights Episodes. Baywatch Episodes and
Baywatch Nights Episodes may be produced and transmitted within the Territory
prior to and during the Term, but only in accordance with Sections 1(b) and
1(c) below. Contractor does not control the rights as to the production of
future Acapulco Heat Episodes and/or Sirens Episodes. Subject to such Sections
1(b) and 1(c) below, Contractor hereby grants to USA the exclusive right to
transmit, and authorize the transmission of, the Episodes of the Series, in the
English and Spanish languages, during
1
<PAGE> 4
the Term, within the United States and its territories and possessions
(including Puerto Rico; but USA shall have no Spanish language rights in Puerto
Rico) (the "Territory"). This right shall include, without limitation, the
right to distribute the Episodes to USA's affiliates, which may consist of
CATV, MDS, MMDS, SMATV, MATV, DBS, TVRO and/or similar services, for
transmission by such affiliates. USA (and such affiliates), however, shall
have the right to transmit the Episodes only as part of the USA Network program
service (the "USA Network Service") and/or the Sci-Fi Channel program service
(the "Sci-Fi Service").
(b) During the Term, except as set forth below in this
Section 1(b) and in Section 1(c) below, Contractor shall not transmit or
otherwise authorize the transmission of any Episodes or the Series (or any
promotions or advertisements of any kind or nature for future transmissions of
any Episodes or the Series), by any other means within the Territory,
including, without limitation, over-the-air television networks, over-the-air
television stations, basic or pay cable program services, locally-originated
cable channels or via video on demand. Notwithstanding the foregoing, or
anything else set forth in this Agreement, Contractor shall have the right to
distribute Baywatch Episodes number 67 and thereafter, via continuous,
first-run broadcast syndication within the Territory during the applicable
television season. For purposes of this Agreement, the term "broadcast
syndication" also shall include an over-the-air broadcast network that evolves
from broadcast syndication; but not ABC, CBS, NBC or Fox. However, such
syndicated stations may not transmit such first run Baywatch Episodes more than
two (2) times in a calendar week nor more than six (6) times total, and
in each event only during
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the applicable television season. No station in the syndication may be
"superstation." In addition, and also notwithstanding the foregoing, or
anything else set forth in this Agreement, Contractor shall have the right to
distribute Baywatch Nights Episodes via first run broadcast syndication within
the Territory during the 1995-96 television season. Such syndicated stations
also may not transmit such first run Baywatch Nights Episodes more than two (2)
times in a calendar week nor more than six (6) times total during the 1995-96
television season. No station in such syndication may be a "superstation."
Contractor also shall have the right to distribute the first 110 Baywatch
Episodes via broadcast syndication during the period commencing June 26, 1995
and ending September 19, 1997. However, no station may transmit the Baywatch
Episodes more than one time 2 day, and no station may be a "superstation."
(c) In the event a sixth (6th) season of Baywatch
Episodes is produced for first run broadcast syndication within the Territory
during the 1996-97 television season, and David Hasselhoff remains the
leading performer in the Baywatch Episodes (and in the event Hasselhoff does
not appear in all the Baywatch Episodes, Contractor shall use best efforts to
have any Baywatch Episodes in which he does not appear as the second leading
peformer then USA also shall acquire all of such Baywatch Episodes (up to a
maximum of 22) and the total number of Baywatch Episodes shall increase
to 132. In the event that a seventh (7th) season of Baywatch Episodes is
produced for first run broadcast syndication within the Territory during the
1997-98 television season, and David Hasselhoff remains the leading performer
in the Baywatch Episodes (and in the event Hasselhoff does not appear in all
the Baywatch Episodes,
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Contractor shall use best efforts to have any Baywatch Episodes in which
he does not appear focus as the second leading performer then USA shall
acquire all of such Baywatch Episodes (up to a maximum of 22) under all the
terms and conditions of this Agreement, and the total number of Baywatch
Episodes shall increase to 154. However, USA may not transmit any 7th season
Baywatch Episodes prior to such date in September 1998, which coincides with
the conclusion of the 1997-98 television season. USA shall have no obligation
to acquire any other Baywatch Episodes, but no Baywatch Episodes, whether
licensed hereunder or not, may be transmitted within the Territory during or
prior to the Term other than over the USA Network Service, the Sci-Fi Service
or as expressly permitted pursuant to Section 1(b) above. However, USA
acknowledges that the use of the "Baywatch" name, in and of itself, shall not
mean that episodes or a series are Baywatch Episodes (e.g. Baywatch Nights
Episodes are not Baywatch Episodes).
2. Practices and Standards. USA shall have the right, in its
sole discretion, to edit and/or time compress any of the Episodes, and/or
delete any portion(s) thereof, (a) to ensure that each such Episode meets the
USA Network Service's and/or Sci-Fi Service's program practices and standards,
as the case may be, (b) to ensure that each such Episode meets the commercial
format of the USA Network Service and/or Sci-Fi Service, as the case may be,
and/or (c) to enable USA to insert such commercial advertising, promotional
and/or public service announcements in each such Episode as USA, in its sole
discretion, desires. USA also shall have the right, at its cost, to create its
own Spanish language and/or Spanish subtitled versions of the Episodes. In no
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event, however, shall any credits in any Episode be deleted or changed
(provided they are of customary length), including, without limitation, any
credits of Contractor or copyright notices (but USA may reduce the end credits
and/or copyright notices so that they can, be displayed on a split screen).
3. Term. (a) The initial term of this Agreement as to the
Baywatch Episodes shall commence as of September 22, 1997 and shall end on
September 21, 2000 (the "Baywatch Term"). The initial term of this Agreement
as to the Acapulco Heat Episodes shall commence on a date, on or before
September 30, 1995, to be specified by USA, in its sole discretion, and shall
end on the last day of the Baywatch Term. The initial term of this Agreement
as to the Sirens Episodes shall commence on October 2, 1995 and shall end on
the last day of the Baywatch Term. The initial term of this Agreement as to
the Baywatch Nights Episodes shall commence as of September 23, 1996 and shall
end on the last day of the Baywatch Term. The license periods for all of the
Series shall be referred to together as the "Term."
(b) USA has the option, exercisable by delivery of
written notice to Contractor, on or before January 1, 2000, to extend the Term
for a period of twelve (12) months (USA shall, upon request from the
Contractor, endeavor to give Contractor USA's intention as to whether or not it
will exercise such option, as early as November 1, 1999; but such intention
shall not be binding on USA) In such event, all of the terms and conditions
contained herein shall remain in full force and effect, except that the
additional consideration to be paid to Contractor shall be as set forth in
Section 6(b) below.
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(c) USA has the further option, regardless of whether or
not USA exercises its option pursuant to Section 3(b) above, exercisable, in
the event USA does not exercise such option, by delivery of written notice to
Contractor on or before November 1, 1999, and in the event USA does so exercise
such option, exercisable by delivery of written notice to Contractor, on or
before November 1, 2000, to extend the Term for an additional period of
thirty-six (36) months. In such event, all of the terms and conditions
contained herein shall remain in full force and effect, except that the
additional consideration to be paid to Contractor shall be as set forth in
Section 6(c) below. In the event USA does not exercise its option pursuant to
Section 3(b) above, and does exercise its option hereunder, the Term shall be
extended by thirty-six (36) months only and USA shall have no further rights
pursuant to Section 3(b) above.
(d) In the event Baywatch Nights Episodes are produced
for first run broadcast syndication within the Territory during the 1996-97
television season, then all of USA's rights under this Agreement with respect
to the Baywatch Nights Episodes shall terminate. In such event, Contractor
shall negotiate exclusively with USA with respect to the license of Baywatch
Nights Episodes within the Territory by any means other than continuous,
first-run syndication, for a period of thirty (30) days, commencing on such
date as Contractor and USA shall mutually agree upon, in good faith. In
determining the start date for this period, the parties shall take into account
whether or not future seasons of continuous, first-run syndication Baywatch
Nights Episodes will be produced. In no event shall Contractor negotiate with
any third party with respect to transmission rights to the Baywatch Nights
Episodes within the Territory prior to the end of such exclusive
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negotiation period (other than transmissions permitted pursuant to Section 1(b)
above). In the event that the parties are unable to reach a final agreement
during such period, the Contractor shall, on the last day of such period submit
to USA its final offer in writing (the "Offer"). USA then shall have ten (10)
business days to accept or reject the Offer. If USA rejects the Offer,
Contractor may enter into negotiations with any third party with respect to the
Baywatch Nights Episodes. In the event that Contractor reaches a tentative
agreement pertaining to the Baywatch Nights Episodes with any third party
(other than a broadcast syndicate) on terms and conditions less favorable to
Contractor than those contained in the Offer, then USA shall have a right of
first refusal, exercisable within ten (10) business days following receipt by
USA of written notice detailing the terms of the tentative third-party
agreement, as to any such agreement which Contractor intends to accept. USA
shall have no right of first refusal with respect to any broadcast syndication
agreement. It is understood that USA shall be required to meet only those
terms and conditions contained in the tentative third-party agreement which may
be met as readily by it as by any other party. If USA does not meet such terms
and conditions, Contractor will not enter into an agreement with such third
party on terms and conditions less favorable to it than those contained in the
notice of the tentative third-party agreement without again affording USA a
right of first refusal as above provided.
4. New Episodes. In the event that at any time Contractor ceases
producing new Baywatch Episodes during any television season and either the
producers and creators of the Baywatch Episodes ("BSB") and/or Contractor at
some later time desires to produce new Baywatch Episodes for television
transmission, then Contractor shall so
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notify (or cause BSB to so notify) USA in writing that it (or BSB, as the case
may be) desires to produce such new Baywatch Episodes. The parties then shall
negotiate exclusively with one another for a period of thirty (30) days in an
effort to conclude an agreement related thereto. If the parties are unable to
reach a final agreement during such time period, then USA, on the last day of
such period, shall submit to Contractor (or BSB, as the case may be) its final
offer in writing (the "Offer"). Contractor (or BSB, as the case may be) then
shall have ten (10) days to accept or reject the Offer. If Contractor (or BSB,
as the case may be) rejects the Offer, Contractor and/or BSB shall be free to
negotiate with any third party with respect to the licensing of new Baywatch
Episodes. In the event that Contractor and/or BSB reaches a tentative
agreement pertaining to such new Baywatch Episodes with any such third party
(other than a broadcast syndicate) on terms and conditions less favorable to
Contractor (and/or BSB, as the case may be) than those contained in the Offer,
then USA shall have a right of first refusal, exercisable within ten (10)
business days following receipt by USA of written notice detailing the terms of
the tentative third party agreement, as to any such tentative agreement which
Contractor or BSB, as the case may be, intends to accept. USA shall have no
right of first refusal with respect to any broadcast syndication agreement. It
is understood that USA shall be required to meet only those terms and
conditions contained in such tentative agreement which shall be readily
reducible to a determinable sum of money. If USA does not meet such terms and
conditions, neither Contractor nor BSB will enter into an agreement with such
third party on terms less favorable to it than those contained in the notice of
the tentative third-party agreement without again affording USA a right of
first refusal as above
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provided. In no event may any new Baywatch Episodes produced hereunder be
transmitted within the Territory during the Term other than via broadcast
syndication, and subject to the same limitations set forth in Section 1(b)
above. Contractor represents and warrants that BSB has agreed to the terms and
conditions set forth in this Section 4 to the extent they apply to BSB.
5. Transmissions. (a) USA may transmit each of the Episodes an
unlimited number of times during the Term. Such transmissions, if any, may be
at such times, on such days, and in such order as USA, in its sole discretion,
shall select. Nothing contained herein shall require USA to transmit any
Episode a minimum number of times, or at all.
(b) USA agrees to furnish to Contractor, within ten (10)
days after the end of each month during the Term, a report setting forth the
dates on which, and the number of times, each Episode provided hereunder was
transmitted by USA during such month.
6. Payment. (a) As full and complete consideration for the rights
granted herein, and assuming Contractor has fulfilled all of its material
obligations hereunder, USA shall pay to Contractor the aggregate amount of
Twenty-Five Million Three Hundred Thousand Dollars ($25,300,000). Such
aggregate amount shall be paid by USA to Contractor in thirty-six (36)
consecutive, equal monthly installments, each in the amount of Seven Hundred
Two Thousand Seven Hundred Seventy-Seven Dollars and Seventy-Eight Cents
($702,777.78), on or before the 15th day of each month, commencing with
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a payment due on or before September 15, 1997 and ending with a payment due, on
or before August 15, 2000.
(b) In the event USA acquires additional Baywatch Episodes
from the sixth (6th) season as set forth in Section 1(c) above, USA shall pay
to Contractor the amount of $230,000 for each of such additional Baywatch
Episodes (for a total amount of $5,060,000 if there are 22 such additional
Baywatch Episodes). All amounts to be paid hereunder shall be added to the
payments made pursuant to Section 6(a) above, and paid in accordance with the
same payment schedule.
(c) In the event USA acquires additional Baywatch Episodes
from the seventh (7th) season as set forth in Section 1(c) above, USA shall pay
to Contractor the amount of $153,000 for each of such additional Baywatch
Episodes (for a total amount of $3,366,000 if there are 22 such additional
Baywatch Episodes). All amounts to be paid hereunder shall be added to the
payments made pursuant to Section 6(a) above, but paid over the last 24 months
of such payment schedule.
(d) Subject to Section 6(f) below, in the event USA
exercises its option pursuant to Section 3(b) above, then USA shall pay to
Contractor an amount equal to (i) the number of Baywatch Episodes licensed
hereunder through the sixth season, multiplied by $50,000 plus (ii) the number
of Baywatch Episodes licensed hereunder from the seventh season, if any,
multiplied by $77,000. This total amount shall be paid in twelve (12)
consecutive, equal monthly installments, on or before the 15th day of each
month, commencing with a payment due on or before September 15, 2000 and
ending with a payment due on or before August 15, 2001.
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(e) In the event USA exercises its option pursuant to
Section 3(c) above, in lieu of exercising its option pursuant to Section 3(b)
above, then USA shall pay to Contractor an amount equal to the number of
Baywatch Episodes licensed hereunder, multiplied by $225,000. This total
amount shall be paid in thirty-six (36) consecutive, equal monthly
installments, on or before the 15th day of each month, commencing with a
payment due on or before the 15th day of the first September of such option
period.
(f) In the event USA exercises its option pursuant to
Section 3(c) above in addition to having exercised its option pursuant to
Section 3(b) above, then USA shall pay to Contractor an amount equal to the
number of Baywatch Episodes licensed hereunder, multiplied by $204,000.
The payment schedule shall be the same as set forth in Section 6(e) above.
However, in such event the payments pursuant to Section 6(d) above shall be
adjusted so that USA pays an amount thereunder equal to the number of Baywatch
Episodes licensed thereunder multiplied by $75,000.
7. Delivery. (a) Contractor shall deliver each Episode hereunder to
USA at its executive offices in New York, New York, or at such other location
as USA may reasonably designate. All of the Acapulco Heat Episodes and Sirens
Episodes shall be delivered on or before July 1, 1995. All of the Baywatch
Nights Episodes shall be delivered on or before July 1, 1996. All of the
Baywatch Episodes shall be delivered on or about May 15, 1997; however the
7th-season Baywatch Episodes need not be delivered until on or about May 15,
1998. Each Episode shall be delivered in its original, unedited and uncut
version. Delivery of each Episode shall be at Contractor's sole cost and
expense. Each Episode shall consist of one (1), D-3 videotape, color-balanced,
in
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stereo, fully-titled with audio in perfect synchronization with the
photographic action, with Spanish language commentary on a separate audio
track, if available, meeting the video and audio technical standards of the USA
Network Service and Sci-Fi Service, and complete and suitable in all respects
for the transmissions authorized hereunder. USA shall, promptly after receipt
of each original videotape, reproduce each Episode thereon and promptly return,
at USA's expense, such original videotape to Contractor. USA also shall pay
the cost of each reproduction. In the event that the master videotape of any
Episode delivered hereunder is not of sufficient quality to meet the technical
requirements set forth herein, then USA may reject such videotape without any
penalty and Contractor shall promptly provide a corrected or substitute
videotape to USA. At Contractor's request, at the end of the Term, USA shall
erase or destroy each of the Episodes, and furnish Contractor with a
corresponding certificate of erasure or destruction.
(b) USA may use each Episode, or any excerpt(s) thereof (not
to exceed a total of three (3) minutes in length), for the following purposes:
(i) in perpetuity, for file, reference, audition, sales and publicity purposes,
(ii) prior to and during the Term, to advertise and publicize the particular
Episode or the Series, the USA Network Service and/or the Sci-Fi Service,
and/or the cable industry in general (however, with respect to Baywatch
Episodes, no advertisements or publicity aimed directly at consumers (e.g.
on-air promos) may be transmitted more than 90 days prior to the Baywatch Term),
and/or (iii) during the Term for the transmissions authorized hereunder.
During the Term, USA also may provide Episodes for inclusion in a promotional
cable service put together by TeleCommunications, Inc., entitled TV! None of
the transmissions of Episodes on TV!
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shall count as transmissions permitted pursuant to Section 5 above. However,
as between Contractor and USA, USA shall be liable for any residual or reuse
fees resulting from transmissions of Episodes on TV! USA will not receive any
compensation for supplying any Episodes to TV!
(c) Contractor shall deliver to USA, at no additional
charge, all existing promotional materials, if any, including videotaped
trailers, related to the Episodes and the Series to assist USA in its
exploitation thereof.
(d) Contractor shall reimburse USA, up to $750,000 total,
for all monies spent by USA during the fourth calendar quarter of 1997 to
advertise and promote the Series. As a result thereof, USA may deduct the
amount of $187,500 from each of the first four (4) installment payments to be
made by USA pursuant to Section 6(a) above. In addition, Contractor agrees to
use best efforts to have the regular performers in the Series make promotional
announcements for the Series which specifically refer to their transmission by
USA. At USA's request, Contractor also shall use best efforts to arrange for
such regular performers to make various promotional and press appearances on
behalf of USA.
(e) USA and Contractor agree to coordinate together in good
faith as to the timing and wording of any and all press releases.
8. Commercial Advertising. USA shall have the right to use all the
minutes of commercial advertising time USA reserves in each Episode for such
purposes as USA in its sole discretion, desires. As between Contractor and
USA, USA shall be entitled to retain all revenues derived from its sale or use
of such commercial advertising time.
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9. Representations and Warranties of Contractor. Contractor
represents and warrants that:
(a) Contractor owns or controls the entire and exclusive
distribution and transmission rights in and to each Episode and the Series
throughout the Territory, and has the full legal right, power and authority to
enter into and perform this Agreement and to grant the rights to USA contained
herein, including, without limitation, the right to transmit each Episode and
the Series as herein provided; the Episodes will not have been transmitted by
any means within the Territory prior to the Term other than via first run
broadcast syndication or as otherwise set forth in Section 1(b) above; there is
no outstanding contract, commitment, arrangement or legal impediment of any
kind which is in conflict with this Agreement or which might in any way limit,
restrict or impair the rights granted to USA hereunder; and Contractor, so long
as this Agreement remains in effect, will not grant or purport to grant to any
person rights of any kind in the Episodes or the Series, the exercise of which
will derogate from, or be inconsistent with, the rights granted to USA
hereunder;
(b) The Episodes and the Series licensed herein do not, and
the exercise by USA or by any of USA's affiliates of the rights herein granted
will not, infringe upon the common law rights, or the copyright, or the
literary, dramatic, music, motion picture, or patent rights, or the trademark
or tradename, of any person, and do not and will not violate the private, civil
or property rights, or the right of privacy, of any person,
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(c) The synchronization rights for the music contained in
the Episodes have been or will be obtained by Contractor hereunder and USA shall
have no liability for any payments in connection therewith; in addition,
Contractor represents and warrants that the performing rights for the music
contained in each Episode are (i) controlled by ASCAP, BMI, or SESAC, (ii)
controlled by Contractor, or (iii) in the public domain. USA agrees that, as
between Contractor and USA, in the event any fees are owing to a performing
rights society as set forth in (i) above, USA shall be liable for the payment
of such fees and shall indemnify and hold harmless Contractor against the
payment of any such fees. Contractor shall provide USA with appropriate cue
sheets as to any music included in the Episodes;
(d) In the production and making of each Episode, all
applicable collective bargaining agreements and all applicable rules and
regulations of any unions having jurisdiction in the premises were complied
with; all persons who performed services in or in connection with the Episodes
have received or shall receive full payment with respect thereto and with
respect to the transmission of each Episode provided in this Agreement; and no
fee, compensation or any other payment whatsoever will ever be payable by USA
to any producer, director, actor, writer or any other person who performed
services in or in connection with any Episode or the Series by reason of the
use thereof as provided in this Agreement;
(e) In connection with the Episodes distributed hereunder,
USA, any of USA's affiliates, each sponsor and such sponsor's advertising
agency, and each USA licensee, shall have the right and may grant to others the
right to reproduce, print, publish
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or disseminate in any medium, prior to and during the Term (however, with
respect to Baywatch Episodes, no advertisements or publicity aimed directly at
consumers may be transmitted more than 90 days prior to the Baywatch Term), the
portrait, picture, name, likeness, and voice of, and biographical material
concerning, each person appearing therein and all other persons connected with
the production of any Episode(s), any music, or excerpts thereof (whether
original or recomposed) in any Episode, the title of any Episode or of the
Series, Contractor's name and oral and/or visual portions of any Episode, any
excerpt of the script of any of the Episodes, or any artwork or design created
by or for Contractor in connection with any of the Episodes, as news or
information, for the purposes of trade or for advertising purposes; provided,
however, no direct endorsement by any such person of any product or service
shall be used without such person's consent; and
(f) Contractor shall procure and maintain so long as this
Agreement shall be in effect, at no cost to USA, a policy of television
producer's liability insurance applicable to all transmissions hereunder,
acceptable to USA, in amounts not to be less than $1,000,000/$3,000,000,
insuring USA and any of USA's affiliates against any and all liability covered
by such insurance resulting from the transmission hereunder of the Episodes;
such insurance has standard coverage, including, but not limited to, coverage
with respect to defamation, infringement of rights in material to be carried,
infringement of privacy rights, and the unauthorized use of materials in the
Episodes hereunder; and such policy includes a provision requiring the
insurance company to give USA prompt notice of any revision, modification or
cancellation thereof, Contractor will furnish USA
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with a certificate confirming the issuance of such insurance policy.
10. Representations and Warranties of USA. USA hereby represents
and warrants that it is free to enter into and fully perform the terms and
conditions of this Agreement and it has the full power and authority to do so.
11. Indemnification. (a) Contractor shall at all times indemnify and
hold harmless USA, its parents and affiliated entities, the sponsors of any
Episode or the Series, their respective advertising agencies, and any of USA's
affiliates, from and against any and all claims, damages, liabilities, costs
and expenses, including reasonable counsel fees, arising out of or based upon
any of the following,
(i) the transmission of any Episodes or Series in
accordance with the terms of this Agreement;
(ii) the authorized use of any materials furnished
by Contractor hereunder, or
(iii) any breach by Contractor of any
representation, warranty, or agreement made by Contractor herein.
(b) USA at all times shall indemnify and hold harmless
Contractor, its parents and affiliated entities, from and against any and all
claims, damages, liabilities, costs and expenses, including reasonable counsel
fees, arising out of or based upon any breach by USA of any representation,
warranty, or agreement made by USA herein.
(c) The indemnifications provided in Sections 11(a) and
11(b) above shall be subject to the condition that the party seeking
indemnification shall promptly notify the indemnifying party of any claim or
litigation for which indemnification is sought. The
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indemnifying party may, at its option, assume the defense of any such claim or
litigation. If the indemnifying party assumes the defense of any such claim or
litigation, its obligation with respect thereto shall be limited to holding
the indemnified party harmless from and against any loss, damage or cost caused
by or arising out of any judgment or settlement approved by the indemnifying
party in connection therewith.
(d) The party seeking indemnification shall fully
cooperate with the reasonable requests of the indemnifying party in its
participation in, and control of, any compromise, settlement, litigation or
other resolution or disposition of any such claim or litigation.
12. Force Majeure. If by reason of fire, flood, epidemic,
earthquake, explosion, accident, labor dispute or strike, act of God or a
public enemy, riot or civil disturbance, war (declared or undeclared) or armed
conflict, the failure of satellite, transponder or technical facilities, any
municipal ordinance, any state or federal law, governmental order or
regulation, or any thing or occurrence not within the parties' control (all
such events shall hereinafter be collectively called "Force Majeure Events"),
the delivery or transmission of any of the Baywatch Episodes is materially
hampered, interrupted or interfered with, USA or Contractor, as the case may
be, may suspend the Baywatch Term and/or the Term until such Force Majeure
Event has terminated. If the Baywatch Term and/or the Term is so suspended,
the Baywatch Term and/or the Term, as the case may be, shall be correspondingly
extended; provided, however, if such suspension continues for a period of three
(3) consecutive weeks, USA at any time thereafter during the suspension period,
upon written notice to the other party hereto, may terminate this Agreement.
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However, USA shall remain liable for its payment obligations or be entitled to
a refund of payments previously made, as the case may be, on a pro rata basis
based upon the remaining number of months of the Baywatch Term in relation to
the entire Baywatch Term. For purposes of this Section 12 and as a result of
any other event which may cause USA to receive less than the agreed upon number
of Baywatch Episodes hereunder, or less than the agreed amount of Term for any
Baywatch Episode, in addition to whatever other remedies, if any, USA may have,
any refund USA receives will be based upon the amount of ** per Episode for
the first 132 Baywatch Episodes and the amount of ** for Baywatch
Episodes 133-154.
13. Default. In the event of a material breach by either party
hereto (the "Defaulting Party") of any representation, warranty, agreement,
term, condition or provision of this Agreement, the other party hereto, in
addition to such other rights as it may have, shall have the right to terminate
this Agreement by giving written notice of termination of the Defaulting
Party; provided, however, that within fifteen (15) days following its receipt
of written notification from the other party detailing the nature of such
material breach and its intent to terminate this Agreement, the Defaulting
Party, if possible, may cure such breach and provide written notice thereof to
the other party; and provided, further, however, that Contractor shall have no
right to terminate, this Agreement hereunder unless the material breach
pertains to the Baywatch Episodes.
14. Independent Contractors. The parties hereto expressly agree
that the relationship between them hereunder is that of two principals dealing
with each other as independent contractors subject to the terms and conditions
of this Agreement. At no
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time, past, present or future, shall the relationship of the parties herein be
deemed or intended to constitute an agency, partnership, joint venture, or
collaboration for the purpose of sharing any profits or ownership in common.
Neither party shall have the right, power, or authority at any time to act on
behalf of, or represent, the other party, but each party hereto shall be
separately and entirely liable for its own debts in all respects.
15. Assignment. Contractor shall not assign its rights or
obligations under this Agreement to any third party without the prior written
consent of USA. However, no consent shall be required for any change in
ownership of Contractor or with respect to a sale of substantially all of
Contractor's assets, so long as the acquiring entity agrees to be bound by all
the terms and conditions of this Agreement
16. Notices. Any and all notices, communications, and demands
required or desired to be given hereunder by either party hereto shall be in
writing and shall be validly given or made if served personally, by telecopy,
by an overnight delivery service or if deposited in the United States mail,
certified or registered, postage prepaid, return receipt requested. If such
notice or demand is served personally or by telecopy, service shall be
conclusively deemed made on the same day (or if such day is not a business day,
then the next business day); if by an overnight delivery service, on the next
business day; and if by registered or certified mail in the manner above
provided on the second subsequent business day. To be effective, any service
hereunder shall be to the addresses set forth below:
CONTRACTOR: ALL AMERICAN TELEVISION
1325 Avenue of the Americas
New York, New York 10019
Attn: Mr. Rand Stoll
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<PAGE> 23
USA: USA NETWORKS
1230 Avenue of the Americas
New York, New York 10020
Attn: Executive Vice President-
Business Affairs, Operations
and General Counsel
Copy to: USA NETWORKS
2049 Century Park East
Suite 2550
Los Angeles, California 90067
Attn: Executive Vice President-Programming
Either party hereto may change its address for the purpose of receiving notices
or demands as herein provided by written notice given in the manner aforesaid
to the other party hereto, which notice of change of address shall not become
effective, however, until the actual receipt thereof by the other party.
17. New York Law. This Agreement shall be construed, interpreted
and enforced in accordance with and shall be governed by the laws of the State
of New York applicable to agreements entered into and wholly to be performed
therein.
18. Confidentiality. USA and Contractor each represents and
warrants that it shall not disclose to any third party (other than its
employees, in their capacity as such) any information with respect to the
financial terms and provisions of this Agreement except (a) to the extent
necessary to comply with the requirements of any guilds or unions, (b) to the
extent necessary to comply with law or the valid order of a court of competent
jurisdiction, in which event the party so complying shall so notify the other
party as promptly as practicable (and, if possible, prior to making any
disclosure) and shall seek confidential treatment of such information, (c) as
part of its normal reporting or review procedure to its parent company, its
auditors or its attorneys (and, in the case
21
<PAGE> 24
of Contractor, its financial advisors, third-party financiers or any other
party to which Contractor is required by agreement to disclose such
information), and USA or Contractor, as the case may be, shall advise such
third parties to keep such information confidential or (d) in order to enforce
its rights pursuant to this Agreement.
19. Miscellaneous. (a) This Agreement sets forth the entire
agreement and understanding of the parties relating to the subject matter
hereof, and supersedes all prior agreements, arrangements and understandings
relating to the subject matter hereof.
(b) Any provision herein found by a court of law to be void
or unenforceable shall not affect the validity or enforceability of any other
provision of this Agreement.
(c) Each party hereto shall execute any and all further
documents which either party hereto may deem necessary and proper to carry out
the purposes of this Agreement.
(d) The construction of this Agreement shall not be
construed against the party causing its preparation, but shall be construed
as if both parties prepared this Agreement.
(e) All captions contained herein are for convenience of
reference only.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
ALL AMERICAN TELEVISION USA NETWORKS
By: /s/ John Storrier By: /s/ Stephen A. Brenner
------------------------ -----------------------
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<PAGE> 1
EXHIBIT 10.31
INTERCREDITOR AGREEMENT dated as of
October 6, 1995 among (i) CHEMICAL BANK as
Agent, (ii) THE INTERPUBLIC GROUP OF
COMPANIES, INC. ("IPG"), (iii) ALL AMERICAN
GOODSON, INC., a wholly owned subsidiary of
All American Communications Inc. ("AAG"),
(iv) ALL AMERICAN COMMUNICATIONS, INC.
("AACI"), (v) ALL AMERICAN FREMANTLE II,
INC., a wholly owned subsidiary of All
American Fremantle, Inc. ("AAFII"), (vi) ALL
AMERICAN TELEVISION II, INC., a wholly owned
subsidiary of All American Television Inc.
("AATII"), and (vi) MARK GOODSON PRODUCTIONS,
LLC (the "LLC").
INTRODUCTORY STATEMENT
WHEREAS, LLC, IPG and certain other parties have entered into
an Asset Purchase Agreement dated as of October 6, 1995 (the "Asset Purchase
Agreement") with Mark Goodson Productions, L.P. and The Child's Play Company
(collectively "Sellers") pursuant to which LLC and IPG will purchase certain of
the assets and the LLC will assume certain liabilities of the Sellers; and
WHEREAS, AACI, AAG, IPG and Infoplan International, Inc.
("Infoplan") have entered into an Amended and Restated Operating Agreement (the
"Operating Agreement") dated as of October 6, 1995 in connection with the
operations of LLC which Operating Agreement shall become effective immediately
after the Final Closing (as defined in the Asset Purchase Agreement); and
WHEREAS, each of AAG, AAFII and AATII (collectively, the
"Guarantors") contemplates executing a Guaranty (the "Guaranty") in favor of
IPG guaranteeing the Guarantor Obligations (as hereinafter defined), which
Guaranty shall be in form and substance reasonably acceptable to the Agent (as
hereinafter defined); and
WHEREAS, each of the Guarantors contemplates entering into a
Security Agreement (the "Security Agreement") in connection with the Guaranty
wherein their obligations under the Guaranty will be secured by a security
interest in the IPG Collateral (as hereinafter defined) subordinated to the
Agent on the terms and conditions hereinafter set forth, which Security
Agreement shall be in form and substance reasonably acceptable to the Agent;
and
WHEREAS, each of AACI, All American Television, Inc. ("AAT")
and All American Fremantle International Inc. ("AAF")
<PAGE> 2
contemplates entering into a Pledge (the "Pledge Agreement") in favor of IPG
wherein AACI, AAT and AAF will each pledge its right, title and interest in the
Pledged Stock (as hereinafter defined) to IPG in connection with the Guarantor
Obligations, which Pledge Agreement shall be in form and substance reasonably
acceptable to the Agent; and
WHEREAS, pursuant to the Credit, Security, Guaranty and Pledge
Agreement dated as of April 13, 1995, as amended and as may from time to time
be amended (subject to Section 17(d) hereof) (the "Chemical Agreement") among
AAG, AACI, and certain of their affiliates, the Lenders named therein and
Chemical Bank as Agent for the Lenders, the Lenders have agreed to issue a
letter of credit (the "Letter of Credit") subject to the terms and conditions
of, the Chemical Agreement; and
WHEREAS, each of the Guarantors has granted to the Agent a
security interest in the Tranche E Collateral (as hereinafter defined) as
security for its Chemical Obligations (as hereinafter defined); and
WHEREAS, the execution of this Intercreditor Agreement is
required both by the terms of the Operating Agreement and in order to induce
the Lenders to consent to the issuance of the Letter of Credit and the
transactions contemplated by the Operating Agreement and the Asset Purchase
Agreement; and
WHEREAS, the parties hereto desire to enter into this
Intercreditor Agreement with respect to the exercise of certain rights,
remedies and options by the respective parties under the aforementioned
documents.
Therefore, for good and valuable consideration, receipt of
which is hereby acknowledged by the parties, the parties hereto agree as
follows:
Section 1. Definitions. The following terms as used herein
shall have the following meanings:
"AAG Expense Account" shall mean the account established by
AAG with the Agent, into which the Expense Funds shall be deposited.
"AAG Funds" shall mean monies received by AAG pursuant to the
License Agreements or otherwise, including, without limitation AAG's
distribution fees but excluding Expense Funds deposited in the Expense Account
and LLC Funds deposited in the LLC Funds Account.
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<PAGE> 3
"AAG Funds Account" shall mean the account established by AAG
with the Agent designated as the "All American Goodson AAG Funds Account",
Account No. 323-208118.
"Agent" shall mean Chemical Bank, acting on its own behalf and
as agent to the Lenders.
"All American Members" shall be as defined in the Operating
Agreement.
"Allocation Certificate" shall mean a certificate of an
Authorized Officer of AAG substantially in the form attached hereto as Exhibit
A or such other form as may be satisfactory to the Agent and IPG.
"Asset Purchase Agreement" shall be as defined in the
Introductory Statement.
"Authorized Officer" shall mean with respect to any
corporation, the Chief Executive Officer, the Chief Financial Officer, the
Controller or the Vice President-Finance.
"Business Day" shall mean any day other than a Saturday,
Sunday or other day in which Lenders are permitted to close in the State of New
York.
"Cash Collateral Accounts" shall mean the AAG Expense Account,
the AAG Funds Account and the LLC Funds Account.
"Chemical Agreement" shall be as defined in the Introductory
Statement.
"Chemical Obligations" shall mean the Obligations of such
Person to the Agent and the Lenders pursuant to the terms of the Chemical
Agreement, the notes and other documents contemplated thereby.
"Credit Obligations" shall mean the Chemical Obligations of
the Guarantors excluding therefrom the Senior Obligations of the Guarantors.
"Determination Date" shall mean the last Business Day of each
month.
"Dividend Distribution" shall mean the Special Distribution to
Interpublic due pursuant to Section 5.3(b)(i)(B), 5.3(b)(ii)(B) or
5.3(b)(iii)(A) of the Operating Agreement.
"Earn-Out Payment" shall mean Earn-Out Payments (as defined in
the Asset Purchase Agreement) due under Section 3.8(c)(i) of the Asset Purchase
Agreement.
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<PAGE> 4
"Escrow Agreement" shall mean the Escrow Agreement dated the
6th day of October 1995 among the Sellers, the LLC, IPG, the Estate of Mark
Goodson and AACI and U.S. Trust Company of California, N.A. as Escrow Agent.
"Expense Funds" shall mean funds which represent recoupable
payments on account of reimbursement of expenses of AAG and its affiliates.
"Event of Default" shall be as defined in the Chemical
Agreement.
"Final Closing Date" shall be the date on which the escrow
which is established pursuant to the Asset Purchase Agreement has been
released.
"Guarantor Obligations" shall mean the Obligations of the
Guarantors in favor of IPG guaranteeing the Parent Obligations and the
Obligations of the Obligors pursuant to Section 19 in favor of IPG.
"Guarantors" shall be as defined in the Introductory Statement.
"Guaranty" shall be as defined in the Introductory Statement.
"Interest Reserve Account" shall mean an interest bearing
account of AAG established on or before the Final Closing Date with the Agent
designated as the "All American Interest Reserve Account", Account No.
323-208517.
"International Cash Flow" shall mean all amounts actually
received (or deemed to be received by the LLC pursuant to the provisions of the
Operating Agreement) by the LLC from AAG under the terms of the Main License
(other than payments in respect of the domestic exploitation of Programs).
"International Cash Flow Default" shall occur in the event
International Cash Flow at any date indicated below in column (x) is less, on a
cumulative basis commencing with the Closing, than the corresponding amounts
listed below in column (y):
(x) (y)
12/31/95 $ 1.0M
03/31/96 2.5M
06/30/96 3.5M
09/30/96 5.5M
12/31/96 7.0M
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<PAGE> 5
03/31/97 8.5M
06/30/97 10.0M
09/30/97 11.5M
12/31/97 13.5M
03/31/98 14.5M
06/30/98 16.5M
09/30/98 18.0M
12/31/98 19.5M
and the outstanding balance of the Tranche E Loan (whether by voluntary
prepayment by AAG or any of its affiliates or otherwise) at such time as
indicated below in column (x) is greater than the amount indicated below in
column (y):
(x) (y)
from the date of Closing $21.7M
to 12/31/96
from 1/1/97 to 12/31/97 17.8M
from 1/1/98 to maturity 12.7M
"Interpublic Members" shall be as defined in the Operating
Agreement.
"IPG Collateral" shall mean (i) the property of the Guarantors
in which a Lien has been or will be granted to IPG pursuant to the Security
Agreement and (ii) the Pledged Stock.
"IPG Obligation Documents" shall mean the Security Agreement,
the Guaranties, the Pledge Agreement and the other documents, instruments and
agreements contemplated thereby, as they may be amended or otherwise modified
from time to time subject to Section 17(c).
"Lenders" shall mean the Lenders listed on the signature pages
of the Chemical Agreement and any assignees thereof pursuant to the Chemical
Agreement.
"Letter Agreement" shall mean the letter agreement dated
October 6, 1995, among AACI, AAG, IPG, Infoplan, Interpublic Game Shows, Inc.,
AATII, AAFII and the LLC.
"Letter of Credit" shall be as defined in the Introductory
Statement.
"Lien" shall mean any pledge, mortgage, security, interest,
encumbrance, lien, copyright mortgage, or charge of any kind whatsoever
(including any conditional sale or other title retention agreement, any lease
in the nature thereof, and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction).
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<PAGE> 6
"LLC Funds" shall mean monies owed to the LLC by AAG and its
sublicensees pursuant to the License Agreements.
"LLC Funds Account" shall mean the account established by AAG
with the Agent designated as the "All American Goodson LLC Funds Account",
Account No. 323-213480.
"License Agreements" shall mean the Main License, and the
sub-licenses referred to in Section 4 of the Main License.
"Main License" shall mean the License Agreement dated October
__, 1995 between LLC and AAG.
"Obligations" shall mean all indebtedness and liabilities,
whether absolute, fixed or contingent, whether matured or unmatured, liquidated
or unliquidated, including, without limitation, any premium payable upon
acceleration of any note, at any time and from time to time owing by any person
under or in connection with any agreement, document or loan agreement or any
note including, without limitation, all amounts at any time on account of fees,
costs, commissions, expenses and costs.
"Obligors" shall mean AACI and the Guarantors.
"Operating Agreement" shall be as defined in the Introductory
Statement as it may be amended or otherwise modified from time to time subject
to Section 17(c).
"Operating Payment" shall mean a disbursement to the LLC to
reimburse the LLC for any fees or expenses incurred by the LLC in connection
with its operations; provided, however, that Operating Payment shall not
include fees or expenses which AACI is obligated to pay pursuant to Section
3.5(a) of the Operating Agreement.
"paid in full" or "payment in full" or any other similar term
or phrase shall mean (a) when used with respect to the Senior Obligations,
payment in full in cash and (b) when used with respect to the Guarantor
Obligations, payment in full in cash or with respect to the "Make Whole"
Obligations of AACI, satisfaction of such obligations through the payment of
cash and/or the issuance of stock as provided in the Operating Agreement.
"Parent Obligations" shall mean the Obligations of AACI to IPG
in connection with certain "Put" and "Make Whole Obligations" of AACI pursuant
to the Operating Agreement and certain indemnification Obligations of AACI to
IPG pursuant to the Letter Agreement.
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<PAGE> 7
"Person" shall mean any natural person, corporation, division
of a corporation, partnership, trust, joint venture, association, company,
estate, unincorporated organization or government or any agency or political
subdivision thereof.
"Pledge Agreement" shall be as defined in the Introductory
Statement.
"Pledged Stock" shall mean all issued and outstanding capital
stock of AAG, AAFII and AATII and the membership interest of AACI and AAG in
the LLC.
"Security Agreement" shall be as defined in the Introductory
Statement.
"Sellers" shall be as defined in the Introductory Statement.
"Senior Obligation Documents" shall mean the Chemical
Agreement, the Notes referred to therein and the other documents, instruments
and agreements contemplated thereby, as they may be amended or otherwise
modified from time to time subject to Section 17(d).
"Senior Obligations" shall mean the following Obligations of
AACI and the Guarantors under the Chemical Agreement in connection with the
Tranche E Loan, whether outstanding at the date hereof or hereafter incurred or
created, (i) all obligations to pay principal and interest (including, without
limitation, interest accruing after the commencement of any bankruptcy,
insolvency, reorganization or similar proceedings with respect to AACI or any
Guarantor, whether or not determined to be an allowed claim in any such
proceeding) with respect to such Tranche E Loan; (ii) all obligations to pay
charges, costs, expenses and fees, in connection with the administration of the
Tranche E Loan or the enforcement of the Agent's or the Lenders' rights in
connection therewith, including, without limitation, the disbursements and
reasonable fees of counsel to the Agent or the Lenders; and (iii) all
obligations to reimburse or indemnify the Agent and the Lenders in any way
arising out of the administration or enforcement of the Tranche E Loan;
provided, however, that the principal amount included within this definition
shall not exceed $25,000,000 and the interest rate used for purposes of this
definition shall be based on the terms of the Chemical Agreement as in effect
on the Final Closing Date.
"Settlement Date" shall mean (a) with respect to any Earn-Out
Payments, the 15th Business Day of each month, (b) with respect to any Dividend
Distribution, the first Business Day of the month of March of each year, and
(c) in all other cases, the 15th Business Day of each quarter.
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<PAGE> 8
"Special Distribution" shall be as defined in the Operating
Agreement.
"Suspension Event" shall be as defined in Section 13(a)
herein.
"Tax Distribution" shall mean the Special Distribution to the
Interpublic Members and All American Members pursuant to Section 5.3(b)(i)(A),
5.3(b)(ii)(A) or 5.3(b)(iii)(A) of the Operating Agreement.
"Tranche E Collateral" shall mean all property of the
Guarantors in which a Lien has been or will be granted to the Agent for the
benefit of the Lenders pursuant to the Chemical Agreement.
"Tranche E Event of Default" shall mean:
(i) the Main License shall become void or voidable or
otherwise nonenforceable;
(ii) default shall be made in the payment of any principal
of or interest on the Tranche E Loan or of any fees or other amounts payable by
AAG in connection with the Senior Obligations, when and as the same shall
become due and payable, whether at the due date thereof or at a date fixed for
prepayment thereof pursuant to Section 3(a) hereof or by acceleration thereof
or otherwise and in the case of payments of any amounts other than principal,
such default shall continue unremedied for five (5) days after receipt by AAG
of an invoice therefor;
(iii) any Guarantor or the LLC shall generally not pay its
debts as they become due or shall admit in writing its inability to pay its
debts, or shall make a general assignment for the benefit of creditors; or any
Guarantor or the LLC shall commence any case, proceeding or other action
seeking to have an order for relief entered on its behalf as debtor or to
adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts under
any law relating to bankruptcy, insolvency, reorganization or relief of debtors
or seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its property or shall
file an answer or other pleading in any such case, proceeding or other action
admitting the material allegations of any petition, complaint or similar
pleading filed against it or consenting to the relief sought therein; or any
Guarantor or the LLC shall take any action to authorize any of the foregoing;
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<PAGE> 9
(iv) any involuntary case, proceeding or other action
against any Guarantor or the LLC shall be commenced seeking to have an order
for relief entered against it as debtor or to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors, or seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its property, and such case, proceeding
or other action (i) results in the entry of any order for relief against it or
(ii) shall remain undismissed for a period of sixty (60) days;
(v) an International Cash Flow Default shall have occurred
and be continuing;
(vi) an event shall have occurred which, but for the
operation of the provisions of this Intercreditor Agreement, would entitle IPG
to enforce its rights against a Guarantor in connection with the Guaranty or
against the Pledged Stock and such event shall not be waived by IPG or remedied
within 120 days after such occurrence; or
(vii) a Change in Ownership (as defined in the Operating
Agreement) shall have occurred and IPG shall have made demand on any Guarantor
in connection with the "put" obligation of AACI as a result of such Change in
Ownership.
"Tranche E Loan" shall mean (i) a loan made to AACI or AAG
pursuant to the terms of the Chemical Agreement, the proceeds of which shall be
used to fund the reimbursement obligation of AACI or AAG in connection with the
Letter of Credit and (ii) any refinancing, refunding or replacement thereof
provided that such refinancing, refunding or replacement does not change the
maturity date of the Tranche E Loan or increase the then outstanding principal
amount of the Tranche E Loan or increase the interest rate thereon or otherwise
conflict with Section 17(d).
Section 2. Disbursement of Funds.
So long as the Senior Obligations remain outstanding, the
parties agree as follows:
(a) The Agent will send to AAG and IPG on each
Determination Date a written statement informing AAG and IPG of the balance in
the AAG Funds Account, the AAG Expense Account and the LLC Funds Account and
provide AAG with copies of receipts, invoices and other correspondence
accompanying payments which are deposited in the AAG Funds Account.
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<PAGE> 10
(b) One Business Day prior to each Settlement Date, AAG
will deliver to the Agent an Allocation Certificate. The Agent shall be
entitled to rely on the Allocation Certificate as delivered and shall have no
obligation to individually verify the calculations contained therein. Each
delivery of an Allocation Certificate by AAG shall be deemed to be a
representation by AAG for the benefit of the Agent and IPG that, except as set
forth in such Allocation Certificate, (i) no Tranche E Event of Default or
Suspension Event has occurred and is continuing, (ii) the funds transferred
from the AAG Funds Account to the AAG Expense Account will only be applied to
repay advances by AACI to AAG which advances were utilized by AAG to pay
ordinary course reimbursable expenses as set forth on Schedule II to the Main
License, (iii) the funds being transferred to the LLC Funds Account from the
AAG Funds Account represent all monies due and owing to the LLC under the Main
License for such period and (iv) to the best knowledge of the Authorized
Officer signing such Allocation Certificate, the information set forth on such
Allocation Certificate is true, accurate and correct as of the date such
Allocation Certificate is provided. At the request of IPG, AAG shall provide
IPG with copies of any Allocation Certificate delivered to the Agent.
(c) On each Settlement Date, the Agent shall transfer such
funds from the AAG Account into the LLC Account or the AAG Expense Account, as
are indicated on the Allocation Certificate as LLC Funds or Expense Funds, as
the case may be, to be disbursed in accordance with the Allocation Certificate
and will disburse the funds from the LLC Account in accordance with the
Allocation Certificate, subject to Section 3 below. The Agent shall have no
liability to IPG or any other party hereto for transferring funds from the AAG
Account into the LLC Account or the AAG Expense Account, or disbursing the
funds contained in the LLC Account or the AAG Expense Account, in accordance
with the Allocation Certificate. In this regard, the Allocation Certificate
with respect to each Settlement Date shall indicate the following: (i) the
amount to be paid to the LLC for any Earn-Out Payments; (ii) the amount to be
paid to the LLC for any Operating Payment; (iii) the amount to be paid to the
LLC for any Tax Distribution; (iv) the amount to be paid to the LLC for any
Dividend Distribution; (v) the amount to be transferred to the AAG Expense
Account; and (vi) the amount due to the LLC under the Main License.
(d) Unless a Tranche E Event of Default has occurred and
is continuing, funds in the AAG Expense Account may be utilized by AAG at any
time to repay, and only to repay, advances by AACI to AAG which advances were
utilized to pay ordinary course reimbursable expenses as set forth on Schedule
II to the Main License.
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<PAGE> 11
Section 3. Priority of Disbursements.
(a) Unless a Tranche E Event of Default has occurred and
is continuing, provided that the Allocation Certificate referred to in Section
2(b) hereof has been received and subject to Section 14 hereof, on the
Settlement Date the Agent shall make disbursements from the LLC Funds Account
in accordance with the Allocation Certificate in the following order:
First, to the LLC for any Earn-out Payments;
Second, to the LLC for any Operating Payment which shall not
in any event exceed $100,000 per annum;
Third, to the LLC for any Tax Distribution;
Fourth, to LLC for Dividend Distribution; and
Fifth, to Chemical for accrued and unpaid interest with
respect to the Senior Obligations.
All remaining funds in the AAG Funds Account shall be used to prepay the Senior
Obligations as provided in the Chemical Agreement until the Senior Obligations
have been paid in full.
(b) As long as the Senior Obligations remain outstanding,
as between the LLC and AAG, for purposes of the Main License, any funds
transferred by the Agent from the AAG Funds Account to the LLC Funds Account
shall be deemed to have been paid by AAG to the LLC and shall discharge the
obligations of AAG to the LLC under Section 18(a) of the Main License.
(c) As long as the Senior Obligations remain outstanding,
as between IPG on one hand and AACI and AAG on the other, for purposes of the
Operating Agreement, any funds withdrawn from the LLC Funds Account by the
Agent (other than funds withdrawn by the Agent to pay Earn-Out Payments) shall
be deemed to have been distributed to the All American Members pursuant to
Section 5.3 thereof.
Section 4. Interest. On the Final Closing Date, AACI shall
deposit into the Interest Reserve Account an amount equal to two months'
interest on the Tranche E Loan. So long as a Tranche E Event of Default shall
have not occurred and be continuing, and the Senior Obligations remain
outstanding, on the last Business Day of each month of each calendar quarter
(to the extent available after making any distributions pursuant to Section 3
herein), a portion of the AAG Funds and, to the extent necessary, a portion of
the LLC Funds, shall be deposited into the Interest Reserve Account in an
amount equal to one-third of the interest on the Tranche E Loan estimated to be
payable for
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<PAGE> 12
such calendar quarter. On the Business Day prior to the Settlement Date for
such calendar quarter, amounts on deposit in the Interest Reserve Account to
the extent in excess of an amount equal to two months' interest on the Tranche
E Loan, shall be transferred to the LLC Funds Account for distribution in
accordance with item five above. In all cases, the amount to be held in the
Interest Reserve Account pursuant to this Section 4 shall be calculated by
applying the interest rate in effect on Eurodollar Loans (as defined in the
Chemical Agreement) on such date to the principal balance of the Tranche E Loan
as of the date of calculation. Funds held in the Interest Reserve Account may
be used by the Agent to pay interest when such payment is due on a date other
than a Settlement Date.
Section 5. Agreement to Subordinate.
(a) IPG agrees that the Guarantor Obligations are and shall
be subordinate and subject in right of payment, to the extent and in the manner
hereinafter set forth, to the prior payment in full of the Senior Obligations
and that any guarantees, security interests, mortgages and other liens securing
payment of the Guarantor Obligations, including but not limited to the
Guaranty, the Security Agreement and the Pledged Stock, are and shall be
subordinate, to the fullest extent permitted by law and as hereinafter set
forth, to the Senior Obligations, notwithstanding the perfection, order of
perfection or failure to perfect, any such security interest or other lien, or
the filing or recording, order of filing or recording, or failure to file or
record this Intercreditor Agreement or any instrument or other document in any
filing or recording office in any jurisdiction; provided, however, that except
as expressly set forth herein, nothing contained in this Intercreditor
Agreement shall affect or in any manner limit the ability of IPG to pursue all
remedies to which it is entitled pursuant to the Operating Agreement or the
Letter Agreement against AACI or any other Person other than the Guarantors or
against any assets of AACI in connection with the Parent Obligations.
(b) The Agent agrees that the Credit Obligations are and
shall be subordinate and subject in right of payment, to the extent and in the
manner hereinafter set forth, to the prior payment in full of the Guarantor
Obligations and that any guarantees, security interests, mortgages and other
liens on assets of the Guarantors or the Pledged Stock securing payment of the
Credit Obligations are and shall be subordinate, to the fullest extent
permitted by law and as hereinafter set forth, to the Guarantor Obligations,
notwithstanding the perfection, order of perfection or failure to perfect, any
such security interest or other lien, or the filing or recording, order of
filing or recording, or failure to file or record this Intercreditor Agreement
or any instrument or other document in any filing or
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<PAGE> 13
recording office in any jurisdiction; provided, however, that nothing contained
in this Intercreditor Agreement shall affect or in any manner limit the ability
of the Agent and the Lenders to pursue all remedies to which they are entitled
pursuant to the Chemical Agreement or otherwise (i) against AACI or any other
Person other than the Guarantors, or (ii) against any assets of such Person,
other than the Pledged Stock.
Section 6. Additional Provisions Concerning Subordination.
A. So long as the Senior Obligations remain outstanding, IPG and the Obligors
each agree as to itself as follows:
(a) Each Guarantor agrees that it will not make any
payment of any of the Guarantor Obligations, or take any other action, in
contravention of the provisions of this Intercreditor Agreement.
(b) IPG and the Obligors will, at their own expense and at
any time and from time to time, promptly execute and deliver all further
instruments and documents, and take all further action that the Agent may
reasonably request, in order to perfect or otherwise protect any right or
interest granted or purported to be granted hereby or to enable the Agent to
exercise and enforce its rights and remedies hereunder. IPG further authorizes
the Agent, in the event IPG has not done so within a reasonable time, to file
UCC financing statements and any amendments thereto or continuations thereof
with regard to Guarantor Obligations on IPG's behalf without IPG's signature.
(c) IPG shall not exercise its remedies under either the
Pledge Agreement, the Guaranties or the Security Agreement with respect to, or
otherwise take any action to seize, realize upon or foreclose upon any item of
the IPG Collateral unless and until (i) a default as defined in the Pledge
Agreement or a default as defined in the Guaranties or Security Agreement, as
the case may be, giving rise to the right to exercise such remedies under such
agreement shall have remained uncured or unremedied for 12 months from the date
of notice to the Agent of the occurrence and the Agent has not (A) declared the
Senior Obligations to be immediately due and payable and (B) actively pursued
the rights of the Agent and the Lenders under the Chemical Agreement in
connection therewith or (ii) the Agent has agreed to waive the provisions of
this Section 6(c). Nothing herein shall restrict the rights of IPG (A) to take
actions to protect and preserve the validity, perfection and priority of any of
its security interests in a manner not inconsistent with the terms of this
Intercreditor Agreement (including, without limitation, actions taken to
preserve and protect IPG Collateral), (B) to establish and defend the status of
its claims as secured claims in connection with the Guarantor Obligations in
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<PAGE> 14
a manner not prejudicial to the right of the Agent pursuant to the terms of
this Intercreditor Agreement, (C) to appear and be heard on any matter arising
in a bankruptcy, insolvency or receivership proceeding, (D) subject to Section
10(f), to vote as it may elect in its sole discretion in connection with any
proposed Chapter 11 plan, or (E) to seek any form of adequate protection of its
interest in any IPG Collateral or other similar relief not prejudicial to the
right of the Agent pursuant to the terms of this Intercreditor Agreement in any
bankruptcy, insolvency or receivership proceeding and to receive payment of IPG
Collateral proceeds under any form of adequate protection or postpetition
lending arrangement; provided, however, that all proceeds or payments received
by IPG in connection with the IPG Collateral and/or the Pledged Stock (as shall
equal the amount of the Senior Obligations) shall be deemed to be the property
of the Lenders and shall otherwise be subject to the provisions of Section 7
below.
(d) In the event of (i) any dissolution, winding up,
liquidation or reorganization of any Guarantor (whether voluntary or
involuntary and whether in bankruptcy, insolvency or receivership proceedings,
or upon an assignment for the benefit of creditors or proceedings for voluntary
or involuntary liquidation, dissolution or other winding up of any Obligor,
whether or not involving insolvency or bankruptcy, or any other marshalling of
the assets and liabilities of any Obligor or otherwise); or (ii) the occurrence
and continuation of a Tranche E Event of Default, or any default or demand for
payment regarding the Guarantor Obligations:
(1) all Senior Obligations shall first be paid to
the Agent for the benefit of the Lenders in full before any
payment or distribution is made on or any fees, costs, charges
or expenses in connection with the Guarantor Obligations, and
before any other action described in Section 10(a) hereof is
taken by IPG; and
(2) any payment or distribution of assets of any
Guarantor whether in cash, property or securities to which IPG
would be entitled except for the provisions hereof, shall be
paid or delivered by such Guarantor, or any receiver, trustee
in bankruptcy, liquidating trustee, disbursing agent, agent or
other person making such payment or distribution, directly to
the Agent for the benefit of the Lenders, to the extent
necessary to pay in full all Senior Obligations remaining
unpaid, before any payment or distribution is made to IPG.
(e) In any proceeding referred to or resulting from any event
referred to in subsection (d) of this Section 6 commenced by or against any
Guarantor:
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<PAGE> 15
(1) The Agent may, and is hereby irrevocably authorized
and empowered (in its own name or in the name of IPG
or otherwise), but shall have no obligation to, (i)
demand, sue for, collect and receive every payment or
distribution referred to in subsection (d) of this
Section 6 and give acquittance therefor, (ii) file
claims and proofs of claim in respect of the Guarantor
Obligations and (iii) take such other action as the
Agent may deem necessary or advisable for the exercise
or enforcement of any of the rights or interests of
the Agent and the Lenders hereunder; and
(2) IPG will duly and promptly take such action as the
Agent may reasonably request to collect the Guarantor
Obligations for the account of the Lenders and to file
appropriate claims or proofs of claim with respect
thereto, to execute and deliver to the Agent such
powers of attorney, assignments or other instruments
as the Agent may request in order to enable it to
enforce any and all claims with respect to the
Guarantor Obligations, and to collect and receive any
and all payments or distributions which may be payable
or deliverable upon or with respect to the Guarantor
Obligations.
B. So long as the Senior Obligations have been paid in
full and the Guarantor Obligations remain outstanding, the Agent and the
Guarantors each agree as to itself as follows:
(a) Each Guarantor agrees that it will not make any
payment of any of the Credit Obligations, or take any other action, in
contravention of the provisions of this Intercreditor Agreement.
(b) The Agent and the Guarantors will, at their own
expense and at any time and from time to time, promptly execute and deliver all
further instruments and documents, and take all further action that IPG may
reasonably request, in order to perfect or otherwise protect any right or
interest granted or purported to be granted hereby or to enable IPG to exercise
and enforce its rights and remedies hereunder.
(c) Each of the Agent and the Lenders shall not exercise
its remedies under the Chemical Agreement with respect to, or otherwise take
any action to foreclose upon, any item of the Tranche E Collateral unless and
until (i) a Tranche E Event of Default giving rise to the right to exercise
such remedies under such agreement shall have remained uncured or unremedied
for 12 months from the date of the occurrence of such Event of
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<PAGE> 16
Default and IPG has not (A) declared the Guarantor Obligations to be
immediately due and payable and (B) actively pursued its rights under the IPG
Obligation Documents in connection therewith or (ii) IPG has agreed to waive
the provisions of this Section 6B(c). Nothing hereunder shall restrict the
rights of the Agent or the Lenders (A) to take actions to protect and preserve
the validity, perfection and priority of any of its security interests in a
manner not inconsistent with the terms of this Intercreditor Agreement
(including, without limitation, actions taken to preserve and protect Tranche E
Collateral), (B) to establish and defend the status of its claims as secured
Credit Obligation claims in a manner not prejudicial to the rights of IPG
pursuant to the terms of this Intercreditor Agreement, (C) to appear and be
heard on any manner arising in a bankruptcy, insolvency or receivership
proceeding, (D) subject to Section 12(c), to vote as it may elect in its sole
discretion in connection with any proposed Chapter 11 plan, or (E) to seek any
form of adequate protection of its interest in any Tranche E Collateral or
other similar relief not prejudicial to the rights of IPG pursuant to the terms
of this Intercreditor Agreement in any bankruptcy, insolvency or receivership
proceeding and to receive payment of Tranche E Collateral proceeds under any
form of adequate protection or postpetition lending arrangement; provided,
however, that all proceeds or payments received by the Agent in connection with
the Tranche E Collateral and/or the Pledged Stock (as shall equal the amount of
the Guarantor Obligations) shall be deemed to be the property of IPG and shall
otherwise be subject to the provisions of Section 7 below.
(d) In the event of (i) any dissolution, winding up,
liquidation or reorganization of any Guarantor (whether voluntary or
involuntary and whether in bankruptcy, insolvency or receivership proceedings,
or upon an assignment for the benefit of creditors or proceedings for voluntary
or involuntary liquidation, dissolution or other winding up of any Guarantor,
whether or not involving insolvency or bankruptcy, or any other marshaling of
the assets and liabilities of any Guarantor or otherwise); or (ii) any default
or demand for payment regarding the Credit Obligations:
(1) all Guarantor Obligations shall first be paid to IPG
in full before any payment or distribution is made on
or any fees, costs, charges or expenses in connection
with the Credit Obligations, and before any other
action described in Section 10(a) hereof is taken by
the Agent or any Lender; and
(2) any payment or distribution of assets of any Guarantor
whether in cash, property or securities to which the
Agent or the Lenders would be entitled except for the
provisions hereof, shall
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<PAGE> 17
be paid or delivered by such Guarantor, or any
receiver, trustee in bankruptcy, liquidating trustee,
disbursing agent, agent or other person making such
payment or distribution, directly to IPG, to the
extent necessary to pay all Guarantor Obligations
remaining unpaid after giving effect to any concurrent
payment of distribution to IPG before any payment or
distribution is made to the Agent or any Lender.
(e) In any proceeding referred to or resulting from any
event referred to in subsection (d) of this Section 6B commenced by or against
any Guarantor:
(1) IPG may, and is hereby irrevocably authorized and
empowered (in its own name or in the name of the
Agent, any Lender or otherwise), but shall have no
obligation to, (i) demand, sue for, collect and
receive every payment or distribution referred to in
subsection (d) of this Section 6B and give acquittance
therefor, (ii) file claims and proofs of claims in
respect of the Credit Obligations and (iii) take such
other action as IPG may deem necessary or advisable
for the exercise or enforcement of any of the rights
or interests of IPG hereunder; and
(2) The Agent will duly and promptly take such action as
IPG may reasonably request to collect the Credit
Obligations for the account of IPG and to file
appropriate claims or proofs of claim with respect
thereto, to execute and deliver to IPG such powers of
attorney, assignments or other instruments as IPG may
request in order to enable it to enforce any and all
claims with respect to the Credit Obligations, and to
collect and receive any and all payments or
distributions which may be payable or deliverable upon
or with respect to the Credit Obligations.
Section 7. Receipt of Payments and Trust. (a) All payments
or distributions upon or with respect to the Guarantor Obligations which are
received by IPG contrary to the provisions of this Intercreditor Agreement
shall be deemed to be the property of the Lenders, shall be received in trust
for the benefit of the Lenders, shall be segregated from other funds and
property held by IPG and shall be forthwith paid over to the Agent for the
benefit of the Lenders in the same form as so received (with any necessary
endorsement) to be applied to the payment or prepayment of the Senior
Obligations until the Senior Obligations shall have been paid in full.
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<PAGE> 18
(b) All payments or distributions upon or with respect to
the Credit Obligations which are received by the Agent or the Lenders contrary
to the provisions of this Intercreditor Agreement shall be deemed to be the
property of IPG, shall be received in trust for the benefit of IPG, shall be
segregated from other funds and property held by the Agent or the Lenders and
shall be forthwith paid over to IPG in the same form as so received (with any
necessary endorsement) to be applied to the payment of the Guarantor
Obligations until the Guarantor Obligations shall have been paid in full.
Section 8. No Action.
(a) IPG and the Agent each agree not to contest, or bring
or cause (or voluntarily join in) any action or proceeding for the purpose of
contesting the validity, perfection or priority (as herein provided) of, or
seek to avoid, either the Agent's or the Lenders' Lien in any collateral
securing the Chemical Obligations or IPG's Lien in any item of IPG Collateral,
as the case may be; provided, however, that nothing herein shall be deemed or
construed to prevent either the Agent or IPG, as the case may be, from
commencing an action or proceeding against the Agent, a Lender or IPG, as the
case may be, to assert any right or claim it may have to enforce this
Intercreditor Agreement.
(b) Notwithstanding anything in this Agreement or any
Senior Obligation Document to the contrary, so long as the Guarantor
Obligations remain outstanding, unless a Tranche E Event of Default shall have
occurred and is continuing, neither the Agent nor any Lender shall initiate,
prosecute or participate in any action to, or take any steps to (whether
administrative, legal, equitable or any other nature whatsoever), (i) enforce,
foreclose, seize, setoff or realize upon the Tranche E Collateral or (ii)
commence any proceeding involving any Guarantor referred to in subsection (c)
of Section 3 hereof, provided that notwithstanding clause (ii) herein, if a
bankruptcy petition has been filed by another person with respect to such
Guarantor the Agent and the Lenders may fully participate in such bankruptcy
proceeding and exercise, subject to the terms of this Agreement, their
respective rights against such Guarantor and/or its assets.
(c) So long as the Senior Obligations are outstanding, IPG
hereby waives any requirement for marshalling of assets by the Agent in
connection with any foreclosure of any lien of the Lenders under the Chemical
Agreement with regard to the Senior Obligations and the Agent, hereby waives
any requirement for marshalling of assets by IPG in connection with any
foreclosure of any Lien of IPG under the IPG Obligation Documents with regard
to the Guarantor Obligations;
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<PAGE> 19
(d) The Agent and IPG are hereby authorized to demand
specific performance of this Intercreditor Agreement at any time when (i) any
Obligor or (ii) either IPG or the Agent, as the case may be, shall have failed
to comply with any of the provisions of this Intercreditor Agreement, and all
of such parties hereby irrevocably waive any defense based on the adequacy of a
remedy at law which might be asserted as a bar to such remedy of specific
performance; and
(e) IPG hereby agrees that it shall not take any action
against any Guarantor to enforce its rights under the IPG Obligation Documents
in connection with the Guarantor Obligations in the event of a Change in
Ownership (as defined in the Operating Agreement) for a period of five Business
Days after IPG has notified the Agent that a Change in Ownership has occurred
and that it has made demand on a Guarantor in connection therewith.
Section 9. Representations and Warranties.
(a) IPG and AAG each hereby represent and warrant for
itself that attached hereto as Schedule B is a true, correct and complete copy
of the Operating Agreement.
Section 10. Negative Covenants. Subject to Section 3(b), so
long as any of the Senior Obligations shall remain outstanding, IPG will not,
without the prior written consent of the Agent:
(a) Sue for, take or receive, directly or indirectly, from
the Guarantor, in cash or other property, by setoff, by realizing upon
collateral, foreclosing on any lien or otherwise, by exercise of any remedies
or rights under the IPG Obligation Documents or by executions, garnishments,
levies, attachments or by any other action relating to the Guarantor
Obligations, or in any other manner, payment of, or additional security for,
all or any part of the Guarantor Obligations unless and until the Senior
Obligations shall have been paid in full.
(b) Sell, assign, pledge, encumber or otherwise dispose of
any instrument evidencing the indebtedness owed to IPG or any collateral
securing the Guarantor Obligations unless such sale, assignment, pledge,
encumbrance or other disposition is made expressly subject to this
Intercreditor Agreement and the other party to such sale, assignment, pledge,
encumbrance or other disposition consents in writing to be bound by the terms
hereof;
(c) Permit the terms of the IPG Obligation Documents or
collateral securing any Guarantor Obligations to be changed in any way which
would limit or impair these subordination
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<PAGE> 20
provisions, increase the principal amount thereof, increase the interest
payable thereon, change any payment date thereunder or accept any collateral;
(d) Realize upon, or otherwise exercise any remedies with
respect to, any IPG Collateral;
(e) Commence, or join with any creditor other than the
Lenders in commencing any proceeding involving any Guarantor referred to in
subsection (c) of Section 3 hereof; or
(f) In connection with any Chapter 11 plan relating to any
of the Tranche E Collateral, including but not limited to the Main License,
without the prior consent of the Agent, vote for any plan which does not
provide for the Main License to be assumed.
Section 11. Obligations Unconditional. All rights,
interests, and all agreements and obligations of the parties hereto, shall
remain in full force and effect irrespective of:
(a) Any lack of validity or enforceability of any Senior
Obligation Document, IPG Obligation Document or any other agreement or
instrument relating thereto;
(b) Any change in the time, manner or place of payment of,
or in any other term of, all or any of the Senior Obligations, Parent
Obligations or Guarantor Obligations, or any other amendment or waiver of or
any consent to departure from any Senior Obligation Document or any IPG
Obligation Document;
(c) Any exchange, release or nonperfection of any
collateral, or any release or amendment or waiver of or consent to departure
from any guaranty, for all or any of the Senior Obligations or Guarantor
Obligations; or
(d) Any other circumstances which might otherwise
constitute a defense available to, or a discharge of, either any Guarantor in
respect of the Senior Obligations or the Guarantor Obligations or of IPG or
the Agent or any Obligor in respect of this Intercreditor Agreement.
Section 12. Additional Agreements and Waivers. (a) So long
as the Senior Obligations remain outstanding, IPG agrees that in connection
with any Guarantor Obligations neither the Agent nor any Lender shall have any
liability or obligation to IPG on account of the exercise of the rights and
remedies of the Agent and/or the Lenders under any Senior Obligation Document
or this Agreement (except, with respect to this Agreement, any breach by such
party of this Agreement).
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<PAGE> 21
(b) So long as the Guarantor Obligations remain
outstanding, the Agent agrees that, in connection with any Credit Obligations,
IPG shall not have any liability or obligation to the Agent on account of
exercise against any Guarantor of the rights and remedies of IPG under any IPG
Obligation Document or this Agreement (except, with respect to this Agreement,
any breach by such party of this Agreement).
(c) The Agent hereby agrees that in the event the Agent
(on behalf of the Lenders) through exercise of its remedies in connection with
the Chemical Obligations, acquires the membership interest of AACI or AAG in
the LLC and takes any action to exercise rights as a member thereof, its
actions shall be subject to Section 3.3(c) of the Operating Agreement.
(d) So long as any Guarantor Obligation remains
outstanding, the Agent hereby agrees that it will not make, support or join in
any motion or otherwise seek a substantive consolidation of any Guarantor in
connection with any such proceeding referred to in Section 3(c) involving AACI
and/or any of its subsidiaries.
(e) So long as any Chemical Obligation remains
outstanding, IPG hereby agrees that it will not make, support or join in any
motion or otherwise seek a substantive consolidation of any Guarantor in
connection with any proceeding referred to in Section 3(c) involving AACI
and/or any of its subsidiaries.
Section 13. Suspension of Certain Disbursements.
(a) In the event International Cash Flow on a cumulative
basis is less than (A) the amounts indicated below in column (y) for the
quarter ending on the date indicated below in column (x), All American Members
shall not be entitled to receive a Tax Distribution for such quarter and (B)
the amounts indicated below in column (z) for the quarter ending on the date
indicated below in column (x), Interpublic Members shall not be entitled to
receive a Tax Distribution nor Dividend Distribution for such period and the
disbursements referred to in items third and fourth of Section 3 shall be
adjusted accordingly (in each case, a "Suspension Event"):
(x) (y) (z)
12/31/95 $ 1.2 Million $ 1.0 Million
03/31/96 3.0 Million 2.5 Million
06/30/96 4.0 Million 3.5 Million
09/30/96 6.0 Million 5.5 Million
12/31/96 8.0 Million 7.0 Million
03/31/97 9.5 Million 8.5 Million
06/30/97 11.5 Million 10.0 Million
09/30/97 13.0 Million 11.5 Million
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<PAGE> 22
12/31/97 15.0 Million 13.5 Million
03/31/98 16.5 Million 14.5 Million
06/30/98 19.0 Million 16.5 Million
09/30/98 20.0 Million 18.0 Million
12/31/98 22.0 Million 19.5 Million
(b) Notwithstanding clause (a) above, if a Suspension
Event has occurred, in the event the outstanding balance of the Tranche E Loan
as of the date indicated below in column (x) is equal or less than the amount
indicated below in column (y) at such time, the All American Members may
receive a Tax Distribution for such quarter and the Interpublic Members may
receive a Tax Distribution and Dividend Distribution for such quarter:
(x) (y)
12/31/96 $21,700,000
12/31/97 17,800,000
12/31/98 12,700,000
(c) AAG hereby agrees that, so long as a Suspension Event
has occurred and is continuing, AAG shall not indicate on any Allocation
Certificate thereafter any Tax Distribution or Dividend Distribution until the
Agent has notified the LLC that a Suspension Event no longer exists. In
addition, the LLC hereby agrees not to make any Tax Distribution or Dividend
Distribution other than from funds disbursed for such purpose by the Agent from
the LLC Account.
Section 14. Tranche E Default.
(a) Upon the occurrence and during the continuation of a
Tranche E Event of Default, the Agent shall have the right to withdraw first,
all funds then held in the AAG Account; second, all funds then held in the AAG
Expense Account and third, all LLC Funds then held in the LLC Funds Account
(other than funds held as Earn-Out Payments) to be applied against the
outstanding Senior Obligations.
(b) Upon the occurrence and during the continuation of a
Tranche E Event of Default, the Agent shall be entitled to pursue all remedies
provided to the Agent or the Lenders pursuant to the terms of the Chemical
Agreement subject to this Intercreditor Agreement, including, but not limited
to, taking such action as may be necessary to realize upon any of the assets of
the Obligors including the Cash Collateral Accounts.
Section 15. Exercise of IPG Rights. Upon payment in full of
the Senior Obligations, nothing contained herein shall prohibit IPG from
exercising all of its rights and pursue any
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<PAGE> 23
remedies provided to it in connection with the Guarantor Obligations pursuant
to the IPG Obligation Documents.
Section 16. Pledged Stock. Upon payment in full of the
Senior Obligations, the Agent shall deliver to Interpublic the certificates
representing the Pledged Stock which have been delivered previously to the
Agent as a secured party with respect to the Chemical Obligations to be held
thereafter by Interpublic as a secured party with respect to the Parent
Obligations. The parties (including the Obligors) hereby acknowledge that at
such time IPG shall have a senior lien on such Pledged Stock and shall
thereafter hold such Pledged Stock subject to a junior lien of the Agent
securing the Credit Obligations of AACI and AAG.
Section 17. Amendments to Documents, etc.
(a) So long as the Senior Obligations remain outstanding,
IPG and LLC each agree that, without the prior written consent of the Agent,
they will not permit any modification or amendment to the Asset Purchase
Agreement which could reasonably be expected to increase the Earn Out Payment
amounts payable thereunder, or accelerate the time when any Earn Out payments
are to be made.
(b) IPG and the Obligors each agree that, without the
prior written consent of the Agent, they will not permit any modifications or
amendment to any IPG Obligation Documents which would provide any additional
security for any obligation of any Guarantor to IPG, provide any security for
any Parent Obligation, or otherwise materially adversely affect the value of
the Tranche E Collateral or the rights or interest of the Agent and the Lenders
under the Chemical Agreement as supplemented and amended by this Intercreditor
Agreement.
(c) So long as the Senior Obligations remain outstanding,
IPG and AACI each agree that, without the prior written consent of the Agent
(i) they will not amend (A) the provisions of Section 4.2.1 or any other
provision of the Operating Agreement which would alter the provisions relating
to the distribution of LLC Funds (including, but not limited to Section 5.3),
the definition of Make Whole Default; (ii) permit any other modification of the
Operating Agreement which would materially adversely affect the rights or
interest of the Agent and the Lenders under the Chemical Agreement as
supplemented and amended by this Intercreditor Agreement or (iii) permit the
LLC to distribute or to agree to distribute LLC funds other than as provided
for in the Operating Agreement subject to the terms of this Intercreditor
Agreement.
(d) AACI, AAG and the Agent each agree that, without the
prior written consent of IPG and the LLC, they will not
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<PAGE> 24
permit any modification or amendment to the Chemical Agreement which would
increase the principal amount of the Tranche E Loan, increase the interest rate
therein, change the date of maturity thereof, increase the amount of the Senior
Obligations or provide additional security from the Guarantors therefor.
(e) AACI, the LLC and IPG each agree that it will not
provide the joint instructions required by Section 2 of the Escrow Agreement
unless each condition precedent to the Final Closing has been satisfied or
waived; provided, however, that any such waiver shall require the prior consent
of the Agent.
(f) The LLC and AAG each agree that, notwithstanding
Section 24 of the Main License, until such time as the Senior Obligations shall
have been paid in full, the Main License may not be terminated for any reason.
In the event that following the occurrence and continuation of a Tranche E
Event of Default, the Agent exercises its rights pursuant to Article 8 of the
Chemical Agreement, the LLC hereby agrees that the Agent may whether by
judicial sale or private sale or otherwise, cause AAG's right, title and
interest in and to the Main License to be transferred to a third party and such
third party shall thereafter for all intents and purposes be deemed to be the
Licensee under the Main License. In addition, any breach by AAG of its
obligations under the Main License existing at the time of such transfer which
would otherwise entitle the LLC to terminate the Main License, whether pursuant
to Section 24 of the Main License or otherwise, shall be deemed cured upon such
transfer. Notwithstanding the foregoing, however, such third party shall
thereafter be subject to all terms and conditions of the Main License including
but not limited to Section 24. The Agent hereby agrees that the proceeds from
such sale or other disposition shall be utilized to reduce the outstanding
Senior Obligations and any excess shall be delivered to IPG to be applied to
reduce the Guarantor Obligations.
Section 18. Duration of Agreement.
(a) The disbursement procedures contained in Sections 2
and 3 shall remain in effect until the Senior Obligations have been paid in
full. The parties hereto hereby agree that after the Senior Obligations have
been paid in full, the procedures set forth in the Security Agreement shall
apply to the disbursement of funds in connection with the subject matter hereof.
(b) This Intercreditor Agreement shall remain in effect
until the earlier of such time as the Guarantor Obligations have been paid in
full or the Chemical Obligations have been paid in full.
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<PAGE> 25
Section 19. Expenses. The Obligors agree to pay to the Agent
and IPG, upon demand, the amount of any and all reasonable expenses, including
the reasonable fees and expenses of counsel for the Agent, which the Agent or
IPG may incur in connection with the exercise or enforcement of any of the
rights or interests of the Agent, the Lenders or IPG, as the case may be,
hereunder. In addition, AACI hereby agrees to pay to the Agent on or prior to
the Final Closing Date all fees and expenses which have been incurred by the
Agent as of such date in connection with the preparation, negotiation and the
entering into of the Tranche E Loan and this Intercreditor Agreement,
including, but not limited to, reasonable fees and expenses of counsel for the
Agent.
Section 20. Miscellaneous.
(a) After payment in full of the Senior Obligations,
Section 10 herein shall apply mutatis mutandis as if IPG were the Agent and the
Lenders and the Agent and the Lenders were IPG and any reference therein to
"Senior Obligations" shall mean "Guarantor Obligations" and any reference to
"IPG Obligation Documents" shall mean "Senior Obligation Documents".
(b) All notices and other communications provided for
herein shall be by telex, telecopy, telegraph, cable or in writing, shall be
deemed to have been duly given when received and shall be sent to the addresses
provided on the signature pages hereto.
(c) This Intercreditor Agreement may be modified or waived
only by an instrument or instruments in writing signed by all the parties
hereto.
(d) This Intercreditor Agreement shall be binding upon and
inure to the benefit of the Agent, AACI, IPG, LLC, AAG, AAFII and AATII and
their respective successors and assigns.
(e) This Intercreditor Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same instrument and any of the parties hereto may execute this
Intercreditor Agreement by signing any such counterpart.
(f) Section headings used herein are for convenience only
and shall not affect the construction or interpretation of this Intercreditor
Agreement.
(g) This Intercreditor Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.
- 25 -
<PAGE> 26
IN WITNESS WHEREOF, the parties hereby have caused this
Intercreditor Agreement to be duly executed as of the date first written above.
THE INTERPUBLIC GROUP
OF COMPANIES, INC.
By /s/ Thomas J. Volpe
------------------------------------
Title: Sr. Vice President-
Financial Opers.
Address: 1271 Ave. of the Americas
New York, NY 10020
MARK GOODSON PRODUCTIONS, LLC
By /s/ Thomas Bradshaw
------------------------------------
Title: C.F.O.
Address: 1325 Ave. of the Americas
New York, NY 10019
ALL AMERICAN GOODSON, INC.
By /s/ Thomas Bradshaw
------------------------------------
Title: C.F.O.
Address: 1325 Ave. of the Americas
New York, NY 10019
ALL AMERICAN COMMUNICATIONS, INC.
By /s/ Thomas Bradshaw
------------------------------------
Title: C.F.O.
Address: 1325 Ave. of the Americas
New York, NY 10019
ALL AMERICAN FREMANTLE II, INC.
By /s/ Thomas Bradshaw
------------------------------------
Title: C.F.O.
Address: 1325 Ave. of the Americas
New York, NY 10019
<PAGE> 27
ALL AMERICAN TELEVISION II, INC.
By /s/ Thomas Bradshaw
------------------------------------
Title: C.F.O.
Address: 1325 Ave. of the Americas
New York, NY 10019
CHEMICAL BANK, as Agent
By /s/ John J. Huber
------------------------------------
Title: Managing Director
Address: 270 Park Avenue
New York, NY 10017-2070
<PAGE> 28
Exhibit A
ALLOCATION CERTIFICATE
This certificate is delivered to Chemical Bank in connection
with Section 2 of the Intercreditor Agreement (the "Intercreditor Agreement")
dated as of October 6, 1995 among (i) Chemical Bank as Agent, (ii) The
Interpublic Group of Companies, Inc., (iii) All American Goodson, Inc., a
wholly owned subsidiary of All American Communications Inc., (iv) All American
Communications, Inc., (v) All American Fremantle II, Inc., a wholly owned
subsidiary of All American Fremantle, Inc., (vi) All American Television II,
Inc., a wholly owned subsidiary of All American Television Inc. and (vi) Mark
Goodson Productions, LLC. All capitalized terms used herein and not otherwise
defined are used as defined in the Intercreditor Agreement.
The undersigned hereby certifies the following information in
connection with the disbursement of funds from the AAG Funds Account in
connection with disbursements to be made on __________, 199_, the Settlement
Date:
1. Earn-Out Payments $_____________
2. Operating Payment $_____________
3. Tax Distribution $_____________
4. Dividend Distribution $_____________
5. AAG Expense Account $_____________
6. Main License Agreement --
amount due to LLC $_____________
ALL AMERICAN GOODSON INC.
Dated: __________, 199_ By:_______________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.32
ALL AMERICAN FREMANTLE II, INC. GUARANTY
Reference is made to the following Agreements: the Asset
Purchase Agreement, dated as of October 6, 1995 (the "Asset Purchase
Agreement"), by and among Mark Goodson Productions, L.P and The Child's Play
Company, as Sellers, and Mark Goodson Productions, LLC (the "Company") and The
Interpublic Group of Companies, Inc. ("Interpublic"), as Buyers, and Marvin
Goodson, Richard Schneidman and Jeremy Shamos, as Executors of The Estate of
Mark Goodson and All American Communications, Inc. ("AACI"); the Main License
Agreement, dated as of October 6, 1995 (the "Main License"), by and between the
Company and All American Goodson, Inc. ("AAG"); the Amended and Restated
Operating Agreement, dated as of October 6, 1995 (the "Operating Agreement"),
by and among AACI, AAG, Interpublic and Infoplan International, Inc.
("Infoplan"); the Letter Agreement dated as of October 6, 1995 (the "Letter
Agreement"), by and among Interpublic, Infoplan, Interpublic Game Shows, Inc.,
the Company, AACI, AAG, All American Fremantle II, Inc. ("AAFII" or
"Guarantor") and All American Television II, Inc. ("AATII"); the Intercreditor
Agreement, dated as of October 6 (the "Intercreditor Agreement"), by and among
Chemical Bank (acting for itself and as Agent), Interpublic, AACI, AAG, AAFII,
AATII and the Company; the Affiliate Guaranties, dated as of the date hereof
(the "Affiliate Guaranties"), entered into by each of AAG and AATII; the
Security Agreements, dated as of the date hereof (the "Security Agreements"),
entered into by each of AAG, AATII and AAFII; and the Pledge Agreements, dated
as of the date hereof (the "Pledge Agreements") entered into by each of AACI,
AAG, All American Television, Inc. and All American Fremantle International,
Inc. The Asset Purchase Agreement, Main License, Operating Agreement, Letter
Agreement, Intercreditor Agreement, Affiliate Guaranties, Security Agreements
and Pledge Agreements are collectively referred to as the "Related Agreements."
This Guaranty is being delivered in order to induce Interpublic to consummate
the transactions contemplated by the Intercreditor Agreement. This Guaranty
and Guarantor Obligations (as defined below) guaranteed hereunder are
subordinated to the Senior Obligations (as such term is defined in the
Intercreditor Agreement) to the extent and on the terms and conditions set
forth in the Intercreditor Agreement.
1. For good and valuable consideration the adequacy of
which is hereby acknowledged Guarantor hereby unconditionally and irrevocably
guarantees to Interpublic, Infoplan International, Inc., and Interpublic Game
Shows, Inc. (A) the due and punctual payment of any and all amounts required to
be paid by, and performance of each and every one of the obligations of AACI to
Interpublic in connection with certain "put" and, upon the occurrence and
continuation of a Make Whole Default (as such term is defined in the Operating
Agreement), the "make whole" obligations of AACI pursuant to the Operating
Agreement (as amended, modified or supplemented from time to time), (B) the due
and punctual payment of any and all amounts to be paid by, and performance of
certain indemnification obligations of AACI to Interpublic pursuant to Section
4(a) of the Letter Agreement (as amended, modified or
<PAGE> 2
supplemented from time to time) and (C) the due and punctual payment of any and
all amounts to be paid by, and performance of each and every one of the
obligations of AACI, AAG and AATII to Interpublic pursuant to the first
sentence of Section 19 of the Intercreditor Agreement (as amended, modified or
supplemented from time to time) AACI, AAG and AATII are collectively referred
to as the "All American Entities" and the payment and performance obligations
set forth in paragraphs (A), (B) and (C) above are collectively referred to as
the "Guarantor Obligations". Guarantor further agrees that the Guarantor
Obligations may be amended, modified, supplemented, accelerated, extended or
renewed, in whole or in part, without notice or further assent from it (except
as may be otherwise expressly required herein), and it will remain bound upon
this Guaranty notwithstanding any amendment, modification, supplement,
acceleration, extension or renewal of any Guarantor Obligation. The term
"Interpublic" as used herein shall refer to Interpublic, Infoplan
International, Inc. and Interpublic Game Shows, Inc. except that when a
provision requires notice to or consent from Interpublic, the term Interpublic
shall refer to only The Interpublic Group of Companies, Inc.
2. Guarantor waives presentation to, or demand for
payment from and protest to, as the case may be, any of the All American
Entities or any other Person (as such term is defined in the Security
Agreements) by Interpublic, and also waives notice of protest for nonpayment.
The obligations of Guarantor hereunder shall not be affected by (i) the failure
of Interpublic, to assert any claim or demand or to enforce any right or remedy
against any or all of the All American Entities or any other Person under the
provisions of any Related Agreement, as the case may be, or any other agreement
or otherwise; (ii) any amendment, modification, supplement, acceleration,
extension or renewal of any provision hereof or thereof; or (iii) the failure
of Interpublic to obtain the consent of Guarantor (which consent shall not be
necessary) with respect to any rescission, waiver, compromise, acceleration,
amendment or modification of any of the terms or provisions of any Related
Agreement or of any other agreement.
3. Guarantor hereby expressly assumes all responsibility
to remain informed of the financial condition of each of the All American
Entities and any circumstances affecting the ability of each of the All
American Entities to fulfill their respective Guarantor Obligations under any
Related Agreement or any other agreement.
4. Guarantor's guaranty hereunder shall not be (a)
affected by the genuineness, validity, regularity or enforceability of the
Guarantor Obligations or any other instrument evidencing any of the Guarantor
Obligations, (b) affected by the existence, validity, enforceability or
perfection of any collateral, (c) limited to the extent or by any release of
any such collateral or (d) affected or limited by any other circumstance
relating to the Guarantor Obligations which might otherwise constitute a
defense to Guarantor's guaranty hereunder other than the full, timely and
nonrescinded payment and performance of the Guarantor Obligations by the All
American Entities in accordance with the terms of the applicable Relevant
Documents. Interpublic makes no representation or warranty with respect to any
such circumstances and has no duty or responsibility whatsoever to Guarantor in
respect to the
2
<PAGE> 3
management and maintenance of the Guarantor Obligations or any collateral
security for the Guarantor Obligations.
5. The obligations of Guarantor hereunder shall not be
subject to any reduction, limitation, impairment or termination for any reason,
including, without limitation, any claim of waiver, release, surrender,
alteration or compromise, and shall not be subject to any defense or set-off,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of the Guarantor Obligations. Without limiting
the generality of the foregoing, the obligations of Guarantor hereunder shall
not be discharged or impaired or otherwise affected by the failure of
Interpublic to assert any claim or demand or to enforce any remedy under the
Related Agreements or any other agreement by any waiver or modification of any
provision thereof, by any default, failure or delay, willful or otherwise, in
the performance of the Guarantor Obligations, or by any other act or thing or
omission or delay to do any other act or thing which may or might in any manner
or to any extent vary the risk of Guarantor or would otherwise operate as a
discharge of Guarantor as a matter of law, unless and until the Guarantor
Obligations are paid and performed in full.
6. Guarantor's obligations hereunder shall not be
affected by the fact that any of the Guarantor Obligations are unenforceable or
not allowable due to the existence of a bankruptcy, insolvency, reorganization
or other similar procedure involving any All American Entity. Guarantor further
agrees that its guaranty hereunder shall continue to be effective or be
reinstated, as the case may be, if at any time payment or performance, or any
part thereof, of any Guarantor Obligation is rescinded or must otherwise be
restored by Interpublic upon the bankruptcy, insolvency or reorganization of
any of Guarantor or any All American Entity, or otherwise. In furtherance of
the provisions of this Guaranty, and not in limitation of any other right which
Interpublic may have at law or in equity against any of the All American Entity
or Guarantor by virtue hereof, upon failure of any All American Entity to pay
or perform any such Guarantor Obligation to Interpublic when and as the same
shall become due, Guarantor hereby promises to and will, upon receipt of
written demand by or on behalf of Interpublic, on behalf of such All American
Entity, forthwith pay or cause to be paid to Interpublic, on behalf of such all
American Entity, in cash an amount equal to the unpaid amount of all the
Guarantor Obligations then due.
7. All rights of Guarantor against any of the All
American Entities arising as a result of the payment by Guarantor of any sums
to Interpublic hereunder by way of right of subrogation or otherwise shall in
all respects be subordinated and junior in right of payment to the prior final
and indefeasible payment in full of all then outstanding Guarantor Obligations.
If any amount shall be paid to Guarantor for the account of any All American
Entity, such amount shall be held in trust for the benefit of Interpublic and
shall forthwith be paid to Interpublic and be credited and applied to the
Guarantor Obligations.
8. Notwithstanding any other provision of the Agreement,
the amount guaranteed by Guarantor hereunder shall be limited to the extent, if
any, required so that its obligations under this guaranty shall not be subject
to avoidance under Section 548 of the
3
<PAGE> 4
Bankruptcy Code or to being set aside or annulled under any applicable state
law relating to fraud on creditors. In determining the limitations, if any, on
the amount of the Guarantor's Obligations hereunder pursuant to the preceding
sentence, it is the intention of the parties hereto that any rights of
subrogation or contribution which Guarantor may have under this guaranty or the
Agreement shall be taken into account.
9. The rights and/or obligations of Guarantor hereunder
shall not be assigned by Guarantor without the prior written consent of
Interpublic. The rights and/or obligations of Interpublic hereunder shall be
assignable without the approval of Guarantor to any person to whom
Interpublic's rights under any of the Intercreditor Agreement, Operating
Agreement and Letter Agreement are validly assigned. The Guarantor Obligation
set forth in paragraph 1 clause (A) of this Guaranty shall terminate
automatically and shall be of no further force or effect, in the event
Guarantor or its Affiliates (as defined below) acquire all of Interpublic's
membership interests in the Company pursuant to that certain Option Agreement,
dated as of October 6, 1995, by and among AACI, Interpublic and Infoplan. As
used herein, the term "Affiliate" means, with respect to any Person, any other
Person that directly or indirectly controls, is controlled by or is under
common control with such Person and, for purposes of this definition, "control"
shall mean the direct or indirect possession of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
10. From the date hereof and for so long as any Guarantor
Obligations remain unpaid or unsatisfied, Guarantor agrees that it will not:
(a) Incur, create, assume or suffer to exist any (i)
indebtedness for borrowed money (whether by loan or the issuance and sale of
debt securities) or for the deferred purchase price of property or services
purchased (other than amounts constituting trade payables arising in the
ordinary course and payable in accordance with customary trading terms in the
ordinary course of business); (ii) indebtedness of others which Guarantor has
directly or indirectly assumed or guaranteed or for which Guarantor has
otherwise provided credit support; (iii) indebtedness of others secured by a
Lien (as hereinafter defined) on assets of Guarantor whether or not Guarantor
shall have assumed such indebtedness; (iv) obligations of Guarantor in respect
of letters of credit, acceptance facilities, or drafts or similar instruments
issued or accepted by banks and other financial institutions for the account of
Guarantor (other than trade payables arising in the ordinary course and payable
in accordance with customary trading terms in the ordinary course of business);
and (v) obligations of Guarantor under any lease of property (whether real,
personal or mixed) by Guarantor as lessee which, in accordance with GAAP (as
defined in the Security Agreements) is or should be accounted for as a capital
lease on Guarantor's balance sheet (a "Capital Lease" and the items set forth
in (i) - (v) collectively, "Indebtedness") other than:
(A) normal business liabilities which
are not the result of a transaction which is the
equivalent of a borrowing of money;
4
<PAGE> 5
(B) liabilities relating to net or gross
profit participations, deferments, guild residuals
and other costs payable to parties that are not
Affiliates of Guarantor with respect to the
exploitation of any of the Library Rights, Library
Physical Properties, Programs (as each term is
defined in the Main License) or portions thereof or
rights therein as contemplated by and subject to the
terms and conditions of the Related Documents or any
documents contemplated thereby;
(C) Indebtedness pursuant to or
contemplated by any of the Related Agreements;
(D) Indebtedness permitted by (i) that
certain Credit Security, Guaranty and Pledge
Agreement, dated as of April 13, 1995, with Chemical
Bank, as Agent (the "Chemical Agreement") as currently
in effect (other than Indebtedness set forth in
clauses (vi) and (vii) of Section 6.1 of the Chemical
Agreement) or as hereafter amended (so long as such
amendment has been approved by Interpublic or by the
Arbitration Committee of AACI's board of directors
whose members at the time of such approval shall
include three members, one of who is an Interpublic
designee, one of who is an AACI designee and one of
who is an independent designee (as such committee is
constituted, the "Arbitration Committee")), or (ii)
any refinancing of the Chemical Agreement by a party
agreeing to be bound by the terms and conditions of
the Intercreditor Agreement, which refinancing does
not increase the Tranche E Indebtedness then
outstanding under the Chemical Agreement at the time
of such refinancing (any such refinancing, a
"Permitted Refinancing").
(b) Incur, create, assume or suffer to exist any pledge,
mortgage, security, interest, encumbrance, lien, copyright mortgage, or charge
of any kind whatsoever (including any conditional sale or other title retention
agreement, any lease in the nature thereof, and the filing of or agreement to
give any financing statement under the UCC (as such term is defined in the
Security Agreements) (each of the foregoing a "Lien" and collectively "Liens")
on its income, property or assets, whether now owned or hereafter acquired,
except the Liens set forth in clauses (i) - (viii) below (collectively
"Permitted Liens"):
(i) Liens pursuant to written security
agreements (in form and substance reasonably acceptable to the
Interpublic) in favor of guilds required pursuant to terms of
collective bargaining agreements, which Liens are subordinated
or junior to the claims of Interpublic hereunder pursuant to
documentation that is satisfactory in form and substance to
Interpublic;
(ii) Liens for taxes, assessments or
other governmental charges or levies due and payable, the
validity or amount of which is currently being contested in
good faith by appropriate proceedings, provided that,
Guarantor shall have set aside on
5
<PAGE> 6
its books reserves (the presentation of which is segregated to
the extent required by GAAP) adequate with respect thereto if
reserves shall be deemed necessary;
(iii) Liens on receivables in situations
where Guarantor is acting solely as a collection agent for
such receivables in return for a fee;
(iv) Liens customarily granted or
incurred in the ordinary course of business with regard to
services rendered by laboratories and production houses,
record warehouses and suppliers of materials and equipment but
in any instance not securing obligations in excess of $500,000
in the aggregate;
(v) possessory Liens (other than of
laboratories and production houses) which (A) occur in the
ordinary course of business, (B) secure normal trade debt
which is not yet due and payable, (C) do not secure
Indebtedness for borrowed money and (D) do not defer payment
terms beyond 180 days;
(vi) Liens arising out of attachments,
judgments or awards as to which an appeal or other appropriate
proceedings for contest or review are promptly commenced (and
as to which foreclosure and other enforcement proceedings
shall not have been commenced (unless fully bonded or
otherwise effectively stayed));
(vii) Liens in favor of Interpublic or the
Lenders (as such term is defined in the Chemical Agreement)
pursuant to or contemplated by the Chemical Agreement, this
Guaranty, the Intercreditor Agreement or any of the other
Related Agreements.
(viii) Liens permitted by (A) the Chemical
Agreement as currently in effect (other than Liens set forth
in clauses (x), (xii), and (xvi) of Section 6.2 of the
Chemical Agreement) or as hereafter amended (so long as such
amendment has been approved by Interpublic or by the
Arbitration Committee), or (B) any Permitted Refinancing.
(c) Incur, create, assume or suffer to exist any Guaranty
(as hereinafter defined) either directly or indirectly, or otherwise in any way
become responsible for any Indebtedness (including working capital maintenance,
pay-or-play contracts or other similar obligations) of any other Person,
contingently or otherwise, except (A) for the endorsement of negotiable
instruments by AAFII in the ordinary course of business, (B) for Guaranties
pursuant to or contemplated by the Intercreditor Agreement or any of the other
Related Agreements, (C) Guaranties permitted by (i) the Chemical Agreement as
currently in effect (other than Guaranties set forth in clause (iii) of Section
6.3 of the Chemical Agreement) or as hereafter amended (so long as such
amendment has been approved by Interpublic or by the Arbitration Committee), or
(ii) any Permitted Refinancing and (D) this Guaranty. The term "Guaranty"
shall mean direct or indirect obligation guarantying or intended to guaranty
any Indebtedness, Capital Lease, dividend or other monetary obligation
("primary obligation") of any other Person (the "primary
6
<PAGE> 7
obligor") in any manner, whether directly or indirectly, including, without
limitation, any obligation of such Person, whether or not contingent, (i) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor, (ii) to advance or supply funds (x) for the
purchase or payment of any such primary obligation or (y) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, or (iii) to purchase property,
securities or services, in each case, primarily for the purpose of assuring the
owner of any such primary obligation.
(d) Make or permit to exist any loan, advance,
contribution of capital or similar extension of credit to any Affiliate of
Guarantor, other than to AAG or AATII, or purchase any stock of any Affiliate
of Guarantor, other than of AAG or AATII, or make or permit to exist any
commitment for any of the foregoing (except for current trade and customer
accounts receivable for services rendered by an Affiliate in the ordinary
course of business and payable in accordance with customary trading terms in
the ordinary course of business).
(e) Declare, make or incur (i) any liability to make any
distribution, dividend or other direct or indirect payment on account of shares
of any class of stock of Guarantor or any of its subsidiaries now or hereafter
outstanding; (ii) any redemption or other acquisition or re-acquisition by
Guarantor or any of its subsidiaries of any class of its own stock or other
equity interest of Guarantor, any of its subsidiaries or Affiliates now or
hereafter outstanding; (iii) any payment of principal of, premium, if any, or
interest on, or any redemption, purchase, retirement, defeasance, sinking fund
or similar payment with respect to, any Indebtedness subordinated to the
Guarantor Obligations and (iv) any payment made to retire, or obtain the
surrender of any outstanding warrants, puts or options or other rights to
purchase or acquire shares of any class of stock of Guarantor or any of its
subsidiaries now or hereafter outstanding.
(f) Sell, lease, liquidate or otherwise dispose of any
asset, including, without limitation, the Main License, any sublicenses
thereunder and any other licenses for the exploitation of the Library Rights,
Library Physical Properties, Programs or portions thereof or rights therein,
except in the ordinary course of business or as otherwise permitted in the Main
License.
(g) Change the location of its chief executive office or
principal place of business or any of the locations where it keeps any material
portion of the Collateral (as defined in the Security Agreement to which it is
a party) or its books and records with respect to the Collateral or change its
name without (i) giving Interpublic 30 days prior written notice of such change
and (ii) filing any additional UCC financing statements, and such other
documents requested by Interpublic or which are otherwise necessary or
desirable to maintain perfection of the security interest of Interpublic.
(h) Effect any transaction with any Affiliate of
Guarantor other than transactions contemplated or permitted by the Related
Documents.
7
<PAGE> 8
(i) Amend, alter, modify, or waive, or consent to any
amendment, alteration, modification or waiver of the articles of incorporation
or bylaws of Guarantor except (i) such amendments or modifications as are
deemed ministerial and not materially adverse to Interpublic's interests by
Guarantor in its reasonable judgment or (ii) with Interpublic's prior consent,
which consent shall not be unreasonably withheld or delayed.
(j) Merge into or consolidate with a Person.
(k) Engage in any business substantially different from,
or not related to, the business that Guarantor is presently engaged in or
presently contemplated to be engaged in.
(l) Acquire or create any new direct or indirect
subsidiary; provided, however, that Guarantor may incorporate additional
subsidiaries if (i) each such subsidiary executes an instrument of joinder
satisfactory to Interpublic whereby such subsidiary becomes a Guarantor
hereunder and the capital stock of such subsidiary becomes part of the Pledged
Stock (as such term is defined in the Intercreditor Agreement) or (ii)
Guarantor takes such other action in connection with the stock of such
subsidiary as is reasonably deemed appropriate by Interpublic to protect its
security interest therein.
(m) After the date hereof, open or maintain any bank
account other than those accounts referred to in the Intercreditor Agreement or
listed on Schedule I hereto without the prior written consent of Interpublic,
provided that, Interpublic shall be deemed to have consented to the opening or
maintenance of any such bank account if, within ten (10) days after its receipt
of written notice of such opening of such account, Interpublic has not notified
Guarantor of its objection thereto.
11. This Agreement and the obligations arising hereunder
shall be governed by, and construed and enforced in accordance with, the laws
of the State of New York, applicable to contracts made and to be fully
performed within such State, without giving effect to the principles of
conflict of laws thereof. Guarantor hereby irrevocably submits to the
jurisdiction of any New York State court or United States federal court, in
either case sitting in The City of New York, Borough of Manhattan over any
suit, action or other proceeding brought by any party arising out of or
relating to this Agreement, and Guarantor hereby waives any objection that it
may have based upon lack of personal jurisdiction, improper venue or forum non
conveniens. Guarantor hereby irrevocably appoints Kaye, Scholer, Fierman, Hays
& Handler, 425 Park Avenue, New York, New York 10022 (Attention: William E.
Wallace), as its agent to receive service of summons and complaints and any
other process which may be served in any such suit, action or proceeding.
12. The parties hereto waive all right to trial by jury
in any action, suit, or proceeding brought to resolve any dispute, whether in
contract, tort, or otherwise arising out of, connected with, related to, or
incidental to, this agreement or the transactions contemplated hereby.
8
<PAGE> 9
IN WITNESS WHEREOF, AAFII has caused this Guaranty to be
executed and delivered by its duly authorized officer on November 20, 1995.
ALL AMERICAN FREMANTLE II, INC.
ALL AMERICAN FREMANTLE II, INC.
By:
------------------------------------
Name:
Title
9
<PAGE> 10
SCHEDULE I: BANK ACCOUNTS
10
<PAGE> 1
EXHIBIT 10.33
ALL AMERICAN GOODSON, INC. GUARANTY
Reference is made to the following Agreements: the Asset Purchase
Agreement, dated as of October 6, 1995 (the "Asset Purchase Agreement"), by and
among Mark Goodson Productions, L.P and The Child's Play Company, as Sellers,
and Mark Goodson Productions, LLC (the "Company") and The Interpublic Group of
Companies, Inc. ("Interpublic"), as Buyers, and Marvin Goodson, Richard
Schneidman and Jeremy Shamos, as Executors of The Estate of Mark Goodson and
All American Communications, Inc. ("AACI"); the Main License Agreement, dated
as of October 6, 1995 (the "Main License"), by and between the Company and All
American Goodson, Inc. ("AAG" or "Guarantor"); the Amended and Restated
Operating Agreement, dated as of October 6, 1995 (the "Operating Agreement"),
by and among AACI, AAG, Interpublic and Infoplan International, Inc.
("Infoplan"); the Letter Agreement dated as of October 6, 1995 (the "Letter
Agreement"), by and among Interpublic, Infoplan, Interpublic Game Shows, Inc.,
the Company, AACI, AAG, All American Fremantle II, Inc. ("AAFII") and All
American Television II, Inc. ("AATII"); the Intercreditor Agreement, dated as
of October 6 (the "Intercreditor Agreement"), by and among Chemical Bank
(acting for itself and as Agent), Interpublic, AACI, AAG, AAFII, AATII and the
Company; the Affiliate Guaranties, dated as of the date hereof (the "Affiliate
Guaranties"), entered into by each of AATII and AAFII; the Security Agreements,
dated as of the date hereof (the "Security Agreements"), entered into by each
of AAG, AATII and AAFII; and the Pledge Agreements, dated as of the date hereof
(the "Pledge Agreements") entered into by each of AACI, AAG, All American
Television, Inc. and All American Fremantle International, Inc. The Asset
Purchase Agreement, Main License, Operating Agreement, Letter Agreement,
Intercreditor Agreement, Affiliate Guaranties, Security Agreements and Pledge
Agreements are collectively referred to as the "Related Agreements." This
Guaranty is being delivered in order to induce Interpublic to consummate the
transactions contemplated by the Intercreditor Agreement. This Guaranty and
Guarantor Obligations (as defined below) guaranteed hereunder are subordinated
to the Senior Obligations (as such term is defined in the Intercreditor
Agreement) to the extent and on the terms and conditions set forth in the
Intercreditor Agreement.
1. For good and valuable consideration the adequacy of which is
hereby acknowledged Guarantor hereby unconditionally and irrevocably guarantees
to Interpublic, Infoplan International, Inc., and Interpublic Game Shows, Inc.
(A) the due and punctual payment of any and all amounts required to be paid by,
and performance of each and every one of the obligations of AACI to Interpublic
in connection with certain "put" and, upon the occurrence and continuation of a
Make Whole Default (as such term is defined in the Operating Agreement), the
"make whole" obligations of AACI pursuant to the Operating Agreement (as
amended, modified or supplemented from time to time), (B) the due and punctual
payment of any and all amounts to be paid by, and performance of certain
indemnification obligations of AACI to Interpublic pursuant to Section 4(a) of
the Letter Agreement (as amended, modified or
<PAGE> 2
supplemented from time to time) and (C) the due and punctual payment of any and
all amounts to be paid by, and performance of each and every one of the
obligations of AACI, AATII and AAFII to Interpublic pursuant to the first
sentence of Section 19 of the Intercreditor Agreement (as amended, modified or
supplemented from time to time) AACI, AATII and AAFII are collectively referred
to as the "All American Entities" and the payment and performance obligations
set forth in paragraphs (A), (B) and (C) above are collectively referred to as
the "Guarantor Obligations". Guarantor further agrees that the Guarantor
Obligations may be amended, modified, supplemented, accelerated, extended or
renewed, in whole or in part, without notice or further assent from it (except
as may be otherwise expressly required herein), and it will remain bound upon
this Guaranty notwithstanding any amendment, modification, supplement,
acceleration, extension or renewal of any Guarantor Obligation. The term
"Interpublic" as used herein shall refer to Interpublic, Infoplan
International, Inc. and Interpublic Game Shows, Inc. except that when a
provision requires notice to or consent from Interpublic, the term Interpublic
shall refer to only The Interpublic Group of Companies, Inc.
2. Guarantor waives presentation to, or demand for
payment from and protest to, as the case may be, any of the All American
Entities or any other Person (as such term is defined in the Security
Agreements) by Interpublic, and also waives notice of protest for nonpayment.
The obligations of Guarantor hereunder shall not be affected by (i) the failure
of Interpublic, to assert any claim or demand or to enforce any right or remedy
against any or all of the All American Entities or any other Person under the
provisions of any Related Agreement, as the case may be, or any other agreement
or otherwise; (ii) any amendment, modification, supplement, acceleration,
extension or renewal of any provision hereof or thereof; or (iii) the failure
of Interpublic to obtain the consent of Guarantor (which consent shall not be
necessary) with respect to any rescission, waiver, compromise, acceleration,
amendment or modification of any of the terms or provisions of any Related
Agreement or of any other agreement.
3. Guarantor hereby expressly assumes all responsibility to
remain informed of the financial condition of each of the All American Entities
and any circumstances affecting the ability of each of the All American
Entities to fulfill their respective Guarantor Obligations under any Related
Agreement or any other agreement.
4. Guarantor's guaranty hereunder shall not be (a) affected by
the genuineness, validity, regularity or enforceability of the Guarantor
Obligations or any other instrument evidencing any of the Guarantor
Obligations, (b) affected by the existence, validity, enforceability or
perfection of any collateral, (c) limited to the extent or by any release of
any such collateral or (d) affected or limited by any other circumstance
relating to the Guarantor Obligations which might otherwise constitute a
defense to Guarantor's guaranty hereunder other than the full, timely and
nonrescinded payment and performance of the Guarantor Obligations by the All
American Entities in accordance with the terms of the applicable Relevant
Documents. Interpublic makes no representation or warranty with respect to any
such circumstances and has no duty or responsibility whatsoever to Guarantor in
respect to the
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<PAGE> 3
management and maintenance of the Guarantor Obligations or any collateral
security for the Guarantor Obligations.
5. The obligations of Guarantor hereunder shall not be subject to
any reduction, limitation, impairment or termination for any reason, including,
without limitation, any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to any defense or set-off, counterclaim,
recoupment or termination whatsoever by reason of the invalidity, illegality or
unenforceability of the Guarantor Obligations. Without limiting the generality
of the foregoing, the obligations of Guarantor hereunder shall not be
discharged or impaired or otherwise affected by the failure of Interpublic to
assert any claim or demand or to enforce any remedy under the Related
Agreements or any other agreement by any waiver or modification of any
provision thereof, by any default, failure or delay, willful or otherwise, in
the performance of the Guarantor Obligations, or by any other act or thing or
omission or delay to do any other act or thing which may or might in any manner
or to any extent vary the risk of Guarantor or would otherwise operate as a
discharge of Guarantor as a matter of law, unless and until the Guarantor
Obligations are paid and performed in full.
6. Guarantor's obligations hereunder shall not be affected by the
fact that any of the Guarantor Obligations are unenforceable or not allowable
due to the existence of a bankruptcy, insolvency, reorganization or other
similar procedure involving any All American Entity. Guarantor further agrees
that its guaranty hereunder shall continue to be effective or be reinstated, as
the case may be, if at any time payment or performance, or any part thereof, of
any Guarantor Obligation is rescinded or must otherwise be restored by
Interpublic upon the bankruptcy, insolvency or reorganization of any of
Guarantor or any All American Entity, or otherwise. In furtherance of the
provisions of this Guaranty, and not in limitation of any other right which
Interpublic may have at law or in equity against any of the All American Entity
or Guarantor by virtue hereof, upon failure of any All American Entity to pay
or perform any such Guarantor Obligation to Interpublic when and as the same
shall become due, Guarantor hereby promises to and will, upon receipt of
written demand by or on behalf of Interpublic, on behalf of such All American
Entity, forthwith pay or cause to be paid to Interpublic, on behalf of such all
American Entity, in cash an amount equal to the unpaid amount of all the
Guarantor Obligations then due.
7. All rights of Guarantor against any of the All American
Entities arising as a result of the payment by Guarantor of any sums to
Interpublic hereunder by way of right of subrogation or otherwise shall in all
respects be subordinated and junior in right of payment to the prior final and
indefeasible payment in full of all then outstanding Guarantor Obligations. If
any amount shall be paid to Guarantor for the account of any All American
Entity, such amount shall be held in trust for the benefit of Interpublic and
shall forthwith be paid to Interpublic and be credited and applied to the
Guarantor Obligations.
8. Notwithstanding any other provision of the Agreement, the
amount guaranteed by Guarantor hereunder shall be limited to the extent, if
any, required so that its obligations under this guaranty shall not be subject
to avoidance under Section 548 of the
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<PAGE> 4
Bankruptcy Code or to being set aside or annulled under any applicable state
law relating to fraud on creditors. In determining the limitations, if any, on
the amount of the Guarantor's Obligations hereunder pursuant to the preceding
sentence, it is the intention of the parties hereto that any rights of
subrogation or contribution which Guarantor may have under this guaranty or the
Agreement shall be taken into account.
9. The rights and/or obligations of Guarantor hereunder shall not
be assigned by Guarantor without the prior written consent of Interpublic. The
rights and/or obligations of Interpublic hereunder shall be assignable without
the approval of Guarantor to any person to whom Interpublic's rights under any
of the Intercreditor Agreement, Operating Agreement and Letter Agreement are
validly assigned. The Guarantor Obligation set forth in paragraph 1 clause (A)
of this Guaranty shall terminate automatically and shall be of no further force
or effect, in the event Guarantor or its Affiliates (as defined below) acquire
all of Interpublic's membership interests in the Company pursuant to that
certain Option Agreement, dated as of October 6, 1995, by and among AACI,
Interpublic and Infoplan. As used herein, the term "Affiliate" means, with
respect to any Person, any other Person that directly or indirectly controls,
is controlled by or is under common control with such Person and, for purposes
of this definition, "control" shall mean the direct or indirect possession of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
10. From the date hereof and for so long as any Guarantor
Obligations remain unpaid or unsatisfied, Guarantor agrees that it will not:
(a) Incur, create, assume or suffer to exist any (i) indebtedness
for borrowed money (whether by loan or the issuance and sale of debt
securities) or for the deferred purchase price of property or services
purchased (other than amounts constituting trade payables arising in the
ordinary course and payable in accordance with customary trading terms in the
ordinary course of business); (ii) indebtedness of others which Guarantor has
directly or indirectly assumed or guaranteed or for which Guarantor has
otherwise provided credit support; (iii) indebtedness of others secured by a
Lien (as hereinafter defined) on assets of Guarantor whether or not Guarantor
shall have assumed such indebtedness; (iv) obligations of Guarantor in respect
of letters of credit, acceptance facilities, or drafts or similar instruments
issued or accepted by banks and other financial institutions for the account of
Guarantor (other than trade payables arising in the ordinary course and payable
in accordance with customary trading terms in the ordinary course of business);
and (v) obligations of Guarantor under any lease of property (whether real,
personal or mixed) by Guarantor as lessee which, in accordance with GAAP (as
defined in the Security Agreements) is or should be accounted for as a capital
lease on Guarantor's balance sheet (a "Capital Lease" and the items set forth
in (i) - (v) collectively, "Indebtedness") other than:
(A) normal business liabilities which are not the
result of a transaction which is the equivalent of a borrowing
of money;
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<PAGE> 5
(B) liabilities relating to net or gross profit
participations, deferments, guild residuals and other costs
payable to parties that are not Affiliates of Guarantor with
respect to the exploitation of any of the Library Rights,
Library Physical Properties, Programs (as each term is defined
in the Main License) or portions thereof or rights therein as
contemplated by and subject to the terms and conditions of the
Related Documents or any documents contemplated thereby;
(C) Indebtedness pursuant to or contemplated by
any of the Related Agreements;
(D) Indebtedness permitted by (i) that certain
Credit Security, Guaranty and Pledge Agreement, dated as of
April 13, 1995, with Chemical Bank, as Agent (the "Chemical
Agreement") as currently in effect (other than Indebtedness
set forth in clauses (vi) and (vii) of Section 6.1 of the
Chemical Agreement) or as hereafter amended (so long as such
amendment has been approved by Interpublic or by the
Arbitration Committee of AACI's board of directors whose
members at the time of such approval shall include three
members, one of who is an Interpublic designee, one of who is
an AACI designee and one of who is an independent designee
(as such committee is constituted, the "Arbitration
Committee")), or (ii) any refinancing of the Chemical
Agreement by a party agreeing to be bound by the terms and
conditions of the Intercreditor Agreement, which refinancing
does not increase the Tranche E Indebtedness then outstanding
under the Chemical Agreement at the time of such refinancing
(any such refinancing, a "Permitted Refinancing").
(b) Incur, create, assume or suffer to exist any pledge, mortgage,
security, interest, encumbrance, lien, copyright mortgage, or charge of any
kind whatsoever (including any conditional sale or other title retention
agreement, any lease in the nature thereof, and the filing of or agreement to
give any financing statement under the UCC (as such term is defined in the
Security Agreements) (each of the foregoing a "Lien" and collectively "Liens")
on its income, property or assets, whether now owned or hereafter acquired,
except the Liens set forth in clauses (i) - (viii) below (collectively
"Permitted Liens"):
(i) Liens pursuant to written security agreements (in
form and substance reasonably acceptable to the Interpublic) in favor
of guilds required pursuant to terms of collective bargaining
agreements, which Liens are subordinated or junior to the claims of
Interpublic hereunder pursuant to documentation that is satisfactory
in form and substance to Interpublic;
(ii) Liens for taxes, assessments or other governmental
charges or levies due and payable, the validity or amount of which is
currently being contested in good faith by appropriate proceedings,
provided that, Guarantor shall have set aside on
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<PAGE> 6
its books reserves (the presentation of which is segregated to the
extent required by GAAP) adequate with respect thereto if reserves
shall be deemed necessary;
(iii) Liens on receivables in situations where Guarantor is
acting solely as a collection agent for such receivables in return for
a fee;
(iv) Liens customarily granted or incurred in the ordinary
course of business with regard to services rendered by laboratories
and production houses, record warehouses and suppliers of materials
and equipment but in any instance not securing obligations in excess
of $500,000 in the aggregate;
(v) possessory Liens (other than of laboratories and
production houses) which (A) occur in the ordinary course of business,
(B) secure normal trade debt which is not yet due and payable, (C) do
not secure Indebtedness for borrowed money and (D) do not defer
payment terms beyond 180 days;
(vi) Liens arising out of attachments, judgments or awards
as to which an appeal or other appropriate proceedings for contest or
review are promptly commenced (and as to which foreclosure and other
enforcement proceedings shall not have been commenced (unless fully
bonded or otherwise effectively stayed));
(vii) Liens in favor of Interpublic or the Lenders (as such
term is defined in the Chemical Agreement) pursuant to or contemplated
by the Chemical Agreement, this Guaranty, the Intercreditor Agreement
or any of the other Related Agreements.
(viii) Liens permitted by (A) the Chemical Agreement as
currently in effect (other than Liens set forth in clauses (x), (xii),
and (xvi) of Section 6.2 of the Chemical Agreement) or as hereafter
amended (so long as such amendment has been approved by Interpublic
or by the Arbitration Committee), or (B) any Permitted Refinancing.
(c) Incur, create, assume or suffer to exist any Guaranty (as
hereinafter defined) either directly or indirectly, or otherwise in any way
become responsible for any Indebtedness (including working capital maintenance,
pay-or-play contracts or other similar obligations) of any other Person,
contingently or otherwise, except (A) for the endorsement of negotiable
instruments by AAG in the ordinary course of business, (B) for Guaranties
pursuant to or contemplated by the Intercreditor Agreement or any of the other
Related Agreements, (C) Guaranties permitted by (i) the Chemical Agreement as
currently in effect (other than Guaranties set forth in clause (iii) of Section
6.3 of the Chemical Agreement) or as hereafter amended (so long as such
amendment has been approved by Interpublic or by the Arbitration Committee), or
(ii) any Permitted Refinancing and (D) this Guaranty. The term "Guaranty"
shall mean direct or indirect obligation guarantying or intended to guaranty
any Indebtedness, Capital Lease, dividend or other monetary obligation
("primary obligation") of any other Person (the "primary
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<PAGE> 7
obligor") in any manner, whether directly or indirectly, including, without
limitation, any obligation of such Person, whether or not contingent, (i) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor, (ii) to advance or supply funds (x) for the
purchase or payment of any such primary obligation or (y) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, or (iii) to purchase property,
securities or services, in each case, primarily for the purpose of assuring the
owner of any such primary obligation.
(d) Make or permit to exist any loan, advance, contribution of
capital or similar extension of credit to any Affiliate of Guarantor, other
than to AATII or AAFII, or purchase any stock of any Affiliate of Guarantor,
other than of AATII or AAFII, or make or permit to exist any commitment for any
of the foregoing (except for current trade and customer accounts receivable for
services rendered by an Affiliate in the ordinary course of business and
payable in accordance with customary trading terms in the ordinary course of
business).
(e) Declare, make or incur (i) any liability to make any
distribution, dividend or other direct or indirect payment on account of shares
of any class of stock of Guarantor or any of its subsidiaries now or hereafter
outstanding; (ii) any redemption or other acquisition or re-acquisition by
Guarantor or any of its subsidiaries of any class of its own stock or other
equity interest of Guarantor, any of its subsidiaries or Affiliates now or
hereafter outstanding; (iii) any payment of principal of, premium, if any, or
interest on, or any redemption, purchase, retirement, defeasance, sinking fund
or similar payment with respect to, any Indebtedness subordinated to the
Guarantor Obligations and (iv) any payment made to retire, or obtain the
surrender of any outstanding warrants, puts or options or other rights to
purchase or acquire shares of any class of stock of Guarantor or any of its
subsidiaries now or hereafter outstanding.
(f) Sell, lease, liquidate or otherwise dispose of any asset,
including, without limitation, the Main License, any sublicenses thereunder and
any other licenses for the exploitation of the Library Rights, Library Physical
Properties, Programs or portions thereof or rights therein, except in the
ordinary course of business or as otherwise permitted in the Main License.
(g) Change the location of its chief executive office or principal
place of business or any of the locations where it keeps any material portion
of the Collateral (as defined in the Security Agreement to which it is a party)
or its books and records with respect to the Collateral or change its name
without (i) giving Interpublic 30 days prior written notice of such change and
(ii) filing any additional UCC financing statements, and such other documents
requested by Interpublic or which are otherwise necessary or desirable to
maintain perfection of the security interest of Interpublic.
(h) Effect any transaction with any Affiliate of Guarantor other
than transactions contemplated or permitted by the Related Documents.
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<PAGE> 8
(i) Amend, alter, modify, or waive, or consent to any amendment,
alteration, modification or waiver of the articles of incorporation or bylaws
of Guarantor except (i) such amendments or modifications as are deemed
ministerial and not materially adverse to Interpublic's interests by Guarantor
in its reasonable judgment or (ii) with Interpublic's prior consent, which
consent shall not be unreasonably withheld or delayed.
(j) Merge into or consolidate with a Person.
(k) Engage in any business substantially different from, or not
related to, the business that Guarantor is presently engaged in or presently
contemplated to be engaged in.
(l) Acquire or create any new direct or indirect subsidiary;
provided, however, that Guarantor may incorporate additional subsidiaries if
(i) each such subsidiary executes an instrument of joinder satisfactory to
Interpublic whereby such subsidiary becomes a Guarantor hereunder and the
capital stock of such subsidiary becomes part of the Pledged Stock (as such
term is defined in the Intercreditor Agreement) or (ii) Guarantor takes such
other action in connection with the stock of such subsidiary as is reasonably
deemed appropriate by Interpublic to protect its security interest therein.
(m) After the date hereof, open or maintain any bank account other
than those accounts referred to in the Intercreditor Agreement or listed on
Schedule I hereto without the prior written consent of Interpublic, provided
that, Interpublic shall be deemed to have consented to the opening or
maintenance of any such bank account if, within ten (10) days after its receipt
of written notice of such opening of such account, Interpublic has not notified
Guarantor of its objection thereto.
11. This Agreement and the obligations arising hereunder shall be
governed by, and construed and enforced in accordance with, the laws of the
State of New York, applicable to contracts made and to be fully performed
within such State, without giving effect to the principles of conflict of laws
thereof. Guarantor hereby irrevocably submits to the jurisdiction of any New
York State court or United States federal court, in either case sitting in The
City of New York, Borough of Manhattan over any suit, action or other
proceeding brought by any party arising out of or relating to this Agreement,
and Guarantor hereby waives any objection that it may have based upon lack of
personal jurisdiction, improper venue or forum non conveniens. Guarantor
hereby irrevocably appoints Kaye, Scholer, Fierman, Hays & Handler, 425 Park
Avenue, New York, New York 10022 (Attention: William E. Wallace), as its agent
to receive service of summons and complaints and any other process which may be
served in any such suit, action or proceeding.
12. The parties hereto waive all right to trial by jury in any
action, suit, or proceeding brought to resolve any dispute, whether in
contract, tort, or otherwise arising out of, connected with, related to, or
incidental to, this agreement or the transactions contemplated hereby.
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<PAGE> 9
IN WITNESS WHEREOF, AAG has caused this Guaranty to be
executed and delivered by its duly authorized officer on November 20, 1995.
ALL AMERICAN GOODSON, INC.
ALL AMERICAN GOODSON, INC.
By:
----------------------------------
Name:
Title
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<PAGE> 10
SCHEDULE I: BANK ACCOUNTS
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<PAGE> 1
EXHIBIT 10.34
ALL AMERICAN TELEVISION II, INC. GUARANTY
Reference is made to the following Agreements: the Asset Purchase
Agreement, dated as of October 6, 1995 (the "Asset Purchase Agreement"), by and
among Mark Goodson Productions, L.P and The Child's Play Company, as Sellers,
and Mark Goodson Productions, LLC (the "Company") and The Interpublic Group of
Companies, Inc. ("Interpublic"), as Buyers, and Marvin Goodson, Richard
Schneidman and Jeremy Shamos, as Executors of The Estate of Mark Goodson and
All American Communications, Inc. ("AACI"); the Main License Agreement, dated
as of October 6, 1995 (the "Main License"), by and between the Company and All
American Goodson, Inc. ("AAG"); the Amended and Restated Operating Agreement,
dated as of October 6, 1995 (the "Operating Agreement"), by and among AACI,
AAG, Interpublic and Infoplan International, Inc. ("Infoplan"); the Letter
Agreement dated as of October 6, 1995 (the "Letter Agreement"), by and among
Interpublic, Infoplan, Interpublic Game Shows, Inc., the Company, AACI, AAG,
All American Fremantle II, Inc. ("AAFII") and All American Television II, Inc.
("AATII" or "Guarantor"); the Intercreditor Agreement, dated as of October 6
(the "Intercreditor Agreement"), by and among Chemical Bank (acting for itself
and as Agent), Interpublic, AACI, AAG, AAFII, AATII and the Company; the
Affiliate Guaranties, dated as of the date hereof (the "Affiliate Guaranties"),
entered into by each of AAG and AAFII; the Security Agreements, dated as of the
date hereof (the "Security Agreements"), entered into by each of AAG, AATII and
AAFII; and the Pledge Agreements, dated as of the date hereof (the "Pledge
Agreements") entered into by each of AACI, AAG, All American Television, Inc.
and All American Fremantle International, Inc. The Asset Purchase Agreement,
Main License, Operating Agreement, Letter Agreement, Intercreditor Agreement,
Affiliate Guaranties, Security Agreements and Pledge Agreements are
collectively referred to as the "Related Agreements." This Guaranty is being
delivered in order to induce Interpublic to consummate the transactions
contemplated by the Intercreditor Agreement. This Guaranty and Guarantor
Obligations (as defined below) guaranteed hereunder are subordinated to the
Senior Obligations (as such term is defined in the Intercreditor Agreement) to
the extent and on the terms and conditions set forth in the Intercreditor
Agreement.
1. For good and valuable consideration the adequacy of which is
hereby acknowledged Guarantor hereby unconditionally and irrevocably guarantees
to Interpublic, Infoplan International, Inc., and Interpublic Game Shows, Inc.
(A) the due and punctual payment of any and all amounts required to be paid by,
and performance of each and every one of the obligations of AACI to Interpublic
in connection with certain "put" and, upon the occurrence and continuation of a
Make Whole Default (as such term is defined in the Operating Agreement), the
"make whole" obligations of AACI pursuant to the Operating Agreement (as
amended, modified or supplemented from time to time), (B) the due and punctual
payment of any and all amounts to be paid by, and performance of certain
indemnification obligations of AACI to Interpublic pursuant to Section 4(a) of
the Letter Agreement (as amended, modified or
<PAGE> 2
supplemented from time to time) and (C) the due and punctual payment of any and
all amounts to be paid by, and performance of each and every one of the
obligations of AACI, AAG and AAFII to Interpublic pursuant to the first
sentence of Section 19 of the Intercreditor Agreement (as amended, modified or
supplemented from time to time) AACI, AAG and AAFII are collectively referred
to as the "All American Entities" and the payment and performance obligations
set forth in paragraphs (A), (B) and (C) above are collectively referred to as
the "Guarantor Obligations". Guarantor further agrees that the Guarantor
Obligations may be amended, modified, supplemented, accelerated, extended or
renewed, in whole or in part, without notice or further assent from it (except
as may be otherwise expressly required herein), and it will remain bound upon
this Guaranty notwithstanding any amendment, modification, supplement,
acceleration, extension or renewal of any Guarantor Obligation. The term
"Interpublic" as used herein shall refer to Interpublic, Infoplan
International, Inc. and Interpublic Game Shows, Inc. except that when a
provision requires notice to or consent from Interpublic, the term Interpublic
shall refer to only The Interpublic Group of Companies, Inc.
2. Guarantor waives presentation to, or demand for payment from
and protest to, as the case may be, any of the All American Entities or any
other Person (as such term is defined in the Security Agreements) by
Interpublic, and also waives notice of protest for nonpayment. The obligations
of Guarantor hereunder shall not be affected by (i) the failure of Interpublic,
to assert any claim or demand or to enforce any right or remedy against any or
all of the All American Entities or any other Person under the provisions of
any Related Agreement, as the case may be, or any other agreement or otherwise;
(ii) any amendment, modification, supplement, acceleration, extension or
renewal of any provision hereof or thereof; or (iii) the failure of Interpublic
to obtain the consent of Guarantor (which consent shall not be necessary) with
respect to any rescission, waiver, compromise, acceleration, amendment or
modification of any of the terms or provisions of any Related Agreement or of
any other agreement.
3. Guarantor hereby expressly assumes all responsibility to remain
informed of the financial condition of each of the All American Entities and
any circumstances affecting the ability of each of the All American Entities to
fulfill their respective Guarantor Obligations under any Related Agreement or
any other agreement.
4. Guarantor's guaranty hereunder shall not be (a) affected by
the genuineness, validity, regularity or enforceability of the Guarantor
Obligations or any other instrument evidencing any of the Guarantor
Obligations, (b) affected by the existence, validity, enforceability or
perfection of any collateral, (c) limited to the extent or by any release of
any such collateral or (d) affected or limited by any other circumstance
relating to the Guarantor Obligations which might otherwise constitute a
defense to Guarantor's guaranty hereunder other than the full, timely and
nonrescinded payment and performance of the Guarantor Obligations by the All
American Entities in accordance with the terms of the applicable Relevant
Documents. Interpublic makes no representation or warranty with respect to any
such circumstances and has no duty or responsibility whatsoever to Guarantor in
respect to the
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<PAGE> 3
management and maintenance of the Guarantor Obligations or any collateral
security for the Guarantor Obligations.
5. The obligations of Guarantor hereunder shall not be subject to
any reduction, limitation, impairment or termination for any reason, including,
without limitation, any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to any defense or set-off, counterclaim,
recoupment or termination whatsoever by reason of the invalidity, illegality or
unenforceability of the Guarantor Obligations. Without limiting the generality
of the foregoing, the obligations of Guarantor hereunder shall not be
discharged or impaired or otherwise affected by the failure of Interpublic to
assert any claim or demand or to enforce any remedy under the Related
Agreements or any other agreement by any waiver or modification of any
provision thereof, by any default, failure or delay, willful or otherwise, in
the performance of the Guarantor Obligations, or by any other act or thing or
omission or delay to do any other act or thing which may or might in any manner
or to any extent vary the risk of Guarantor or would otherwise operate as a
discharge of Guarantor as a matter of law, unless and until the Guarantor
Obligations are paid and performed in full.
6. Guarantor's obligations hereunder shall not be affected by the
fact that any of the Guarantor Obligations are unenforceable or not allowable
due to the existence of a bankruptcy, insolvency, reorganization or other
similar procedure involving any All American Entity. Guarantor further agrees
that its guaranty hereunder shall continue to be effective or be reinstated, as
the case may be, if at any time payment or performance, or any part thereof, of
any Guarantor Obligation is rescinded or must otherwise be restored by
Interpublic upon the bankruptcy, insolvency or reorganization of any of
Guarantor or any All American Entity, or otherwise. In furtherance of the
provisions of this Guaranty, and not in limitation of any other right which
Interpublic may have at law or in equity against any of the All American Entity
or Guarantor by virtue hereof, upon failure of any All American Entity to pay
or perform any such Guarantor Obligation to Interpublic when and as the same
shall become due, Guarantor hereby promises to and will, upon receipt of
written demand by or on behalf of Interpublic, on behalf of such All American
Entity, forthwith pay or cause to be paid to Interpublic, on behalf of such all
American Entity, in cash an amount equal to the unpaid amount of all the
Guarantor Obligations then due.
7. All rights of Guarantor against any of the All American
Entities arising as a result of the payment by Guarantor of any sums to
Interpublic hereunder by way of right of subrogation or otherwise shall in all
respects be subordinated and junior in right of payment to the prior final and
indefeasible payment in full of all then outstanding Guarantor Obligations. If
any amount shall be paid to Guarantor for the account of any All American
Entity, such amount shall be held in trust for the benefit of Interpublic and
shall forthwith be paid to Interpublic and be credited and applied to the
Guarantor Obligations.
8. Notwithstanding any other provision of the Agreement, the
amount guaranteed by Guarantor hereunder shall be limited to the extent, if
any, required so that its obligations under this guaranty shall not be subject
to avoidance under Section 548 of the
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Bankruptcy Code or to being set aside or annulled under any applicable state
law relating to fraud on creditors. In determining the limitations, if any, on
the amount of the Guarantor's Obligations hereunder pursuant to the preceding
sentence, it is the intention of the parties hereto that any rights of
subrogation or contribution which Guarantor may have under this guaranty or the
Agreement shall be taken into account.
9. The rights and/or obligations of Guarantor hereunder shall not
be assigned by Guarantor without the prior written consent of Interpublic. The
rights and/or obligations of Interpublic hereunder shall be assignable without
the approval of Guarantor to any person to whom Interpublic's rights under any
of the Intercreditor Agreement, Operating Agreement and Letter Agreement are
validly assigned. The Guarantor Obligation set forth in paragraph 1 clause (A)
of this Guaranty shall terminate automatically and shall be of no further force
or effect, in the event Guarantor or its Affiliates (as defined below) acquire
all of Interpublic's membership interests in the Company pursuant to that
certain Option Agreement, dated as of October 6, 1995, by and among AACI,
Interpublic and Infoplan. As used herein, the term "Affiliate" means, with
respect to any Person, any other Person that directly or indirectly controls,
is controlled by or is under common control with such Person and, for purposes
of this definition, "control" shall mean the direct or indirect possession of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
10. From the date hereof and for so long as any Guarantor
Obligations remain unpaid or unsatisfied, Guarantor agrees that it will not:
(a) Incur, create, assume or suffer to exist any (i) indebtedness
for borrowed money (whether by loan or the issuance and sale of debt
securities) or for the deferred purchase price of property or services
purchased (other than amounts constituting trade payables arising in the
ordinary course and payable in accordance with customary trading terms in the
ordinary course of business); (ii) indebtedness of others which Guarantor has
directly or indirectly assumed or guaranteed or for which Guarantor has
otherwise provided credit support; (iii) indebtedness of others secured by a
Lien (as hereinafter defined) on assets of Guarantor whether or not Guarantor
shall have assumed such indebtedness; (iv) obligations of Guarantor in respect
of letters of credit, acceptance facilities, or drafts or similar instruments
issued or accepted by banks and other financial institutions for the account of
Guarantor (other than trade payables arising in the ordinary course and payable
in accordance with customary trading terms in the ordinary course of business);
and (v) obligations of Guarantor under any lease of property (whether real,
personal or mixed) by Guarantor as lessee which, in accordance with GAAP (as
defined in the Security Agreements) is or should be accounted for as a capital
lease on Guarantor's balance sheet (a "Capital Lease" and the items set forth
in (i) - (v) collectively, "Indebtedness") other than:
(A) normal business liabilities which are not the
result of a transaction which is the equivalent of a borrowing
of money;
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(B) liabilities relating to net or gross profit
participations, deferments, guild residuals and other costs
payable to parties that are not Affiliates of Guarantor with
respect to the exploitation of any of the Library Rights,
Library Physical Properties, Programs (as each term is defined
in the Main License) or portions thereof or rights therein as
contemplated by and subject to the terms and conditions of the
Related Documents or any documents contemplated thereby;
(C) Indebtedness pursuant to or contemplated by
any of the Related Agreements;
(D) Indebtedness permitted by (i) that certain
Credit Security, Guaranty and Pledge Agreement, dated as of
April 13, 1995, with Chemical Bank, as Agent (the "Chemical
Agreement") as currently in effect (other than Indebtedness
set forth in clauses (vi) and (vii) of Section 6.1 of the
Chemical Agreement) or as hereafter amended (so long as such
amendment has been approved by Interpublic or by the
Arbitration Committee of AACI's board of directors whose
members at the time of such approval shall include three
members, one of who is an Interpublic designee, one of who is
an AACI designee and one of who is an independent designee
(as such committee is constituted, the "Arbitration
Committee")), or (ii) any refinancing of the Chemical
Agreement by a party agreeing to be bound by the terms and
conditions of the Intercreditor Agreement, which refinancing
does not increase the Tranche E Indebtedness then outstanding
under the Chemical Agreement at the time of such refinancing
(any such refinancing, a "Permitted Refinancing").
(b) Incur, create, assume or suffer to exist any pledge, mortgage,
security, interest, encumbrance, lien, copyright mortgage, or charge of any
kind whatsoever (including any conditional sale or other title retention
agreement, any lease in the nature thereof, and the filing of or agreement to
give any financing statement under the UCC (as such term is defined in the
Security Agreements) (each of the foregoing a "Lien" and collectively "Liens")
on its income, property or assets, whether now owned or hereafter acquired,
except the Liens set forth in clauses (i) - (viii) below (collectively
"Permitted Liens"):
(i) Liens pursuant to written security agreements (in
form and substance reasonably acceptable to the Interpublic) in favor
of guilds required pursuant to terms of collective bargaining
agreements, which Liens are subordinated or junior to the claims of
Interpublic hereunder pursuant to documentation that is satisfactory
in form and substance to Interpublic;
(ii) Liens for taxes, assessments or other governmental
charges or levies due and payable, the validity or amount of which is
currently being contested in good faith by appropriate proceedings,
provided that, Guarantor shall have set aside on
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its books reserves (the presentation of which is segregated to the
extent required by GAAP) adequate with respect thereto if reserves
shall be deemed necessary;
(iii) Liens on receivables in situations where Guarantor is
acting solely as a collection agent for such receivables in return for
a fee;
(iv) Liens customarily granted or incurred in the ordinary
course of business with regard to services rendered by laboratories
and production houses, record warehouses and suppliers of materials
and equipment but in any instance not securing obligations in excess
of $500,000 in the aggregate;
(v) possessory Liens (other than of laboratories and
production houses) which (A) occur in the ordinary course of business,
(B) secure normal trade debt which is not yet due and payable, (C) do
not secure Indebtedness for borrowed money and (D) do not defer
payment terms beyond 180 days;
(vi) Liens arising out of attachments, judgments or awards
as to which an appeal or other appropriate proceedings for contest or
review are promptly commenced (and as to which foreclosure and other
enforcement proceedings shall not have been commenced (unless fully
bonded or otherwise effectively stayed));
(vii) Liens in favor of Interpublic or the Lenders (as such
term is defined in the Chemical Agreement) pursuant to or contemplated
by the Chemical Agreement, this Guaranty, the Intercreditor Agreement
or any of the other Related Agreements.
(viii) Liens permitted by (A) the Chemical Agreement as
currently in effect (other than Liens set forth in clauses (x), (xii),
and (xvi) of Section 6.2 of the Chemical Agreement) or as hereafter
amended (so long as such amendment has been approved by Interpublic
or by the Arbitration Committee), or (B) any Permitted Refinancing.
(c) Incur, create, assume or suffer to exist any Guaranty (as
hereinafter defined) either directly or indirectly, or otherwise in any way
become responsible for any Indebtedness (including working capital maintenance,
pay-or-play contracts or other similar obligations) of any other Person,
contingently or otherwise, except (A) for the endorsement of negotiable
instruments by AATII in the ordinary course of business, (B) for Guaranties
pursuant to or contemplated by the Intercreditor Agreement or any of the other
Related Agreements, (C) Guaranties permitted by (i) the Chemical Agreement as
currently in effect (other than Guaranties set forth in clause (iii) of Section
6.3 of the Chemical Agreement) or as hereafter amended (so long as such
amendment has been approved by Interpublic or by the Arbitration Committee), or
(ii) any Permitted Refinancing and (D) this Guaranty. The term "Guaranty"
shall mean direct or indirect obligation guarantying or intended to guaranty
any Indebtedness, Capital Lease, dividend or other monetary obligation
("primary obligation") of any other Person (the "primary
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obligor") in any manner, whether directly or indirectly, including, without
limitation, any obligation of such Person, whether or not contingent, (i) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor, (ii) to advance or supply funds (x) for the
purchase or payment of any such primary obligation or (y) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, or (iii) to purchase property,
securities or services, in each case, primarily for the purpose of assuring the
owner of any such primary obligation.
(d) Make or permit to exist any loan, advance, contribution of
capital or similar extension of credit to any Affiliate of Guarantor, other
than to AAG or AAFII, or purchase any stock of any Affiliate of Guarantor,
other than of AAG or AAFII, or make or permit to exist any commitment for any
of the foregoing (except for current trade and customer accounts receivable for
services rendered by an Affiliate in the ordinary course of business and
payable in accordance with customary trading terms in the ordinary course of
business).
(e) Declare, make or incur (i) any liability to make any
distribution, dividend or other direct or indirect payment on account of shares
of any class of stock of Guarantor or any of its subsidiaries now or hereafter
outstanding; (ii) any redemption or other acquisition or re-acquisition by
Guarantor or any of its subsidiaries of any class of its own stock or other
equity interest of Guarantor, any of its subsidiaries or Affiliates now or
hereafter outstanding; (iii) any payment of principal of, premium, if any, or
interest on, or any redemption, purchase, retirement, defeasance, sinking fund
or similar payment with respect to, any Indebtedness subordinated to the
Guarantor Obligations and (iv) any payment made to retire, or obtain the
surrender of any outstanding warrants, puts or options or other rights to
purchase or acquire shares of any class of stock of Guarantor or any of its
subsidiaries now or hereafter outstanding.
(f) Sell, lease, liquidate or otherwise dispose of any asset,
including, without limitation, the Main License, any sublicenses thereunder and
any other licenses for the exploitation of the Library Rights, Library Physical
Properties, Programs or portions thereof or rights therein, except in the
ordinary course of business or as otherwise permitted in the Main License.
(g) Change the location of its chief executive office or principal
place of business or any of the locations where it keeps any material portion
of the Collateral (as defined in the Security Agreement to which it is a party)
or its books and records with respect to the Collateral or change its name
without (i) giving Interpublic 30 days prior written notice of such change and
(ii) filing any additional UCC financing statements, and such other documents
requested by Interpublic or which are otherwise necessary or desirable to
maintain perfection of the security interest of Interpublic.
(h) Effect any transaction with any Affiliate of Guarantor other
than transactions contemplated or permitted by the Related Documents.
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(i) Amend, alter, modify, or waive, or consent to any amendment,
alteration, modification or waiver of the articles of incorporation or bylaws
of Guarantor except (i) such amendments or modifications as are deemed
ministerial and not materially adverse to Interpublic's interests by Guarantor
in its reasonable judgment or (ii) with Interpublic's prior consent, which
consent shall not be unreasonably withheld or delayed.
(j) Merge into or consolidate with a Person.
(k) Engage in any business substantially different from, or not
related to, the business that Guarantor is presently engaged in or presently
contemplated to be engaged in.
(l) Acquire or create any new direct or indirect subsidiary;
provided, however, that Guarantor may incorporate additional subsidiaries if
(i) each such subsidiary executes an instrument of joinder satisfactory to
Interpublic whereby such subsidiary becomes a Guarantor hereunder and the
capital stock of such subsidiary becomes part of the Pledged Stock (as such
term is defined in the Intercreditor Agreement) or (ii) Guarantor takes such
other action in connection with the stock of such subsidiary as is reasonably
deemed appropriate by Interpublic to protect its security interest therein.
(m) After the date hereof, open or maintain any bank account other
than those accounts referred to in the Intercreditor Agreement or listed on
Schedule I hereto without the prior written consent of Interpublic, provided
that, Interpublic shall be deemed to have consented to the opening or
maintenance of any such bank account if, within ten (10) days after its receipt
of written notice of such opening of such account, Interpublic has not notified
Guarantor of its objection thereto.
11. This Agreement and the obligations arising hereunder shall be
governed by, and construed and enforced in accordance with, the laws of the
State of New York, applicable to contracts made and to be fully performed
within such State, without giving effect to the principles of conflict of laws
thereof. Guarantor hereby irrevocably submits to the jurisdiction of any New
York State court or United States federal court, in either case sitting in The
City of New York, Borough of Manhattan over any suit, action or other
proceeding brought by any party arising out of or relating to this Agreement,
and Guarantor hereby waives any objection that it may have based upon lack of
personal jurisdiction, improper venue or forum non conveniens. Guarantor
hereby irrevocably appoints Kaye, Scholer, Fierman, Hays & Handler, 425 Park
Avenue, New York, New York 10022 (Attention: William E. Wallace), as its agent
to receive service of summons and complaints and any other process which may be
served in any such suit, action or proceeding.
12. The parties hereto waive all right to trial by jury in any
action, suit, or proceeding brought to resolve any dispute, whether in
contract, tort, or otherwise arising out of, connected with, related to, or
incidental to, this agreement or the transactions contemplated hereby.
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IN WITNESS WHEREOF, AATII has caused this Guaranty to be executed and
delivered by its duly authorized officer on November 20, 1995.
ALL AMERICAN TELEVISION II, INC.
By:
---------------------------------------
Name:
Title
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SCHEDULE I: BANK ACCOUNTS
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EXHIBIT 10.35
GENERAL SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of November 20, 1995, made by All
American Fremantle II, Inc. ("AAFII" or the "Debtor") in favor of The
Interpublic Group of Companies, Inc. ("IPG") as contemplated by the
Intercreditor Agreement, dated as of October 6, 1995, by and among Chemical
Bank acting for itself and as Agent, IPG, All American Goodson, Inc. ("AAG"),
All American Communications, Inc. ("AACI"), AAFII, All American Television II,
Inc. ("AATII") and Mark Goodson Productions, LLC (the "LLC") (the
"Intercreditor Agreement").
W I T N E S S E T H :
WHEREAS, the LLC, IPG and AACI have entered into an Asset Purchase
Agreement (the "Asset Purchase Agreement"), dated as of October 6, 1995, with
Mark Goodson Productions, L.P., The Child's Play Company (together the
"Sellers") and certain other parties pursuant to which the LLC and IPG have
purchased certain of the assets and the LLC has assumed certain liabilities of
the Sellers; and
WHEREAS, the LLC and AAG have entered into a License Agreement (the "Main
License Agreement"), dated as of October 6, 1995, with respect to the
exploitation of the Library Rights, Library Physical Properties, Programs (as
each of the foregoing terms is defined in the Main License Agreement) or
portions thereof or rights therein acquired pursuant to the Asset Purchase
Agreement including, without limitation the right to sublicense to third
parties the rights granted in the Main License Agreement; and
WHEREAS, AACI, AAG, IPG and Infoplan International, Inc. ("Infoplan") have
entered into an Amended and Restated Operating Agreement (the "Operating
Agreement"), dated as of October 6, 1995, in connection with the operations of
the LLC which Operating Agreement became effective immediately after the Final
Closing (as defined in the Asset Purchase Agreement); and
WHEREAS, each of AAG, AAFII and AATII (each, a "Guarantor" and
collectively, the "Guarantors") have entered into a Guaranty (each a "Guaranty"
and collectively the "Guaranties"), dated as of the date hereof, in favor of
IPG guaranteeing the Guarantor Obligations (as defined in the Intercreditor
Agreement); and
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WHEREAS, each of AAG and AATII have entered into a Security Agreement
(together with this Agreement, the "Security Agreements"), dated as of the date
hereof, substantially in the form of this Agreement; and
WHEREAS, each of AACI, AAG, All American Television, Inc. ("AAT") and All
American Fremantle International Inc. ("AAF") have entered into a Pledge
Agreement (the "Pledge Agreements"), dated as of the date hereof, in favor of
IPG pursuant to which AACI, AAT and AAF have pledged their respective right,
title and interest in all of the issued and outstanding capital stock of AAG,
AATII and AAFII and AACI and AAG have pledged their respective membership
interests in the LLC to IPG in connection with the Guarantor Obligations; and
WHEREAS, the parties hereto desire to enter into this General Security
Agreement (this "Agreement") in connection with each of the Guaranties wherein
the Guarantor's Obligations under the Guaranty to which it is a party will be
secured by a security interest in the Collateral (as hereinafter defined)
subordinated to the Senior Obligations (as hereinafter defined) to the extent
and on the terms and conditions set forth in the Intercreditor Agreement; and
NOW THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged by the parties, the parties hereto agree as follows:
1. Interpretation; Defined Terms.
(a) In this Agreement, references to a Person include its successors and
assigns and references to a document are references to that document as
amended, modified, novated or supplemented through the time such reference
becomes effective.
(b) The following terms shall have the following meanings (which shall be
applicable to both the singular and plural forms of the terms defined):
"Account Debtor" means any "account debtor," as such term is defined
in section 9-105(1)(a) of the UCC.
"Accounts" means any "account," as such term is defined in section
9-106 of the UCC, and, to the extent not included within such definition,
all accounts receivable, book debts and other forms of obligations (other
than forms of obligations evidenced by Chattel Paper, Documents or
Instruments) whether arising out of goods sold or services rendered by
Debtor or from any other transaction, whether or not the same involves
the sale of goods or services by Debtor (including, without limitation,
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any such obligation which might be characterized as an account or
contract right under the UCC) and all of Debtor's rights in, to and under
all purchase orders or receipts for goods or services, and all of
Debtor's rights to any goods represented by any of the foregoing
(including, without limitation, unpaid seller's rights of rescission,
replevin, reclamation and stoppage in transit and rights to returned,
reclaimed or repossessed goods), and all moneys due or to become due to
Debtor under all contracts for the sale of goods or the performance of
services or both by Debtor (whether or not yet earned by performance on
the part of Debtor or in connection with any other transaction), now in
existence or hereafter occurring, including, without limitation, the
right to receive the proceeds of said purchase orders and contracts, and
all collateral security and guarantees of any kind given by any Person
with respect to any of the foregoing; in each case whether now owned or
hereafter received or acquired by or belonging or owing to Debtor
(including, without limitation, under any trade names, styles or
divisions thereof).
"Business Day" means any day that is not a Saturday, Sunday or other
day on which banking institutions in New York, New York are authorized or
required by law or executive order to close.
"Chattel Paper" means any "chattel paper," as such term is defined
in section 9-105(1)(b) of the UCC, now owned or hereafter acquired by
Debtor.
"Collateral" has the meaning assigned to such term in Section 2 of
this Agreement.
"Contracts" means all contracts, undertakings, or other agreements
(other than rights evidenced by Chattel Paper, Documents or Instruments)
in or under which Debtor may now or hereafter have any right, title or
interest, including, without limitation, all Licenses and with respect to
an Account, any agreement relating to the terms of payment or the terms
of performance thereof.
"Copyrights" means copyrights and copyrightable works (including
without limitation rights to computer software) of the Debtor in any
jurisdiction along with any and all (i) registrations or applications for
registration of copyrights and renewals or extensions thereof, (ii)
income, royalties, damages and payments now or hereafter due and/or
payable to Debtor with respect thereto, including, without limitation,
damages and payments for past or future infringements or misappropriation
thereof, (iii) rights to sue for past, present and future infringements
or misappropriation thereof, and (iv) all other Proceeds thereof or
rights corresponding thereto throughout the world.
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"Documents" means any "documents," as such term is defined in section
9-105(1)(f) of the UCC, now owned or hereafter acquired by Debtor.
"Equipment" means any "equipment" as such term is defined in section
9-109(2) of the UCC and, to the extent not included within such
definition, all machinery, equipment, furnishings, fixtures, vehicles and
computers and other electronic data-processing and other office equipment
and any and all additions, substitutions and replacements of any of the
foregoing, wherever located, together with all attachments, components,
parts, equipment and accessories installed thereon or affixed thereto; in
each case whether now owned or hereafter acquired by Debtor.
"Event of Default" means the occurrence and continuance of any of
the following events: (i) any of AACI, AAG, AATII or AAFII, as the case
may be, shall default in the payment or performance of any Guarantor
Obligation; (ii) any of AACI, AAG, AATII, AAFII, AAF or AAT, as the case
may be, shall default in the due observance or performance of any
covenant, condition or agreement to be observed or performed pursuant to
the terms of any Guaranty, Security Agreement or Pledge Agreement to
which it is a party and, in the case of a default that is capable of
being cured, such default shall continue unremedied for 10 Business Days
after the defaulting party has received written notice of the occurrence
of such default or otherwise obtained knowledge of such occurrence; (iii)
any representation or warranty made by any of AACI, AAG, AATII, AAFII,
AAF or AAT in any Guaranty, Security Agreement or Pledge Agreement shall
prove to have been false or misleading in any material respect when made
or delivered; or (iv) any Person shall, or shall seek to, seize, take or
realize upon the Collateral.
"GAAP" means generally accepted accounting principles consistently
applied.
"General Intangibles" means any "general intangibles" as such term
is defined in section 9-106 of the UCC and, to the extent not included
within such definition, all right, title and interest which Debtor may
have in or under any License, Contract, all customer lists, Trademarks,
Patents, Copyrights, other rights in intellectual property, permits,
trade secrets, proprietary or confidential information, inventions
(whether patented or patentable or not) and technical information,
procedures, designs, knowledge, know-how, software, data bases, data,
skill, expertise, experience, processes, models, drawings, materials and
records, goodwill and rights of indemnification; in each case whether now
owned or hereafter acquired by Debtor.
"Instruments" means any "instrument" as such term is defined in
section 9-105(1)(i) of the UCC, now owned or hereafter acquired by
Debtor, other than
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instruments that constitute, or are a part of a group of writings that
constitute, Chattel Paper.
"Inventory" means any "inventory" as such term is defined in section
9-109(4) of the UCC and, to the extent not included within such
definition, all inventory, merchandise, goods and other personal property
which are held for sale or lease or are furnished or are to be furnished
under a contract of service or which constitute raw materials, work in
process or materials used or consumed or to be used or consumed in
Debtor's business, or the processing, packaging, delivery or shipping of
the same, and all finished goods; in each case whether now owned or
hereafter acquired by Debtor.
"Licenses" means license agreements, including, without limitation,
the Main License Agreement and any sublicenses entered into in connection
therewith, in which Debtor grants or receives a grant of any interest in
any Trademarks, Patents, Copyrights, trade secrets, proprietary or
confidential information, or any other intellectual property, including,
without limitation, any Library Rights, Library Physical Properties,
Programs or portions thereof or rights therein and any and all (i)
renewals, extensions, supplements and amendments thereof, (ii) income,
royalties, damages and payments now or hereafter due or payable to Debtor
with respect thereto, including, without limitation, damages and payments
for past or future violations or infringements or misappropriation
thereof, (iii) rights to sue for past, present and future violations or
infringements thereof, and (iv) all other Proceeds thereof or rights
corresponding thereto throughout the world.
"Lien" shall have the meaning ascribed to such term in the
Guaranties.
"Patents" means patents and patent applications of the Debtor in any
jurisdiction along with any and all (i) inventions and improvements
described and claimed therein, (ii) reissues, divisions, continuations,
renewals, extensions and continuations-in-part thereof, (iii) income,
royalties, damages and payments now or hereafter due and/or payable to
Debtor with respect thereto, including, without limitation, damages and
payments for past or future infringements or misappropriation thereof,
(iv) rights to sue for past, present and future infringements or
misappropriation thereof, and (v) all other Proceeds thereof or rights
corresponding thereto throughout the world.
"Permitted Liens" shall have the meaning ascribed to such term in
the Guaranties.
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"Person" means any natural person, corporation, division of a
corporation, partnership, trust, joint venture, association, company,
limited liability company, estate, unincorporated organization or
governmental entity.
"Proceeds" means "proceeds" as such term is defined in section
9-306(1) of the UCC and, to the extent not included within such
definition, (i) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to Debtor from time to time with respect to
any of the Collateral, (ii) any and all payments (in any form whatsoever)
made or due and payable to Debtor from time to time in connection with
any requisition, confiscation, condemnation, seizure or forfeiture of all
or any part of the Collateral by any governmental body, authority, bureau
or agency (or any person acting under color of governmental authority),
and (iii) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.
"Senior Obligations" shall have the meaning ascribed to such term in
the Intercreditor Agreement.
"Trademarks" means trademarks (including service marks, brand names,
certification marks, collective marks, trade dress and trade names,
whether registered or at common law) of the Debtor in any jurisdiction,
registrations and applications in any jurisdiction therefor, the goodwill
of Debtor's business connected therewith and symbolized thereby, along
with any and all (i) extensions, modifications or renewals thereof, (ii)
income, royalties, damages and payments now or hereafter due or payable
or both with respect thereto, including, without limitation, damages and
payments for past or future infringements or misappropriations thereof,
(iii) rights to sue for past, present and future infringements or
misappropriations thereof, and (iv) all other Proceeds thereof or rights
corresponding thereto throughout the world.
"Transaction Accounts" means the AAG Expense Account, AAG Funds
Account, Interest Reserve Account and LLC Funds Account as each of the
foregoing terms is defined in the Intercreditor Agreement.
"UCC" means the Uniform Commercial Code as the same may, from time
to time, be in effect in the State of New York; provided, however, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of IPG's security interest in any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, or by the laws of a
jurisdiction other than a state of the United States, the term "UCC"
shall mean the Uniform Commercial Code as in effect in such other
jurisdiction or such
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other laws, as the case may be, for purposes of the provisions hereof
relating to such attachment, perfection or priority.
2. Grant of Security Interest; Grant of Intellectual Property License. As
collateral security for the prompt and complete payment and performance when
due (whether at stated maturity, by acceleration or otherwise) of all the
Guarantor Obligations, Debtor hereby assigns, conveys, mortgages, pledges,
hypothecates and transfers, and hereby grants, to IPG, a security interest in
all of the Debtor's right, title and interest in and to the following property,
in each case whether now owned or hereafter acquired (all of which are
hereinafter collectively referred to as the "Collateral"):
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Contracts;
(iv) all Transaction Accounts;
(v) all Documents;
(vi) all Equipment;
(vii) all General Intangibles;
(viii) all Instruments;
(ix) all inventory;
(x) all other goods and personal property, whether tangible or
intangible or whether now owned or hereafter acquired and wherever
located;
(xi) to the extent not otherwise included, all Proceeds of each of
the foregoing and all accessions to, substitutions and replacements for,
and rents, profits and products of each of the foregoing; and
(xii) all books and records relating to any of the foregoing.
3. Rights of IPG; Limitations on IPG's Obligations. (a) It is expressly
agreed by Debtor that, anything herein to the contrary notwithstanding, Debtor
shall remain liable under each of its Contracts and each of its Licenses to
observe and perform all the
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conditions and obligations to be observed and performed by it thereunder and
Debtor shall perform all of its duties and obligations thereunder, all in
accordance with and pursuant to the terms and provisions of each such Contract
or License. IPG shall not have any duty, responsibility, obligation or
liability under any Contract or License by reason of or arising out of this
Agreement or the granting to IPG of a security interest therein or the receipt
by IPG of any payment relating to any Contract or License pursuant hereto, nor
shall IPG be required or obligated in any manner to perform or fulfill any of
the obligations of Debtor under or pursuant to any Contract or License, or to
make any payment, or to make any inquiry as to the nature or the sufficiency of
any payment received by it or the sufficiency of any performance by any party
under any Contract or License, or to present or file any claim, or to take any
action to collect or enforce any performance or the payment of any amounts
which it may have been entitled to or to which it may be entitled at any time
or times.
(b) Subject to the terms and conditions of the Intercreditor Agreement, if
an Event of Default with respect to Debtor has occurred and is continuing, at
the request of IPG, Debtor shall deliver to IPG all original and other
documents evidencing, and relating to, the sale and delivery of Inventory or
the performance of labor or service which created its Accounts, including,
without limitation, all original orders, invoices and shipping receipts; and,
prior to the occurrence of an Event of Default, Debtor shall deliver
photocopies thereof to IPG at its reasonable request.
(c) Subject to the terms and conditions of the Intercreditor Agreement,
IPG may, upon the occurrence and during the continuation of any Event of
Default with respect to Debtor, notify Account Debtors of Debtor, parties to
the Contracts of Debtor, obligors in respect of Instruments of Debtor and
obligors in respect of Chattel Paper of Debtor that the Accounts and the right,
title and interest of Debtor in and under such Contracts, such Instruments and
such Chattel Paper have been assigned to IPG and that payments shall be made
directly to IPG. Subject to the terms and conditions of the Intercreditor
Agreement, upon the request of IPG if an Event of Default has occurred and is
continuing, Debtor will so notify such Account Debtors, parties to such
Contracts, obligors of such Instruments and obligors in respect of such Chattel
Paper.
4. Representations and Warranties. Debtor hereby represents and warrants
as of the date of this Agreement that:
(a) Except for the security interest granted by this Agreement or pursuant
to the Intercreditor Agreement, Debtor is the sole owner of each item of the
Collateral in which it purports to grant a security interest hereunder, having
good and marketable title thereto, free
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and clear of any and all Liens whatsoever, other than Permitted Liens. No
material liability under or in connection with any of its Accounts or Contracts
is evidenced by Instruments which have not been delivered to IPG. All
Instruments receivable of Debtor as of the date of this Agreement are listed on
Schedule III hereto.
(b) No effective security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering all or any part
of the Collateral is on file or of record in any public office, except (i) such
as may have been filed by Debtor in favor of IPG pursuant to this Agreement,
(ii) filings as to which an effective termination statement has been delivered
to IPG, or (iii) filings with respect to Permitted Liens.
(c) Appropriate financing statements having been filed in the
jurisdictions listed on Schedule I hereto. This Agreement is effective to
create a valid and continuing first priority perfected security interest in the
Collateral of Debtor with respect to which a security interest may be perfected
by filing pursuant to the UCC in favor of IPG, prior to all other Liens other
than Permitted Liens, and is enforceable as such as against creditors of and
purchasers from Debtor (other than purchasers of Inventory in the ordinary
course of business). All action necessary or desirable to protect and perfect
such security interest in each item of the Collateral of Debtor has been duly
taken.
(d) Debtor's principal place of business and the place where its records
concerning the Collateral are kept and the location of its Inventory, Equipment
and all books and records pertaining to the foregoing are as set forth on
Schedule II hereto, and Debtor will not change such principal place of business
or remove such records or change the location of its Inventory, Equipment and
books and records pertaining to the foregoing unless it has given IPG 30 days
advance notice of such change and has taken such action as is necessary or, in
the reasonable judgment of IPG, appropriate to cause the security interest of
IPG in the Collateral to continue to be perfected.
(e) The amount represented by Debtor to IPG from time to time as owing by
each Account Debtor or by all Account Debtors in respect of the Accounts of
Debtor will at such time be the correct amount actually and unconditionally
owing by such Account Debtors thereunder. Each such Account represents a bona
fide sale of Inventory or provision of services to customers, subject to no
setoffs, claims or disputes other than as disclosed to IPG, and Debtor has no
knowledge as of the date hereof (other than as disclosed to IPG) that the
related Account Debtor is unable generally to pay its debts as they become due.
(f) Debtor has the full right, power and authority to enter into this
Agreement and to grant all of the right, title and interest herein granted by
it; the execution, delivery and performance by Debtor of this Agreement do not
and will not contravene Debtor's charter or
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<PAGE> 10
by-laws or any contractual restriction binding on or affecting Debtor or any of
its properties; no consent of any third party is required in connection with
Debtor's execution and delivery of this Agreement (other than such as have been
obtained); and this Agreement has been duly executed and delivered by Debtor
and is a legal, valid and binding obligation of Debtor enforceable against
Debtor in accordance with its terms.
5. Covenants. Debtor covenants and agrees that, subject to the terms and
conditions of the Intercreditor Agreement, from and after the date of this
Agreement and until the Guarantor Obligations have been fully and irrevocably
paid or satisfied:
(a) Further Documentation; Pledge of Instruments. From time to time, upon
the written request of IPG, and at the sole expense of Debtor, Debtor will
promptly and duly execute and deliver any and all such further instruments and
documents and take such further actions as IPG may reasonably deem appropriate
or desirable to obtain or further assure the full benefits of this Agreement
and of the rights and powers herein granted, including, without limitation, (i)
using its commercially reasonable efforts to secure all consents and approvals
necessary or appropriate for the assignment to IPG of any Contract held by
Debtor or in which Debtor has any rights not heretofore assigned, (ii) the
filing of any financing or continuation statements under the UCC with respect
to the security interests granted hereby, (iii) taking such other action as IPG
reasonably requests to perfect its security interest in such Collateral, and
(iv) discharging or obtaining waivers of Liens (other than Permitted Liens) on
the Collateral. Debtor also hereby authorizes IPG to file on its behalf any
such financing or continuation statement without the signature of Debtor to the
extent permitted by applicable law. If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by any
Instrument, such Instrument shall be immediately pledged to IPG hereunder.
(b) Maintenance of Records. Debtor will keep and maintain at its own cost
and expense records of the Collateral that are complete and reasonably
satisfactory to IPG, including, without limitation, a record of all payments
received and all credits granted with respect to the Collateral and all other
dealings with the Collateral. Debtor will mark its books and records
pertaining to the Collateral to evidence this Agreement and the security
interests granted hereby. If reasonably requested by IPG, all Chattel Paper
will be marked with the following legend: "This writing and the obligations
evidenced or secured hereby are subject to the security interest of The
Interpublic Group of Companies, Inc., pursuant to a Security Agreement dated as
of [Signing Date]". If reasonably requested by IPG, the security interest of
IPG shall be noted on the certificate of title of each vehicle owned by Debtor.
For IPG's further security, Debtor agrees that IPG shall have a special
property interest in all of Debtor's books and records pertaining to the
Collateral and, upon the occurrence and during the
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continuation of any Event of Default with respect to Debtor, Debtor shall
deliver and turn over any such books and records to IPG or to its
representatives at any time on demand of IPG, subject to the rights of the
Agent pursuant to or contemplated by the Intercreditor Agreement. Prior to the
occurrence and continuation of an Event of Default with respect to Debtor, at
reasonable times and with reasonable notice from IPG, Debtor shall promptly
permit any representative of IPG to inspect such books and records and will
provide photocopies thereof to IPG.
(c) Indemnification. In any suit, proceeding or action brought by IPG,
subject to the rights of the Agent pursuant to or contemplated by the
Intercreditor Agreement, relating to any Account, Chattel Paper, Contract,
General Intangible or Instrument of Debtor for any sum owing thereunder, or to
enforce any provision of any of the foregoing, Debtor will indemnify and keep
IPG harmless from and against all expense, loss or damage suffered by reason of
any defense, setoff, counterclaim, recoupment or reduction of liability
whatsoever of the obligor thereunder, arising out of a breach by Debtor of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to, or in favor of, such obligor or its successors
from Debtor, and all such obligations of Debtor shall be and remain enforceable
against and only against Debtor and shall not be enforceable against IPG.
(d) Compliance with Terms of Accounts, etc. Debtor will perform and
comply with all obligations in respect of Accounts, Chattel Paper, Contracts
and Licenses and all other agreements to which it is a party or by which it is
bound, except to the extent disputed in the ordinary course of business and in
respect of which adequate reserves have been taken in accordance with GAAP.
(e) Limitation on Liens on Collateral. Debtor will not create, permit or
suffer to exist, and Debtor will defend the Collateral against and take such
other action as is necessary or as IPG reasonably deems appropriate to remove,
any Lien (other than Permitted Liens) on the Collateral, and will defend the
validity and priority of IPG's security interest in and to any of Debtor's
rights under its Chattel Paper, Contracts, Documents, General Intangibles and
Instruments and to its Equipment and Inventory and in and to the Proceeds
thereof against the claims and demands of all Persons whomsoever (other than
against the claims of the Agent in connection with the Senior Obligations).
(f) Limitations on Modifications of Accounts. Upon the occurrence and
during the continuation of any Event of Default, Debtor will not, without IPG's
prior written consent (which consent will not be unreasonably withheld or
delayed), grant any extension of the time of payment of any of the Accounts,
Chattel Paper or Instruments, compromise, compound or settle the same for less
than the full amount thereof, release, wholly or partly,
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any Person liable for the payment thereof, or allow any credit or discount
whatsoever thereon other than trade discounts granted in Debtor's ordinary
course of business as conducted on the date hereof.
(g) Further Identification of Collateral. Debtor will furnish to IPG, as
often as IPG reasonably requests, statements and schedules further identifying
and describing the Collateral and such other reports in connection with the
Collateral as IPG may reasonably request, all in reasonable detail.
(h) Notices. Debtor will advise IPG promptly, in reasonable detail, (i)
of any Lien or claim made or asserted against any of the Collateral, other than
Permitted Liens, and (ii) of the occurrence of any other event which would have
a material adverse effect on the aggregate value of the Collateral or on the
security interests created hereunder.
(i) Right of Inspection. Upon reasonable notice to Debtor (unless an
Event of Default with respect to Debtor has occurred and is continuing, in
which case no notice is necessary), IPG shall at all times have full and free
access during normal business hours (i) to all the books and records and
correspondence of Debtor, and IPG or its representatives may examine the same,
take extracts therefrom and make photocopies thereof, and Debtor agrees to
render to IPG, at Debtor's cost and expense, such clerical and other assistance
as may be reasonably requested with regard thereto and (ii) subject, in the
case of premises not owned by Debtor, to the rights of third parties (whose
cooperation Debtor will make reasonable efforts to procure) to any premises
where any of Debtor's Equipment or Inventory is located for the purpose of
inspecting the same, observing its use or otherwise protecting its interests
therein.
(j) Continuous Perfection. Debtor will not change its name or identity,
or its corporate structure in any manner that could make any financing
statement related to Collateral misleading, unless Debtor shall have given IPG
at least thirty (30) days' prior written notice thereof and shall have taken
all action (or made arrangements to take such action substantially
simultaneously with such change if it is impossible to take such action in
advance) necessary or reasonably requested by IPG to amend such financing
statement or continuation statement so that it is not misleading.
(k) Corporate Existence. Debtor will do or cause to be done all things
reasonably necessary to preserve, renew and keep in full force and effect its
corporate existence, rights, licenses, permits and franchises, and comply with
all applicable statutes, regulations and orders of, and all applicable
restrictions imposed by, any governmental authority.
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(l) Taxes and Charges. Debtor will duly pay and discharge, or cause to
be paid and discharged, before the same shall become in arrears (after giving
effect to applicable extensions), all taxes, assessments, levies and other
governmental charges, imposed upon Debtor or its properties, sales and
activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies which if unpaid might by
law become a Lien upon any property of Debtor; provided, however, that any such
tax, assessment, charge, levy or claim need not be paid if the validity or
amount thereof shall currently be contested in good faith by appropriate
proceedings and if Debtor shall have set aside on its books reserves (the
presentation of which is segregated to the extent required by GAAP) adequate
with respect thereto if reserves shall be deemed necessary; and provided,
further, that Debtor will pay all such taxes, assessments, levies or other
governmental charges forthwith upon the commencement of proceedings to
foreclose any Lien which may have attached as security therefor.
6. IPG's Appointment as Attorney-in-Fact. (a) Debtor hereby irrevocably
constitutes and appoints IPG and any officer or agent thereof, with full power
of substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of Debtor and in the name of Debtor
or in its own name, from time to time in IPG's discretion, for the purpose of
carrying out the terms of this Agreement, to take any and all appropriate
action and to execute and deliver any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Agreement and,
without limiting the generality of the foregoing, hereby gives IPG the power
and right, during the occurrence and continuation of an Event of Default, on
behalf of Debtor, without notice to or assent by Debtor, to do the following to
the extent permitted by the Intercreditor Agreement:
(i) to ask, demand, collect, receive and give acquittances and
receipts for any and all moneys due and to become due under any
Collateral and, in the name of Debtor or its own name or otherwise, to
take possession of and endorse and collect any checks, drafts, notes,
acceptances or other Instruments for the payment of moneys due under any
Collateral and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed appropriate
by IPG for the purpose of collecting any and all such moneys due under
any Collateral whenever payable and to file any claim or to take any
other action or proceeding in any court of law or equity or otherwise
deemed appropriate by IPG for the purpose of collecting any and all such
moneys due under any Collateral whenever payable;
(ii) to pay or discharge taxes or Liens levied or placed on or
threatened against the Collateral, to effect any repairs or any insurance
called for by the terms of
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<PAGE> 14
this Agreement and to pay all or any part of the premiums therefor and
the costs thereof; and
(iii) (A) to direct any party liable for any payment under any of
the Collateral to make payment of any and all moneys due, and to become
due thereunder, directly into the "cash collateral account", as such term
is defined in the Intercreditor Agreement or, if such account is no
longer in effect, any other accounts established pursuant to paragraph 10
hereof, provided that, to the extent that pursuant to the relevant
Guaranty Debtor owes money to IPG, IPG shall have the power and right to
direct any such party to make payment directly to IPG or as IPG shall
otherwise direct; (B) to receive payment of and receipt for any and all
moneys, claims and other amounts due, and to become due at any time, in
respect of or arising out of any Collateral; (C) to sign and indorse any
invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications and notices
in connection with accounts and other Documents constituting or relating
to the Collateral; (D) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any part thereof and to enforce any other right
in respect of any Collateral; (E) to defend any suit, action or
proceeding brought against Debtor with respect to any Collateral; (F) to
settle, compromise or adjust any suit, action or proceeding described
above and, in connection therewith, to give such discharges or releases
as IPG may deem appropriate; (G) to license or, to the extent permitted
by an applicable license, sublicense, whether general, special or
otherwise, and whether on an exclusive or non-exclusive basis, any
Patent, Copyright, trade secret or Trademark, throughout the world for
such term or terms, on such conditions, and in such manner, as IPG shall
in its sole discretion determine; and (H) generally to sell, transfer,
pledge, make any agreement with respect to or otherwise deal with any of
the Collateral as fully and completely as though IPG were the absolute
owner thereof for all purposes, and to do, at IPG's option and Debtor's
expense, at any time, or from time to time, all acts and things which IPG
reasonably deems necessary or appropriate to protect, preserve or realize
upon the Collateral and IPG's interest therein, in order to effect the
intent of this Agreement, all as fully and effectively as Debtor might
do; provided that, proceeds resulting from actions taken pursuant to this
clause (H) shall be deposited directly into the cash collateral account
or, if such account is no longer in effect, any other accounts
established pursuant to paragraph 10 hereof, provided, further, that to
the extent that pursuant to the relevant Guaranty Debtor owes money to
IPG, such proceeds shall be paid directly to IPG or as IPG shall direct.
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(b) IPG agrees that, except upon the occurrence and during the
continuation of an Event of Default, it will forebear from exercising the power
of attorney or any rights granted to IPG pursuant to this Section 6. Debtor
hereby ratifies, to the extent permitted by law, all that said attorneys shall
lawfully do or cause to be done by virtue hereof. The power of attorney
granted pursuant to this Section 6 is a power coupled with an interest and
shall be irrevocable until the Guarantor Obligations are fully satisfied.
(c) The powers conferred on IPG hereunder are solely to protect IPG's
interests in the Collateral and shall not impose any obligation or duty upon it
to exercise any such powers. IPG shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers and neither it nor
any of its officers, directors, employees or agents shall be responsible to
Debtor for any act or failure to act, except for its own gross negligence or
willful misconduct.
(d) Debtor also authorizes IPG to the extent permitted by the
Intercreditor Agreement, at any time and from time to time as is necessary to
maintain, protect and preserve its interest in the Collateral and, for any
other reason, at any time and from time to time following the payment and
performance in full of the Senior Obligations, upon the occurrence and during
the continuation of any Event of Default with respect to Debtor, (i) to
communicate in its own name with any party to any Contract with regard to the
assignment of the right, title and interest of Debtor in and under the
Contracts hereunder and other matters relating thereto and (ii) to execute, in
connection with the sale provided for in Section 8 hereof, any endorsements,
assignments or other instruments of conveyance or transfer with respect to the
Collateral.
7. Performance by IPG of Debtor's Obligations. If Debtor fails to perform
or comply with any of its agreements contained herein in any material respect
and IPG, as provided for by the terms of this Agreement, shall itself perform
or comply, or otherwise cause performance or compliance, with such agreement,
the reasonable expenses of IPG incurred in connection with such performance or
compliance shall be payable by Debtor to IPG on demand and shall constitute
Guarantor Obligations secured hereby. If Debtor does not pay such expenses
within 5 days of IPG's demand, Debtor shall pay such expenses plus interest
thereon at an annual rate equal to the Default Rate (as such term is defined in
the Operating Agreement).
8. Remedies. (a) If an Event of Default with respect to Debtor shall
occur and be continuing, IPG may, in addition to all other rights and remedies
granted to it in this Agreement and in any other instrument or agreement
securing, evidencing or relating to the Guarantor Obligations and subject to
the terms and conditions of the Intercreditor Agreement,
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exercise all rights and remedies of a secured party under the UCC. Without
limiting the generality of the foregoing, Debtor expressly agrees that in any
such event IPG, without demand of performance or other demand, advertisement or
notice of any kind (except the notice specified below of the time and place of
public or private sale) to or upon Debtor or any other Person (all and each of
which demands, advertisements and/or notices are hereby expressly waived to the
extent permitted by the UCC and other applicable law), may forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, lease, assign, give an option or options to
purchase, or sell or otherwise dispose of and deliver said Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange or broker's board or at any of IPG's
offices or elsewhere at such prices as it may deem best, for cash or on credit
or for future delivery without assumption of any credit risk. IPG shall have
the right upon any such public sale or sales, and, to the extent permitted by
law, upon any such private sale or sales, to purchase the whole or any part of
said Collateral so sold, free of any right or equity of redemption, which
equity of redemption Debtor hereby releases to the extent permitted by law.
Debtor further agrees, at IPG's request, to assemble the Collateral and make it
available to IPG at places which IPG shall reasonably select, whether at
Debtor's premises or elsewhere. Debtor will remain liable for any deficiency
remaining unpaid after application of the proceeds of such collection,
recovery, receipt, appropriation, realization or sale. To the maximum extent
permitted by applicable law, Debtor waives all claims, damages, and demands
against IPG arising out of the repossession, retention or sale of the
Collateral except such as arise out of the gross negligence or willful
misconduct of IPG. Debtor agrees that IPG need not give more than ten (10)
days' notice (which notification shall be deemed given when delivered on an
overnight basis, postage prepaid, addressed to Debtor at its address referred
to in Section 11 hereof) of the time and place of any public sale or of the
time after which a private sale may take place and that such notice is
reasonable notification of such matters. Debtor shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which IPG is entitled, Debtor also being
liable for the reasonable fees of any attorneys employed by IPG to collect such
deficiency, provided that, any moneys paid by Debtor pursuant to such liability
shall be deposited directly into the cash collateral account or, if such
account is no longer in effect, any other accounts established pursuant to
paragraph 10 hereof, provided, further, that to the extent that pursuant to the
relevant Guaranty Debtor owes money to IPG, such moneys shall be paid directly
to IPG or as IPG shall direct.
(b) Debtor also agrees to pay all reasonable costs of IPG, including,
without limitation, reasonable attorneys' fees, incurred in connection with the
enforcement of any of its rights and remedies against Debtor hereunder.
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(c) Debtor hereby waives presentment, demand, protest or any notice (to
the maximum extent permitted by applicable law) of any kind in connection with
this Agreement or any Collateral except as expressly provided for herein.
9. Limitation on IPG's Duty in Respect of Collateral. IPG shall not have
any duty as to any Collateral in its possession or control or in the possession
or control of any agent or nominee of it or any income thereon or as to the
preservation of rights against prior parties or any other rights pertaining
thereto, except that IPG shall use reasonable care with respect to the
Collateral in its possession or under its control and except as otherwise
required by law. Upon request of Debtor, IPG shall account for any moneys
received by it in respect of any foreclosure on or disposition of the
Collateral of Debtor.
10. Disbursement of Funding under the Intercreditor Agreement. Prior to
the payment in full and performance in full of the Senior Obligations the
parties hereto shall agree upon procedures for the disbursement of funds in
connection with the subject matter of the Intercreditor Agreement and the
priority of such disbursements, which agreed upon procedures, including,
without limitation, the establishment of such number of bank accounts as the
parties determine is necessary and appropriate to replace the currently
existing accounts referred to in the Intercreditor Agreement, and priorities
shall replace the provisions of Sections 2 and 3 of the Intercreditor Agreement
in effect on the date hereof upon the payment in full of the Senior
Obligations.
11. Termination; Reinstatement. (a) This Agreement and the security
interests created or granted hereby shall terminate on the earlier of (i) the
date that the last of the Guarantor Obligations shall have been fully and
indefeasibly paid and satisfied or (ii) the date that IPG releases the
Guarantor from its obligations hereunder pursuant to that certain Option
Agreement, dated as of October 6, 1995, by and among AACI, IPG and Infoplan, at
which time IPG shall, if requested by Debtor, execute and deliver to Debtor for
filing in each office in which any security agreement, notice or other filing,
or any part thereof, shall have been filed, an instrument releasing IPG's
security interest in the Collateral, and such other documents and instruments
to terminate any security interest of IPG granted hereby as Debtor may
reasonably request, all without recourse upon, or warranty whatsoever by, IPG,
except that the same shall be free and clear of any claims, liens or
encumbrances created by or in respect of IPG, and at the cost and expense of
Debtor.
(b) This Agreement shall remain in full force and effect and continue to
be effective should any petition be filed by or against Debtor for liquidation
or reorganization, should Debtor become insolvent or make an assignment for the
benefit of creditors or should a receiver or trustee be appointed for all or
any significant part of Debtor's assets, and shall
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continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Guarantor Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise
be restored or returned by any obligee of the Guarantor Obligations, whether as
a voidable preference, fraudulent conveyance, or otherwise, all as though such
payment or performance had not been made. In the event that any payment, or
any part thereof, is rescinded, reduced, restored or returned, the Guarantor
Obligations shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.
12. Notices. Any communications required or permitted to be given
hereunder shall be in writing and shall be deemed to have been validly served,
given or delivered (i) upon the earlier of actual receipt and three days after
deposit in the United States Mail, registered or certified mail, with proper
postage prepaid, (ii) upon transmission, when sent by telecopy or other similar
facsimile transmission (promptly confirmed by personal delivery or United
States Mail as otherwise provided in this Section 12), (iii) one Business Day
after deposit with a reputable overnight courier with all charges prepaid or
(iv) when delivered, if hand-delivered by messenger, all of which shall be
addressed to the party to be notified and sent to the address or facsimile
number indicated below or to such other address or facsimile number as may be
substituted by notice given as herein provided. The giving of any notice
required hereunder may be waived in writing by the party entitled to receive
such notice. Failure or delay in delivering copies of any communication to any
Person (other than IPG or Debtor) designated below to receive copies shall in
no way adversely affect the effectiveness of such communication.
(a) If to IPG, at:
The Interpublic Group of Companies, Inc.
1271 Avenue of the Americas
New York, New York 10020
Attention: William S. Keating, Esq.
Telecopy: (212) 399-8280
with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Richard J. Cooper, Esq.
Telecopy: (212) 225-3999
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(b) If to Debtor, at:
All American Fremantle II, Inc.
c/o All American Communications, Inc.
2114 Pico Boulevard
Santa Monica, California 90405
Attention: Thomas Bradshaw
Telecopy: (310) 314-7280
with a copy to:
Kaye, Scholer, Fierman, Hays & Handler
1999 Avenue of the Stars
Suite 1600
Los Angeles, California 900671-6048
Attention: Barry L. Dastin, Esq.
Telecopy: (310) 788-1200
13. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction to the fullest
extent permitted by law, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
14. No Waiver; Cumulative Remedies. IPG shall not by any act, delay,
omission or otherwise be deemed to have waived any of its rights or remedies
hereunder, and no waiver shall be valid unless in writing and signed by IPG,
and then only to the extent therein set forth. A waiver by IPG of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which IPG would otherwise have had on any future occasion. No
failure to exercise nor any delay in exercising on the part of IPG, any right,
power or privilege hereunder, shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or future exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies hereunder provided are cumulative and
may be exercised singly or concurrently, and are not exclusive of any rights
and remedies provided by law. None of the terms or provisions of this
Agreement may be waived, altered, modified or amended except by an instrument
in writing, duly executed by IPG and, except in the case of waivers by IPG, by
Debtor.
15. Successors; Assignments and Transfers. This Agreement and all
obligations of Debtor hereunder shall be binding upon the successors and
assigns of Debtor,
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and shall, together with the rights and remedies of IPG hereunder, inure to the
benefit of IPG and its successors and assigns. The Guarantor shall not consent
or agree to any assignments, transfers or other dispositions of any agreement
governing or evidencing the Guarantor Obligations or any portion thereof or
interest therein that would adversely affect the security interest granted to
IPG hereunder.
16. GOVERNING LAW, ETC. THIS AGREEMENT AND THE OBLIGATIONS ARISING
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK, APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED IN SUCH STATE, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS
OF LAWS THEREOF. DEBTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY
NEW YORK STATE COURT OR UNITED STATE FEDERAL COURT, IN EITHER CASE SITTING IN
THE CITY OF NEW YORK, BOROUGH OF MANHATTAN OVER ANY ACTION, SUIT OR OTHER
PROCEEDING BROUGHT BY ANY PARTY ARISING OUT OF OR RELATING TO THIS AGREEMENT,
AND DEBTOR HEREBY WAIVES ANY OBJECTION THAT IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. DEBTOR HEREBY
IRREVOCABLY APPOINTS KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, 425 PARK AVENUE,
NEW YORK, NEW YORK 10022 (ATTENTION: WILLIAM E. WALLACE), AS ITS AGENT TO
RECEIVE SERVICE OF SUMMONS, AND COMPLAINTS AND ANY OTHER PROCESS WHICH MAY BE
SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING. NOTHING IN THIS AGREEMENT
SHALL, HOWEVER, BE DEEMED OR OPERATE TO PRECLUDE IPG FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE SECURED
OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE SECURED
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF IPG,
PROVIDED THAT IPG RECOGNIZES THAT ITS RIGHTS HEREUNDER ARE SUBJECT TO THE TERMS
AND CONDITIONS OF THE INTERCREDITOR AGREEMENT.
17. Indemnification against Excise and Other Taxes. Debtor agrees to pay,
and forthwith upon demand indemnify IPG against, any and all liabilities with
respect to, or resulting from any delay in paying, any and all excise, sales,
stamp, registration or other similar tax which is or becomes payable with
respect to any of the Collateral.
18. Counterparts. This Agreement may be executed in any number of
counterparts, and this shall have the same effect as if the signatures on the
counterparts were set forth on a single copy of this Agreement.
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19. WAIVER OF JURY TRIAL. THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO, THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered by its duly authorized officer on the
date first set forth above.
ALL AMERICAN FREMANTLE II, INC.
By:
------------------------------
Name:
Title:
Accepted and agreed by:
THE INTERPUBLIC GROUP OF COMPANIES, INC.
By:
---------------------------------
Name:
Title:
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SCHEDULE I: FILINGS
JURISDICTION FILING OFFICE
------------ -------------
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SCHEDULE II
A. Location of Chief Office
B. Location of Inventory and other Collateral
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SCHEDULE III
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EXHIBIT 10.36
GENERAL SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of November 20, 1995, made by All
American Goodson, Inc. ("AAG" or the "Debtor") in favor of The Interpublic
Group of Companies, Inc. ("IPG") as contemplated by the Intercreditor
Agreement, dated as of October 6, 1995, by and among Chemical Bank acting for
itself and as Agent, IPG, AAG, All American Communications, Inc. ("AACI"), All
American Fremantle II, Inc. ("AAFII"), All American Television II, Inc.
("AATII") and Mark Goodson Productions, LLC (the "LLC") (the "Intercreditor
Agreement").
W I T N E S S E T H :
WHEREAS, the LLC, IPG and AACI have entered into an Asset Purchase
Agreement (the "Asset Purchase Agreement"), dated as of October 6, 1995, with
Mark Goodson Productions, L.P., The Child's Play Company (together the
"Sellers") and certain other parties pursuant to which the LLC and IPG have
purchased certain of the assets and the LLC has assumed certain liabilities of
the Sellers; and
WHEREAS, the LLC and AAG have entered into a License Agreement (the "Main
License Agreement"), dated as of October 6, 1995, with respect to the
exploitation of the Library Rights, Library Physical Properties, Programs (as
each of the foregoing terms is defined in the Main License Agreement) or
portions thereof or rights therein acquired pursuant to the Asset Purchase
Agreement including, without limitation the right to sublicense to third
parties the rights granted in the Main License Agreement; and
WHEREAS, AACI, AAG, IPG and Infoplan International, Inc. ("Infoplan") have
entered into an Amended and Restated Operating Agreement (the "Operating
Agreement"), dated as of October 6, 1995, in connection with the operations of
the LLC which Operating Agreement became effective immediately after the Final
Closing (as defined in the Asset Purchase Agreement); and
WHEREAS, each of AAG, AAFII and AATII (each, a "Guarantor" and
collectively, the "Guarantors") have entered into a Guaranty (each a "Guaranty"
and collectively the "Guaranties"), dated as of the date hereof, in favor of
IPG guaranteeing the Guarantor Obligations (as defined in the Intercreditor
Agreement); and
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WHEREAS, each of AAFII and AATII have entered into a Security Agreement
(together with this Agreement, the "Security Agreements"), dated as of the date
hereof, substantially in the form of this Agreement; and
WHEREAS, each of AACI, AAG, All American Television, Inc. ("AAT") and All
American Fremantle International Inc. ("AAF") have entered into a Pledge
Agreement (the "Pledge Agreements"), dated as of the date hereof, in favor of
IPG pursuant to which AACI, AAT and AAF have pledged their respective right,
title and interest in all of the issued and outstanding capital stock of AAG,
AATII and AAFII and AACI and AAG have pledged their respective membership
interests in the LLC to IPG in connection with the Guarantor Obligations; and
WHEREAS, the parties hereto desire to enter into this General Security
Agreement (this "Agreement") in connection with each of the Guaranties wherein
the Guarantor's Obligations under the Guaranty to which it is a party will be
secured by a security interest in the Collateral (as hereinafter defined)
subordinated to the Senior Obligations (as hereinafter defined) to the extent
and on the terms and conditions set forth in the Intercreditor Agreement; and
NOW THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged by the parties, the parties hereto agree as follows:
1. Interpretation; Defined Terms.
(a) In this Agreement, references to a Person include its successors and
assigns and references to a document are references to that document as
amended, modified, novated or supplemented through the time such reference
becomes effective.
(b) The following terms shall have the following meanings (which shall be
applicable to both the singular and plural forms of the terms defined):
"Account Debtor" means any "account debtor," as such term is defined
in section 9-105(1)(a) of the UCC.
"Accounts" means any "account," as such term is defined in section
9-106 of the UCC, and, to the extent not included within such definition,
all accounts receivable, book debts and other forms of obligations (other
than forms of obligations evidenced by Chattel Paper, Documents or
Instruments) whether arising out of goods sold or services rendered by
Debtor or from any other transaction, whether or not the same involves
the sale of goods or services by Debtor (including, without limitation,
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any such obligation which might be characterized as an account or
contract right under the UCC) and all of Debtor's rights in, to and under
all purchase orders or receipts for goods or services, and all of
Debtor's rights to any goods represented by any of the foregoing
(including, without limitation, unpaid seller's rights of rescission,
replevin, reclamation and stoppage in transit and rights to returned,
reclaimed or repossessed goods), and all moneys due or to become due to
Debtor under all contracts for the sale of goods or the performance of
services or both by Debtor (whether or not yet earned by performance on
the part of Debtor or in connection with any other transaction), now in
existence or hereafter occurring, including, without limitation, the
right to receive the proceeds of said purchase orders and contracts, and
all collateral security and guarantees of any kind given by any Person
with respect to any of the foregoing; in each case whether now owned or
hereafter received or acquired by or belonging or owing to Debtor
(including, without limitation, under any trade names, styles or
divisions thereof).
"Business Day" means any day that is not a Saturday, Sunday or other
day on which banking institutions in New York, New York are authorized or
required by law or executive order to close.
"Chattel Paper" means any "chattel paper," as such term is defined
in section 9-105(1)(b) of the UCC, now owned or hereafter acquired by
Debtor.
"Collateral" has the meaning assigned to such term in Section 2 of
this Agreement.
"Contracts" means all contracts, undertakings, or other agreements
(other than rights evidenced by Chattel Paper, Documents or Instruments)
in or under which Debtor may now or hereafter have any right, title or
interest, including, without limitation, all Licenses and with respect to
an Account, any agreement relating to the terms of payment or the terms
of performance thereof.
"Copyrights" means copyrights and copyrightable works (including
without limitation rights to computer software) of the Debtor in any
jurisdiction along with any and all (i) registrations or applications for
registration of copyrights and renewals or extensions thereof, (ii)
income, royalties, damages and payments now or hereafter due and/or
payable to Debtor with respect thereto, including, without limitation,
damages and payments for past or future infringements or misappropriation
thereof, (iii) rights to sue for past, present and future infringements
or misappropriation thereof, and (iv) all other Proceeds thereof or
rights corresponding thereto throughout the world.
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"Documents" means any "documents," as such term is defined in section
9-105(1)(f) of the UCC, now owned or hereafter acquired by Debtor.
"Equipment" means any "equipment" as such term is defined in section
9-109(2) of the UCC and, to the extent not included within such
definition, all machinery, equipment, furnishings, fixtures, vehicles and
computers and other electronic data-processing and other office equipment
and any and all additions, substitutions and replacements of any of the
foregoing, wherever located, together with all attachments, components,
parts, equipment and accessories installed thereon or affixed thereto; in
each case whether now owned or hereafter acquired by Debtor.
"Event of Default" means the occurrence and continuance of any of
the following events: (i) any of AACI, AAG, AATII or AAFII, as the case
may be, shall default in the payment or performance of any Guarantor
Obligation; (ii) any of AACI, AAG, AATII, AAFII, AAF or AAT, as the case
may be, shall default in the due observance or performance of any
covenant, condition or agreement to be observed or performed pursuant to
the terms of any Guaranty, Security Agreement or Pledge Agreement to
which it is a party and, in the case of a default that is capable of
being cured, such default shall continue unremedied for 10 Business Days
after the defaulting party has received written notice of the occurrence
of such default or otherwise obtained knowledge of such occurrence; (iii)
any representation or warranty made by any of AACI, AAG, AATII, AAFII,
AAF or AAT in any Guaranty, Security Agreement or Pledge Agreement shall
prove to have been false or misleading in any material respect when made
or delivered; or (iv) any Person shall, or shall seek to, seize, take or
realize upon the Collateral.
"GAAP" means generally accepted accounting principles consistently
applied.
"General Intangibles" means any "general intangibles" as such term
is defined in section 9-106 of the UCC and, to the extent not included
within such definition, all right, title and interest which Debtor may
have in or under any License, Contract, all customer lists, Trademarks,
Patents, Copyrights, other rights in intellectual property, permits,
trade secrets, proprietary or confidential information, inventions
(whether patented or patentable or not) and technical information,
procedures, designs, knowledge, know-how, software, data bases, data,
skill, expertise, experience, processes, models, drawings, materials and
records, goodwill and rights of indemnification; in each case whether now
owned or hereafter acquired by Debtor.
"Instruments" means any "instrument" as such term is defined in
section 9-105(1)(i) of the UCC, now owned or hereafter acquired by
Debtor, other than
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instruments that constitute, or are a part of a group of writings that
constitute, Chattel Paper.
"Inventory" means any "inventory" as such term is defined in section
9-109(4) of the UCC and, to the extent not included within such
definition, all inventory, merchandise, goods and other personal property
which are held for sale or lease or are furnished or are to be furnished
under a contract of service or which constitute raw materials, work in
process or materials used or consumed or to be used or consumed in
Debtor's business, or the processing, packaging, delivery or shipping of
the same, and all finished goods; in each case whether now owned or
hereafter acquired by Debtor.
"Licenses" means license agreements, including, without limitation,
the Main License Agreement and any sublicenses entered into in connection
therewith, in which Debtor grants or receives a grant of any interest in
any Trademarks, Patents, Copyrights, trade secrets, proprietary or
confidential information, or any other intellectual property, including,
without limitation, any Library Rights, Library Physical Properties,
Programs or portions thereof or rights therein and any and all (i)
renewals, extensions, supplements and amendments thereof, (ii) income,
royalties, damages and payments now or hereafter due or payable to Debtor
with respect thereto, including, without limitation, damages and payments
for past or future violations or infringements or misappropriation
thereof, (iii) rights to sue for past, present and future violations or
infringements thereof, and (iv) all other Proceeds thereof or rights
corresponding thereto throughout the world.
"Lien" shall have the meaning ascribed to such term in the
Guaranties.
"Patents" means patents and patent applications of the Debtor in any
jurisdiction along with any and all (i) inventions and improvements
described and claimed therein, (ii) reissues, divisions, continuations,
renewals, extensions and continuations-in-part thereof, (iii) income,
royalties, damages and payments now or hereafter due and/or payable to
Debtor with respect thereto, including, without limitation, damages and
payments for past or future infringements or misappropriation thereof,
(iv) rights to sue for past, present and future infringements or
misappropriation thereof, and (v) all other Proceeds thereof or rights
corresponding thereto throughout the world.
"Permitted Liens" shall have the meaning ascribed to such term in
the Guaranties.
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"Person" means any natural person, corporation, division of a
corporation, partnership, trust, joint venture, association, company,
limited liability company, estate, unincorporated organization or
governmental entity.
"Proceeds" means "proceeds" as such term is defined in section
9-306(1) of the UCC and, to the extent not included within such
definition, (i) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to Debtor from time to time with respect to
any of the Collateral, (ii) any and all payments (in any form whatsoever)
made or due and payable to Debtor from time to time in connection with
any requisition, confiscation, condemnation, seizure or forfeiture of all
or any part of the Collateral by any governmental body, authority, bureau
or agency (or any person acting under color of governmental authority),
and (iii) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.
"Senior Obligations" shall have the meaning ascribed to such term in
the Intercreditor Agreement.
"Trademarks" means trademarks (including service marks, brand names,
certification marks, collective marks, trade dress and trade names,
whether registered or at common law) of the Debtor in any jurisdiction,
registrations and applications in any jurisdiction therefor, the goodwill
of Debtor's business connected therewith and symbolized thereby, along
with any and all (i) extensions, modifications or renewals thereof, (ii)
income, royalties, damages and payments now or hereafter due or payable
or both with respect thereto, including, without limitation, damages and
payments for past or future infringements or misappropriations thereof,
(iii) rights to sue for past, present and future infringements or
misappropriations thereof, and (iv) all other Proceeds thereof or rights
corresponding thereto throughout the world.
"Transaction Accounts" means the AAG Expense Account, AAG Funds
Account, Interest Reserve Account and LLC Funds Account as each of the
foregoing terms is defined in the Intercreditor Agreement.
"UCC" means the Uniform Commercial Code as the same may, from time
to time, be in effect in the State of New York; provided, however, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of IPG's security interest in any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, or by the laws of a
jurisdiction other than a state of the United States, the term "UCC"
shall mean the Uniform Commercial Code as in effect in such other
jurisdiction or such
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other laws, as the case may be, for purposes of the provisions hereof
relating to such attachment, perfection or priority.
2. Grant of Security Interest; Grant of Intellectual Property License. As
collateral security for the prompt and complete payment and performance when
due (whether at stated maturity, by acceleration or otherwise) of all the
Guarantor Obligations, Debtor hereby assigns, conveys, mortgages, pledges,
hypothecates and transfers, and hereby grants, to IPG, a security interest in
all of the Debtor's right, title and interest in and to the following property,
in each case whether now owned or hereafter acquired (all of which are
hereinafter collectively referred to as the "Collateral"):
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Contracts;
(iv) all Transaction Accounts;
(v) all Documents;
(vi) all Equipment;
(vii) all General Intangibles;
(viii) all Instruments;
(ix) all Inventory;
(x) all other goods and personal property, whether tangible or
intangible or whether now owned or hereafter acquired and wherever
located;
(xi) to the extent not otherwise included, all Proceeds of each of
the foregoing and all accessions to, substitutions and replacements for,
and rents, profits and products of each of the foregoing; and
(xii) all books and records relating to any of the foregoing.
3. Rights of IPG; Limitations on IPG's Obligations. (a) It is expressly
agreed by Debtor that, anything herein to the contrary notwithstanding, Debtor
shall remain liable under each of its Contracts and each of its Licenses to
observe and perform all the
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conditions and obligations to be observed and performed by it thereunder and
Debtor shall perform all of its duties and obligations thereunder, all in
accordance with and pursuant to the terms and provisions of each such Contract
or License. IPG shall not have any duty, responsibility, obligation or
liability under any Contract or License by reason of or arising out of this
Agreement or the granting to IPG of a security interest therein or the receipt
by IPG of any payment relating to any Contract or License pursuant hereto, nor
shall IPG be required or obligated in any manner to perform or fulfill any of
the obligations of Debtor under or pursuant to any Contract or License, or to
make any payment, or to make any inquiry as to the nature or the sufficiency of
any payment received by it or the sufficiency of any performance by any party
under any Contract or License, or to present or file any claim, or to take any
action to collect or enforce any performance or the payment of any amounts
which it may have been entitled to or to which it may be entitled at any time
or times.
(b) Subject to the terms and conditions of the Intercreditor Agreement, if
an Event of Default with respect to Debtor has occurred and is continuing, at
the request of IPG, Debtor shall deliver to IPG all original and other
documents evidencing, and relating to, the sale and delivery of Inventory or
the performance of labor or service which created its Accounts, including,
without limitation, all original orders, invoices and shipping receipts; and,
prior to the occurrence of an Event of Default, Debtor shall deliver
photocopies thereof to IPG at its reasonable request.
(c) Subject to the terms and conditions of the Intercreditor Agreement,
IPG may, upon the occurrence and during the continuation of any Event of
Default with respect to Debtor, notify Account Debtors of Debtor, parties to
the Contracts of Debtor, obligors in respect of Instruments of Debtor and
obligors in respect of Chattel Paper of Debtor that the Accounts and the right,
title and interest of Debtor in and under such Contracts, such Instruments and
such Chattel Paper have been assigned to IPG and that payments shall be made
directly to IPG. Subject to the terms and conditions of the Intercreditor
Agreement, upon the request of IPG if an Event of Default has occurred and is
continuing, Debtor will so notify such Account Debtors, parties to such
Contracts, obligors of such Instruments and obligors in respect of such Chattel
Paper.
4. Representations and Warranties. Debtor hereby represents and warrants
as of the date of this Agreement that:
(a) Except for the security interest granted by this Agreement or pursuant
to the Intercreditor Agreement, Debtor is the sole owner of each item of the
Collateral in which it purports to grant a security interest hereunder, having
good and marketable title thereto, free
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and clear of any and all Liens whatsoever, other than Permitted Liens. No
material liability under or in connection with any of its Accounts or Contracts
is evidenced by Instruments which have not been delivered to IPG. All
Instruments receivable of Debtor as of the date of this Agreement are listed on
Schedule III hereto.
(b) No effective security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering all or any part
of the Collateral is on file or of record in any public office, except (i) such
as may have been filed by Debtor in favor of IPG pursuant to this Agreement,
(ii) filings as to which an effective termination statement has been delivered
to IPG, or (iii) filings with respect to Permitted Liens.
(c) Appropriate financing statements having been filed in the
jurisdictions listed on Schedule I hereto. This Agreement is effective to
create a valid and continuing first priority perfected security interest in the
Collateral of Debtor with respect to which a security interest may be perfected
by filing pursuant to the UCC in favor of IPG, prior to all other Liens other
than Permitted Liens, and is enforceable as such as against creditors of and
purchasers from Debtor (other than purchasers of Inventory in the ordinary
course of business). All action necessary or desirable to protect and perfect
such security interest in each item of the Collateral of Debtor has been duly
taken.
(d) Debtor's principal place of business and the place where its records
concerning the Collateral are kept and the location of its Inventory, Equipment
and all books and records pertaining to the foregoing are as set forth on
Schedule II hereto, and Debtor will not change such principal place of business
or remove such records or change the location of its Inventory, Equipment and
books and records pertaining to the foregoing unless it has given IPG 30 days
advance notice of such change and has taken such action as is necessary or, in
the reasonable judgment of IPG, appropriate to cause the security interest of
IPG in the Collateral to continue to be perfected.
(e) The amount represented by Debtor to IPG from time to time as owing by
each Account Debtor or by all Account Debtors in respect of the Accounts of
Debtor will at such time be the correct amount actually and unconditionally
owing by such Account Debtors thereunder. Each such Account represents a bona
fide sale of Inventory or provision of services to customers, subject to no
setoffs, claims or disputes other than as disclosed to IPG, and Debtor has no
knowledge as of the date hereof (other than as disclosed to IPG) that the
related Account Debtor is unable generally to pay its debts as they become due.
(f) Debtor has the full right, power and authority to enter into this
Agreement and to grant all of the right, title and interest herein granted by
it; the execution, delivery and performance by Debtor of this Agreement do not
and will not contravene Debtor's charter or
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by-laws or any contractual restriction binding on or affecting Debtor or any of
its properties; no consent of any third party is required in connection with
Debtor's execution and delivery of this Agreement (other than such as have been
obtained); and this Agreement has been duly executed and delivered by Debtor
and is a legal, valid and binding obligation of Debtor enforceable against
Debtor in accordance with its terms.
5. Covenants. Debtor covenants and agrees that, subject to the terms and
conditions of the Intercreditor Agreement, from and after the date of this
Agreement and until the Guarantor Obligations have been fully and irrevocably
paid or satisfied:
(a) Further Documentation; Pledge of Instruments. From time to time, upon
the written request of IPG, and at the sole expense of Debtor, Debtor will
promptly and duly execute and deliver any and all such further instruments and
documents and take such further actions as IPG may reasonably deem appropriate
or desirable to obtain or further assure the full benefits of this Agreement
and of the rights and powers herein granted, including, without limitation, (i)
using its commercially reasonable efforts to secure all consents and approvals
necessary or appropriate for the assignment to IPG of any Contract held by
Debtor or in which Debtor has any rights not heretofore assigned, (ii) the
filing of any financing or continuation statements under the UCC with respect
to the security interests granted hereby, (iii) taking such other action as IPG
reasonably requests to perfect its security interest in such Collateral, and
(iv) discharging or obtaining waivers of Liens (other than Permitted Liens) on
the Collateral. Debtor also hereby authorizes IPG to file on its behalf any
such financing or continuation statement without the signature of Debtor to the
extent permitted by applicable law. If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by any
Instrument, such Instrument shall be immediately pledged to IPG hereunder.
(b) Maintenance of Records. Debtor will keep and maintain at its own cost
and expense records of the Collateral that are complete and reasonably
satisfactory to IPG, including, without limitation, a record of all payments
received and all credits granted with respect to the Collateral and all other
dealings with the Collateral. Debtor will mark its books and records
pertaining to the Collateral to evidence this Agreement and the security
interests granted hereby. If reasonably requested by IPG, all Chattel Paper
will be marked with the following legend: "This writing and the obligations
evidenced or secured hereby are subject to the security interest of The
Interpublic Group of Companies, Inc., pursuant to a Security Agreement dated as
of [Signing Date]". If reasonably requested by IPG, the security interest of
IPG shall be noted on the certificate of title of each vehicle owned by Debtor.
For IPG's further security, Debtor agrees that IPG shall have a special
property interest in all of Debtor's books and records pertaining to the
Collateral and, upon the occurrence and during the
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continuation of any Event of Default with respect to Debtor, Debtor shall
deliver and turn over any such books and records to IPG or to its
representatives at any time on demand of IPG, subject to the rights of the
Agent pursuant to or contemplated by the Intercreditor Agreement. Prior to the
occurrence and continuation of an Event of Default with respect to Debtor, at
reasonable times and with reasonable notice from IPG, Debtor shall promptly
permit any representative of IPG to inspect such books and records and will
provide photocopies thereof to IPG.
(c) Indemnification. In any suit, proceeding or action brought by IPG,
subject to the rights of the Agent pursuant to or contemplated by the
Intercreditor Agreement, relating to any Account, Chattel Paper, Contract,
General Intangible or Instrument of Debtor for any sum owing thereunder, or to
enforce any provision of any of the foregoing, Debtor will indemnify and keep
IPG harmless from and against all expense, loss or damage suffered by reason of
any defense, setoff, counterclaim, recoupment or reduction of liability
whatsoever of the obligor thereunder, arising out of a breach by Debtor of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to, or in favor of, such obligor or its successors
from Debtor, and all such obligations of Debtor shall be and remain enforceable
against and only against Debtor and shall not be enforceable against IPG.
(d) Compliance with Terms of Accounts, etc. Debtor will perform and
comply with all obligations in respect of Accounts, Chattel Paper, Contracts
and Licenses and all other agreements to which it is a party or by which it is
bound, except to the extent disputed in the ordinary course of business and in
respect of which adequate reserves have been taken in accordance with GAAP.
(e) Limitation on Liens on Collateral. Debtor will not create, permit or
suffer to exist, and Debtor will defend the Collateral against and take such
other action as is necessary or as IPG reasonably deems appropriate to remove,
any Lien (other than Permitted Liens) on the Collateral, and will defend the
validity and priority of IPG's security interest in and to any of Debtor's
rights under its Chattel Paper, Contracts, Documents, General Intangibles and
Instruments and to its Equipment and Inventory and in and to the Proceeds
thereof against the claims and demands of all Persons whomsoever (other than
against the claims of the Agent in connection with the Senior Obligations).
(f) Limitations on Modifications of Accounts. Upon the occurrence and
during the continuation of any Event of Default, Debtor will not, without IPG's
prior written consent (which consent will not be unreasonably withheld or
delayed), grant any extension of the time of payment of any of the Accounts,
Chattel Paper or Instruments, compromise, compound or settle the same for less
than the full amount thereof, release, wholly or partly,
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any Person liable for the payment thereof, or allow any credit or discount
whatsoever thereon other than trade discounts granted in Debtor's ordinary
course of business as conducted on the date hereof.
(g) Further Identification of Collateral. Debtor will furnish to IPG, as
often as IPG reasonably requests, statements and schedules further identifying
and describing the Collateral and such other reports in connection with the
Collateral as IPG may reasonably request, all in reasonable detail.
(h) Notices. Debtor will advise IPG promptly, in reasonable detail, (i)
of any Lien or claim made or asserted against any of the Collateral, other than
Permitted Liens, and (ii) of the occurrence of any other event which would have
a material adverse effect on the aggregate value of the Collateral or on the
security interests created hereunder.
(i) Right of Inspection. Upon reasonable notice to Debtor (unless an
Event of Default with respect to Debtor has occurred and is continuing, in
which case no notice is necessary), IPG shall at all times have full and free
access during normal business hours (i) to all the books and records and
correspondence of Debtor, and IPG or its representatives may examine the same,
take extracts therefrom and make photocopies thereof, and Debtor agrees to
render to IPG, at Debtor's cost and expense, such clerical and other assistance
as may be reasonably requested with regard thereto and (ii) subject, in the
case of premises not owned by Debtor, to the rights of third parties (whose
cooperation Debtor will make reasonable efforts to procure) to any premises
where any of Debtor's Equipment or Inventory is located for the purpose of
inspecting the same, observing its use or otherwise protecting its interests
therein.
(j) Continuous Perfection. Debtor will not change its name or identity,
or its corporate structure in any manner that could make any financing
statement related to Collateral misleading, unless Debtor shall have given IPG
at least thirty (30) days' prior written notice thereof and shall have taken
all action (or made arrangements to take such action substantially
simultaneously with such change if it is impossible to take such action in
advance) necessary or reasonably requested by IPG to amend such financing
statement or continuation statement so that it is not misleading.
(k) Corporate Existence. Debtor will do or cause to be done all things
reasonably necessary to preserve, renew and keep in full force and effect its
corporate existence, rights, licenses, permits and franchises, and comply with
all applicable statutes, regulations and orders of, and all applicable
restrictions imposed by, any governmental authority.
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(l) Taxes and Charges. Debtor will duly pay and discharge, or cause to
be paid and discharged, before the same shall become in arrears (after giving
effect to applicable extensions), all taxes, assessments, levies and other
governmental charges, imposed upon Debtor or its properties, sales and
activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies which if unpaid might by
law become a Lien upon any property of Debtor; provided, however, that any such
tax, assessment, charge, levy or claim need not be paid if the validity or
amount thereof shall currently be contested in good faith by appropriate
proceedings and if Debtor shall have set aside on its books reserves (the
presentation of which is segregated to the extent required by GAAP) adequate
with respect thereto if reserves shall be deemed necessary; and provided,
further, that Debtor will pay all such taxes, assessments, levies or other
governmental charges forthwith upon the commencement of proceedings to
foreclose any Lien which may have attached as security therefor.
6. IPG's Appointment as Attorney-in-Fact. (a) Debtor hereby irrevocably
constitutes and appoints IPG and any officer or agent thereof, with full power
of substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of Debtor and in the name of Debtor
or in its own name, from time to time in IPG's discretion, for the purpose of
carrying out the terms of this Agreement, to take any and all appropriate
action and to execute and deliver any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Agreement and,
without limiting the generality of the foregoing, hereby gives IPG the power
and right, during the occurrence and continuation of an Event of Default, on
behalf of Debtor, without notice to or assent by Debtor, to do the following to
the extent permitted by the Intercreditor Agreement:
(i) to ask, demand, collect, receive and give acquittances and
receipts for any and all moneys due and to become due under any
Collateral and, in the name of Debtor or its own name or otherwise, to
take possession of and endorse and collect any checks, drafts, notes,
acceptances or other Instruments for the payment of moneys due under any
Collateral and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed appropriate
by IPG for the purpose of collecting any and all such moneys due under
any Collateral whenever payable and to file any claim or to take any
other action or proceeding in any court of law or equity or otherwise
deemed appropriate by IPG for the purpose of collecting any and all such
moneys due under any Collateral whenever payable;
(ii) to pay or discharge taxes or Liens levied or placed on or
threatened against the Collateral, to effect any repairs or any insurance
called for by the terms of
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this Agreement and to pay all or any part of the premiums therefor and
the costs thereof; and
(iii) (A) to direct any party liable for any payment under any of
the Collateral to make payment of any and all moneys due, and to become
due thereunder, directly into the "cash collateral account", as such term
is defined in the Intercreditor Agreement or, if such account is no
longer in effect, any other accounts established pursuant to paragraph 10
hereof, provided that, to the extent that pursuant to the relevant
Guaranty Debtor owes money to IPG, IPG shall have the power and right to
direct any such party to make payment directly to IPG or as IPG shall
otherwise direct; (B) to receive payment of and receipt for any and all
moneys, claims and other amounts due, and to become due at any time, in
respect of or arising out of any Collateral; (C) to sign and indorse any
invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications and notices
in connection with accounts and other Documents constituting or relating
to the Collateral; (D) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any part thereof and to enforce any other right
in respect of any Collateral; (E) to defend any suit, action or
proceeding brought against Debtor with respect to any Collateral; (F) to
settle, compromise or adjust any suit, action or proceeding described
above and, in connection therewith, to give such discharges or releases
as IPG may deem appropriate; (G) to license or, to the extent permitted
by an applicable license, sublicense, whether general, special or
otherwise, and whether on an exclusive or non-exclusive basis, any
Patent, Copyright, trade secret or Trademark, throughout the world for
such term or terms, on such conditions, and in such manner, as IPG shall
in its sole discretion determine; and (H) generally to sell, transfer,
pledge, make any agreement with respect to or otherwise deal with any of
the Collateral as fully and completely as though IPG were the absolute
owner thereof for all purposes, and to do, at IPG's option and Debtor's
expense, at any time, or from time to time, all acts and things which IPG
reasonably deems necessary or appropriate to protect, preserve or realize
upon the Collateral and IPG's interest therein, in order to effect the
intent of this Agreement, all as fully and effectively as Debtor might
do; provided that, proceeds resulting from actions taken pursuant to this
clause (H) shall be deposited directly into the cash collateral account
or, if such account is no longer in effect, any other accounts
established pursuant to paragraph 10 hereof, provided, further, that to
the extent that pursuant to the relevant Guaranty Debtor owes money to
IPG, such proceeds shall be paid directly to IPG or as IPG shall direct.
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(b) IPG agrees that, except upon the occurrence and during the
continuation of an Event of Default, it will forebear from exercising the power
of attorney or any rights granted to IPG pursuant to this Section 6. Debtor
hereby ratifies, to the extent permitted by law, all that said attorneys shall
lawfully do or cause to be done by virtue hereof. The power of attorney
granted pursuant to this Section 6 is a power coupled with an interest and
shall be irrevocable until the Guarantor Obligations are fully satisfied.
(c) The powers conferred on IPG hereunder are solely to protect IPG's
interests in the Collateral and shall not impose any obligation or duty upon it
to exercise any such powers. IPG shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers and neither it nor
any of its officers, directors, employees or agents shall be responsible to
Debtor for any act or failure to act, except for its own gross negligence or
willful misconduct.
(d) Debtor also authorizes IPG to the extent permitted by the
Intercreditor Agreement, at any time and from time to time as is necessary to
maintain, protect and preserve its interest in the Collateral and, for any
other reason, at any time and from time to time following the payment and
performance in full of the Senior Obligations, upon the occurrence and during
the continuation of any Event of Default with respect to Debtor, (i) to
communicate in its own name with any party to any Contract with regard to the
assignment of the right, title and interest of Debtor in and under the
Contracts hereunder and other matters relating thereto and (ii) to execute, in
connection with the sale provided for in Section 8 hereof, any endorsements,
assignments or other instruments of conveyance or transfer with respect to the
Collateral.
7. Performance by IPG of Debtor's Obligations. If Debtor fails to perform
or comply with any of its agreements contained herein in any material respect
and IPG, as provided for by the terms of this Agreement, shall itself perform
or comply, or otherwise cause performance or compliance, with such agreement,
the reasonable expenses of IPG incurred in connection with such performance or
compliance shall be payable by Debtor to IPG on demand and shall constitute
Guarantor Obligations secured hereby. If Debtor does not pay such expenses
within 5 days of IPG's demand, Debtor shall pay such expenses plus interest
thereon at an annual rate equal to the Default Rate (as such term is defined in
the Operating Agreement).
8. Remedies. (a) If an Event of Default with respect to Debtor shall
occur and be continuing, IPG may, in addition to all other rights and remedies
granted to it in this Agreement and in any other instrument or agreement
securing, evidencing or relating to the Guarantor Obligations and subject to
the terms and conditions of the Intercreditor Agreement,
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exercise all rights and remedies of a secured party under the UCC. Without
limiting the generality of the foregoing, Debtor expressly agrees that in any
such event IPG, without demand of performance or other demand, advertisement or
notice of any kind (except the notice specified below of the time and place of
public or private sale) to or upon Debtor or any other Person (all and each of
which demands, advertisements and/or notices are hereby expressly waived to the
extent permitted by the UCC and other applicable law), may forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, lease, assign, give an option or options to
purchase, or sell or otherwise dispose of and deliver said Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange or broker's board or at any of IPG's
offices or elsewhere at such prices as it may deem best, for cash or on credit
or for future delivery without assumption of any credit risk. IPG shall have
the right upon any such public sale or sales, and, to the extent permitted by
law, upon any such private sale or sales, to purchase the whole or any part of
said Collateral so sold, free of any right or equity of redemption, which
equity of redemption Debtor hereby releases to the extent permitted by law.
Debtor further agrees, at IPG's request, to assemble the Collateral and make it
available to IPG at places which IPG shall reasonably select, whether at
Debtor's premises or elsewhere. Debtor will remain liable for any deficiency
remaining unpaid after application of the proceeds of such collection,
recovery, receipt, appropriation, realization or sale. To the maximum extent
permitted by applicable law, Debtor waives all claims, damages, and demands
against IPG arising out of the repossession, retention or sale of the
Collateral except such as arise out of the gross negligence or willful
misconduct of IPG. Debtor agrees that IPG need not give more than ten (10)
days' notice (which notification shall be deemed given when delivered on an
overnight basis, postage prepaid, addressed to Debtor at its address referred
to in Section 11 hereof) of the time and place of any public sale or of the
time after which a private sale may take place and that such notice is
reasonable notification of such matters. Debtor shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which IPG is entitled, Debtor also being
liable for the reasonable fees of any attorneys employed by IPG to collect such
deficiency, provided that, any moneys paid by Debtor pursuant to such liability
shall be deposited directly into the cash collateral account or, if such
account is no longer in effect, any other accounts established pursuant to
paragraph 10 hereof, provided, further, that to the extent that pursuant to the
relevant Guaranty Debtor owes money to IPG, such moneys shall be paid directly
to IPG or as IPG shall direct.
(b) Debtor also agrees to pay all reasonable costs of IPG, including,
without limitation, reasonable attorneys' fees, incurred in connection with the
enforcement of any of its rights and remedies against Debtor hereunder.
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(c) Debtor hereby waives presentment, demand, protest or any notice (to
the maximum extent permitted by applicable law) of any kind in connection with
this Agreement or any Collateral except as expressly provided for herein.
9. Limitation on IPG's Duty in Respect of Collateral. IPG shall not have
any duty as to any Collateral in its possession or control or in the possession
or control of any agent or nominee of it or any income thereon or as to the
preservation of rights against prior parties or any other rights pertaining
thereto, except that IPG shall use reasonable care with respect to the
Collateral in its possession or under its control and except as otherwise
required by law. Upon request of Debtor, IPG shall account for any moneys
received by it in respect of any foreclosure on or disposition of the
Collateral of Debtor.
10. Disbursement of Funding under the Intercreditor Agreement. Prior to
the payment in full and performance in full of the Senior Obligations the
parties hereto shall agree upon procedures for the disbursement of funds in
connection with the subject matter of the Intercreditor Agreement and the
priority of such disbursements, which agreed upon procedures, including,
without limitation, the establishment of such number of bank accounts as the
parties determine is necessary and appropriate to replace the currently
existing accounts referred to in the Intercreditor Agreement, and priorities
shall replace the provisions of Sections 2 and 3 of the Intercreditor Agreement
in effect on the date hereof upon the payment in full of the Senior
Obligations.
11. Termination; Reinstatement. (a) This Agreement and the security
interests created or granted hereby shall terminate on the earlier of (i) the
date that the last of the Guarantor Obligations shall have been fully and
indefeasibly paid and satisfied or (ii) the date that IPG releases the
Guarantor from its obligations hereunder pursuant to that certain Option
Agreement, dated as of October 6, 1995, by and among AACI, IPG and Infoplan, at
which time IPG shall, if requested by Debtor, execute and deliver to Debtor for
filing in each office in which any security agreement, notice or other filing,
or any part thereof, shall have been filed, an instrument releasing IPG's
security interest in the Collateral, and such other documents and instruments
to terminate any security interest of IPG granted hereby as Debtor may
reasonably request, all without recourse upon, or warranty whatsoever by, IPG,
except that the same shall be free and clear of any claims, liens or
encumbrances created by or in respect of IPG, and at the cost and expense of
Debtor.
(b) This Agreement shall remain in full force and effect and continue to
be effective should any petition be filed by or against Debtor for liquidation
or reorganization, should Debtor become insolvent or make an assignment for the
benefit of creditors or should a receiver or trustee be appointed for all or
any significant part of Debtor's assets, and shall
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continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Guarantor Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise
be restored or returned by any obligee of the Guarantor Obligations, whether as
a voidable preference, fraudulent conveyance, or otherwise, all as though such
payment or performance had not been made. In the event that any payment, or
any part thereof, is rescinded, reduced, restored or returned, the Guarantor
Obligations shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.
12. Notices. Any communications required or permitted to be given
hereunder shall be in writing and shall be deemed to have been validly served,
given or delivered (i) upon the earlier of actual receipt and three days after
deposit in the United States Mail, registered or certified mail, with proper
postage prepaid, (ii) upon transmission, when sent by telecopy or other similar
facsimile transmission (promptly confirmed by personal delivery or United
States Mail as otherwise provided in this Section 12), (iii) one Business Day
after deposit with a reputable overnight courier with all charges prepaid or
(iv) when delivered, if hand-delivered by messenger, all of which shall be
addressed to the party to be notified and sent to the address or facsimile
number indicated below or to such other address or facsimile number as may be
substituted by notice given as herein provided. The giving of any notice
required hereunder may be waived in writing by the party entitled to receive
such notice. Failure or delay in delivering copies of any communication to any
Person (other than IPG or Debtor) designated below to receive copies shall in
no way adversely affect the effectiveness of such communication.
(a) If to IPG, at:
The Interpublic Group of Companies, Inc.
1271 Avenue of the Americas
New York, New York 10020
Attention: William S. Keating, Esq.
Telecopy: (212) 399-8280
with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Richard J. Cooper, Esq.
Telecopy: (212) 225-3999
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(b) If to Debtor, at:
All American Goodson, Inc.
c/o All American Communications, Inc.
2114 Pico Boulevard
Santa Monica, California 90405
Attention: Thomas Bradshaw
Telecopy: (310) 314-7280
with a copy to:
Kaye, Scholer, Fierman, Hays & Handler
1999 Avenue of the Stars
Suite 1600
Los Angeles, California 900671-6048
Attention: Barry L. Dastin, Esq.
Telecopy: (310) 788-1200
13. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction to the fullest
extent permitted by law, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
14. No Waiver; Cumulative Remedies. IPG shall not by any act, delay,
omission or otherwise be deemed to have waived any of its rights or remedies
hereunder, and no waiver shall be valid unless in writing and signed by IPG,
and then only to the extent therein set forth. A waiver by IPG of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which IPG would otherwise have had on any future occasion. No
failure to exercise nor any delay in exercising on the part of IPG, any right,
power or privilege hereunder, shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or future exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies hereunder provided are cumulative and
may be exercised singly or concurrently, and are not exclusive of any rights
and remedies provided by law. None of the terms or provisions of this
Agreement may be waived, altered, modified or amended except by an instrument
in writing, duly executed by IPG and, except in the case of waivers by IPG, by
Debtor.
15. Successors; Assignments and Transfers. This Agreement and all
obligations of Debtor hereunder shall be binding upon the successors and
assigns of Debtor,
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and shall, together with the rights and remedies of IPG hereunder, inure to the
benefit of IPG and its successors and assigns. The Guarantor shall not consent
or agree to any assignments, transfers or other dispositions of any agreement
governing or evidencing the Guarantor Obligations or any portion thereof or
interest therein that would adversely affect the security interest granted to
IPG hereunder.
16. GOVERNING LAW, ETC. THIS AGREEMENT AND THE OBLIGATIONS ARISING
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK, APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED IN SUCH STATE, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS
OF LAWS THEREOF. DEBTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY
NEW YORK STATE COURT OR UNITED STATE FEDERAL COURT, IN EITHER CASE SITTING IN
THE CITY OF NEW YORK, BOROUGH OF MANHATTAN OVER ANY ACTION, SUIT OR OTHER
PROCEEDING BROUGHT BY ANY PARTY ARISING OUT OF OR RELATING TO THIS AGREEMENT,
AND DEBTOR HEREBY WAIVES ANY OBJECTION THAT IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. DEBTOR HEREBY
IRREVOCABLY APPOINTS KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, 425 PARK AVENUE,
NEW YORK, NEW YORK 10022 (ATTENTION: WILLIAM E. WALLACE), AS ITS AGENT TO
RECEIVE SERVICE OF SUMMONS, AND COMPLAINTS AND ANY OTHER PROCESS WHICH MAY BE
SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING. NOTHING IN THIS AGREEMENT
SHALL, HOWEVER, BE DEEMED OR OPERATE TO PRECLUDE IPG FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE SECURED
OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE SECURED
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF IPG,
PROVIDED THAT IPG RECOGNIZES THAT ITS RIGHTS HEREUNDER ARE SUBJECT TO THE TERMS
AND CONDITIONS OF THE INTERCREDITOR AGREEMENT.
17. Indemnification against Excise and Other Taxes. Debtor agrees to pay,
and forthwith upon demand indemnify IPG against, any and all liabilities with
respect to, or resulting from any delay in paying, any and all excise, sales,
stamp, registration or other similar tax which is or becomes payable with
respect to any of the Collateral.
18. Counterparts. This Agreement may be executed in any number of
counterparts, and this shall have the same effect as if the signatures on the
counterparts were set forth on a single copy of this Agreement.
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19. WAIVER OF JURY TRIAL. THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO, THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed and delivered by its duly authorized officer on the date first set
forth above.
ALL AMERICAN GOODSON, INC.
By:
-----------------------------
Name:
Title:
Accepted and agreed by:
THE INTERPUBLIC GROUP OF COMPANIES, INC.
By:
----------------------------------
Name:
Title:
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SCHEDULE I: FILINGS
JURISDICTION FILING OFFICE
------------ -------------
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SCHEDULE II
A. Location of Chief Office
B. Location of Inventory and other Collateral
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SCHEDULE III
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EXHIBIT 10.37
GENERAL SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of November 20, 1995, made by All
American Television II, Inc. ("AATII" or the "Debtor") in favor of The
Interpublic Group of Companies, Inc. ("IPG") as contemplated by the
Intercreditor Agreement, dated as of October 6, 1995, by and among Chemical
Bank acting for itself and as Agent, IPG, All American Goodson, Inc. ("AAG"),
All American Communications, Inc. ("AACI"), All American Fremantle II, Inc.
("AAFII"), AATII and Mark Goodson Productions, LLC (the "LLC") (the
"Intercreditor Agreement").
W I T N E S S E T H :
WHEREAS, the LLC, IPG and AACI have entered into an Asset Purchase
Agreement (the "Asset Purchase Agreement"), dated as of October 6, 1995, with
Mark Goodson Productions, L.P., The Child's Play Company (together the
"Sellers") and certain other parties pursuant to which the LLC and IPG have
purchased certain of the assets and the LLC has assumed certain liabilities of
the Sellers; and
WHEREAS, the LLC and AAG have entered into a License Agreement (the "Main
License Agreement"), dated as of October 6, 1995, with respect to the
exploitation of the Library Rights, Library Physical Properties, Programs (as
each of the foregoing terms is defined in the Main License Agreement) or
portions thereof or rights therein acquired pursuant to the Asset Purchase
Agreement including, without limitation the right to sublicense to third
parties the rights granted in the Main License Agreement; and
WHEREAS, AACI, AAG, IPG and Infoplan International, Inc. ("Infoplan") have
entered into an Amended and Restated Operating Agreement (the "Operating
Agreement"), dated as of October 6, 1995, in connection with the operations of
the LLC which Operating Agreement became effective immediately after the Final
Closing (as defined in the Asset Purchase Agreement); and
WHEREAS, each of AAG, AAFII and AATII (each, a "Guarantor" and
collectively, the "Guarantors") have entered into a Guaranty (each a "Guaranty"
and collectively the "Guaranties"), dated as of the date hereof, in favor of
IPG guaranteeing the Guarantor Obligations (as defined in the Intercreditor
Agreement); and
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WHEREAS, each of AAG and AAFII have entered into a Security Agreement
(together with this Agreement, the "Security Agreements"), dated as of the date
hereof, substantially in the form of this Agreement; and
WHEREAS, each of AACI, AAG, All American Television, Inc. ("AAT") and All
American Fremantle International Inc. ("AAF") have entered into a Pledge
Agreement (the "Pledge Agreements"), dated as of the date hereof, in favor of
IPG pursuant to which AACI, AAT and AAF have pledged their respective right,
title and interest in all of the issued and outstanding capital stock of AAG,
AATII and AAFII and AACI and AAG have pledged their respective membership
interests in the LLC to IPG in connection with the Guarantor Obligations; and
WHEREAS, the parties hereto desire to enter into this General Security
Agreement (this "Agreement") in connection with each of the Guaranties wherein
the Guarantor's Obligations under the Guaranty to which it is a party will be
secured by a security interest in the Collateral (as hereinafter defined)
subordinated to the Senior Obligations (as hereinafter defined) to the extent
and on the terms and conditions set forth in the Intercreditor Agreement; and
NOW THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged by the parties, the parties hereto agree as follows:
1. Interpretation; Defined Terms.
(a) In this Agreement, references to a Person include its successors and
assigns and references to a document are references to that document as
amended, modified, novated or supplemented through the time such reference
becomes effective.
(b) The following terms shall have the following meanings (which shall be
applicable to both the singular and plural forms of the terms defined):
"Account Debtor" means any "account debtor," as such term is defined
in section 9-105(1)(a) of the UCC.
"Accounts" means any "account," as such term is defined in section
9-106 of the UCC, and, to the extent not included within such definition,
all accounts receivable, book debts and other forms of obligations (other
than forms of obligations evidenced by Chattel Paper, Documents or
Instruments) whether arising out of goods sold or services rendered by
Debtor or from any other transaction, whether or not the same involves
the sale of goods or services by Debtor (including, without limitation,
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any such obligation which might be characterized as an account or
contract right under the UCC) and all of Debtor's rights in, to and under
all purchase orders or receipts for goods or services, and all of
Debtor's rights to any goods represented by any of the foregoing
(including, without limitation, unpaid seller's rights of rescission,
replevin, reclamation and stoppage in transit and rights to returned,
reclaimed or repossessed goods), and all moneys due or to become due to
Debtor under all contracts for the sale of goods or the performance of
services or both by Debtor (whether or not yet earned by performance on
the part of Debtor or in connection with any other transaction), now in
existence or hereafter occurring, including, without limitation, the
right to receive the proceeds of said purchase orders and contracts, and
all collateral security and guarantees of any kind given by any Person
with respect to any of the foregoing; in each case whether now owned or
hereafter received or acquired by or belonging or owing to Debtor
(including, without limitation, under any trade names, styles or
divisions thereof).
"Business Day" means any day that is not a Saturday, Sunday or other
day on which banking institutions in New York, New York are authorized or
required by law or executive order to close.
"Chattel Paper" means any "chattel paper," as such term is defined
in section 9-105(1)(b) of the UCC, now owned or hereafter acquired by
Debtor.
"Collateral" has the meaning assigned to such term in Section 2 of
this Agreement.
"Contracts" means all contracts, undertakings, or other agreements
(other than rights evidenced by Chattel Paper, Documents or Instruments)
in or under which Debtor may now or hereafter have any right, title or
interest, including, without limitation, all Licenses and with respect to
an Account, any agreement relating to the terms of payment or the terms
of performance thereof.
"Copyrights" means copyrights and copyrightable works (including
without limitation rights to computer software) of the Debtor in any
jurisdiction along with any and all (i) registrations or applications for
registration of copyrights and renewals or extensions thereof, (ii)
income, royalties, damages and payments now or hereafter due and/or
payable to Debtor with respect thereto, including, without limitation,
damages and payments for past or future infringements or misappropriation
thereof, (iii) rights to sue for past, present and future infringements
or misappropriation thereof, and (iv) all other Proceeds thereof or
rights corresponding thereto throughout the world.
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"Documents" means any "documents," as such term is defined in section
9-105(1)(f) of the UCC, now owned or hereafter acquired by Debtor.
"Equipment" means any "equipment" as such term is defined in section
9-109(2) of the UCC and, to the extent not included within such
definition, all machinery, equipment, furnishings, fixtures, vehicles and
computers and other electronic data-processing and other office equipment
and any and all additions, substitutions and replacements of any of the
foregoing, wherever located, together with all attachments, components,
parts, equipment and accessories installed thereon or affixed thereto; in
each case whether now owned or hereafter acquired by Debtor.
"Event of Default" means the occurrence and continuance of any of
the following events: (i) any of AACI, AAG, AATII or AAFII, as the case
may be, shall default in the payment or performance of any Guarantor
Obligation; (ii) any of AACI, AAG, AATII, AAFII, AAF or AAT, as the case
may be, shall default in the due observance or performance of any
covenant, condition or agreement to be observed or performed pursuant to
the terms of any Guaranty, Security Agreement or Pledge Agreement to
which it is a party and, in the case of a default that is capable of
being cured, such default shall continue unremedied for 10 Business Days
after the defaulting party has received written notice of the occurrence
of such default or otherwise obtained knowledge of such occurrence; (iii)
any representation or warranty made by any of AACI, AAG, AATII, AAFII,
AAF or AAT in any Guaranty, Security Agreement or Pledge Agreement shall
prove to have been false or misleading in any material respect when made
or delivered; or (iv) any Person shall, or shall seek to, seize, take or
realize upon the Collateral.
"GAAP" means generally accepted accounting principles consistently
applied.
"General Intangibles" means any "general intangibles" as such term
is defined in section 9-106 of the UCC and, to the extent not included
within such definition, all right, title and interest which Debtor may
have in or under any License, Contract, all customer lists, Trademarks,
Patents, Copyrights, other rights in intellectual property, permits,
trade secrets, proprietary or confidential information, inventions
(whether patented or patentable or not) and technical information,
procedures, designs, knowledge, know-how, software, data bases, data,
skill, expertise, experience, processes, models, drawings, materials and
records, goodwill and rights of indemnification; in each case whether now
owned or hereafter acquired by Debtor.
"Instruments" means any "instrument" as such term is defined in
section 9-105(1)(i) of the UCC, now owned or hereafter acquired by
Debtor, other than
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instruments that constitute, or are a part of a group of writings that
constitute, Chattel Paper.
"Inventory" means any "inventory" as such term is defined in section
9-109(4) of the UCC and, to the extent not included within such
definition, all inventory, merchandise, goods and other personal property
which are held for sale or lease or are furnished or are to be furnished
under a contract of service or which constitute raw materials, work in
process or materials used or consumed or to be used or consumed in
Debtor's business, or the processing, packaging, delivery or shipping of
the same, and all finished goods; in each case whether now owned or
hereafter acquired by Debtor.
"Licenses" means license agreements, including, without limitation,
the Main License Agreement and any sublicenses entered into in connection
therewith, in which Debtor grants or receives a grant of any interest in
any Trademarks, Patents, Copyrights, trade secrets, proprietary or
confidential information, or any other intellectual property, including,
without limitation, any Library Rights, Library Physical Properties,
Programs or portions thereof or rights therein and any and all (i)
renewals, extensions, supplements and amendments thereof, (ii) income,
royalties, damages and payments now or hereafter due or payable to Debtor
with respect thereto, including, without limitation, damages and payments
for past or future violations or infringements or misappropriation
thereof, (iii) rights to sue for past, present and future violations or
infringements thereof, and (iv) all other Proceeds thereof or rights
corresponding thereto throughout the world.
"Lien" shall have the meaning ascribed to such term in the
Guaranties.
"Patents" means patents and patent applications of the Debtor in any
jurisdiction along with any and all (i) inventions and improvements
described and claimed therein, (ii) reissues, divisions, continuations,
renewals, extensions and continuations-in-part thereof, (iii) income,
royalties, damages and payments now or hereafter due and/or payable to
Debtor with respect thereto, including, without limitation, damages and
payments for past or future infringements or misappropriation thereof,
(iv) rights to sue for past, present and future infringements or
misappropriation thereof, and (v) all other Proceeds thereof or rights
corresponding thereto throughout the world.
"Permitted Liens" shall have the meaning ascribed to such term in
the Guaranties.
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"Person" means any natural person, corporation, division of a
corporation, partnership, trust, joint venture, association, company,
limited liability company, estate, unincorporated organization or
governmental entity.
"Proceeds" means "proceeds" as such term is defined in section
9-306(1) of the UCC and, to the extent not included within such
definition, (i) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to Debtor from time to time with respect to
any of the Collateral, (ii) any and all payments (in any form whatsoever)
made or due and payable to Debtor from time to time in connection with
any requisition, confiscation, condemnation, seizure or forfeiture of all
or any part of the Collateral by any governmental body, authority, bureau
or agency (or any person acting under color of governmental authority),
and (iii) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.
"Senior Obligations" shall have the meaning ascribed to such term in
the Intercreditor Agreement.
"Trademarks" means trademarks (including service marks, brand names,
certification marks, collective marks, trade dress and trade names,
whether registered or at common law) of the Debtor in any jurisdiction,
registrations and applications in any jurisdiction therefor, the goodwill
of Debtor's business connected therewith and symbolized thereby, along
with any and all (i) extensions, modifications or renewals thereof, (ii)
income, royalties, damages and payments now or hereafter due or payable
or both with respect thereto, including, without limitation, damages and
payments for past or future infringements or misappropriations thereof,
(iii) rights to sue for past, present and future infringements or
misappropriations thereof, and (iv) all other Proceeds thereof or rights
corresponding thereto throughout the world.
"Transaction Accounts" means the AAG Expense Account, AAG Funds
Account, Interest Reserve Account and LLC Funds Account as each of the
foregoing terms is defined in the Intercreditor Agreement.
"UCC" means the Uniform Commercial Code as the same may, from time
to time, be in effect in the State of New York; provided, however, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of IPG's security interest in any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, or by the laws of a
jurisdiction other than a state of the United States, the term "UCC"
shall mean the Uniform Commercial Code as in effect in such other
jurisdiction or such
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other laws, as the case may be, for purposes of the provisions hereof
relating to such attachment, perfection or priority.
2. Grant of Security Interest; Grant of Intellectual Property License. As
collateral security for the prompt and complete payment and performance when
due (whether at stated maturity, by acceleration or otherwise) of all the
Guarantor Obligations, Debtor hereby assigns, conveys, mortgages, pledges,
hypothecates and transfers, and hereby grants, to IPG, a security interest in
all of the Debtor's right, title and interest in and to the following property,
in each case whether now owned or hereafter acquired (all of which are
hereinafter collectively referred to as the "Collateral"):
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Contracts;
(iv) all Transaction Accounts;
(v) all Documents;
(vi) all Equipment;
(vii) all General Intangibles;
(viii) all Instruments;
(ix) all Inventory;
(x) all other goods and personal property, whether tangible or
intangible or whether now owned or hereafter acquired and wherever
located;
(xi) to the extent not otherwise included, all Proceeds of each of
the foregoing and all accessions to, substitutions and replacements for,
and rents, profits and products of each of the foregoing; and
(xii) all books and records relating to any of the foregoing.
3. Rights of IPG; Limitations on IPG's Obligations. (a) It is expressly
agreed by Debtor that, anything herein to the contrary notwithstanding, Debtor
shall remain liable under each of its Contracts and each of its Licenses to
observe and perform all the
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conditions and obligations to be observed and performed by it thereunder and
Debtor shall perform all of its duties and obligations thereunder, all in
accordance with and pursuant to the terms and provisions of each such Contract
or License. IPG shall not have any duty, responsibility, obligation or
liability under any Contract or License by reason of or arising out of this
Agreement or the granting to IPG of a security interest therein or the receipt
by IPG of any payment relating to any Contract or License pursuant hereto, nor
shall IPG be required or obligated in any manner to perform or fulfill any of
the obligations of Debtor under or pursuant to any Contract or License, or to
make any payment, or to make any inquiry as to the nature or the sufficiency of
any payment received by it or the sufficiency of any performance by any party
under any Contract or License, or to present or file any claim, or to take any
action to collect or enforce any performance or the payment of any amounts
which it may have been entitled to or to which it may be entitled at any time
or times.
(b) Subject to the terms and conditions of the Intercreditor Agreement, if
an Event of Default with respect to Debtor has occurred and is continuing, at
the request of IPG, Debtor shall deliver to IPG all original and other
documents evidencing, and relating to, the sale and delivery of Inventory or
the performance of labor or service which created its Accounts, including,
without limitation, all original orders, invoices and shipping receipts; and,
prior to the occurrence of an Event of Default, Debtor shall deliver
photocopies thereof to IPG at its reasonable request.
(c) Subject to the terms and conditions of the Intercreditor Agreement,
IPG may, upon the occurrence and during the continuation of any Event of
Default with respect to Debtor, notify Account Debtors of Debtor, parties to
the Contracts of Debtor, obligors in respect of Instruments of Debtor and
obligors in respect of Chattel Paper of Debtor that the Accounts and the right,
title and interest of Debtor in and under such Contracts, such Instruments and
such Chattel Paper have been assigned to IPG and that payments shall be made
directly to IPG. Subject to the terms and conditions of the Intercreditor
Agreement, upon the request of IPG if an Event of Default has occurred and is
continuing, Debtor will so notify such Account Debtors, parties to such
Contracts, obligors of such Instruments and obligors in respect of such Chattel
Paper.
4. Representations and Warranties. Debtor hereby represents and warrants
as of the date of this Agreement that:
(a) Except for the security interest granted by this Agreement or pursuant
to the Intercreditor Agreement, Debtor is the sole owner of each item of the
Collateral in which it purports to grant a security interest hereunder, having
good and marketable title thereto, free
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and clear of any and all Liens whatsoever, other than Permitted Liens. No
material liability under or in connection with any of its Accounts or Contracts
is evidenced by Instruments which have not been delivered to IPG. All
Instruments receivable of Debtor as of the date of this Agreement are listed on
Schedule III hereto.
(b) No effective security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering all or any part
of the Collateral is on file or of record in any public office, except (i) such
as may have been filed by Debtor in favor of IPG pursuant to this Agreement,
(ii) filings as to which an effective termination statement has been delivered
to IPG, or (iii) filings with respect to Permitted Liens.
(c) Appropriate financing statements having been filed in the
jurisdictions listed on Schedule I hereto. This Agreement is effective to
create a valid and continuing first priority perfected security interest in the
Collateral of Debtor with respect to which a security interest may be perfected
by filing pursuant to the UCC in favor of IPG, prior to all other Liens other
than Permitted Liens, and is enforceable as such as against creditors of and
purchasers from Debtor (other than purchasers of Inventory in the ordinary
course of business). All action necessary or desirable to protect and perfect
such security interest in each item of the Collateral of Debtor has been duly
taken.
(d) Debtor's principal place of business and the place where its records
concerning the Collateral are kept and the location of its Inventory, Equipment
and all books and records pertaining to the foregoing are as set forth on
Schedule II hereto, and Debtor will not change such principal place of business
or remove such records or change the location of its Inventory, Equipment and
books and records pertaining to the foregoing unless it has given IPG 30 days
advance notice of such change and has taken such action as is necessary or, in
the reasonable judgment of IPG, appropriate to cause the security interest of
IPG in the Collateral to continue to be perfected.
(e) The amount represented by Debtor to IPG from time to time as owing by
each Account Debtor or by all Account Debtors in respect of the Accounts of
Debtor will at such time be the correct amount actually and unconditionally
owing by such Account Debtors thereunder. Each such Account represents a bona
fide sale of Inventory or provision of services to customers, subject to no
setoffs, claims or disputes other than as disclosed to IPG, and Debtor has no
knowledge as of the date hereof (other than as disclosed to IPG) that the
related Account Debtor is unable generally to pay its debts as they become due.
(f) Debtor has the full right, power and authority to enter into this
Agreement and to grant all of the right, title and interest herein granted by
it; the execution, delivery and performance by Debtor of this Agreement do not
and will not contravene Debtor's charter or
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by-laws or any contractual restriction binding on or affecting Debtor or any of
its properties; no consent of any third party is required in connection with
Debtor's execution and delivery of this Agreement (other than such as have been
obtained); and this Agreement has been duly executed and delivered by Debtor
and is a legal, valid and binding obligation of Debtor enforceable against
Debtor in accordance with its terms.
5. Covenants. Debtor covenants and agrees that, subject to the terms and
conditions of the Intercreditor Agreement, from and after the date of this
Agreement and until the Guarantor Obligations have been fully and irrevocably
paid or satisfied:
(a) Further Documentation; Pledge of Instruments. From time to time, upon
the written request of IPG, and at the sole expense of Debtor, Debtor will
promptly and duly execute and deliver any and all such further instruments and
documents and take such further actions as IPG may reasonably deem appropriate
or desirable to obtain or further assure the full benefits of this Agreement
and of the rights and powers herein granted, including, without limitation, (i)
using its commercially reasonable efforts to secure all consents and approvals
necessary or appropriate for the assignment to IPG of any Contract held by
Debtor or in which Debtor has any rights not heretofore assigned, (ii) the
filing of any financing or continuation statements under the UCC with respect
to the security interests granted hereby, (iii) taking such other action as IPG
reasonably requests to perfect its security interest in such Collateral, and
(iv) discharging or obtaining waivers of Liens (other than Permitted Liens) on
the Collateral. Debtor also hereby authorizes IPG to file on its behalf any
such financing or continuation statement without the signature of Debtor to the
extent permitted by applicable law. If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by any
Instrument, such Instrument shall be immediately pledged to IPG hereunder.
(b) Maintenance of Records. Debtor will keep and maintain at its own cost
and expense records of the Collateral that are complete and reasonably
satisfactory to IPG, including, without limitation, a record of all payments
received and all credits granted with respect to the Collateral and all other
dealings with the Collateral. Debtor will mark its books and records
pertaining to the Collateral to evidence this Agreement and the security
interests granted hereby. If reasonably requested by IPG, all Chattel Paper
will be marked with the following legend: "This writing and the obligations
evidenced or secured hereby are subject to the security interest of The
Interpublic Group of Companies, Inc., pursuant to a Security Agreement dated as
of [Signing Date]". If reasonably requested by IPG, the security interest of
IPG shall be noted on the certificate of title of each vehicle owned by Debtor.
For IPG's further security, Debtor agrees that IPG shall have a special
property interest in all of Debtor's books and records pertaining to the
Collateral and, upon the occurrence and during the
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continuation of any Event of Default with respect to Debtor, Debtor shall
deliver and turn over any such books and records to IPG or to its
representatives at any time on demand of IPG, subject to the rights of the
Agent pursuant to or contemplated by the Intercreditor Agreement. Prior to the
occurrence and continuation of an Event of Default with respect to Debtor, at
reasonable times and with reasonable notice from IPG, Debtor shall promptly
permit any representative of IPG to inspect such books and records and will
provide photocopies thereof to IPG.
(c) Indemnification. In any suit, proceeding or action brought by IPG,
subject to the rights of the Agent pursuant to or contemplated by the
Intercreditor Agreement, relating to any Account, Chattel Paper, Contract,
General Intangible or Instrument of Debtor for any sum owing thereunder, or to
enforce any provision of any of the foregoing, Debtor will indemnify and keep
IPG harmless from and against all expense, loss or damage suffered by reason of
any defense, setoff, counterclaim, recoupment or reduction of liability
whatsoever of the obligor thereunder, arising out of a breach by Debtor of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to, or in favor of, such obligor or its successors
from Debtor, and all such obligations of Debtor shall be and remain enforceable
against and only against Debtor and shall not be enforceable against IPG.
(d) Compliance with Terms of Accounts, etc. Debtor will perform and
comply with all obligations in respect of Accounts, Chattel Paper, Contracts
and Licenses and all other agreements to which it is a party or by which it is
bound, except to the extent disputed in the ordinary course of business and in
respect of which adequate reserves have been taken in accordance with GAAP.
(e) Limitation on Liens on Collateral. Debtor will not create, permit or
suffer to exist, and Debtor will defend the Collateral against and take such
other action as is necessary or as IPG reasonably deems appropriate to remove,
any Lien (other than Permitted Liens) on the Collateral, and will defend the
validity and priority of IPG's security interest in and to any of Debtor's
rights under its Chattel Paper, Contracts, Documents, General Intangibles and
Instruments and to its Equipment and Inventory and in and to the Proceeds
thereof against the claims and demands of all Persons whomsoever (other than
against the claims of the Agent in connection with the Senior Obligations).
(f) Limitations on Modifications of Accounts. Upon the occurrence and
during the continuation of any Event of Default, Debtor will not, without IPG's
prior written consent (which consent will not be unreasonably withheld or
delayed), grant any extension of the time of payment of any of the Accounts,
Chattel Paper or Instruments, compromise, compound or settle the same for less
than the full amount thereof, release, wholly or partly,
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any Person liable for the payment thereof, or allow any credit or discount
whatsoever thereon other than trade discounts granted in Debtor's ordinary
course of business as conducted on the date hereof.
(g) Further Identification of Collateral. Debtor will furnish to IPG, as
often as IPG reasonably requests, statements and schedules further identifying
and describing the Collateral and such other reports in connection with the
Collateral as IPG may reasonably request, all in reasonable detail.
(h) Notices. Debtor will advise IPG promptly, in reasonable detail, (i)
of any Lien or claim made or asserted against any of the Collateral, other than
Permitted Liens, and (ii) of the occurrence of any other event which would have
a material adverse effect on the aggregate value of the Collateral or on the
security interests created hereunder.
(i) Right of Inspection. Upon reasonable notice to Debtor (unless an
Event of Default with respect to Debtor has occurred and is continuing, in
which case no notice is necessary), IPG shall at all times have full and free
access during normal business hours (i) to all the books and records and
correspondence of Debtor, and IPG or its representatives may examine the same,
take extracts therefrom and make photocopies thereof, and Debtor agrees to
render to IPG, at Debtor's cost and expense, such clerical and other assistance
as may be reasonably requested with regard thereto and (ii) subject, in the
case of premises not owned by Debtor, to the rights of third parties (whose
cooperation Debtor will make reasonable efforts to procure) to any premises
where any of Debtor's Equipment or Inventory is located for the purpose of
inspecting the same, observing its use or otherwise protecting its interests
therein.
(j) Continuous Perfection. Debtor will not change its name or identity,
or its corporate structure in any manner that could make any financing
statement related to Collateral misleading, unless Debtor shall have given IPG
at least thirty (30) days' prior written notice thereof and shall have taken
all action (or made arrangements to take such action substantially
simultaneously with such change if it is impossible to take such action in
advance) necessary or reasonably requested by IPG to amend such financing
statement or continuation statement so that it is not misleading.
(k) Corporate Existence. Debtor will do or cause to be done all things
reasonably necessary to preserve, renew and keep in full force and effect its
corporate existence, rights, licenses, permits and franchises, and comply with
all applicable statutes, regulations and orders of, and all applicable
restrictions imposed by, any governmental authority.
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(l) Taxes and Charges. Debtor will duly pay and discharge, or cause
to be paid and discharged, before the same shall become in arrears (after
giving effect to applicable extensions), all taxes, assessments, levies and
other governmental charges, imposed upon Debtor or its properties, sales and
activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies which if unpaid might by
law become a Lien upon any property of Debtor; provided, however, that any such
tax, assessment, charge, levy or claim need not be paid if the validity or
amount thereof shall currently be contested in good faith by appropriate
proceedings and if Debtor shall have set aside on its books reserves (the
presentation of which is segregated to the extent required by GAAP) adequate
with respect thereto if reserves shall be deemed necessary; and provided,
further, that Debtor will pay all such taxes, assessments, levies or other
governmental charges forthwith upon the commencement of proceedings to
foreclose any Lien which may have attached as security therefor.
6. IPG's Appointment as Attorney-in-Fact. (a) Debtor hereby irrevocably
constitutes and appoints IPG and any officer or agent thereof, with full power
of substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of Debtor and in the name of Debtor
or in its own name, from time to time in IPG's discretion, for the purpose of
carrying out the terms of this Agreement, to take any and all appropriate
action and to execute and deliver any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Agreement and,
without limiting the generality of the foregoing, hereby gives IPG the power
and right, during the occurrence and continuation of an Event of Default, on
behalf of Debtor, without notice to or assent by Debtor, to do the following to
the extent permitted by the Intercreditor Agreement:
(i) to ask, demand, collect, receive and give acquittances and
receipts for any and all moneys due and to become due under any
Collateral and, in the name of Debtor or its own name or otherwise, to
take possession of and endorse and collect any checks, drafts, notes,
acceptances or other Instruments for the payment of moneys due under any
Collateral and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed appropriate
by IPG for the purpose of collecting any and all such moneys due under
any Collateral whenever payable and to file any claim or to take any
other action or proceeding in any court of law or equity or otherwise
deemed appropriate by IPG for the purpose of collecting any and all such
moneys due under any Collateral whenever payable;
(ii) to pay or discharge taxes or Liens levied or placed on or
threatened against the Collateral, to effect any repairs or any insurance
called for by the terms of
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this Agreement and to pay all or any part of the premiums therefor and
the costs thereof; and
(iii) (A) to direct any party liable for any payment under any of
the Collateral to make payment of any and all moneys due, and to become
due thereunder, directly into the "cash collateral account", as such term
is defined in the Intercreditor Agreement or, if such account is no
longer in effect, any other accounts established pursuant to paragraph 10
hereof, provided that, to the extent that pursuant to the relevant
Guaranty Debtor owes money to IPG, IPG shall have the power and right to
direct any such party to make payment directly to IPG or as IPG shall
otherwise direct; (B) to receive payment of and receipt for any and all
moneys, claims and other amounts due, and to become due at any time, in
respect of or arising out of any Collateral; (C) to sign and indorse any
invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications and notices
in connection with accounts and other Documents constituting or relating
to the Collateral; (D) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any part thereof and to enforce any other right
in respect of any Collateral; (E) to defend any suit, action or
proceeding brought against Debtor with respect to any Collateral; (F) to
settle, compromise or adjust any suit, action or proceeding described
above and, in connection therewith, to give such discharges or releases
as IPG may deem appropriate; (G) to license or, to the extent permitted
by an applicable license, sublicense, whether general, special or
otherwise, and whether on an exclusive or non-exclusive basis, any
Patent, Copyright, trade secret or Trademark, throughout the world for
such term or terms, on such conditions, and in such manner, as IPG shall
in its sole discretion determine; and (H) generally to sell, transfer,
pledge, make any agreement with respect to or otherwise deal with any of
the Collateral as fully and completely as though IPG were the absolute
owner thereof for all purposes, and to do, at IPG's option and Debtor's
expense, at any time, or from time to time, all acts and things which IPG
reasonably deems necessary or appropriate to protect, preserve or realize
upon the Collateral and IPG's interest therein, in order to effect the
intent of this Agreement, all as fully and effectively as Debtor might
do; provided that, proceeds resulting from actions taken pursuant to this
clause (H) shall be deposited directly into the cash collateral account
or, if such account is no longer in effect, any other accounts
established pursuant to paragraph 10 hereof, provided, further, that to
the extent that pursuant to the relevant Guaranty Debtor owes money to
IPG, such proceeds shall be paid directly to IPG or as IPG shall direct.
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(b) IPG agrees that, except upon the occurrence and during the
continuation of an Event of Default, it will forebear from exercising the power
of attorney or any rights granted to IPG pursuant to this Section 6. Debtor
hereby ratifies, to the extent permitted by law, all that said attorneys shall
lawfully do or cause to be done by virtue hereof. The power of attorney
granted pursuant to this Section 6 is a power coupled with an interest and
shall be irrevocable until the Guarantor Obligations are fully satisfied.
(c) The powers conferred on IPG hereunder are solely to protect IPG's
interests in the Collateral and shall not impose any obligation or duty upon it
to exercise any such powers. IPG shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers and neither it nor
any of its officers, directors, employees or agents shall be responsible to
Debtor for any act or failure to act, except for its own gross negligence or
willful misconduct.
(d) Debtor also authorizes IPG to the extent permitted by the
Intercreditor Agreement, at any time and from time to time as is necessary to
maintain, protect and preserve its interest in the Collateral and, for any
other reason, at any time and from time to time following the payment and
performance in full of the Senior Obligations, upon the occurrence and during
the continuation of any Event of Default with respect to Debtor, (i) to
communicate in its own name with any party to any Contract with regard to the
assignment of the right, title and interest of Debtor in and under the
Contracts hereunder and other matters relating thereto and (ii) to execute, in
connection with the sale provided for in Section 8 hereof, any endorsements,
assignments or other instruments of conveyance or transfer with respect to the
Collateral.
7. Performance by IPG of Debtor's Obligations. If Debtor fails to perform
or comply with any of its agreements contained herein in any material respect
and IPG, as provided for by the terms of this Agreement, shall itself perform
or comply, or otherwise cause performance or compliance, with such agreement,
the reasonable expenses of IPG incurred in connection with such performance or
compliance shall be payable by Debtor to IPG on demand and shall constitute
Guarantor Obligations secured hereby. If Debtor does not pay such expenses
within 5 days of IPG's demand, Debtor shall pay such expenses plus interest
thereon at an annual rate equal to the Default Rate (as such term is defined in
the Operating Agreement).
8. Remedies. (a) If an Event of Default with respect to Debtor shall
occur and be continuing, IPG may, in addition to all other rights and remedies
granted to it in this Agreement and in any other instrument or agreement
securing, evidencing or relating to the Guarantor Obligations and subject to
the terms and conditions of the Intercreditor Agreement,
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<PAGE> 16
exercise all rights and remedies of a secured party under the UCC. Without
limiting the generality of the foregoing, Debtor expressly agrees that in any
such event IPG, without demand of performance or other demand, advertisement or
notice of any kind (except the notice specified below of the time and place of
public or private sale) to or upon Debtor or any other Person (all and each of
which demands, advertisements and/or notices are hereby expressly waived to the
extent permitted by the UCC and other applicable law), may forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, lease, assign, give an option or options to
purchase, or sell or otherwise dispose of and deliver said Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange or broker's board or at any of IPG's
offices or elsewhere at such prices as it may deem best, for cash or on credit
or for future delivery without assumption of any credit risk. IPG shall have
the right upon any such public sale or sales, and, to the extent permitted by
law, upon any such private sale or sales, to purchase the whole or any part of
said Collateral so sold, free of any right or equity of redemption, which
equity of redemption Debtor hereby releases to the extent permitted by law.
Debtor further agrees, at IPG's request, to assemble the Collateral and make it
available to IPG at places which IPG shall reasonably select, whether at
Debtor's premises or elsewhere. Debtor will remain liable for any deficiency
remaining unpaid after application of the proceeds of such collection,
recovery, receipt, appropriation, realization or sale. To the maximum extent
permitted by applicable law, Debtor waives all claims, damages, and demands
against IPG arising out of the repossession, retention or sale of the
Collateral except such as arise out of the gross negligence or willful
misconduct of IPG. Debtor agrees that IPG need not give more than ten (10)
days' notice (which notification shall be deemed given when delivered on an
overnight basis, postage prepaid, addressed to Debtor at its address referred
to in Section 11 hereof) of the time and place of any public sale or of the
time after which a private sale may take place and that such notice is
reasonable notification of such matters. Debtor shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which IPG is entitled, Debtor also being
liable for the reasonable fees of any attorneys employed by IPG to collect such
deficiency, provided that, any moneys paid by Debtor pursuant to such liability
shall be deposited directly into the cash collateral account or, if such
account is no longer in effect, any other accounts established pursuant to
paragraph 10 hereof, provided, further, that to the extent that pursuant to the
relevant Guaranty Debtor owes money to IPG, such moneys shall be paid directly
to IPG or as IPG shall direct.
(b) Debtor also agrees to pay all reasonable costs of IPG, including,
without limitation, reasonable attorneys' fees, incurred in connection with the
enforcement of any of its rights and remedies against Debtor hereunder.
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(c) Debtor hereby waives presentment, demand, protest or any notice (to
the maximum extent permitted by applicable law) of any kind in connection with
this Agreement or any Collateral except as expressly provided for herein.
9. Limitation on IPG's Duty in Respect of Collateral. IPG shall not have
any duty as to any Collateral in its possession or control or in the possession
or control of any agent or nominee of it or any income thereon or as to the
preservation of rights against prior parties or any other rights pertaining
thereto, except that IPG shall use reasonable care with respect to the
Collateral in its possession or under its control and except as otherwise
required by law. Upon request of Debtor, IPG shall account for any moneys
received by it in respect of any foreclosure on or disposition of the
Collateral of Debtor.
10. Disbursement of Funding under the Intercreditor Agreement. Prior to
the payment in full and performance in full of the Senior Obligations the
parties hereto shall agree upon procedures for the disbursement of funds in
connection with the subject matter of the Intercreditor Agreement and the
priority of such disbursements, which agreed upon procedures, including,
without limitation, the establishment of such number of bank accounts as the
parties determine is necessary and appropriate to replace the currently
existing accounts referred to in the Intercreditor Agreement, and priorities
shall replace the provisions of Sections 2 and 3 of the Intercreditor Agreement
in effect on the date hereof upon the payment in full of the Senior
Obligations.
11. Termination; Reinstatement. (a) This Agreement and the security
interests created or granted hereby shall terminate on the earlier of (i) the
date that the last of the Guarantor Obligations shall have been fully and
indefeasibly paid and satisfied or (ii) the date that IPG releases the
Guarantor from its obligations hereunder pursuant to that certain Option
Agreement, dated as of October 6, 1995, by and among AACI, IPG and Infoplan, at
which time IPG shall, if requested by Debtor, execute and deliver to Debtor for
filing in each office in which any security agreement, notice or other filing,
or any part thereof, shall have been filed, an instrument releasing IPG's
security interest in the Collateral, and such other documents and instruments
to terminate any security interest of IPG granted hereby as Debtor may
reasonably request, all without recourse upon, or warranty whatsoever by, IPG,
except that the same shall be free and clear of any claims, liens or
encumbrances created by or in respect of IPG, and at the cost and expense of
Debtor.
(b) This Agreement shall remain in full force and effect and continue to
be effective should any petition be filed by or against Debtor for liquidation
or reorganization, should Debtor become insolvent or make an assignment for the
benefit of creditors or should a receiver or trustee be appointed for all or
any significant part of Debtor's assets, and shall
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continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Guarantor Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise
be restored or returned by any obligee of the Guarantor Obligations, whether as
a voidable preference, fraudulent conveyance, or otherwise, all as though such
payment or performance had not been made. In the event that any payment, or
any part thereof, is rescinded, reduced, restored or returned, the Guarantor
Obligations shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.
12. Notices. Any communications required or permitted to be given
hereunder shall be in writing and shall be deemed to have been validly served,
given or delivered (i) upon the earlier of actual receipt and three days after
deposit in the United States Mail, registered or certified mail, with proper
postage prepaid, (ii) upon transmission, when sent by telecopy or other similar
facsimile transmission (promptly confirmed by personal delivery or United
States Mail as otherwise provided in this Section 12), (iii) one Business Day
after deposit with a reputable overnight courier with all charges prepaid or
(iv) when delivered, if hand-delivered by messenger, all of which shall be
addressed to the party to be notified and sent to the address or facsimile
number indicated below or to such other address or facsimile number as may be
substituted by notice given as herein provided. The giving of any notice
required hereunder may be waived in writing by the party entitled to receive
such notice. Failure or delay in delivering copies of any communication to any
Person (other than IPG or Debtor) designated below to receive copies shall in
no way adversely affect the effectiveness of such communication.
(a) If to IPG, at:
The Interpublic Group of Companies, Inc.
1271 Avenue of the Americas
New York, New York 10020
Attention: William S. Keating, Esq.
Telecopy: (212) 399-8280
with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Richard J. Cooper, Esq.
Telecopy: (212) 225-3999
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(b) If to Debtor, at:
All American Television II, Inc.
c/o All American Communications, Inc.
2114 Pico Boulevard
Santa Monica, California 90405
Attention: Thomas Bradshaw
Telecopy: (310) 314-7280
with a copy to:
Kaye, Scholer, Fierman, Hays & Handler
1999 Avenue of the Stars
Suite 1600
Los Angeles, California 900671-6048
Attention: Barry L. Dastin, Esq.
Telecopy: (310) 788-1200
13. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction to the fullest
extent permitted by law, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
14. No Waiver; Cumulative Remedies. IPG shall not by any act, delay,
omission or otherwise be deemed to have waived any of its rights or remedies
hereunder, and no waiver shall be valid unless in writing and signed by IPG,
and then only to the extent therein set forth. A waiver by IPG of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which IPG would otherwise have had on any future occasion. No
failure to exercise nor any delay in exercising on the part of IPG, any right,
power or privilege hereunder, shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or future exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies hereunder provided are cumulative and
may be exercised singly or concurrently, and are not exclusive of any rights
and remedies provided by law. None of the terms or provisions of this
Agreement may be waived, altered, modified or amended except by an instrument
in writing, duly executed by IPG and, except in the case of waivers by IPG, by
Debtor.
15. Successors; Assignments and Transfers. This Agreement and all
obligations of Debtor hereunder shall be binding upon the successors and
assigns of Debtor,
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and shall, together with the rights and remedies of IPG hereunder, inure to the
benefit of IPG and its successors and assigns. The Guarantor shall not consent
or agree to any assignments, transfers or other dispositions of any agreement
governing or evidencing the Guarantor Obligations or any portion thereof or
interest therein that would adversely affect the security interest granted to
IPG hereunder.
16. GOVERNING LAW, ETC. THIS AGREEMENT AND THE OBLIGATIONS ARISING
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK, APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED IN SUCH STATE, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS
OF LAWS THEREOF. DEBTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY
NEW YORK STATE COURT OR UNITED STATE FEDERAL COURT, IN EITHER CASE SITTING IN
THE CITY OF NEW YORK, BOROUGH OF MANHATTAN OVER ANY ACTION, SUIT OR OTHER
PROCEEDING BROUGHT BY ANY PARTY ARISING OUT OF OR RELATING TO THIS AGREEMENT,
AND DEBTOR HEREBY WAIVES ANY OBJECTION THAT IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. DEBTOR HEREBY
IRREVOCABLY APPOINTS KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, 425 PARK AVENUE,
NEW YORK, NEW YORK 10022 (ATTENTION: WILLIAM E. WALLACE), AS ITS AGENT TO
RECEIVE SERVICE OF SUMMONS, AND COMPLAINTS AND ANY OTHER PROCESS WHICH MAY BE
SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING. NOTHING IN THIS AGREEMENT
SHALL, HOWEVER, BE DEEMED OR OPERATE TO PRECLUDE IPG FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE SECURED
OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE SECURED
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF IPG,
PROVIDED THAT IPG RECOGNIZES THAT ITS RIGHTS HEREUNDER ARE SUBJECT TO THE TERMS
AND CONDITIONS OF THE INTERCREDITOR AGREEMENT.
17. Indemnification against Excise and Other Taxes. Debtor agrees to pay,
and forthwith upon demand indemnify IPG against, any and all liabilities with
respect to, or resulting from any delay in paying, any and all excise, sales,
stamp, registration or other similar tax which is or becomes payable with
respect to any of the Collateral.
18. Counterparts. This Agreement may be executed in any number of
counterparts, and this shall have the same effect as if the signatures on the
counterparts were set forth on a single copy of this Agreement.
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19. WAIVER OF JURY TRIAL. THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO, THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered by its duly authorized officer on the
date first set forth above.
ALL AMERICAN TELEVISION II, INC.
By:
-----------------------------------
Name:
Title:
Accepted and agreed by:
THE INTERPUBLIC GROUP OF COMPANIES, INC.
By:
------------------------------------
Name:
Title:
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SCHEDULE I: FILINGS
JURISDICTION FILING OFFICE
------------ -------------
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SCHEDULE II
A. Location of Chief Office
B. Location of Inventory and other Collateral
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SCHEDULE III
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<PAGE> 1
EXHIBIT 10.38
PLEDGE AGREEMENT
This PLEDGE AGREEMENT, dated as of November 20, 1995 by and between All
American Communications, Inc., a Delaware corporation ("AACI" or "Pledgor"),
and The Interpublic Group of Companies, Inc., a Delaware corporation ("IPG"),
is being entered into pursuant to that certain Intercreditor Agreement, dated
as of October 6, 1995, among Chemical Bank, for itself and as agent for the
Lenders (the "Agent"), IPG, All American Goodson, Inc., a Delaware corporation
("AAG"), AACI, All American Television II, Inc., a Delaware corporation
("AATVII"), All American Fremantle II, Inc., a Delaware corporation ("AAFII"),
and Mark Goodson Productions, LLC, a New York limited liability company ("LLC")
(the "Intercreditor Agreement"). Unless otherwise defined herein, terms
defined in the Intercreditor Agreement are used herein as therein defined.
W I T N E S S E T H :
WHEREAS, the LLC, IPG and AACI have entered into an Asset Purchase
Agreement (the "Asset Purchase Agreement"), dated as of October 6, 1995, with
Mark Goodson Productions, L.P., The Child's Play Company (together the
"Sellers") and certain other parties pursuant to which the LLC and IPG
purchased certain of the assets and the LLC assumed certain liabilities of the
Sellers;
WHEREAS, the LLC and AAG have entered into a License Agreement (the "Main
License Agreement"), dated as of October 6, 1995, with respect to the
exploitation of the Library Rights, Library Physical Properties, Programs (as
each of the foregoing terms is defined in the Main License Agreement) or
portions thereof or rights therein acquired pursuant to the Asset Purchase
Agreement, including, without limitation, the right to sublicense to third
parties the rights granted in the Main License Agreement;
WHEREAS, AACI, AAG, IPG and Infoplan International, Inc. ("Infoplan") have
entered into an Amended and Restated Operating Agreement (the "Operating
Agreement"), dated as of October 6, 1995, in connection with the operations of
the LLC which Operating Agreement became effective immediately after the Final
Closing (as defined in the Asset Purchase Agreement);
WHEREAS, IPG, Infoplan, Interpublic Game Shows, Inc., a Delaware
corporation, AACI, AAG, AAFII, AATVII and the LLC have entered into a letter
agreement (the "Letter Agreement"), dated as of October 6, 1995, in connection
with certain matters arising under the Asset Purchase Agreement, the Main
License Agreement and the Operating Agreement;
WHEREAS, each of AAG, AATVII and AAFII (each, a "Guarantor" and
collectively, the "Guarantors") have entered into a Guaranty (each, a
"Guaranty" and collectively the "Guaranties"), dated as of the date hereof, in
favor of IPG guaranteeing certain obligations of the Guarantors;
<PAGE> 2
WHEREAS, each of AAG, AATVII and AAFII have entered into a Security
Agreement (the "Security Agreements"), dated as of the date hereof, in favor of
IPG;
WHEREAS, each of AAG, All American Television, Inc., a Delaware
corporation ("AAT"), and All American Fremantle International, Inc., a Delaware
corporation ("AAF"), have entered into a Pledge Agreement (together with this
Agreement, the "Pledge Agreements"), dated as of the date hereof, in favor of
IPG, substantially in the form of this Agreement;
WHEREAS, the parties hereto desire to enter into this Pledge Agreement
(this "Agreement") wherein Pledgor has agreed to grant a perfected subordinated
security interest in (i) all issued and outstanding shares of capital stock in
AAG and (ii) its membership interest in the LLC; and
WHEREAS, pursuant to the Intercreditor Agreement, Pledgor's security
interest in the Pledged Shares (as defined below) shall be subordinate to the
Senior Obligations until such time as the Senior Obligations have been paid and
performed in full and following the payment and performance in full of the
Senior Obligations, the security interest shall be senior to all other
obligations of Pledgor;
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Definitions; Interpretation.
(a) In this Agreement, references to a Person include its successors and
assigns and references to a document are references to that document as
amended, novated or supplemented through the time such reference become
effective.
(b) The following terms shall have the following meanings (which shall be
applicable to both the singular and plural forms of the terms defined):
"Event of Default" shall have the meaning set forth in the Security
Agreement, dated the date hereof, by and between AAG and IPG.
"Secured Obligations" means the Parent Obligations as defined in the
Intercreditor Agreement.
2. Pledge. In order to secure the prompt payment and performance in full
of all of the Secured Obligations, Pledgor hereby pledges, assigns, grants a
security interest in, transfers and delivers unto IPG each of the following
(the "Collateral"):
(a) all of Pledgor's right, title and interest in and to all shares
of capital stock of AAG (the "Company") and its membership interest in
the LLC (collectively, the "Pledged Shares") and the certificates, if
any, representing the Pledged Shares, and all dividends, instruments and
other property, other than cash dividends or distributions,
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from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares;
(b) all additional shares of capital stock of the Company or any
increase in its membership interest of the LLC (the "Additional Shares")
from time to time acquired by Pledgor in any manner (including, without
limitation, any shares of preferred stock issued by any such issuer) and
the certificates, if any, representing such Additional Shares, and all
dividends, instruments and other property, other than cash dividends or
distributions, from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such Shares;
(c) all other rights appurtenant to the property described in
clauses (a) and (b) above; and
(d) all cash and noncash proceeds of the disposition of any and all
of the foregoing.
Pledgor hereby consents that, pursuant to Section 16 of the Intercreditor
Agreement, upon payment and performance in full of the Senior Obligations, the
Agent shall deliver the certificates representing the Pledged Shares and the
Additional Shares which have become Pledged Shares, if any, set forth on
Schedule I hereto, accompanied by proper instruments of assignment duly
executed in blank by the Pledgor, to IPG in New York City, New York.
Subject to the terms of the Intercreditor Agreement, promptly upon
Pledgor's acquisition of any Additional Shares and following the payment and
performance in full of the Senior Obligations, Pledgor will deliver to IPG (i)
proper instruments of assignment duly executed in blank by Pledgor together
with any certificates representing such Additional Shares, whereupon such
Additional Shares shall be Pledged Shares and (ii) an amendment to Schedule I
reflecting the addition of such Additional Shares, together with a signed
statement authorizing IPG to replace the prior Schedule I with such amendment
to Schedule I.
3. Representations and Warranties. Pledgor hereby represents and
warrants to IPG that as of the date hereof:
(a) Pledgor is the sole holder of record and sole beneficial owner
of the Pledged Shares set forth on Schedule I hereto, free and clear of
any pledge, hypothecation, assignment, lien, charge, claim, security
interest, option, preference, priority or other preferential arrangement
of any kind or nature whatsoever ("Lien") thereon or affecting the title
thereto; provided, however, that as of the date hereof the Pledged
Shares are subject to a Lien in favor of the Lenders under Tranche E of
the Credit Facility as provided in the Intercreditor Agreement (the
"Tranche E Lien") and under Tranches A through D of the Credit Facility
(the "Junior Lien"). The Tranche E Lien is superior to that of IPG to
the extent set forth in the Intercreditor Agreement but shall be fully
extinguished and discharged with the payment in full of the Senior
Obligations.
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(b) The Pledged Shares have been duly authorized and validly issued
by each of the respective issuers set forth in Schedule I, are fully paid
and non-assessable, and constitute the respective percentages of the
authorized and outstanding shares of the capital stock of the Company or
membership interest of the LLC referred to on Schedule I. Pledgor has
the right and all requisite corporate authority to pledge, assign, grant
a security interest in, transfer and deliver the Collateral to IPG as
provided herein.
(c) This Agreement has been duly authorized, executed and delivered
by Pledgor and constitutes the legal, valid and binding obligation of
Pledgor, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights
generally and subject, as to enforceability, to general principles of
equity.
(d) No consent, approval, authorization or other order of any Person
other than as provided in or contemplated by the Intercreditor Agreement
is required for (i) the execution and delivery of this Agreement by
Pledgor or the delivery by Pledgor of the Collateral to IPG as provided
herein except as have been obtained, or (ii) the exercise by IPG of the
rights provided for in this Agreement or the remedies in respect of the
Collateral pursuant to this Agreement, except as may be required in
connection with the disposition of the Collateral by laws affecting the
offering and sale of securities generally. To the best of Pledgor's
knowledge, none of the Pledged Shares has been issued or transferred in
violation of the securities registration, securities disclosure or
similar laws of any jurisdictions to which such issuance or transfer may
be subject.
(e) The chief executive office of Pledgor is located at the address
set forth in Section 15, and during the four months immediately preceding
the date hereof the chief executive office of Pledgor has not been
located elsewhere. Pledgor has no trade or other fictitious name.
(f) Upon the delivery to Chemical Bank of the certificates
representing the Pledged Shares, IPG will have a valid, perfected, second
priority security interest in the Pledged Shares subject to no prior lien
(other than, as of the date hereof, the Tranche E Lien).
(g) Upon the delivery to IPG by Chemical Bank of the certificates
representing the Pledged Shares and following the payment and performance
in full of the Senior Obligations, (i) IPG will have a valid, perfected,
first priority security interest in the Pledged Shares subject to no
prior Lien and (ii) Chemical Bank will have a valid, perfected, second
priority security interest in the Pledged Shares subject to no prior lien
(other than, as of the date thereof, IPG's Lien).
(h) The authorized, issued and outstanding capital shares of the
Company is set forth on Schedule I, and there are no existing options,
warrants, calls or commitments of any character whatsoever relating to
any of the unissued capital shares,
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<PAGE> 5
or any securities convertible into or exchangeable for such shares, of
the Company, except as set forth on Schedule I.
(i) The Pledged Shares or the Additional Shares, as the case may be,
are and will be freely transferable and assignable (subject to applicable
securities laws), other than pursuant to the Operating Agreement.
The representations and warranties set forth in clauses (a), (b), (d)(ii),
(f), (g), (h) and (i) of this Section 3 shall be deemed to be reaffirmed on the
date of each delivery of Additional Shares to IPG. The representations and
warranties set forth in this Section 3 shall survive the execution and delivery
of this Agreement.
4. Rights of Pledgor. Unless an Event of Default shall have occurred and
be continuing:
(a) Subject to the Letter Agreement, Pledgor shall be entitled to
exercise any and all voting and other consensual rights pertaining to the
Pledged Shares or any part thereof for any purpose not inconsistent with
the terms of this Agreement and the Intercreditor Agreement. Pledgor
shall not in any event exercise or refrain from exercising such right in
a manner which would (or take or omit to take any other action which
would) authorize or effect (i) the dissolution or liquidation, in whole
or in part, of the Company, (ii) the consolidation or merger of the
Company with any corporation or other entity unless the party to such
merger or consolidation agrees to assume the obligations hereunder and
under the Intercreditor Agreement, (iii) the sale, disposition or
encumbrance of any asset of the Company, except in the ordinary course of
business consistent with past practice or as permitted by the
Intercreditor Agreement, (iv) any change in the authorized number of
shares, the stated capital or the authorized share capital of the
Company, or the issuance of any additional capital shares of the Company
unless such Additional Shares are pledged to IPG to the extent required
herein, or (v) the alteration of the voting rights with respect to the
shares of the Company.
(b) Pledgor shall be entitled, from time to time, to collect and
receive for its own use all cash dividends and cash distributions (except
cash dividends paid or payable in respect of the total or partial
liquidation of an issuer) paid on the Pledged Shares. All stock
dividends and all distributions (other than cash distributions governed
by the immediately preceding sentence) in respect of any of the
Collateral, whenever paid or made after the payment in full of the Senior
Obligations, shall be delivered to IPG and held by it subject to the Lien
created by this Agreement.
5. Covenants. Pledgor covenants and agrees that until the termination of
this Agreement:
(a) Pledgor will not, without the prior written consent of IPG, (i)
sell, assign, transfer, mortgage, pledge or otherwise encumber any of its
rights in or to the Collateral or any dividends or other distributions or
payments with respect thereto (other than cash dividends and
distributions) or grant a Lien on any thereof or (ii) cause
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<PAGE> 6
or permit the Company to issue any capital shares (or options, warrants,
calls or commitments of any character whatsoever relating to such shares,
or any securities convertible into or exchangeable for such shares) in
addition to or in substitution for the Pledged Shares except to the Agent
and Pledgor as their respective interests may appear.
(b) Pledgor will, at its own expense, execute, acknowledge and
deliver all such instruments and take all such action as IPG from time to
time may reasonably request in order to ensure to IPG the benefits of its
Lien on and to the Collateral intended to be created by this Agreement.
(c) Pledgor will defend the title to the Collateral and the Lien of
IPG thereon against the claim of any Person (other than against the
claims of the Agent in connection with the Senior Obligations) and will
maintain and preserve such Lien so long as this Agreement shall remain in
effect.
(d) Unless Pledgor shall have given IPG not less than 30 days' prior
notice thereof, Pledgor will not change its name, identity or corporate
structure in any manner or the location of its chief executive office.
6. Remedies. Subject to the terms of the Intercreditor Agreement:
(a) Upon the occurrence of an Event of Default, then or at any time
during the continuance thereof, IPG is hereby authorized and empowered,
at its election, (i) to transfer and register in its name, or in the name
of the nominee of IPG, the whole or any part of the Collateral, (ii) to
exercise all voting rights with respect thereto and (iii) to demand, sue
for, collect, receive and give acquittance for any and all cash dividends
or other distributions or monies due or to become due upon or by virtue
thereof, and to settle, prosecute or defend any action or proceeding with
respect thereto, Pledgor hereby irrevocably constituting IPG as its proxy
and attorney-in-fact, with full power of substitution to do so.
(b) Upon the occurrence of an Event of Default, then or at any time
during the continuance of such occurrence, IPG is hereby further
authorized and empowered, at its election, (i) to sell in one or more
sales the whole or any part of the Collateral or otherwise to transfer or
assign the same, applying the proceeds therefrom to the payment of the
Secured Obligations in such order as IPG shall determine and (ii) to the
extent permitted by law, otherwise to act with respect to the Collateral
or the proceeds thereof as though IPG were the outright owner thereof,
Pledgor hereby irrevocably constituting IPG as its proxy and
attorney-in-fact, with full power of substitution to do so.
(c) IPG shall give Pledgor not less than ten days' prior written
notice of the time and place of any sale or other intended disposition of
any of the Collateral except any Collateral that is perishable or
threatens to decline speedily in value or is of a type customarily sold
on a recognized market. Pledgor agrees that such notice constitutes
6
<PAGE> 7
"reasonable notification" within the meaning of Section 9-504 of the
Uniform Commercial Code. Any sale shall be made at a public or private
sale at IPG's place of business, or at any public building in The City of
New York to be named in the notice of sale, either for cash or upon
credit or for future delivery at such price as IPG may deem fair, and, to
the extent permitted by applicable law, IPG may be the purchaser of the
whole or any part of the Collateral so sold and hold the same thereafter
in its own right free from any claim of Pledgor or any right or equity of
redemption, which right or equity is hereby waived and released. Each
sale shall be made to the highest bidder, but IPG reserves the right to
reject any and all bids at such sale which, in its sole discretion, it
shall deem inadequate. Except as otherwise herein specifically provided
for or required by applicable law, demands of performance, notices of
sale, advertisements and the presence of property at sale are hereby
waived and any sale hereunder may be conducted by an auctioneer or any
officer of agent of IPG.
(d) If, at the original time or times appointed for the sale of the
whole or any part of the Collateral, either (i) the highest bid, if there
be but one sale, shall be inadequate to discharge in full all of the
Secured Obligations, or (ii) if the Collateral be offered for sale in
lots, if at any of such sales the highest bid for the lot offered for
sale would indicate to IPG in its sole discretion the unlikelihood of the
proceeds of the sales of the whole of the Collateral being insufficient
to discharge all the Secured Obligations, then in either such event IPG
may, on one or more occasions, postpone any of said sales by public
announcement at the time of sale. In the event of any such postponement,
IPG shall give Pledgor notice of such postponement.
(e) If, at any time when IPG shall determine to exercise its right
to sell the whole or any part of the Collateral hereunder, such
Collateral or the part thereof to be sold shall not, for any reason
whatsoever, be effectively registered under the Act, IPG may, in it sole
and absolute discretion (subject only to applicable requirements of law),
sell such Collateral or part thereof by private sale in such manner and
under such circumstances as IPG may deem necessary or advisable, but
subject to the other requirements of this Section 6, and shall not be
required to effect such registration or to cause the same to be effected.
Without limiting the generality of the foregoing, in any such event IPG
in its sole and absolute discretion may (i) proceed to make such private
sale notwithstanding that a registration statement for the purpose of
registering such Collateral or part thereof could be or shall have been
filed under the Act (or similar statute), (ii) approach and negotiate
with a single possible purchaser to effect such sale, (iii) restrict such
sale to a purchaser who will represent and agree that such purchaser is
purchasing for its own account, for investment and not with a view to the
distribution or sale of such Collateral or part thereof, and (iv) require
that any sale hereunder (including a sale at auction) be conducted
subject to restrictions (A) as to the financial sophistication and
ability of any Person permitted to bid or purchase at sale, (B) as to the
content of legends to be placed upon any certificates representing the
Collateral sold in such sale, including restrictions on future transfer
thereof, (C) as to the representations required to be made by each Person
bidding or purchasing at such sale relating to that Person's access to
financial information about Pledgor, any of the
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<PAGE> 8
issuers of the Pledged Shares, such Person's intentions as to the holding
of the Collateral so sold for investment, for its own account, and not
with a view to the distribution thereof, and (D) as to such other matters
as IPG may, in its sole discretion, deem necessary or appropriate in
order that such sale (notwithstanding any failure so to register) may be
effected in compliance with the Uniform Commercial Code (or similar
applicable statutes) and other laws affecting the enforcement of
creditors' rights and the Act (or similar statute) and all applicable
state securities laws. Pledgor will execute and deliver such documents
and take such other action as the Agent deems necessary or advisable in
order that any such sale may be made in compliance with law.
(f) Pledgor acknowledges that: (i) any sale under the circumstances
described in this Section 6 shall be deemed to have been held in a manner
which is commercially reasonable, and (ii) notwithstanding the legal
availability of a private sale or a sale subject to restrictions of the
character described above, IPG may, in it sole discretion, elect to seek
registration of the Collateral under the Act (or similar statute or any
applicable state securities laws) in accordance with its rights under
this Section 6. In the event of any such sale under the circumstances
described in this Section 6, IPG shall incur no responsibility or
liability for selling the whole or any part of the Collateral at a price
which IPG may deem reasonable under the circumstances, notwithstanding
the possibility that a substantially higher price might be realized if
the sales were deferred until after registration as aforesaid. Pledgor
hereby acknowledges that any sale of any of the Collateral which has not
been registered under the Act may be for a price less than that which
might have been obtained had the Collateral been registered under the
Act.
(g) Pledgor agrees that it will not at any time plead, claim or take
the benefit of any appraisal, valuation, stay, extension, moratorium or
redemption law now or hereafter in force in order to prevent or delay the
enforcement of this Agreement, or the absolute sale of the whole or any
part of the Collateral or the possession thereof by any purchaser at any
sale hereunder, and Pledgor waives the benefit of all such laws to the
extent it lawfully may do so. Pledgor agrees that it will not interfere
with any right, power and remedy of IPG provided for in this Agreement or
now or hereafter existing at law or in equity or by statute or otherwise,
or the exercise or beginning of the exercise by IPG of any one or more
such rights, powers or remedies. No failure or delay on the part of IPG
to exercise any right, power or remedy, and no notice or demand which may
be given to or made upon Pledgor by IPG with respect to any such
remedies, shall operate as a waiver thereof, or limit or impair IPG's
right to take any action or to exercise any power or remedy hereunder
without notice or demand, or prejudice its rights as against Pledgor in
any respect.
7. Exoneration of IPG. Other than the exercise of reasonable care in the
custody and preservation of the Collateral in its possession or as required by
law, IPG shall have no duty toward Pledgor with respect to the Collateral. IPG
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which it accords its own
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<PAGE> 9
property, and shall not be liable or responsible for any loss or damage to any
of the Collateral, or for any diminution in the value thereof, by reason of the
act or omission of any agent or bailee selected by IPG in good faith, except
for losses or damages caused by gross negligence or willful misconduct in the
performance of a duty owed by IPG.
8. No Waiver; Cumulative Remedies. IPG shall not by any act, delay,
omission or otherwise be deemed to have waived any of its rights or remedies
hereunder, and no waiver shall be valid unless in writing and signed by IPG,
and then only to the extent therein set forth. A waiver by IPG of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which IPG would otherwise have had on any future occasion. No
failure to exercise nor any delay in exercising on the part of IPG, any right,
power or privilege hereunder, shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or future exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies hereunder provided are cumulative and
may be exercised singly or concurrently, and are not exclusive of any rights
and remedies provided by law. None of the terms or provisions of this
Agreement may be waived, altered, modified or amended except by an instrument
in writing, duly executed by IPG and the Pledgor.
9. Successors; Assignments and Transfers.
(a) This Agreement and all obligations of the Pledgor hereunder
shall be binding upon the successors and assigns of the Pledgor and
shall, together with the rights and remedies of IPG hereunder, inure to
the benefit of IPG and its respective successors and assigns. The
Pledgor shall not consent or agree to any assignments, transfers or other
dispositions of any agreement governing the Secured Obligations or any
portion thereof or interest therein that would adversely affect the
security interest granted to IPG hereunder.
(b) IPG may not assign and transfer all of its rights and
obligations under this Agreement to another person except in conjunction
with the transfer of its rights under the Operating Agreement, the Letter
Agreement or the Intercreditor Agreement.
10. Termination. At such time as there are no outstanding obligations
arising under any Guaranty then IPG shall deliver to the Agent the Collateral
at the time subject to this Agreement and all instruments of assignment
executed in connection therewith, free and clear of the Lien hereof and of any
other Liens (other than Liens granted in favor of the Agent) asserted through
IPG, and all of Pledgor's obligations hereunder shall thereupon terminate.
11. Release. No release or surrender any of the Collateral shall impair
IPG's rights hereunder, other than with respect to the particular Collateral so
released or surrendered.
12. Expenses. Pledgor agrees to reimburse IPG for all reasonable
expenses of, or incidental to the enforcement of any of the provisions of this
Agreement or any actual or attempted sale, or any exchange, enforcement,
collection, compromise or settlement of any of
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<PAGE> 10
the Collateral and for the care of the Collateral and defending or asserting
the rights and claims of IPG in respect of the Collateral, by litigation or
otherwise, including but not limited to expenses of insurance and the
reasonable fees and expenses of counsel for IPG for legal services of every
kind. All such expenses shall be deemed additional Secured Obligations.
13. GOVERNING LAW, ETC. THIS AGREEMENT AND THE OBLIGATIONS ARISING
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK, APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED IN SUCH STATE, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS
OF LAWS THEREOF. PLEDGOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY
NEW YORK STATE COURT OR UNITED STATES FEDERAL COURT, IN EITHER CASE SITTING IN
THE CITY OF NEW YORK, BOROUGH OF MANHATTAN OVER ANY ACTION, SUIT OR OTHER
PROCEEDING BROUGHT BY ANY PARTY ARISING OUT OF OR RELATING TO THIS AGREEMENT,
AND PLEDGOR HEREBY WAIVES ANY OBJECTION THAT IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. PLEDGOR HEREBY
IRREVOCABLY APPOINTS KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, 425 PARK AVENUE,
NEW YORK, NEW YORK 10022 (ATTENTION: WILLIAM E. WALLACE), AS ITS AGENT TO
RECEIVE SERVICE OF SUMMONS, AND COMPLAINTS AND ANY OTHER PROCESS WHICH MAY BE
SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING. NOTHING IN THIS AGREEMENT
SHALL, HOWEVER, BE DEEMED OR OPERATE TO PRECLUDE IPG FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE SECURED
OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE SECURED
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF IPG,
PROVIDED THAT IPG RECOGNIZES THAT ITS RIGHTS HEREUNDER ARE SUBJECT TO THE TERMS
AND CONDITIONS OF THE INTERCREDITOR AGREEMENT.
14. Further Assurances; Agent May Perform.
(a) Pledgor will, at Pledgor's expense, do all such acts, and will
furnish to IPG all such financing statements, certificates, legal
opinions and other documents and will do or cause to be done all such
other things as IPG may reasonably request from time to time in order to
give full effect to this Agreement and to secure the rights intended to
be granted to IPG hereunder. To the extent permitted by applicable law,
Pledgor hereby authorizes IPG to execute and file, in the name of Pledgor
or otherwise, financing statements under the Uniform Commercial Code (or
other applicable statutes) (which may be photocopies of this Agreement)
which IPG in its sole discretion may deem necessary or appropriate.
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<PAGE> 11
(b) If Pledgor fails to perform any act required by this Agreement,
IPG may perform, or cause performance of, such act, and the expenses of
IPG incurred in connection therewith shall be governed by Section 12
hereof.
15. Notices. Any communications required or permitted to be given
hereunder shall be in writing and shall be deemed to have been validly served,
given or delivered (i) upon the earlier of actual receipt and three days after
deposit in the United States Mail, registered or certified mail, with proper
postage prepaid, (ii) upon transmission, when sent by telecopy or other similar
facsimile transmission (promptly confirmed by personal delivery or United
States Mail as otherwise provided in this Section 15), (iii) one Business Day
after deposit with a reputable overnight courier with all charges prepaid or
(iv) when delivered, if hand-delivered by messenger, all of which shall be
addressed to the party to be notified and sent to the address or facsimile
number indicated below or to such other address or facsimile number as may be
substituted by notice given as herein provided. The giving of any notice
required hereunder may be waived in writing by the party entitled to receive
such notice. Failure or delay in delivering copies of any communication to any
Person (other than IPG or Pledgor) designated below to receive copies shall in
no way adversely affect the effectiveness of such communication.
(a) If to IPG, at:
The Interpublic Group of Companies, Inc.
1271 Sixth Avenue
New York, New York 10020
Attention: William S. Keating, Esq.
Facsimile: (212) 399-8280
with copies to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Richard J. Cooper, Esq.
Facsimile: (212) 225-3999
(b) If to Pledgor, at:
All American Communications, Inc.
2114 Pico Boulevard
Santa Monica, California 90405
Attention: Mr. Thomas Bradshaw
Facsimile: (310) 452-9053
with a copy to:
Kaye, Scholer, Fierman, Hays & Handler
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<PAGE> 12
1999 Avenue of the Stars
Suite 1600
Los Angeles, California 90067
Attention: Barry Dastin, Esq.
Facsimile: (310) 788-1200
16. WAIVER OF JURY TRIAL. THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO, THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
17. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction to the fullest
extent permitted by law, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
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<PAGE> 13
18. Counterparts. This Agreement may be executed in any number of
counterparts, and this shall have the same effect as if the signatures on the
counterparts were set forth on a single copy of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed and delivered by its duly authorized officer on the date first
set forth above.
ALL AMERICAN COMMUNICATIONS, INC.
By: _______________________________
Name:
Title:
Accepted and agreed by:
THE INTERPUBLIC GROUP OF COMPANIES, INC.
By: _____________________________
Name:
Title:
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<PAGE> 14
<TABLE>
<CAPTION>
SCHEDULE I
% of Authorized % of Outstanding
Shares Shares
Number of Class and par or Represented by Represented by
Issuer Name Owner of Record/Pledgor Pledged Shares Liquidation Value of Shares Pledged Shares Pledged Shares
- ----------- ----------------------- -------------- --------------------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1. All American All American
Goodson, Inc. Communications, Inc. Common, $0.001 par value 100% 100%
2. Mark Goodson All American
Productions, LLC Communications, Inc. 1 Membership Interest 49% 49%
</TABLE>
<PAGE> 1
EXHIBIT 10.39
PLEDGE AGREEMENT
This PLEDGE AGREEMENT, dated as of November 20, 1995 by and between All
American Fremantle, Inc., a Delaware corporation ("AAF" or "Pledgor"), and The
Interpublic Group of Companies, Inc., a Delaware corporation ("IPG"), is being
entered into pursuant to that certain Intercreditor Agreement, dated as of
October 6, 1995, among Chemical Bank, for itself and as agent for the Lenders
(the "Agent"), IPG, All American Goodson, Inc., a Delaware corporation ("AAG"),
All American Communications, Inc., a Delaware Corporation ("AACI"), All
American Television II, Inc., a Delaware corporation ("AATVII"), All American
Fremantle II, Inc., a Delaware corporation ("AAFII"), and Mark Goodson
Productions, LLC, a New York limited liability company ("LLC") (the
"Intercreditor Agreement"). Unless otherwise defined herein, terms defined in
the Intercreditor Agreement are used herein as therein defined.
W I T N E S S E T H :
WHEREAS, the LLC, IPG and AACI have entered into an Asset Purchase
Agreement (the "Asset Purchase Agreement"), dated as of October 6, 1995, with
Mark Goodson Productions, L.P., The Child's Play Company (together the
"Sellers") and certain other parties pursuant to which the LLC and IPG
purchased certain of the assets and the LLC assumed certain liabilities of the
Sellers;
WHEREAS, the LLC and AAG have entered into a License Agreement (the "Main
License Agreement"), dated as of October 6, 1995, with respect to the
exploitation of the Library Rights, Library Physical Properties, Programs (as
each of the foregoing terms is defined in the Main License Agreement) or
portions thereof or rights therein acquired pursuant to the Asset Purchase
Agreement, including, without limitation, the right to sublicense to third
parties the rights granted in the Main License Agreement;
WHEREAS, AACI, AAG, IPG and Infoplan International, Inc. ("Infoplan") have
entered into an Amended and Restated Operating Agreement (the "Operating
Agreement"), dated as of October 6, 1995, in connection with the operations of
the LLC which Operating Agreement became effective immediately after the Final
Closing (as defined in the Asset Purchase Agreement);
WHEREAS, IPG, Infoplan, Interpublic Game Shows, Inc., a Delaware
corporation, AACI, AAG, AAFII, AATVII and the LLC have entered into a letter
agreement (the "Letter Agreement"), dated as of October 6, 1995, in connection
with certain matters arising under the Asset Purchase Agreement, the Main
License Agreement and the Operating Agreement;
WHEREAS, each of AAG, AATVII and AAFII (each, a "Guarantor" and
collectively, the "Guarantors") have entered into a Guaranty (each, a
"Guaranty" and collectively the "Guaranties"), dated as of the date hereof, in
favor of IPG guaranteeing certain obligations of the Guarantors;
<PAGE> 2
WHEREAS, each of AAG, AATVII and AAFII have entered into a Security
Agreement (the "Security Agreements"), dated as of the date hereof, in favor
of IPG;
WHEREAS, each of AACI, AAG and All American Television, Inc. a Delaware
corporation ("AAT"), have entered into a Pledge Agreement (together with this
Agreement, the "Pledge Agreements"), dated as of the date hereof, in favor of
IPG, substantially in the form of this Agreement;
WHEREAS, the parties hereto desire to enter into this Pledge Agreement
(this "Agreement") wherein Pledgor has agreed to grant a perfected subordinated
security interest in all issued and outstanding shares of capital stock in
AATVII; and
WHEREAS, pursuant to the Intercreditor Agreement, Pledgor's security
interest in the Pledged Shares (as defined below) shall be subordinate to the
Senior Obligations until such time as the Senior Obligations have been paid and
performed in full and following the payment and performance in full of the
Senior Obligations, the security interest shall be senior to all other
obligations of Pledgor;
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Definitions; Interpretation.
(a) In this Agreement, references to a Person include its successors and
assigns and references to a document are references to that document as
amended, novated or supplemented through the time such reference become
effective.
(b) The following terms shall have the following meanings (which shall be
applicable to both the singular and plural forms of the terms defined):
"Event of Default" shall have the meaning set forth in the Security
Agreement, dated the date hereof, by and between AAG and IPG.
"Secured Obligations" means the Parent Obligations as defined in the
Intercreditor Agreement.
2. Pledge. In order to secure the prompt payment and performance in full
of all of the Secured Obligations, Pledgor hereby pledges, assigns, grants a
security interest in, transfers and delivers unto IPG each of the following
(the "Collateral"):
(a) all of Pledgor's right, title and interest in and to all shares
of capital stock of AAFII (the "Company") (the "Pledged Shares") and the
certificates, if any, representing the Pledged Shares, and all dividends,
instruments and other property, other than cash dividends or
distributions, from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged
Shares;
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<PAGE> 3
(b) all additional shares of capital stock of the Company (the
"Additional Shares") from time to time acquired by Pledgor in any manner
(including, without limitation, any shares of preferred stock issued by
any such issuer) and the certificates, if any, representing such
Additional Shares, and all dividends, instruments and other property,
other than cash dividends or distributions, from time to time received,
receivable or otherwise distributed in respect of or in exchange for any
or all of such Shares;
(c) all other rights appurtenant to the property described in
clauses (a) and (b) above; and
(d) all cash and noncash proceeds of the disposition of any and all
of the foregoing.
Pledgor hereby consents that, pursuant to Section 16 of the Intercreditor
Agreement, upon payment and performance in full of the Senior Obligations, the
Agent shall deliver the certificates representing the Pledged Shares and the
Additional Shares which have become Pledged Shares, if any, set forth on
Schedule I hereto, accompanied by proper instruments of assignment duly
executed in blank by the Pledgor, to IPG in New York City, New York.
Subject to the terms of the Intercreditor Agreement, promptly upon
Pledgor's acquisition of any Additional Shares and following the payment and
performance in full of the Senior Obligations, Pledgor will deliver to IPG (i)
proper instruments of assignment duly executed in blank by Pledgor together
with any certificates representing such Additional Shares, whereupon such
Additional Shares shall be Pledged Shares and (ii) an amendment to Schedule I
reflecting the addition of such Additional Shares, together with a signed
statement authorizing IPG to replace the prior Schedule I with such amendment
to Schedule I.
3. Representations and Warranties. Pledgor hereby represents and
warrants to IPG that as of the date hereof:
(a) Pledgor is the sole holder of record and sole beneficial owner
of the Pledged Shares set forth on Schedule I hereto, free and clear of
any pledge, hypothecation, assignment, lien, charge, claim, security
interest, option, preference, priority or other preferential arrangement
of any kind or nature whatsoever ("Lien") thereon or affecting the title
thereto; provided, however, that as of the date hereof the Pledged
Shares are subject to a Lien in favor of the Lenders under Tranche E of
the Credit Facility as provided in the Intercreditor Agreement (the
"Tranche E Lien") and under Tranches A through D of the Credit Facility
(the "Junior Lien"). The Tranche E Lien is superior to that of IPG to
the extent set forth in the Intercreditor Agreement but shall be fully
extinguished and discharged with the payment in full of the Senior
Obligations.
(b) The Pledged Shares have been duly authorized and validly issued
by each of the respective issuers set forth in Schedule I, are fully paid
and non-assessable, and
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<PAGE> 4
constitute the respective percentages of the authorized and outstanding
shares of the capital stock of the Company referred to on Schedule I.
Pledgor has the right and all requisite corporate authority to pledge,
assign, grant a security interest in, transfer and deliver the Collateral
to IPG as provided herein.
(c) This Agreement has been duly authorized, executed and delivered
by Pledgor and constitutes the legal, valid and binding obligation of
Pledgor, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights
generally and subject, as to enforceability, to general principles of
equity.
(d) No consent, approval, authorization or other order of any Person
other than as provided in or contemplated by the Intercreditor Agreement
is required for (i) the execution and delivery of this Agreement by
Pledgor or the delivery by Pledgor of the Collateral to IPG as provided
herein except as have been obtained, or (ii) the exercise by IPG of the
rights provided for in this Agreement or the remedies in respect of the
Collateral pursuant to this Agreement, except as may be required in
connection with the disposition of the Collateral by laws affecting the
offering and sale of securities generally. To the best of Pledgor's
knowledge, none of the Pledged Shares has been issued or transferred in
violation of the securities registration, securities disclosure or
similar laws of any jurisdictions to which such issuance or transfer may
be subject.
(e) The chief executive office of Pledgor is located at the address
set forth in Section 15, and during the four months immediately preceding
the date hereof the chief executive office of Pledgor has not been
located elsewhere. Pledgor has no trade or other fictitious name.
(f) Upon the delivery to Chemical Bank of the certificates
representing the Pledged Shares, IPG will have a valid, perfected, second
priority security interest in the Pledged Shares subject to no prior lien
(other than, as of the date hereof, the Tranche E Lien).
(g) Upon the delivery to IPG by Chemical Bank of the certificates
representing the Pledged Shares and following the payment and performance
in full of the Senior Obligations, (i) IPG will have a valid, perfected,
first priority security interest in the Pledged Shares subject to no
prior Lien and (ii) Chemical Bank will have a valid, perfected, second
priority security interest in the Pledged Shares subject to no prior lien
(other than, as of the date thereof, IPG's Lien).
(h) The authorized, issued and outstanding capital shares of the
Company is set forth on Schedule I, and there are no existing options,
warrants, calls or commitments of any character whatsoever relating to
any of the unissued capital shares, or any securities convertible into or
exchangeable for such shares, of the Company, except as set forth on
Schedule I.
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<PAGE> 5
(i) The Pledged Shares or the Additional Shares, as the case may be, are
and will be freely transferable and assignable (subject to applicable
securities laws), other than pursuant to the Operating Agreement.
The representations and warranties set forth in clauses (a), (b), (d)(ii),
(f), (g), (h) and (i) of this Section 3 shall be deemed to be reaffirmed on the
date of each delivery of Additional Shares to IPG. The representations and
warranties set forth in this Section 3 shall survive the execution and delivery
of this Agreement.
4. Rights of Pledgor. Unless an Event of Default shall have occurred and
be continuing:
(a) Subject to the Letter Agreement, Pledgor shall be entitled to
exercise any and all voting and other consensual rights pertaining to the
Pledged Shares or any part thereof for any purpose not inconsistent with
the terms of this Agreement and the Intercreditor Agreement. Pledgor
shall not in any event exercise or refrain from exercising such right in
a manner which would (or take or omit to take any other action which
would) authorize or effect (i) the dissolution or liquidation, in whole
or in part, of the Company, (ii) the consolidation or merger of the
Company with any corporation or other entity unless the party to such
merger or consolidation agrees to assume the obligations hereunder and
under the Intercreditor Agreement, (iii) the sale, disposition or
encumbrance of any asset of the Company, except in the ordinary course of
business consistent with past practice or as permitted by the
Intercreditor Agreement, (iv) any change in the authorized number of
shares, the stated capital or the authorized share capital of the
Company, or the issuance of any additional capital shares of the Company
unless such Additional Shares are pledged to IPG to the extent required
herein, or (v) the alteration of the voting rights with respect to the
shares of the Company.
(b) Pledgor shall be entitled, from time to time, to collect and
receive for its own use all cash dividends and cash distributions (except
cash dividends paid or payable in respect of the total or partial
liquidation of an issuer) paid on the Pledged Shares. All stock
dividends and all distributions (other than cash distributions governed
by the immediately preceding sentence) in respect of any of the
Collateral, whenever paid or made after the payment in full of the Senior
Obligations, shall be delivered to IPG and held by it subject to the Lien
created by this Agreement.
5. Covenants. Pledgor covenants and agrees that until the termination of
this Agreement:
(a) Pledgor will not, without the prior written consent of IPG, (i)
sell, assign, transfer, mortgage, pledge or otherwise encumber any of its
rights in or to the Collateral or any dividends or other distributions or
payments with respect thereto (other than cash dividends and
distributions) or grant a Lien on any thereof or (ii) cause or permit the
Company to issue any capital shares (or options, warrants, calls or
commitments of any character whatsoever relating to such shares, or any
securities convertible into or exchangeable for such shares) in addition
to or in substitution for the
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<PAGE> 6
Pledged Shares except to the Agent and Pledgor as their respective
interests may appear.
(b) Pledgor will, at its own expense, execute, acknowledge and
deliver all such instruments and take all such action as IPG from time to
time may reasonably request in order to ensure to IPG the benefits of its
Lien on and to the Collateral intended to be created by this Agreement.
(c) Pledgor will defend the title to the Collateral and the Lien of
IPG thereon against the claim of any Person (other than against the
claims of the Agent in connection with the Senior Obligations) and will
maintain and preserve such Lien so long as this Agreement shall remain in
effect.
(d) Unless Pledgor shall have given IPG not less than 30 days' prior
notice thereof, Pledgor will not change its name, identity or corporate
structure in any manner or the location of its chief executive office.
6. Remedies. Subject to the terms of the Intercreditor Agreement:
(a) Upon the occurrence of an Event of Default, then or at any time
during the continuance thereof, IPG is hereby authorized and empowered,
at its election, (i) to transfer and register in its name, or in the name
of the nominee of IPG, the whole or any part of the Collateral, (ii) to
exercise all voting rights with respect thereto and (iii) to demand, sue
for, collect, receive and give acquittance for any and all cash dividends
or other distributions or monies due or to become due upon or by virtue
thereof, and to settle, prosecute or defend any action or proceeding with
respect thereto, Pledgor hereby irrevocably constituting IPG as its proxy
and attorney-in-fact, with full power of substitution to do so.
(b) Upon the occurrence of an Event of Default, then or at any time
during the continuance of such occurrence, IPG is hereby further
authorized and empowered, at its election, (i) to sell in one or more
sales the whole or any part of the Collateral or otherwise to transfer or
assign the same, applying the proceeds therefrom to the payment of the
Secured Obligations in such order as IPG shall determine and (ii) to the
extent permitted by law, otherwise to act with respect to the Collateral
or the proceeds thereof as though IPG were the outright owner thereof,
Pledgor hereby irrevocably constituting IPG as its proxy and
attorney-in-fact, with full power of substitution to do so.
(c) IPG shall give Pledgor not less than ten days' prior written
notice of the time and place of any sale or other intended disposition of
any of the Collateral except any Collateral that is perishable or
threatens to decline speedily in value or is of a type customarily sold
on a recognized market. Pledgor agrees that such notice constitutes
"reasonable notification" within the meaning of Section 9-504 of the
Uniform Commercial Code. Any sale shall be made at a public or private
sale at IPG's place of business, or at any public building in The City of
New York to be named in the notice
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<PAGE> 7
of sale, either for cash or upon credit or for future delivery at such
price as IPG may deem fair, and, to the extent permitted by applicable
law, IPG may be the purchaser of the whole or any part of the Collateral
so sold and hold the same thereafter in its own right free from any claim
of Pledgor or any right or equity of redemption, which right or equity is
hereby waived and released. Each sale shall be made to the highest
bidder, but IPG reserves the right to reject any and all bids at such
sale which, in its sole discretion, it shall deem inadequate. Except as
otherwise herein specifically provided for or required by applicable law,
demands of performance, notices of sale, advertisements and the presence
of property at sale are hereby waived and any sale hereunder may be
conducted by an auctioneer or any officer of agent of IPG.
(d) If, at the original time or times appointed for the sale of the
whole or any part of the Collateral, either (i) the highest bid, if there
be but one sale, shall be inadequate to discharge in full all of the
Secured Obligations, or (ii) if the Collateral be offered for sale in
lots, if at any of such sales the highest bid for the lot offered for
sale would indicate to IPG in its sole discretion the unlikelihood of the
proceeds of the sales of the whole of the Collateral being insufficient
to discharge all the Secured Obligations, then in either such event IPG
may, on one or more occasions, postpone any of said sales by public
announcement at the time of sale. In the event of any such postponement,
IPG shall give Pledgor notice of such postponement.
(e) If, at any time when IPG shall determine to exercise its right
to sell the whole or any part of the Collateral hereunder, such
Collateral or the part thereof to be sold shall not, for any reason
whatsoever, be effectively registered under the Act, IPG may, in it sole
and absolute discretion (subject only to applicable requirements of law),
sell such Collateral or part thereof by private sale in such manner and
under such circumstances as IPG may deem necessary or advisable, but
subject to the other requirements of this Section 6, and shall not be
required to effect such registration or to cause the same to be effected.
Without limiting the generality of the foregoing, in any such event IPG
in its sole and absolute discretion may (i) proceed to make such private
sale notwithstanding that a registration statement for the purpose of
registering such Collateral or part thereof could be or shall have been
filed under the Act (or similar statute), (ii) approach and negotiate
with a single possible purchaser to effect such sale, (iii) restrict such
sale to a purchaser who will represent and agree that such purchaser is
purchasing for its own account, for investment and not with a view to the
distribution or sale of such Collateral or part thereof, and (iv) require
that any sale hereunder (including a sale at auction) be conducted
subject to restrictions (A) as to the financial sophistication and
ability of any Person permitted to bid or purchase at sale, (B) as to the
content of legends to be placed upon any certificates representing the
Collateral sold in such sale, including restrictions on future transfer
thereof, (C) as to the representations required to be made by each Person
bidding or purchasing at such sale relating to that Person's access to
financial information about Pledgor, any of the issuers of the Pledged
Shares, such Person's intentions as to the holding of the Collateral so
sold for investment, for its own account, and not with a view to the
distribution thereof, and (D) as to such other matters as IPG may, in its
sole discretion,
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<PAGE> 8
deem necessary or appropriate in order that such sale (notwithstanding
any failure so to register) may be effected in compliance with the
Uniform Commercial Code (or similar applicable statutes) and other laws
affecting the enforcement of creditors' rights and the Act (or similar
statute) and all applicable state securities laws. Pledgor will execute
and deliver such documents and take such other action as the Agent deems
necessary or advisable in order that any such sale may be made in
compliance with law.
(f) Pledgor acknowledges that: (i) any sale under the circumstances
described in this Section 6 shall be deemed to have been held in a manner
which is commercially reasonable, and (ii) notwithstanding the legal
availability of a private sale or a sale subject to restrictions of the
character described above, IPG may, in it sole discretion, elect to seek
registration of the Collateral under the Act (or similar statute or any
applicable state securities laws) in accordance with its rights under
this Section 6. In the event of any such sale under the circumstances
described in this Section 6, IPG shall incur no responsibility or
liability for selling the whole or any part of the Collateral at a price
which IPG may deem reasonable under the circumstances, notwithstanding
the possibility that a substantially higher price might be realized if
the sales were deferred until after registration as aforesaid. Pledgor
hereby acknowledges that any sale of any of the Collateral which has not
been registered under the Act may be for a price less than that which
might have been obtained had the Collateral been registered under the
Act.
(g) Pledgor agrees that it will not at any time plead, claim or take
the benefit of any appraisal, valuation, stay, extension, moratorium or
redemption law now or hereafter in force in order to prevent or delay the
enforcement of this Agreement, or the absolute sale of the whole or any
part of the Collateral or the possession thereof by any purchaser at any
sale hereunder, and Pledgor waives the benefit of all such laws to the
extent it lawfully may do so. Pledgor agrees that it will not interfere
with any right, power and remedy of IPG provided for in this Agreement or
now or hereafter existing at law or in equity or by statute or otherwise,
or the exercise or beginning of the exercise by IPG of any one or more
such rights, powers or remedies. No failure or delay on the part of IPG
to exercise any right, power or remedy, and no notice or demand which may
be given to or made upon Pledgor by IPG with respect to any such
remedies, shall operate as a waiver thereof, or limit or impair IPG's
right to take any action or to exercise any power or remedy hereunder
without notice or demand, or prejudice its rights as against Pledgor in
any respect.
7. Exoneration of IPG. Other than the exercise of reasonable care in the
custody and preservation of the Collateral in its possession or as required by
law, IPG shall have no duty toward Pledgor with respect to the Collateral. IPG
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which it accords its own property, and
shall not be liable or responsible for any loss or damage to any of the
Collateral, or for any diminution in the value thereof, by reason of the act or
omission of any agent or
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<PAGE> 9
bailee selected by IPG in good faith, except for losses or damages caused by
gross negligence or willful misconduct in the performance of a duty owed by
IPG.
8. No Waiver; Cumulative Remedies. IPG shall not by any act, delay,
omission or otherwise be deemed to have waived any of its rights or remedies
hereunder, and no waiver shall be valid unless in writing and signed by IPG,
and then only to the extent therein set forth. A waiver by IPG of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which IPG would otherwise have had on any future occasion. No
failure to exercise nor any delay in exercising on the part of IPG, any right,
power or privilege hereunder, shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or future exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies hereunder provided are cumulative and
may be exercised singly or concurrently, and are not exclusive of any rights
and remedies provided by law. None of the terms or provisions of this
Agreement may be waived, altered, modified or amended except by an instrument
in writing, duly executed by IPG and the Pledgor.
9. Successors; Assignments and Transfers.
(a) This Agreement and all obligations of the Pledgor hereunder
shall be binding upon the successors and assigns of the Pledgor and
shall, together with the rights and remedies of IPG hereunder, inure to
the benefit of IPG and its respective successors and assigns. The
Pledgor shall not consent or agree to any assignments, transfers or other
dispositions of any agreement governing the Secured Obligations or any
portion thereof or interest therein that would adversely affect the
security interest granted to IPG hereunder.
(b) IPG may not assign and transfer all of its rights and
obligations under this Agreement to another person except in conjunction
with the transfer of its rights under the Operating Agreement, the Letter
Agreement or the Intercreditor Agreement.
10. Termination. At such time as there are no outstanding obligations
arising under any Guaranty then IPG shall deliver to the Agent the Collateral
at the time subject to this Agreement and all instruments of assignment
executed in connection therewith, free and clear of the Lien hereof and of any
other Liens (other than Liens granted in favor of the Agent) asserted through
IPG, and all of Pledgor's obligations hereunder shall thereupon terminate.
11. Release. No release or surrender any of the Collateral shall impair
IPG's rights hereunder, other than with respect to the particular Collateral so
released or surrendered.
12. Expenses. Pledgor agrees to reimburse IPG for all reasonable
expenses of, or incidental to the enforcement of any of the provisions of this
Agreement or any actual or attempted sale, or any exchange, enforcement,
collection, compromise or settlement of any of the Collateral and for the care
of the Collateral and defending or asserting the rights and claims of IPG in
respect of the Collateral, by litigation or otherwise, including but not
limited to
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<PAGE> 10
expenses of insurance and the reasonable fees and expenses of counsel for IPG
for legal services of every kind. All such expenses shall be deemed additional
Secured Obligations.
13. GOVERNING LAW, ETC. THIS AGREEMENT AND THE OBLIGATIONS ARISING
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK, APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED IN SUCH STATE, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS
OF LAWS THEREOF. PLEDGOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY
NEW YORK STATE COURT OR UNITED STATES FEDERAL COURT, IN EITHER CASE SITTING IN
THE CITY OF NEW YORK, BOROUGH OF MANHATTAN OVER ANY ACTION, SUIT OR OTHER
PROCEEDING BROUGHT BY ANY PARTY ARISING OUT OF OR RELATING TO THIS AGREEMENT,
AND PLEDGOR HEREBY WAIVES ANY OBJECTION THAT IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. PLEDGOR HEREBY
IRREVOCABLY APPOINTS KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, 425 PARK AVENUE,
NEW YORK, NEW YORK 10022 (ATTENTION: WILLIAM E. WALLACE), AS ITS AGENT TO
RECEIVE SERVICE OF SUMMONS, AND COMPLAINTS AND ANY OTHER PROCESS WHICH MAY BE
SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING. NOTHING IN THIS AGREEMENT
SHALL, HOWEVER, BE DEEMED OR OPERATE TO PRECLUDE IPG FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE SECURED
OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE SECURED
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF IPG,
PROVIDED THAT IPG RECOGNIZES THAT ITS RIGHTS HEREUNDER ARE SUBJECT TO THE TERMS
AND CONDITIONS OF THE INTERCREDITOR AGREEMENT.
14. Further Assurances; Agent May Perform.
(a) Pledgor will, at Pledgor's expense, do all such acts, and will
furnish to IPG all such financing statements, certificates, legal
opinions and other documents and will do or cause to be done all such
other things as IPG may reasonably request from time to time in order to
give full effect to this Agreement and to secure the rights intended to
be granted to IPG hereunder. To the extent permitted by applicable law,
Pledgor hereby authorizes IPG to execute and file, in the name of Pledgor
or otherwise, financing statements under the Uniform Commercial Code (or
other applicable statutes) (which may be photocopies of this Agreement)
which IPG in its sole discretion may deem necessary or appropriate.
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<PAGE> 11
(b) If Pledgor fails to perform any act required by this Agreement, IPG
may perform, or cause performance of, such act, and the expenses of IPG
incurred in connection therewith shall be governed by Section 12 hereof.
15. Notices. Any communications required or permitted to be given
hereunder shall be in writing and shall be deemed to have been validly served,
given or delivered (i) upon the earlier of actual receipt and three days after
deposit in the United States Mail, registered or certified mail, with proper
postage prepaid, (ii) upon transmission, when sent by telecopy or other similar
facsimile transmission (promptly confirmed by personal delivery or United
States Mail as otherwise provided in this Section 15), (iii) one Business Day
after deposit with a reputable overnight courier with all charges prepaid or
(iv) when delivered, if hand-delivered by messenger, all of which shall be
addressed to the party to be notified and sent to the address or facsimile
number indicated below or to such other address or facsimile number as may be
substituted by notice given as herein provided. The giving of any notice
required hereunder may be waived in writing by the party entitled to receive
such notice. Failure or delay in delivering copies of any communication to any
Person (other than IPG or Pledgor) designated below to receive copies shall in
no way adversely affect the effectiveness of such communication.
(a) If to IPG, at:
The Interpublic Group of Companies, Inc.
1271 Sixth Avenue
New York, New York 10020
Attention: William S. Keating, Esq.
Facsimile: (212) 399-8280
with copies to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Richard J. Cooper, Esq.
Facsimile: (212) 225-3999
(b) If to Pledgor, at:
All American Fremantle, Inc.
1325 Avenue of the Americas
New York, New York 10019
Attention: Mr. Lawrence E. Lamattina
Facsimile: (212) 541-2810
with a copy to:
Kaye, Scholer, Fierman, Hays & Handler
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<PAGE> 12
1999 Avenue of the Stars
Suite 1600
Los Angeles, California 90067
Attention: Barry Dastin, Esq.
Facsimile: (310) 788-1200
16. WAIVER OF JURY TRIAL. THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO, THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
17. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction to the fullest
extent permitted by law, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
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<PAGE> 13
18. Counterparts. This Agreement may be executed in any number of
counterparts, and this shall have the same effect as if the signatures on the
counterparts were set forth on a single copy of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed and delivered by its duly authorized officer on the date first
set forth above.
ALL AMERICAN FREMANTLE, INC.
By: _______________________________
Name:
Title:
Accepted and agreed by:
THE INTERPUBLIC GROUP OF COMPANIES, INC.
By: _____________________________
Name:
Title:
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<PAGE> 14
<TABLE>
<CAPTION>
SCHEDULE I
% of Authorized % of Outstanding
Shares Shares
Number of Class and par or Represented by Represented by
Issuer Name Owner of Record/Pledgor Pledged Shares Liquidation Value of Shares Pledged Shares Pledged Shares
- ----------- ----------------------- -------------- --------------------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1. All American All American
Fremantle II, Inc. Fremantle, Inc. Common, $0.001 par value 100% 100%
</TABLE>
<PAGE> 1
EXHIBIT 10.40
PLEDGE AGREEMENT
This PLEDGE AGREEMENT, dated as of November 20, 1995 by and between All
American Goodson, Inc., a Delaware corporation ("AAG" or "Pledgor"), and The
Interpublic Group of Companies, Inc., a Delaware corporation ("IPG"), is being
entered into pursuant to that certain Intercreditor Agreement, dated as of
October 6, 1995, among Chemical Bank, for itself and as agent for the Lenders
(the "Agent"), IPG, All American Communications, Inc., a Delaware corporation
("AACI"), AAG, All American Television II, Inc., a Delaware corporation
("AATVII"), All American Fremantle II, Inc., a Delaware corporation ("AAFII"),
and Mark Goodson Productions, LLC, a New York limited liability company ("LLC")
(the "Intercreditor Agreement"). Unless otherwise defined herein, terms
defined in the Intercreditor Agreement are used herein as therein defined.
W I T N E S S E T H :
WHEREAS, the LLC, IPG and AACI have entered into an Asset Purchase
Agreement (the "Asset Purchase Agreement"), dated as of October 6, 1995, with
Mark Goodson Productions, L.P., The Child's Play Company (together the
"Sellers") and certain other parties pursuant to which the LLC and IPG
purchased certain of the assets and the LLC assumed certain liabilities of the
Sellers;
WHEREAS, the LLC and AAG have entered into a License Agreement (the "Main
License Agreement"), dated as of October 6, 1995, with respect to the
exploitation of the Library Rights, Library Physical Properties, Programs (as
each of the foregoing terms is defined in the Main License Agreement) or
portions thereof or rights therein acquired pursuant to the Asset Purchase
Agreement, including, without limitation, the right to sublicense to third
parties the rights granted in the Main License Agreement;
WHEREAS, AACI, AAG, IPG and Infoplan International, Inc. ("Infoplan") have
entered into an Amended and Restated Operating Agreement (the "Operating
Agreement"), dated as of October 6, 1995, in connection with the operations of
the LLC which Operating Agreement became effective immediately after the Final
Closing (as defined in the Asset Purchase Agreement);
WHEREAS, IPG, Infoplan, Interpublic Game Shows, Inc., a Delaware
corporation, AACI, AAG, AAFII, AATVII and the LLC have entered into a letter
agreement (the "Letter Agreement"), dated as of October 6, 1995, in connection
with certain matters arising under the Asset Purchase Agreement, the Main
License Agreement and the Operating Agreement;
WHEREAS, each of AAG, AATVII and AAFII (each, a "Guarantor" and
collectively, the "Guarantors") have entered into a Guaranty (each, a
"Guaranty" and collectively the "Guaranties"), dated as of the date hereof, in
favor of IPG guaranteeing certain obligations of the Guarantors;
<PAGE> 2
WHEREAS, each of AAG, AATVII and AAFII have entered into a Security
Agreement (the "Security Agreements"), dated as of the date hereof, in favor
of IPG;
WHEREAS, each of AACI, All American Television, Inc., a Delaware
corporation ("AAT"), and All American Fremantle International, Inc., a Delaware
corporation ("AAF"), have entered into a Pledge Agreement (together with this
Agreement, the "Pledge Agreements"), dated as of the date hereof, in favor of
IPG, substantially in the form of this Agreement;
WHEREAS, the parties hereto desire to enter into this Pledge Agreement
(this "Agreement") wherein Pledgor has agreed to grant a perfected subordinated
security interest in its membership interest in the LLC; and
WHEREAS, pursuant to the Intercreditor Agreement, Pledgor's security
interest in the Pledged Shares (as defined below) shall be subordinate to the
Senior Obligations until such time as the Senior Obligations have been paid and
performed in full and following the payment and performance in full of the
Senior Obligations, the security interest shall be senior to all other
obligations of Pledgor;
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Definitions; Interpretation.
(a) In this Agreement, references to a Person include its successors and
assigns and references to a document are references to that document as
amended, novated or supplemented through the time such reference become
effective.
(b) The following terms shall have the following meanings (which shall be
applicable to both the singular and plural forms of the terms defined):
"Event of Default" shall have the meaning set forth in the Security
Agreement, dated the date hereof, by and between AAG and IPG.
"Secured Obligations" means the Parent Obligations as defined in the
Intercreditor Agreement.
2. Pledge. In order to secure the prompt payment and performance in full
of all of the Secured Obligations, Pledgor hereby pledges, assigns, grants a
security interest in, transfers and delivers unto IPG each of the following
(the "Collateral"):
(a) all of Pledgor's right, title and interest in and to its
membership interest in the LLC (the "Pledged Shares") and the
certificates, if any, representing the Pledged Shares, and all dividends,
instruments and other property, other than cash dividends or
distributions, from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged
Shares;
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<PAGE> 3
(b) any increase in its membership interest of the LLC (the
"Additional Shares") from time to time acquired by Pledgor in any manner
and the certificates, if any, representing such Additional Shares, and
all dividends, instruments and other property, other than cash dividends
or distributions, from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such Shares;
(c) all other rights appurtenant to the property described in
clauses (a) and (b) above; and
(d) all cash and noncash proceeds of the disposition of any and all
of the foregoing.
Pledgor hereby consents that, pursuant to Section 16 of the Intercreditor
Agreement, upon payment and performance in full of the Senior Obligations, the
Agent shall deliver the certificates representing the Pledged Shares and the
Additional Shares which have become Pledged Shares, if any, set forth on
Schedule I hereto, accompanied by proper instruments of assignment duly
executed in blank by the Pledgor, to IPG in New York City, New York.
Subject to the terms of the Intercreditor Agreement, promptly upon
Pledgor's acquisition of any Additional Shares and following the payment and
performance in full of the Senior Obligations, Pledgor will deliver to IPG (i)
proper instruments of assignment duly executed in blank by Pledgor together
with any certificates representing such Additional Shares, whereupon such
Additional Shares shall be Pledged Shares and (ii) an amendment to Schedule I
reflecting the addition of such Additional Shares, together with a signed
statement authorizing IPG to replace the prior Schedule I with such amendment
to Schedule I.
3. Representations and Warranties. Pledgor hereby represents and
warrants to IPG that as of the date hereof:
(a) Pledgor is the sole holder of record and sole beneficial owner
of the Pledged Shares set forth on Schedule I hereto, free and clear of
any pledge, hypothecation, assignment, lien, charge, claim, security
interest, option, preference, priority or other preferential arrangement
of any kind or nature whatsoever ("Lien") thereon or affecting the title
thereto; provided, however, that as of the date hereof the Pledged
Shares are subject to a Lien in favor of the Lenders under Tranche E of
the Credit Facility as provided in the Intercreditor Agreement (the
"Tranche E Lien") and under Tranches A through D of the Credit Facility
(the "Junior Lien"). The Tranche E Lien is superior to that of IPG to
the extent set forth in the Intercreditor Agreement but shall be fully
extinguished and discharged with the payment in full of the Senior
Obligations.
(b) The Pledged Shares have been duly authorized and validly issued
by the issuer set forth in Schedule I, are fully paid and non-assessable,
and constitute the respective percentages of the authorized and
outstanding membership interest of the
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<PAGE> 4
LLC referred to on Schedule I. Pledgor has the right and all requisite
corporate authority to pledge, assign, grant a security interest in,
transfer and deliver the Collateral to IPG as provided herein.
(c) This Agreement has been duly authorized, executed and delivered
by Pledgor and constitutes the legal, valid and binding obligation of
Pledgor, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights
generally and subject, as to enforceability, to general principles of
equity.
(d) No consent, approval, authorization or other order of any Person
other than as provided in or contemplated by the Intercreditor Agreement
is required for (i) the execution and delivery of this Agreement by
Pledgor or the delivery by Pledgor of the Collateral to IPG as provided
herein except as have been obtained, or (ii) the exercise by IPG of the
rights provided for in this Agreement or the remedies in respect of the
Collateral pursuant to this Agreement, except as may be required in
connection with the disposition of the Collateral by laws affecting the
offering and sale of securities generally. To the best of Pledgor's
knowledge, none of the Pledged Shares has been issued or transferred in
violation of the securities registration, securities disclosure or
similar laws of any jurisdictions to which such issuance or transfer may
be subject.
(e) The chief executive office of Pledgor is located at the address
set forth in Section 15, and during the four months immediately preceding
the date hereof the chief executive office of Pledgor has not been
located elsewhere. Pledgor has no trade or other fictitious name.
(f) Upon the delivery to Chemical Bank of the certificates
representing the Pledged Shares, IPG will have a valid, perfected, second
priority security interest in the Pledged Shares subject to no prior lien
(other than, as of the date hereof, the Tranche E Lien).
(g) Upon the delivery to IPG by Chemical Bank of the certificates
representing the Pledged Shares and following the payment and performance
in full of the Senior Obligations, (i) IPG will have a valid, perfected,
first priority security interest in the Pledged Shares subject to no
prior Lien and (ii) Chemical Bank will have a valid, perfected, second
priority security interest in the Pledged Shares subject to no prior lien
(other than, as of the date thereof, IPG's Lien).
(h) The Pledged Shares or the Additional Shares, as the case may be,
are and will be freely transferable and assignable (subject to applicable
securities laws), other than pursuant to the Operating Agreement.
The representations and warranties set forth in clauses (a), (b), (d)(ii),
(f), (g) and (h) of this Section 3 shall be deemed to be reaffirmed on the date
of each delivery of
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<PAGE> 5
Additional Shares to IPG. The representations and warranties set forth in this
Section 3 shall survive the execution and delivery of this Agreement.
4. Rights of Pledgor. Unless an Event of Default shall have occurred and
be continuing:
(a) Subject to the Letter Agreement, Pledgor shall be entitled to
exercise any and all voting and other consensual rights pertaining to the
Pledged Shares or any part thereof for any purpose not inconsistent with
the terms of this Agreement and the Intercreditor Agreement. Pledgor
shall not in any event exercise or refrain from exercising such right in
a manner which would (or take or omit to take any other action which
would) authorize or effect (i) the dissolution or liquidation, in whole
or in part, of the LLC, (ii) the consolidation or merger of the LLC with
any corporation or other entity unless the party to such merger or
consolidation agrees to assume the obligations hereunder and under the
Intercreditor Agreement, (iii) the sale, disposition or encumbrance of
any asset of the LLC, except in the ordinary course of business
consistent with past practice or as permitted by the Intercreditor
Agreement, (iv) any change in the authorized number of membership
interests of the LLC, or the issuance of any additional membership
interests of the LLC unless such Additional Shares are pledged to IPG to
the extent required herein, or (v) the alteration of the voting rights
with respect to the shares of the LLC.
(b) Pledgor shall be entitled, from time to time, to collect and
receive for its own use all cash dividends and cash distributions (except
cash dividends paid or payable in respect of the total or partial
liquidation of an issuer) paid on the Pledged Shares. All stock
dividends and all distributions (other than cash distributions governed
by the immediately preceding sentence) in respect of any of the
Collateral, whenever paid or made after the payment in full of the Senior
Obligations, shall be delivered to IPG and held by it subject to the Lien
created by this Agreement.
5. Covenants. Pledgor covenants and agrees that until the termination of
this Agreement:
(a) Pledgor will not, without the prior written consent of IPG, (i)
sell, assign, transfer, mortgage, pledge or otherwise encumber any of its
rights in or to the Collateral or any dividends or other distributions or
payments with respect thereto (other than cash dividends and
distributions) or grant a Lien on any thereof or (ii) exercise their
voting or other rights to cause or permit the LLC to issue any membership
interests (or options, warrants, calls or commitments of any character
whatsoever relating to such interests, or any securities convertible into
or exchangeable for such interests) in addition to or in substitution for
the Pledged Shares except to the Agent and Pledgor as their respective
interests may appear.
(b) Pledgor will, at its own expense, execute, acknowledge and
deliver all such instruments and take all such action as IPG from time to
time may reasonably
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<PAGE> 6
request in order to ensure to IPG the benefits of its Lien on and to the
Collateral intended to be created by this Agreement.
(c) Pledgor will defend the title to the Collateral and the Lien of
IPG thereon against the claim of any Person (other than against the
claims of the Agent in connection with the Senior Obligations) and will
maintain and preserve such Lien so long as this Agreement shall remain in
effect.
(d) Unless Pledgor shall have given IPG not less than 30 days' prior
notice thereof, Pledgor will not change its name, identity or corporate
structure in any manner or the location of its chief executive office.
6. Remedies. Subject to the terms of the Intercreditor Agreement:
(a) Upon the occurrence of an Event of Default, then or at any time
during the continuance thereof, IPG is hereby authorized and empowered,
at its election, (i) to transfer and register in its name, or in the name
of the nominee of IPG, the whole or any part of the Collateral, (ii) to
exercise all voting rights with respect thereto and (iii) to demand, sue
for, collect, receive and give acquittance for any and all cash dividends
or other distributions or monies due or to become due upon or by virtue
thereof, and to settle, prosecute or defend any action or proceeding with
respect thereto, Pledgor hereby irrevocably constituting IPG as its proxy
and attorney-in-fact, with full power of substitution to do so.
(b) Upon the occurrence of an Event of Default, then or at any time
during the continuance of such occurrence, IPG is hereby further
authorized and empowered, at its election, (i) to sell in one or more
sales the whole or any part of the Collateral or otherwise to transfer or
assign the same, applying the proceeds therefrom to the payment of the
Secured Obligations in such order as IPG shall determine and (ii) to the
extent permitted by law, otherwise to act with respect to the Collateral
or the proceeds thereof as though IPG were the outright owner thereof,
Pledgor hereby irrevocably constituting IPG as its proxy and
attorney-in-fact, with full power of substitution to do so.
(c) IPG shall give Pledgor not less than ten days' prior written
notice of the time and place of any sale or other intended disposition of
any of the Collateral except any Collateral that is perishable or
threatens to decline speedily in value or is of a type customarily sold
on a recognized market. Pledgor agrees that such notice constitutes
"reasonable notification" within the meaning of Section 9-504 of the
Uniform Commercial Code. Any sale shall be made at a public or private
sale at IPG's place of business, or at any public building in The City of
New York to be named in the notice of sale, either for cash or upon
credit or for future delivery at such price as IPG may deem fair, and, to
the extent permitted by applicable law, IPG may be the purchaser of the
whole or any part of the Collateral so sold and hold the same thereafter
in its own right free from any claim of Pledgor or any right or equity of
redemption, which right or equity is hereby waived and released. Each
sale shall be made to the highest bidder,
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<PAGE> 7
but IPG reserves the right to reject any and all bids at such sale which,
in its sole discretion, it shall deem inadequate. Except as otherwise
herein specifically provided for or required by applicable law, demands
of performance, notices of sale, advertisements and the presence of
property at sale are hereby waived and any sale hereunder may be
conducted by an auctioneer or any officer of agent of IPG.
(d) If, at the original time or times appointed for the sale of the
whole or any part of the Collateral, either (i) the highest bid, if there
be but one sale, shall be inadequate to discharge in full all of the
Secured Obligations, or (ii) if the Collateral be offered for sale in
lots, if at any of such sales the highest bid for the lot offered for
sale would indicate to IPG in its sole discretion the unlikelihood of the
proceeds of the sales of the whole of the Collateral being insufficient
to discharge all the Secured Obligations, then in either such event IPG
may, on one or more occasions, postpone any of said sales by public
announcement at the time of sale. In the event of any such postponement,
IPG shall give Pledgor notice of such postponement.
(e) If, at any time when IPG shall determine to exercise its right
to sell the whole or any part of the Collateral hereunder, such
Collateral or the part thereof to be sold shall not, for any reason
whatsoever, be effectively registered under the Act, IPG may, in it sole
and absolute discretion (subject only to applicable requirements of law),
sell such Collateral or part thereof by private sale in such manner and
under such circumstances as IPG may deem necessary or advisable, but
subject to the other requirements of this Section 6, and shall not be
required to effect such registration or to cause the same to be effected.
Without limiting the generality of the foregoing, in any such event IPG
in its sole and absolute discretion may (i) proceed to make such private
sale notwithstanding that a registration statement for the purpose of
registering such Collateral or part thereof could be or shall have been
filed under the Act (or similar statute), (ii) approach and negotiate
with a single possible purchaser to effect such sale, (iii) restrict such
sale to a purchaser who will represent and agree that such purchaser is
purchasing for its own account, for investment and not with a view to the
distribution or sale of such Collateral or part thereof, and (iv) require
that any sale hereunder (including a sale at auction) be conducted
subject to restrictions (A) as to the financial sophistication and
ability of any Person permitted to bid or purchase at sale, (B) as to the
content of legends to be placed upon any certificates representing the
Collateral sold in such sale, including restrictions on future transfer
thereof, (C) as to the representations required to be made by each Person
bidding or purchasing at such sale relating to that Person's access to
financial information about Pledgor, any of the issuers of the Pledged
Shares, such Person's intentions as to the holding of the Collateral so
sold for investment, for its own account, and not with a view to the
distribution thereof, and (D) as to such other matters as IPG may, in its
sole discretion, deem necessary or appropriate in order that such sale
(notwithstanding any failure so to register) may be effected in
compliance with the Uniform Commercial Code (or similar applicable
statutes) and other laws affecting the enforcement of creditors' rights
and the Act (or similar statute) and all applicable state securities
laws. Pledgor will execute
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<PAGE> 8
and deliver such documents and take such other action as the Agent deems
necessary or advisable in order that any such sale may be made in
compliance with law.
(f) Pledgor acknowledges that: (i) any sale under the circumstances
described in this Section 6 shall be deemed to have been held in a manner
which is commercially reasonable, and (ii) notwithstanding the legal
availability of a private sale or a sale subject to restrictions of the
character described above, IPG may, in it sole discretion, elect to seek
registration of the Collateral under the Act (or similar statute or any
applicable state securities laws) in accordance with its rights under
this Section 6. In the event of any such sale under the circumstances
described in this Section 6, IPG shall incur no responsibility or
liability for selling the whole or any part of the Collateral at a price
which IPG may deem reasonable under the circumstances, notwithstanding
the possibility that a substantially higher price might be realized if
the sales were deferred until after registration as aforesaid. Pledgor
hereby acknowledges that any sale of any of the Collateral which has not
been registered under the Act may be for a price less than that which
might have been obtained had the Collateral been registered under the
Act.
(g) Pledgor agrees that it will not at any time plead, claim or take
the benefit of any appraisal, valuation, stay, extension, moratorium or
redemption law now or hereafter in force in order to prevent or delay the
enforcement of this Agreement, or the absolute sale of the whole or any
part of the Collateral or the possession thereof by any purchaser at any
sale hereunder, and Pledgor waives the benefit of all such laws to the
extent it lawfully may do so. Pledgor agrees that it will not interfere
with any right, power and remedy of IPG provided for in this Agreement or
now or hereafter existing at law or in equity or by statute or otherwise,
or the exercise or beginning of the exercise by IPG of any one or more
such rights, powers or remedies. No failure or delay on the part of IPG
to exercise any right, power or remedy, and no notice or demand which may
be given to or made upon Pledgor by IPG with respect to any such
remedies, shall operate as a waiver thereof, or limit or impair IPG's
right to take any action or to exercise any power or remedy hereunder
without notice or demand, or prejudice its rights as against Pledgor in
any respect.
7. Exoneration of IPG. Other than the exercise of reasonable care in the
custody and preservation of the Collateral in its possession or as required by
law, IPG shall have no duty toward Pledgor with respect to the Collateral. IPG
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which it accords its own property, and
shall not be liable or responsible for any loss or damage to any of the
Collateral, or for any diminution in the value thereof, by reason of the act or
omission of any agent or bailee selected by IPG in good faith, except for
losses or damages caused by gross negligence or willful misconduct in the
performance of a duty owed by IPG.
8. No Waiver; Cumulative Remedies. IPG shall not by any act, delay,
omission or otherwise be deemed to have waived any of its rights or remedies
hereunder, and
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<PAGE> 9
no waiver shall be valid unless in writing and signed by IPG, and then only to
the extent therein set forth. A waiver by IPG of any right or remedy hereunder
on any one occasion shall not be construed as a bar to any right or remedy
which IPG would otherwise have had on any future occasion. No failure to
exercise nor any delay in exercising on the part of IPG, any right, power or
privilege hereunder, shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or future exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies hereunder provided are cumulative and may
be exercised singly or concurrently, and are not exclusive of any rights and
remedies provided by law. None of the terms or provisions of this Agreement
may be waived, altered, modified or amended except by an instrument in writing,
duly executed by IPG and the Pledgor.
9. Successors; Assignments and Transfers.
(a) This Agreement and all obligations of the Pledgor hereunder
shall be binding upon the successors and assigns of the Pledgor and
shall, together with the rights and remedies of IPG hereunder, inure to
the benefit of IPG and its respective successors and assigns. The
Pledgor shall not consent or agree to any assignments, transfers or other
dispositions of any agreement governing the Secured Obligations or any
portion thereof or interest therein that would adversely affect the
security interest granted to IPG hereunder.
(b) IPG may not assign and transfer all of its rights and
obligations under this Agreement to another person except in conjunction
with the transfer of its rights under the Operating Agreement, the Letter
Agreement or the Intercreditor Agreement.
10. Termination. At such time as there are no outstanding obligations
arising under any Guaranty then IPG shall deliver to the Agent the Collateral
at the time subject to this Agreement and all instruments of assignment
executed in connection therewith, free and clear of the Lien hereof and of any
other Liens (other than Liens granted in favor of the Agent) asserted through
IPG, and all of Pledgor's obligations hereunder shall thereupon terminate.
11. Release. No release or surrender any of the Collateral shall impair
IPG's rights hereunder, other than with respect to the particular Collateral so
released or surrendered.
12. Expenses. Pledgor agrees to reimburse IPG for all reasonable
expenses of, or incidental to the enforcement of any of the provisions of this
Agreement or any actual or attempted sale, or any exchange, enforcement,
collection, compromise or settlement of any of the Collateral and for the care
of the Collateral and defending or asserting the rights and claims of IPG in
respect of the Collateral, by litigation or otherwise, including but not
limited to expenses of insurance and the reasonable fees and expenses of
counsel for IPG for legal services of every kind. All such expenses shall be
deemed additional Secured Obligations.
13. GOVERNING LAW, ETC. THIS AGREEMENT AND THE OBLIGATIONS ARISING
HEREUNDER SHALL BE GOVERNED BY, AND
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<PAGE> 10
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK,
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN SUCH STATE, WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. PLEDGOR HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT OR UNITED
STATES FEDERAL COURT, IN EITHER CASE SITTING IN THE CITY OF NEW YORK, BOROUGH
OF MANHATTAN OVER ANY ACTION, SUIT OR OTHER PROCEEDING BROUGHT BY ANY PARTY
ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND PLEDGOR HEREBY WAIVES ANY
OBJECTION THAT IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER
VENUE OR FORUM NON CONVENIENS. PLEDGOR HEREBY IRREVOCABLY APPOINTS KAYE,
SCHOLER, FIERMAN, HAYS & HANDLER, 425 PARK AVENUE, NEW YORK, NEW YORK 10022
(ATTENTION: WILLIAM E. WALLACE), AS ITS AGENT TO RECEIVE SERVICE OF SUMMONS,
AND COMPLAINTS AND ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT,
ACTION OR PROCEEDING. NOTHING IN THIS AGREEMENT SHALL, HOWEVER, BE DEEMED OR
OPERATE TO PRECLUDE IPG FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY
OTHER JURISDICTION TO COLLECT THE SECURED OBLIGATIONS, TO REALIZE ON THE
COLLATERAL OR ANY OTHER SECURITY FOR THE SECURED OBLIGATIONS, OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF IPG, PROVIDED THAT IPG RECOGNIZES
THAT ITS RIGHTS HEREUNDER ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE
INTERCREDITOR AGREEMENT.
14. Further Assurances; Agent May Perform.
(a) Pledgor will, at Pledgor's expense, do all such acts, and will
furnish to IPG all such financing statements, certificates, legal
opinions and other documents and will do or cause to be done all such
other things as IPG may reasonably request from time to time in order to
give full effect to this Agreement and to secure the rights intended to
be granted to IPG hereunder. To the extent permitted by applicable law,
Pledgor hereby authorizes IPG to execute and file, in the name of Pledgor
or otherwise, financing statements under the Uniform Commercial Code (or
other applicable statutes) (which may be photocopies of this Agreement)
which IPG in its sole discretion may deem necessary or appropriate.
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<PAGE> 11
(b) If Pledgor fails to perform any act required by this Agreement,
IPG may perform, or cause performance of, such act, and the expenses of
IPG incurred in connection therewith shall be governed by Section 12
hereof.
15. Notices. Any communications required or permitted to be given
hereunder shall be in writing and shall be deemed to have been validly served,
given or delivered (i) upon the earlier of actual receipt and three days after
deposit in the United States Mail, registered or certified mail, with proper
postage prepaid, (ii) upon transmission, when sent by telecopy or other similar
facsimile transmission (promptly confirmed by personal delivery or United
States Mail as otherwise provided in this Section 15), (iii) one Business Day
after deposit with a reputable overnight courier with all charges prepaid or
(iv) when delivered, if hand-delivered by messenger, all of which shall be
addressed to the party to be notified and sent to the address or facsimile
number indicated below or to such other address or facsimile number as may be
substituted by notice given as herein provided. The giving of any notice
required hereunder may be waived in writing by the party entitled to receive
such notice. Failure or delay in delivering copies of any communication to any
Person (other than IPG or Pledgor) designated below to receive copies shall in
no way adversely affect the effectiveness of such communication.
(a) If to IPG, at:
The Interpublic Group of Companies, Inc.
1271 Sixth Avenue
New York, New York 10020
Attention: William S. Keating, Esq.
Facsimile: (212) 399-8280
with copies to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Richard J. Cooper, Esq.
Facsimile: (212) 225-3999
(b) If to Pledgor, at:
All American Goodson, Inc.
1325 Avenue of the Americas
New York, New York 10019
Attention: Mr. Lawrence Lamattina
Facsimile: (212) 541-2810
with a copy to:
Kaye, Scholer, Fierman, Hays & Handler
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1999 Avenue of the Stars
Suite 1600
Los Angeles, California 90067
Attention: Barry Dastin, Esq.
Facsimile: (310) 788-1200
16. WAIVER OF JURY TRIAL. THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO, THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
17. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction to the fullest
extent permitted by law, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
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<PAGE> 13
18. Counterparts. This Agreement may be executed in any number of
counterparts, and this shall have the same effect as if the signatures on the
counterparts were set forth on a single copy of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed and delivered by its duly authorized officer on the date first
set forth above.
ALL AMERICAN GOODSON, INC.
By: _______________________________
Name:
Title:
Accepted and agreed by:
THE INTERPUBLIC GROUP OF COMPANIES, INC.
By: _____________________________
Name:
Title:
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<PAGE> 14
<TABLE>
<CAPTION>
SCHEDULE I
% of Authorized % of Outstanding
Shares Shares
Number of Class and par or Represented by Represented by
Issuer Name Owner of Record/Pledgor Pledged Shares Liquidation Value of Shares Pledged Shares Pledged Shares
- ----------- ----------------------- -------------- --------------------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1. Mark Goodson All American
Productions, Inc. Goodson, Inc. 1 Membership Interest 1% 1%
</TABLE>
<PAGE> 1
EXHIBIT 10.41
PLEDGE AGREEMENT
This PLEDGE AGREEMENT, dated as of November 20, 1995 by and between All
American Television, Inc., a Delaware corporation ("AAT" or "Pledgor"), and
The Interpublic Group of Companies, Inc., a Delaware corporation ("IPG"), is
being entered into pursuant to that certain Intercreditor Agreement, dated as
of October 6, 1995, among Chemical Bank, for itself and as agent for the
Lenders (the "Agent"), IPG, All American Goodson, Inc., a Delaware corporation
("AAG"), All American Communications, Inc., a Delaware Corporation ("AACI"),
All American Television II, Inc., a Delaware corporation ("AATVII"), All
American Fremantle II, Inc., a Delaware corporation ("AAFII"), and Mark Goodson
Productions, LLC, a New York limited liability company ("LLC") (the
"Intercreditor Agreement"). Unless otherwise defined herein, terms defined in
the Intercreditor Agreement are used herein as therein defined.
W I T N E S S E T H :
WHEREAS, the LLC, IPG and AACI have entered into an Asset Purchase
Agreement (the "Asset Purchase Agreement"), dated as of October 6, 1995, with
Mark Goodson Productions, L.P., The Child's Play Company (together the
"Sellers") and certain other parties pursuant to which the LLC and IPG
purchased certain of the assets and the LLC assumed certain liabilities of the
Sellers;
WHEREAS, the LLC and AAG have entered into a License Agreement (the "Main
License Agreement"), dated as of October 6, 1995, with respect to the
exploitation of the Library Rights, Library Physical Properties, Programs (as
each of the foregoing terms is defined in the Main License Agreement) or
portions thereof or rights therein acquired pursuant to the Asset Purchase
Agreement, including, without limitation, the right to sublicense to third
parties the rights granted in the Main License Agreement;
WHEREAS, AACI, AAG, IPG and Infoplan International, Inc. ("Infoplan") have
entered into an Amended and Restated Operating Agreement (the "Operating
Agreement"), dated as of October 6, 1995, in connection with the operations of
the LLC which Operating Agreement became effective immediately after the Final
Closing (as defined in the Asset Purchase Agreement);
WHEREAS, IPG, Infoplan, Interpublic Game Shows, Inc., a Delaware
corporation, AACI, AAG, AAFII, AATVII and the LLC have entered into a letter
agreement (the "Letter Agreement"), dated as of October 6, 1995, in connection
with certain matters arising under the Asset Purchase Agreement, the Main
License Agreement and the Operating Agreement;
WHEREAS, each of AAG, AATVII and AAFII (each, a "Guarantor" and
collectively, the "Guarantors") have entered into a Guaranty (each, a
"Guaranty" and collectively the "Guaranties"), dated as of the date hereof, in
favor of IPG guaranteeing certain obligations of the Guarantors;
<PAGE> 2
WHEREAS, each of AAG, AATVII and AAFII have entered into a Security
Agreement (the "Security Agreements"), dated as of the date hereof, in favor
of IPG;
WHEREAS, each of AACI, AAG and All American Fremantle International, Inc.,
a Delaware corporation ("AAF"), have entered into a Pledge Agreement (together
with this Agreement, the "Pledge Agreements"), dated as of the date hereof, in
favor of IPG , substantially in the form of this Agreement;
WHEREAS, the parties hereto desire to enter into this Pledge Agreement
(this "Agreement") wherein Pledgor has agreed to grant a perfected subordinated
security interest in all issued and outstanding shares of capital stock in
AATVII; and
WHEREAS, pursuant to the Intercreditor Agreement, Pledgor's security
interest in the Pledged Shares (as defined below) shall be subordinate to the
Senior Obligations until such time as the Senior Obligations have been paid and
performed in full and following the payment and performance in full of the
Senior Obligations, the security interest shall be senior to all other
obligations of Pledgor;
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Definitions; Interpretation.
(a) In this Agreement, references to a Person include its successors and
assigns and references to a document are references to that document as
amended, novated or supplemented through the time such reference become
effective.
(b) The following terms shall have the following meanings (which shall be
applicable to both the singular and plural forms of the terms defined):
"Event of Default" shall have the meaning set forth in the Security
Agreement, dated the date hereof, by and between AAG and IPG.
"Secured Obligations" means the Parent Obligations as defined in the
Intercreditor Agreement.
2. Pledge. In order to secure the prompt payment and performance in full
of all of the Secured Obligations, Pledgor hereby pledges, assigns, grants a
security interest in, transfers and delivers unto IPG each of the following
(the "Collateral"):
(a) all of Pledgor's right, title and interest in and to all shares
of capital stock of AATVII (the "Company") (the "Pledged Shares") and the
certificates, if any, representing the Pledged Shares, and all dividends,
instruments and other property, other than cash dividends or
distributions, from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged
Shares;
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<PAGE> 3
(b) all additional shares of capital stock of the Company (the
"Additional Shares") from time to time acquired by Pledgor in any manner
(including, without limitation, any shares of preferred stock issued by
any such issuer) and the certificates, if any, representing such
Additional Shares, and all dividends, instruments and other property,
other than cash dividends or distributions, from time to time received,
receivable or otherwise distributed in respect of or in exchange for any
or all of such Shares;
(c) all other rights appurtenant to the property described in
clauses (a) and (b) above; and
(d) all cash and noncash proceeds of the disposition of any and all
of the foregoing.
Pledgor hereby consents that, pursuant to Section 16 of the Intercreditor
Agreement, upon payment and performance in full of the Senior Obligations, the
Agent shall deliver the certificates representing the Pledged Shares and the
Additional Shares which have become Pledged Shares, if any, set forth on
Schedule I hereto, accompanied by proper instruments of assignment duly
executed in blank by the Pledgor, to IPG in New York City, New York.
Subject to the terms of the Intercreditor Agreement, promptly upon
Pledgor's acquisition of any Additional Shares and following the payment and
performance in full of the Senior Obligations, Pledgor will deliver to IPG (i)
proper instruments of assignment duly executed in blank by Pledgor together
with any certificates representing such Additional Shares, whereupon such
Additional Shares shall be Pledged Shares and (ii) an amendment to Schedule I
reflecting the addition of such Additional Shares, together with a signed
statement authorizing IPG to replace the prior Schedule I with such amendment
to Schedule I.
3. Representations and Warranties. Pledgor hereby represents and
warrants to IPG that as of the date hereof:
(a) Pledgor is the sole holder of record and sole beneficial owner
of the Pledged Shares set forth on Schedule I hereto, free and clear of
any pledge, hypothecation, assignment, lien, charge, claim, security
interest, option, preference, priority or other preferential arrangement
of any kind or nature whatsoever ("Lien") thereon or affecting the title
thereto; provided, however, that as of the date hereof the Pledged
Shares are subject to a Lien in favor of the Lenders under Tranche E of
the Credit Facility as provided in the Intercreditor Agreement (the
"Tranche E Lien") and under Tranches A through D of the Credit Facility
(the "Junior Lien"). The Tranche E Lien is superior to that of IPG to
the extent set forth in the Intercreditor Agreement but shall be fully
extinguished and discharged with the payment in full of the Senior
Obligations.
(b) The Pledged Shares have been duly authorized and validly issued
by each of the respective issuers set forth in Schedule I, are fully paid
and non-assessable, and
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<PAGE> 4
constitute the respective percentages of the authorized and outstanding
shares of the capital stock of the Company referred to on Schedule I.
Pledgor has the right and all requisite corporate authority to pledge,
assign, grant a security interest in, transfer and deliver the Collateral
to IPG as provided herein.
(c) This Agreement has been duly authorized, executed and delivered
by Pledgor and constitutes the legal, valid and binding obligation of
Pledgor, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights
generally and subject, as to enforceability, to general principles of
equity.
(d) No consent, approval, authorization or other order of any Person
other than as provided in or contemplated by the Intercreditor Agreement
is required for (i) the execution and delivery of this Agreement by
Pledgor or the delivery by Pledgor of the Collateral to IPG as provided
herein except as have been obtained, or (ii) the exercise by IPG of the
rights provided for in this Agreement or the remedies in respect of the
Collateral pursuant to this Agreement, except as may be required in
connection with the disposition of the Collateral by laws affecting the
offering and sale of securities generally. To the best of Pledgor's
knowledge, none of the Pledged Shares has been issued or transferred in
violation of the securities registration, securities disclosure or
similar laws of any jurisdictions to which such issuance or transfer may
be subject.
(e) The chief executive office of Pledgor is located at the address
set forth in Section 15, and during the four months immediately preceding
the date hereof the chief executive office of Pledgor has not been
located elsewhere. Pledgor has no trade or other fictitious name.
(f) Upon the delivery to Chemical Bank of the certificates
representing the Pledged Shares, IPG will have a valid, perfected, second
priority security interest in the Pledged Shares subject to no prior lien
(other than, as of the date hereof, the Tranche E Lien).
(g) Upon the delivery to IPG by Chemical Bank of the certificates
representing the Pledged Shares and following the payment and performance
in full of the Senior Obligations, (i) IPG will have a valid, perfected,
first priority security interest in the Pledged Shares subject to no
prior Lien and (ii) Chemical Bank will have a valid, perfected, second
priority security interest in the Pledged Shares subject to no prior lien
(other than, as of the date thereof, IPG's Lien).
(h) The authorized, issued and outstanding capital shares of the
Company is set forth on Schedule I, and there are no existing options,
warrants, calls or commitments of any character whatsoever relating to
any of the unissued capital shares, or any securities convertible into or
exchangeable for such shares, of the Company, except as set forth on
Schedule I.
4
<PAGE> 5
(i) The Pledged Shares or the Additional Shares, as the case may
be, are and will be freely transferable and assignable (subject to
applicable securities laws), other than pursuant to the Operating
Agreement.
The representations and warranties set forth in clauses (a), (b), (d)(ii),
(f), (g), (h) and (i) of this Section 3 shall be deemed to be reaffirmed on the
date of each delivery of Additional Shares to IPG. The representations and
warranties set forth in this Section 3 shall survive the execution and delivery
of this Agreement.
4. Rights of Pledgor. Unless an Event of Default shall have occurred and
be continuing:
(a) Subject to the Letter Agreement, Pledgor shall be entitled to
exercise any and all voting and other consensual rights pertaining to the
Pledged Shares or any part thereof for any purpose not inconsistent with
the terms of this Agreement and the Intercreditor Agreement. Pledgor
shall not in any event exercise or refrain from exercising such right in
a manner which would (or take or omit to take any other action which
would) authorize or effect (i) the dissolution or liquidation, in whole
or in part, of the Company, (ii) the consolidation or merger of the
Company with any corporation or other entity unless the party to such
merger or consolidation agrees to assume the obligations hereunder and
under the Intercreditor Agreement, (iii) the sale, disposition or
encumbrance of any asset of the Company, except in the ordinary course of
business consistent with past practice or as permitted by the
Intercreditor Agreement, (iv) any change in the authorized number of
shares, the stated capital or the authorized share capital of the
Company, or the issuance of any additional capital shares of the Company
unless such Additional Shares are pledged to IPG to the extent required
herein, or (v) the alteration of the voting rights with respect to the
shares of the Company.
(b) Pledgor shall be entitled, from time to time, to collect and
receive for its own use all cash dividends and cash distributions (except
cash dividends paid or payable in respect of the total or partial
liquidation of an issuer) paid on the Pledged Shares. All stock
dividends and all distributions (other than cash distributions governed
by the immediately preceding sentence) in respect of any of the
Collateral, whenever paid or made after the payment in full of the Senior
Obligations, shall be delivered to IPG and held by it subject to the Lien
created by this Agreement.
5. Covenants. Pledgor covenants and agrees that until the termination of
this Agreement:
(a) Pledgor will not, without the prior written consent of IPG, (i)
sell, assign, transfer, mortgage, pledge or otherwise encumber any of its
rights in or to the Collateral or any dividends or other distributions or
payments with respect thereto (other than cash dividends and
distributions) or grant a Lien on any thereof or (ii) cause or permit the
Company to issue any capital shares (or options, warrants, calls or
commitments of any character whatsoever relating to such shares, or any
securities convertible into or exchangeable for such shares) in addition
to or in substitution for the
5
<PAGE> 6
Pledged Shares except to the Agent and Pledgor as their respective
interests may appear.
(b) Pledgor will, at its own expense, execute, acknowledge and
deliver all such instruments and take all such action as IPG from time to
time may reasonably request in order to ensure to IPG the benefits of its
Lien on and to the Collateral intended to be created by this Agreement.
(c) Pledgor will defend the title to the Collateral and the Lien of
IPG thereon against the claim of any Person (other than against the
claims of the Agent in connection with the Senior Obligations) and will
maintain and preserve such Lien so long as this Agreement shall remain in
effect.
(d) Unless Pledgor shall have given IPG not less than 30 days' prior
notice thereof, Pledgor will not change its name, identity or corporate
structure in any manner or the location of its chief executive office.
6. Remedies. Subject to the terms of the Intercreditor Agreement:
(a) Upon the occurrence of an Event of Default, then or at any time
during the continuance thereof, IPG is hereby authorized and empowered,
at its election, (i) to transfer and register in its name, or in the name
of the nominee of IPG, the whole or any part of the Collateral, (ii) to
exercise all voting rights with respect thereto and (iii) to demand, sue
for, collect, receive and give acquittance for any and all cash dividends
or other distributions or monies due or to become due upon or by virtue
thereof, and to settle, prosecute or defend any action or proceeding with
respect thereto, Pledgor hereby irrevocably constituting IPG as its proxy
and attorney-in-fact, with full power of substitution to do so.
(b) Upon the occurrence of an Event of Default, then or at any time
during the continuance of such occurrence, IPG is hereby further
authorized and empowered, at its election, (i) to sell in one or more
sales the whole or any part of the Collateral or otherwise to transfer or
assign the same, applying the proceeds therefrom to the payment of the
Secured Obligations in such order as IPG shall determine and (ii) to the
extent permitted by law, otherwise to act with respect to the Collateral
or the proceeds thereof as though IPG were the outright owner thereof,
Pledgor hereby irrevocably constituting IPG as its proxy and
attorney-in-fact, with full power of substitution to do so.
(c) IPG shall give Pledgor not less than ten days' prior written
notice of the time and place of any sale or other intended disposition of
any of the Collateral except any Collateral that is perishable or
threatens to decline speedily in value or is of a type customarily sold
on a recognized market. Pledgor agrees that such notice constitutes
"reasonable notification" within the meaning of Section 9-504 of the
Uniform Commercial Code. Any sale shall be made at a public or private
sale at IPG's place of business, or at any public building in The City of
New York to be named in the notice
6
<PAGE> 7
of sale, either for cash or upon credit or for future delivery at such
price as IPG may deem fair, and, to the extent permitted by applicable
law, IPG may be the purchaser of the whole or any part of the Collateral
so sold and hold the same thereafter in its own right free from any claim
of Pledgor or any right or equity of redemption, which right or equity is
hereby waived and released. Each sale shall be made to the highest
bidder, but IPG reserves the right to reject any and all bids at such
sale which, in its sole discretion, it shall deem inadequate. Except as
otherwise herein specifically provided for or required by applicable law,
demands of performance, notices of sale, advertisements and the presence
of property at sale are hereby waived and any sale hereunder may be
conducted by an auctioneer or any officer of agent of IPG.
(d) If, at the original time or times appointed for the sale of the
whole or any part of the Collateral, either (i) the highest bid, if there
be but one sale, shall be inadequate to discharge in full all of the
Secured Obligations, or (ii) if the Collateral be offered for sale in
lots, if at any of such sales the highest bid for the lot offered for
sale would indicate to IPG in its sole discretion the unlikelihood of the
proceeds of the sales of the whole of the Collateral being insufficient
to discharge all the Secured Obligations, then in either such event IPG
may, on one or more occasions, postpone any of said sales by public
announcement at the time of sale. In the event of any such postponement,
IPG shall give Pledgor notice of such postponement.
(e) If, at any time when IPG shall determine to exercise its right
to sell the whole or any part of the Collateral hereunder, such
Collateral or the part thereof to be sold shall not, for any reason
whatsoever, be effectively registered under the Act, IPG may, in it sole
and absolute discretion (subject only to applicable requirements of law),
sell such Collateral or part thereof by private sale in such manner and
under such circumstances as IPG may deem necessary or advisable, but
subject to the other requirements of this Section 6, and shall not be
required to effect such registration or to cause the same to be effected.
Without limiting the generality of the foregoing, in any such event IPG
in its sole and absolute discretion may (i) proceed to make such private
sale notwithstanding that a registration statement for the purpose of
registering such Collateral or part thereof could be or shall have been
filed under the Act (or similar statute), (ii) approach and negotiate
with a single possible purchaser to effect such sale, (iii) restrict such
sale to a purchaser who will represent and agree that such purchaser is
purchasing for its own account, for investment and not with a view to the
distribution or sale of such Collateral or part thereof, and (iv) require
that any sale hereunder (including a sale at auction) be conducted
subject to restrictions (A) as to the financial sophistication and
ability of any Person permitted to bid or purchase at sale, (B) as to the
content of legends to be placed upon any certificates representing the
Collateral sold in such sale, including restrictions on future transfer
thereof, (C) as to the representations required to be made by each Person
bidding or purchasing at such sale relating to that Person's access to
financial information about Pledgor, any of the issuers of the Pledged
Shares, such Person's intentions as to the holding of the Collateral so
sold for investment, for its own account, and not with a view to the
distribution thereof, and (D) as to such other matters as IPG may, in its
sole discretion,
7
<PAGE> 8
deem necessary or appropriate in order that such sale (notwithstanding
any failure so to register) may be effected in compliance with the
Uniform Commercial Code (or similar applicable statutes) and other laws
affecting the enforcement of creditors' rights and the Act (or similar
statute) and all applicable state securities laws. Pledgor will execute
and deliver such documents and take such other action as the Agent deems
necessary or advisable in order that any such sale may be made in
compliance with law.
(f) Pledgor acknowledges that: (i) any sale under the circumstances
described in this Section 6 shall be deemed to have been held in a manner
which is commercially reasonable, and (ii) notwithstanding the legal
availability of a private sale or a sale subject to restrictions of the
character described above, IPG may, in it sole discretion, elect to seek
registration of the Collateral under the Act (or similar statute or any
applicable state securities laws) in accordance with its rights under
this Section 6. In the event of any such sale under the circumstances
described in this Section 6, IPG shall incur no responsibility or
liability for selling the whole or any part of the Collateral at a price
which IPG may deem reasonable under the circumstances, notwithstanding
the possibility that a substantially higher price might be realized if
the sales were deferred until after registration as aforesaid. Pledgor
hereby acknowledges that any sale of any of the Collateral which has not
been registered under the Act may be for a price less than that which
might have been obtained had the Collateral been registered under the
Act.
(g) Pledgor agrees that it will not at any time plead, claim or take
the benefit of any appraisal, valuation, stay, extension, moratorium or
redemption law now or hereafter in force in order to prevent or delay the
enforcement of this Agreement, or the absolute sale of the whole or any
part of the Collateral or the possession thereof by any purchaser at any
sale hereunder, and Pledgor waives the benefit of all such laws to the
extent it lawfully may do so. Pledgor agrees that it will not interfere
with any right, power and remedy of IPG provided for in this Agreement or
now or hereafter existing at law or in equity or by statute or otherwise,
or the exercise or beginning of the exercise by IPG of any one or more
such rights, powers or remedies. No failure or delay on the part of IPG
to exercise any right, power or remedy, and no notice or demand which may
be given to or made upon Pledgor by IPG with respect to any such
remedies, shall operate as a waiver thereof, or limit or impair IPG's
right to take any action or to exercise any power or remedy hereunder
without notice or demand, or prejudice its rights as against Pledgor in
any respect.
7. Exoneration of IPG. Other than the exercise of reasonable care in the
custody and preservation of the Collateral in its possession or as required by
law, IPG shall have no duty toward Pledgor with respect to the Collateral. IPG
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which it accords its own property, and
shall not be liable or responsible for any loss or damage to any of the
Collateral, or for any diminution in the value thereof, by reason of the act or
omission of any agent or
8
<PAGE> 9
bailee selected by IPG in good faith, except for losses or damages caused by
gross negligence or willful misconduct in the performance of a duty owed by
IPG.
8. No Waiver; Cumulative Remedies. IPG shall not by any act, delay,
omission or otherwise be deemed to have waived any of its rights or remedies
hereunder, and no waiver shall be valid unless in writing and signed by IPG,
and then only to the extent therein set forth. A waiver by IPG of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which IPG would otherwise have had on any future occasion. No
failure to exercise nor any delay in exercising on the part of IPG, any right,
power or privilege hereunder, shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or future exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies hereunder provided are cumulative and
may be exercised singly or concurrently, and are not exclusive of any rights
and remedies provided by law. None of the terms or provisions of this
Agreement may be waived, altered, modified or amended except by an instrument
in writing, duly executed by IPG and the Pledgor.
9. Successors; Assignments and Transfers.
(a) This Agreement and all obligations of the Pledgor hereunder
shall be binding upon the successors and assigns of the Pledgor and
shall, together with the rights and remedies of IPG hereunder, inure to
the benefit of IPG and its respective successors and assigns. The
Pledgor shall not consent or agree to any assignments, transfers or other
dispositions of any agreement governing the Secured Obligations or any
portion thereof or interest therein that would adversely affect the
security interest granted to IPG hereunder.
(b) IPG may not assign and transfer all of its rights and
obligations under this Agreement to another person except in conjunction
with the transfer of its rights under the Operating Agreement, the Letter
Agreement or the Intercreditor Agreement.
10. Termination. At such time as there are no outstanding obligations
arising under any Guaranty then IPG shall deliver to the Agent the Collateral
at the time subject to this Agreement and all instruments of assignment
executed in connection therewith, free and clear of the Lien hereof and of any
other Liens (other than Liens granted in favor of the Agent) asserted through
IPG, and all of Pledgor's obligations hereunder shall thereupon terminate.
11. Release. No release or surrender any of the Collateral shall impair
IPG's rights hereunder, other than with respect to the particular Collateral so
released or surrendered.
12. Expenses. Pledgor agrees to reimburse IPG for all reasonable
expenses of, or incidental to the enforcement of any of the provisions of this
Agreement or any actual or attempted sale, or any exchange, enforcement,
collection, compromise or settlement of any of the Collateral and for the care
of the Collateral and defending or asserting the rights and claims of IPG in
respect of the Collateral, by litigation or otherwise, including but not
limited to
9
<PAGE> 10
expenses of insurance and the reasonable fees and expenses of counsel for IPG
for legal services of every kind. All such expenses shall be deemed additional
Secured Obligations.
13. GOVERNING LAW, ETC. THIS AGREEMENT AND THE OBLIGATIONS ARISING
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK, APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED IN SUCH STATE, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS
OF LAWS THEREOF. PLEDGOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY
NEW YORK STATE COURT OR UNITED STATES FEDERAL COURT, IN EITHER CASE SITTING IN
THE CITY OF NEW YORK, BOROUGH OF MANHATTAN OVER ANY ACTION, SUIT OR OTHER
PROCEEDING BROUGHT BY ANY PARTY ARISING OUT OF OR RELATING TO THIS AGREEMENT,
AND PLEDGOR HEREBY WAIVES ANY OBJECTION THAT IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. PLEDGOR HEREBY
IRREVOCABLY APPOINTS KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, 425 PARK AVENUE,
NEW YORK, NEW YORK 10022 (ATTENTION: WILLIAM E. WALLACE), AS ITS AGENT TO
RECEIVE SERVICE OF SUMMONS, AND COMPLAINTS AND ANY OTHER PROCESS WHICH MAY BE
SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING. NOTHING IN THIS AGREEMENT
SHALL, HOWEVER, BE DEEMED OR OPERATE TO PRECLUDE IPG FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE SECURED
OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE SECURED
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF IPG,
PROVIDED THAT IPG RECOGNIZES THAT ITS RIGHTS HEREUNDER ARE SUBJECT TO THE TERMS
AND CONDITIONS OF THE INTERCREDITOR AGREEMENT.
14. Further Assurances; Agent May Perform.
(a) Pledgor will, at Pledgor's expense, do all such acts, and will
furnish to IPG all such financing statements, certificates, legal
opinions and other documents and will do or cause to be done all such
other things as IPG may reasonably request from time to time in order to
give full effect to this Agreement and to secure the rights intended to
be granted to IPG hereunder. To the extent permitted by applicable law,
Pledgor hereby authorizes IPG to execute and file, in the name of Pledgor
or otherwise, financing statements under the Uniform Commercial Code (or
other applicable statutes) (which may be photocopies of this Agreement)
which IPG in its sole discretion may deem necessary or appropriate.
10
<PAGE> 11
(b) If Pledgor fails to perform any act required by this
Agreement, IPG may perform, or cause performance of, such act, and the
expenses of IPG incurred in connection therewith shall be governed by
Section 12 hereof.
15. Notices. Any communications required or permitted to be given
hereunder shall be in writing and shall be deemed to have been validly served,
given or delivered (i) upon the earlier of actual receipt and three days after
deposit in the United States Mail, registered or certified mail, with proper
postage prepaid, (ii) upon transmission, when sent by telecopy or other similar
facsimile transmission (promptly confirmed by personal delivery or United
States Mail as otherwise provided in this Section 15), (iii) one Business Day
after deposit with a reputable overnight courier with all charges prepaid or
(iv) when delivered, if hand-delivered by messenger, all of which shall be
addressed to the party to be notified and sent to the address or facsimile
number indicated below or to such other address or facsimile number as may be
substituted by notice given as herein provided. The giving of any notice
required hereunder may be waived in writing by the party entitled to receive
such notice. Failure or delay in delivering copies of any communication to any
Person (other than IPG or Pledgor) designated below to receive copies shall in
no way adversely affect the effectiveness of such communication.
(a) If to IPG, at:
The Interpublic Group of Companies, Inc.
1271 Sixth Avenue
New York, New York 10020
Attention: William S. Keating, Esq.
Facsimile: (212) 399-8280
with copies to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Richard J. Cooper, Esq.
Facsimile: (212) 225-3999
(b) If to Pledgor, at:
All American Television, Inc.
1325 Avenue of the Americas
New York, New York 10019
Attention: Mr. Lawrence E. Lamattina
Facsimile: (212) 541-2810
with a copy to:
Kaye, Scholer, Fierman, Hays & Handler
11
<PAGE> 12
1999 Avenue of the Stars
Suite 1600
Los Angeles, California 90067
Attention: Barry Dastin, Esq.
Facsimile: (310) 788-1200
16. WAIVER OF JURY TRIAL. THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO, THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
17. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction to the fullest
extent permitted by law, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
12
<PAGE> 13
18. Counterparts. This Agreement may be executed in any number of
counterparts, and this shall have the same effect as if the signatures on the
counterparts were set forth on a single copy of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed and delivered by its duly authorized officer on the date first
set forth above.
ALL AMERICAN TELEVISION, INC.
By: _______________________________
Name:
Title:
Accepted and agreed by:
THE INTERPUBLIC GROUP OF COMPANIES, INC.
By: _____________________________
Name:
Title:
13
<PAGE> 14
<TABLE>
<CAPTION>
SCHEDULE I
% of Authorized % of Outstanding
Shares Shares
Number of Class and par or Represented by Represented by
Issuer Name Owner of Record/Pledgor Pledged Shares Liquidation Value of Shares Pledged Shares Pledged Shares
- ----------- ----------------------- -------------- --------------------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1. All American All American
Television II, Inc. Television, Inc. Common, $0.001 par value 100% 100%
</TABLE>
<PAGE> 1
EXHIBIT 11.1
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1995
---------------------------------------------
AS ADJUSTED
FOR THE MARK
GOODSON
ACQUISITION
HISTORICAL PRO FORMA AND THE
COMPANY ADJUSTMENTS OFFERING
----------- ------------ ------------
<S> <C> <C> <C>
Weighted average number of common shares outstanding.... 7,976 4,000(1) 11,976
Assumed exercise of dilutive options and warrants under
the treasury stock method based on average market
price................................................. 107 47(2) 154
------- ------ -------
Weighted average number of common shares and common
share equivalents -- primary (B)...................... 8,083 4,047 12,130
Additional shares from assumed exercise of dilutive
options and warrants under the treasury stock method
based on ending market price.......................... 310 (47)(2) 263
Weighted average assumed conversion of 6 1/2%
Convertible Subordinated Notes due 2003............... 5,217 5,217
------- ------ -------
Weighted average number of common shares and common
share equivalents -- fully diluted (D)................ 13,610 4,000 17,610
======= ====== =======
Computation of net income (loss) for per share purposes:
Net income (loss) (A)................................... $ 4,057 $3,852 $ 7,909
Add: After tax reduction of interest expense for assumed
conversion of 6 1/2% Convertible Subordinated Notes
due 2003........................................... 1,818 1,818
------- ------ -------
Net income (loss) for fully diluted per share
computation (C)....................................... $ 5,875 $3,852 $ 9,727
======= ====== =======
Net earnings (loss) per share -- Primary (A)/(B)........ $ 0.50 $ 0.65
======= =======
Net earnings (loss) per share -- Fully diluted
(C)/(D)............................................... $ 0.43 $ 0.55
======= =======
</TABLE>
- ---------------
(1) Reflects the issuance of Class B Common Stock in connection with the
offering.
(2) Reflects the inclusion of dilutive common stock equivalents.
<PAGE> 1
EXHIBIT 11.2
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
--------------------------------------------------
AS ADJUSTED
SEVEN MONTH FOR THE
YEAR ENDED PERIOD ENDED AS ADJUSTED MARK GOODSON
DECEMBER 31, JULY 31, 1994 FOR THE ACQUISITION
1994 HISTORICAL PRO FORMA FREMANTLE PRO FORMA AND THE
AS REPORTED(1) FREMANTLE ADJUSTMENTS ACQUISITION ADJUSTMENTS OFFERING
--------------- ------------- ------------ ------------ ------------- -------------
(IN THOUSANDS -- EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Weighted average number
of common shares
outstanding............ 6,135 1,841(2) 7,976 4,000(5) 11,976
Assumed exercise of
dilutive options and
warrants under the
treasury stock method
based on average
market price.......... 66 (66) (3) -- 66(4) 66
-------- ------- ------- -------- ------ -------
Weighted average number
of common shares and
common share
equivalents -- primary
(B)................... 6,201 -- 1,775 7,976 4,066 12,042
Additional shares from
assumed exercise of
dilutive options and
warrants under the
treasury stock method
based on ending market
price................. -- 66(4) 66 (66)(3) --
Weighted average assumed
conversion of 6 1/2%
Convertible
Subordinated Notes due
2003.................. 5,217 5,217 5,217
-------- ------- ------- -------- ------ -------
Weighted average number
of common shares and
common share
equivalents -- fully
diluted (D)........... 11,418 -- 1,841 13,259 4,000 17,259
======== ======= ======= ======== ====== =======
Computation of net
income (loss) for per
share purposes:
Net income (loss) (A)... $ 455 $ 476 $ (2,033) $ (1,102) $ 4,493 $ 3,391
Add: After tax reduction
of interest expense
for assumed
conversion of
6 1/2% Convertible
Subordinated Notes
due 2003........... 2,508 2,508 2,508
-------- ------- ------- -------- ------ -------
Net income (loss) for
fully diluted per
share computation
(C)................... $ 2,963 $ 476 $ (2,033) $ 1,406 $ 4,493 $ 5,899
======== ======= ======= ======== ====== =======
Net earnings (loss) per
share -- Primary
(A)/(B)............... $ 0.07 $ (0.14) $ 0.28
======== ======== =======
Net earnings (loss) per
share -- Fully diluted
(C)/(D)............... $ 0.26(*) $ 0.11(*) $ 0.34(*)
======== ======== =======
</TABLE>
- ---------------
(*) Calculation is antidilutive
(1) The historical results for the year ended December 31, 1994 include the five
months of operations of Fremantle from August 1994, the date of the
Fremantle Acquisition.
(2) Reflects the weighted average number of shares issued in connection with the
Fremantle Acquisition.
(3) Reflects the elimination of anti-dilutive common stock equivalents.
(4) Reflects the inclusion of dilutive common stock equivalents.
(5) Reflects the issuance of Class B Common Stock in connection with the
offering.
<PAGE> 1
EXHIBIT 11.3
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1994
-----------------------------------------------------------------------------------
AS FURTHER
ADJUSTED
FOR THE
AS ADJUSTED MARK GOODSON
HISTORICAL FOR THE ACQUISITION
------------------- PRO FORMA FREMANTLE PRO FORMA AND THE
COMPANY FREMANTLE ADJUSTMENTS ACQUISITION ADJUSTMENTS OFFERING
------- --------- ----------- ----------- ------------ -------------
(IN THOUSANDS -- EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Weighted average number of common shares
outstanding................................ 4,960 3,150(1) 8,110 4,000(2) 12,110
Assumed exercise of dilutive options and
warrants under the treasury stock method
based on average market price............. -- -- 53 53
------- ------- ------- ------- ------ -------
Weighted average number of common shares and
common share equivalents -- primary(B).... 4,960 -- 3,150 8,110 4,053 12,163
Additional shares from assumed exercise of
dilutive options and warrants under the
treasury stock method based on ending
market price.............................. -- -- 56(3) 56
Weighted average assumed conversion of
6 1/2% Convertible Subordinated Notes due
2003...................................... 5,217 5,217 5,217
------- ------- ------- ------- ------ -------
Weighted average number of common shares and
common share equivalents -- fully
diluted(D)................................ 10,043 -- 3,150 13,193 4,109 17,436
======= ======= ======= ======= ====== =======
Computation of net income (loss) for per
share purposes:
Net income (loss)(A)........................ $(2,667) $ 476 $(2,033) $(4,224) $4,390 $ 166
Add: After tax reduction of interest expense
for assumed conversion of 6 1/2%
Convertible Subordinated Notes due
2003................................... 1,881 1,881 1,881
------- ------- ------- ------- ------ -------
Net income (loss) for fully diluted per
share computation(C)...................... $ (786) $ 476 $(2,033) $(2,343) $4,390 $ 2,047
======= ======= ======= ======= ====== =======
Net earnings (loss) per share -- Primary
(A)/(B)................................... $ (0.54) $ (0.52) $ 0.01
======= ======= =======
Net earnings (loss) per share -- Fully
diluted(C)/(D)............................ $ (0.08)(*) $ (0.18)(*) $ 0.12(*)
======= ======= =======
</TABLE>
- ---------------
(*) Calculation is antidilutive
(1) Reflects the weighted average number of shares issued in connection with the
Fremantle Acquisition.
(2) Reflects the issuance of Class B Common Stock in connection with the
offering.
(3) Reflects the inclusion of dilutive common stock equivalents.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 8, 1995, in Amendment No. 2 to Registration
Statement (Form S-2) and related Prospectus of All American Communications, Inc.
for the registration of 4,600,000 shares of its Class B Common Stock.
We also consent to the incorporation by reference therein of our report
with respect to the financial statement schedule of All American Communications,
Inc. for the years ended December 31, 1994, 1993 and 1992 included in the Annual
Report (Form 10-K) for 1994 filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Los Angeles, California
December 7, 1995
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 2 to Registration
Statement of All American Communications Inc. on Form S-2 (File No. 33-63509) of
our report dated September 8, 1995, on our audits of the financial statements of
The Game Show Division of Mark Goodson Productions and Affiliates. We also
consent to the reference to our firm under the caption "Experts".
COOPERS & LYBRAND L.L.P.
New York, New York
December 8, 1995
