<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
--------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition from ____________________________________to________________
Commission File Number 0-14333
ALL AMERICAN COMMUNICATIONS, INC
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-3803222
------------------------------ ------------------------
(State of or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification No.)
808 Wilshire Boulevard, Santa Monica, California 90401-1810
- ------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(310) 656-1100
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes No
----- -----
As of May 10, 1996, there were 5,677,652 shares of $.0001 par value Common
Stock, and 5,720,000 shares of $.0001 par value Common Stock, Class B
outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ----------
(unaudited) (Note)
<S> <C> <C>
Cash and cash equivalents $ 22,096 $ 13,126
Restricted cash 7,785 6,968
Trade receivables, less allowances of $2,675 and $2,980 at March 31,
1996 and December 31, 1995, respectively 90,697 103,896
Unbilled receivables, less imputed interest of $1,972 and $2,354 at
March 31, 1996 and December 31, 1995, respectively 9,922 11,685
Inventory, net 1,161 1,018
Advances to recording artists, net 329 544
Television program costs, less accumulated amortization of $245,869
and $228,942 at March 31, 1996 and December 31, 1995, respectively 81,026 74,644
Property and equipment, less accumulated depreciation and amortization 5,141 4,526
Investment in unconsolidated affiliate -- 29,130
Goodwill, less accumulated amortization of $4,727 and $3,384 at
March 31, 1996 and December 31, 1995, respectively 101,896 49,403
Other 6,563 6,642
-------- --------
Total assets $326,616 $301,582
======== ========
</TABLE>
Note: The balance sheet at December 31, 1995 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.
2
<PAGE> 3
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---------- -----------
(unaudited) (Note)
<S> <C> <C>
Liabilities:
Accounts payable $ 13,942 $ 14,293
Accrued expenses 29,754 19,823
Royalties payable 4,791 4,435
Deferred revenues 284 277
Due to producers 22,329 26,271
Participations payable 30,985 30,979
Notes payable 152,377 134,982
Deferred taxes payable 2,242 2,242
-------- --------
Total liabilities 256,704 233,302
-------- --------
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 5,677,652 and 5,662,052 in 1996 and 1995, respectively
(including treasury shares) 1 1
Common stock, Class B non-voting, $.0001 par value, authorized
20,000,000 shares, issued 5,720,000 in 1996 and 1995 1 1
Additional paid-in capital 61,522 61,522
Common stock in treasury, at cost, 30,000 shares in 1996 and 1995 (135) (135)
Retained earnings 9,010 6,939
Currency translation adjustment (487) (48)
-------- --------
Total stockholders' equity 69,912 68,280
-------- --------
Total liabilities and stockholders' equity $326,616 $301,582
======== ========
</TABLE>
Note: The balance sheet at December 31, 1995 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.
3
<PAGE> 4
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------
1996 1995
-------------- ----------
(unaudited)
<S> <C> <C>
Revenues:
Television $ 41,357 $ 33,944
Recorded music and merchandising 6,786 3,018
----------- ---------
48,143 36,962
Expenses: ----------- ---------
Television 29,358 28,049
Recorded music and merchandising 4,978 1,864
Selling, general and administrative 6,662 5,768
Goodwill amortization 1,085 540
----------- ---------
42,083 36,221
----------- ---------
Operating income 6,060 741
Other income (expense):
Interest income 431 21
Interest expense, net of amounts capitalized (2,898) (2,365)
Other (22) 60
----------- ---------
(2,489) (2,284)
----------- ---------
Income (loss) before provision (benefit) for
income taxes 3,571 (1,543)
Provision (benefit) for income taxes 1,500 (648)
----------- ---------
Net income (loss) $ 2,071 $ (895)
=========== =========
Primary:
Net income (loss) per share $ 0.18 $ (0.11)
=========== =========
Weighted average number of common shares and
common share equivalents outstanding 11,773,000 8,006,000
=========== ==========
Fully diluted:
Net income (loss) per share $ 0.16 $ (0.11)
=========== ==========
Weighted average number of common shares and
common share equivalents outstanding 16,851,000 8,006,000
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
4
<PAGE> 5
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1996 1995
--------- --------
(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 2,071 $ (895)
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization of property, equipment and goodwill 1,675 661
Amortization of television program costs 16,927 17,574
Decrease in allowance for doubtful accounts (28) (116)
Decrease in allowance for sales returns (296) (403)
Increase (decrease) in make goods reserve 19 (890)
Decrease in imputed interest discount (382) --
Changes in operating assets and liabilities:
Restricted cash (77) 164
Trade receivables, unbilled receivables, inventory and advances to
recording artists 18,041 5,986
Additions to television program costs (23,309) (25,130)
Deferred income tax benefit -- (648)
Accounts payable, accrued expenses and royalties payable 9,937 (282)
Due to producers and participations payable (3,936) 1,428
Deferred revenues 7 1,542
Other assets 79 961
------- --------
Net cash provided (used) by operating activities 20,728 (48)
------- --------
INVESTING ACTIVITIES
Purchase of property and equipment, net (695) (81)
Purchase of remaining 50% interest in Mark Goodson, LLC (27,279) --
-------- --------
Net cash used in investing activities (27,974) (81)
-------- --------
FINANCING ACTIVITIES
Payments on stock subscriptions receivable -- 28
Proceeds from borrowings 24,100 21,580
Repayments of borrowings (34,505) (25,174)
Restricted cash held for repayment of borrowings (740) 5,514
Issuance of notes payable in connection with purchase of remaining
50% interest in Mark Goodson, LLC 27,800 --
-------- --------
Net cash provided by financing activities 16,655 1,948
-------- --------
Effect of exchange rate changes on cash (439) 439
-------- --------
Increase in cash 8,970 2,258
Cash and cash equivalents at beginning of period 13,126 1,662
-------- --------
Cash and cash equivalents at end of period $ 22,096 $ 3,920
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized $ 1,608 $ 1,355
======== ========
Income taxes $ 181 $ 120
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE> 6
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
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, distribute and market television programs and recorded music
both domestically and internationally.
The Company's primary source of revenues is from the production, distribution
and promotion of television programs. The Company has operations throughout the
world, with activities located principally in the United States and Europe.
Intangible Assets
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 flow or if
there is an event or change in circumstances which establish the existence of
impairment indicators.
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of AAC and its subsidiaries; all significant intercompany balances and
transactions have been eliminated.
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 month period ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1996. 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.
Recognition of Revenues
Minimum guaranteed amounts from domestic television sales are generally
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 the
advertising time has been sold pursuant to non-cancelable agreements, provided
that 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 domestic and 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.
6
<PAGE> 7
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The portion of recognized revenue 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 by giving either additional advertising time (make
goods) or cash refunds to the advertiser. The Company provides for the full
amount of the estimated shortfall.
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 when 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 guaranties from foreign sales are recognized as
product is delivered to the Company's foreign distributor.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in financial statements and accompanying notes.
Actual results could differ from those estimates.
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 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 3). 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
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.
7
<PAGE> 8
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 (the "WEA Distribution Agreement") with Warner/Elektra/Atlantic
Corporation, a division of Time Warner, Inc. ("WEA"), WEA has a security
interest in the Company's master recordings at any time the Company owes money
to WEA.
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. The use of estimates which may
ultimately differ from actual results could materially effect the Company's
consolidated financial statements. Such estimates, which are subject to change
based on a comparison of actual to estimated information, 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.
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 Company owned building and ranging from
three to ten 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.
Goodwill is amortized on a straight-line basis over periods ranging from 10
to 25 years (principally 25 years).
Income Taxes
The Company records its income tax provision in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109").
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.
8
<PAGE> 9
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock Based Compensation
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, "Accounting for Stock Issued to Employees," and intends to
continue to do so.
Share Information; Earnings Per Share
Primary earnings per share represents the per share income or loss and is
computed based on the weighted average common shares outstanding and dilutive
common stock equivalents determined using the treasury stock method.
The fully diluted per share computation for 1996 reflects the effect of the
assumed conversion of the Company's 6-1/2% Convertible Subordinated Notes due
2003 (See Note 3) and increases net income by $583,000 for the elimination of
interest expense on such notes, net of tax benefits. Such assumed conversion is
anti-dilutive for 1995.
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.
2. ACQUISITIONS
Mark Goodson Productions
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 ("Interpublic"), acquired substantially all of the assets (excluding
assets relating to the lottery business) and assumed certain specified
liabilities ( the "MG Acquisition") of Mark Goodson Productions, L.P. and the
Child's Play Company (collectively, 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 $25,000,000, transaction costs of $785,000, and 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 actual
exploitation of certain other domestic television rights. The contingent
purchase price, in total, is limited to $48,500,000 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. Substantially all of the
Company's $25,785,000 portion of the initial purchase price was allocated to
goodwill and was reflected in "investment in unconsolidated affiliate" in the
condensed consolidated balance sheet at December 31, 1995.
Interpublic and the Company, effective January 1, 1996, entered into an
agreement pursuant to which the Company agreed to purchase Interpublic's 50%
interest in the LLC (the "IPG/Goodson Agreement") for: (i) $12,500,000 plus
accrued interest thereon at a rate of 7% per annum from January 1, 1996 to the
Closing Date (as defined) (the "Closing Date"); (ii) the issuance of a
subordinated note in the amount of $12,500,000 due 12 months from the Closing
Date,
9
<PAGE> 10
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
2. ACQUISITIONS (CONTINUED)
subject to acceleration upon either a "Change of Control" (as defined), or
the acceleration of the Tranche A term loan (See Note 3), plus accrued interest
thereon at a rate of 7% per annum from January 1, 1996; and (iii) the issuance
of a subordinated note in the amount of $2,800,000, yielding interest at the
rate of 7% per annum from January 1, 1996, and representing Interpublic's 50%
share of the LLC's earnings through December 31, 1995, as defined, with $687,000
due 30 days from the Closing Date and the balance due 30 days after maturity of
the Tranche A term loan and subject to acceleration upon a "Change of Control"
(as defined), or the acceleration of the Tranche A term loan. The IPG/Goodson
Agreement is in lieu of and replaces the Company's option to acquire
Interpublic's undivided 50% interest in the LLC commencing, and effective only
after April 30, 1996, for $25,900,000 in cash (increasing during the option
exercise period at a rate of 7% per annum). The IPG/Goodson Agreement together
with the MG Acquisition (collectively the "Mark Goodson Acquisition") resulted
in the Company's full direct or indirect ownership of the net assets held by the
LLC. As of January 1, 1996, the Company's initial purchase price for the net
assets of Mark Goodson Productions increased by $27,800,000 plus costs of
$138,000 to $53,723,000. Consistent with its treatment of its undivided 50%
interest, the Company has allocated substantially all of the increased purchase
price to goodwill which is being amortized over 25 years from October 6, 1995,
the date of the MG Acquisition. The IPG/Goodson Agreement further results in the
Company absorbing the full share of the contingent purchase price, to the extent
earned by the Sellers. Such contingent purchase price 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 would be
increased to a total of $48,500,000, annual amortization expense associated with
such additional goodwill would be $1,940,000 (for an aggregate annual
amortization expense of $3,965,000 in addition to annual amortization expense of
approximately $540,000 from prior acquisitions). Through March 31, 1996, the
Company has recorded contingent purchase price totaling $3,048,000 (excluding
Interpublic's share through December 31, 1995 of $935,000). As of March 31,
1996, goodwill, including the total initial purchase price of $53,723,000
(before allocation of $2,934,000 to identifiable net assets) and contingent
purchase price of $3,048,000, totals $53,837,000. The Company has accounted
for the Mark Goodson Acquisition under the purchase accounting method
effective January 1, 1996.
The pro forma unaudited results from operations for the three months ended
March 31, 1995 (giving effect to the Mark Goodson Acquisition as of January 1,
1995) follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1995
--------------------
(in thousands except
per share amount)
<S> <C>
Revenues $40,261
Operating income $ 4,320
Net income $ 601
Net income per share $ 0.07
</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 Mark Goodson Acquisition been made at January 1, 1995, or of the results
which may occur in the future.
10
<PAGE> 11
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
3. NOTES PAYABLE
Notes payable and amounts due to banks are comprised of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- -----------
(in thousands)
<S> <C> <C>
Notes payable to banks $ 66,947 $ 77,352
Other notes payable 27,800 - -
Convertible subordinated notes, 6 1/2% 57,630 57,630
-------- --------
$152,377 $134,982
======== ========
</TABLE>
In April 1995, the Company secured a $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. This facility currently
consists of five tranches: (i) 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 International acquisition; (ii) a revolving credit
facility of up to $20,000,000 in the aggregate to be utilized for production and
distribution of Baywatch (the "Baywatch Production Line" or "Tranche B"); (iii)
a revolving credit facility of up to $20,000,000 in the aggregate for the
production and distribution of Baywatch Nights (the "Baywatch Nights Production
Line" or "Tranche C"); (iv) a revolving credit facility of up to $40,000,000 to
be utilized to finance certain working capital needs of the Company (the
"Working Capital Line" or "Tranche D"); and (v) the $25,000,000 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 MG
Acquisition, the Company effected a credit utilization of its working capital
line in the form of a letter of credit (the "Letter of Credit") from Chemical
Bank to fund its initial $25,000,000 cash portion of the total purchase price.
On November 13, 1995, the Senior Credit Facility Agreement was amended to
provide an additional $25,000,000 term loan under this facility ("Tranche E"),
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. On
April 18, 1996, the Company utilized the Working Capital Line to pay Interpublic
$12,500,000 in connection with the Mark Goodson Acquisition (See Note 2). 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 Tranche E term loan matures on April
13, 1999 and the Chemical Bank Facilities are available through and mature on
April 13, 1999. Under the terms of the Senior Credit Facility Agreement, the
amounts which the Company may borrow under Tranches B, C and 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) LIBOR plus 2-1/2%
(8.0% as of May 3, 1996); or (ii) 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 1-1/2% (9.75% as of May 3, 1996), as reduced upon
the Company's satisfaction of certain financial ratios. As of May 3, 1996, the
Company has outstanding borrowings of $22,500,000 under the Tranche A term loan,
$23,410,000 under the Tranche E term loan, and $32,900,000 under the Chemical
Bank Facilities, and approximately $24,625,000 was available for borrowing under
the Chemical Bank Facilities. As an interim use, the Company temporarily paid
down certain amounts borrowed under the revolving Chemical Bank Facilities from
a portion of the net proceeds of the Company's Class B Common Stock offering in
December 1995. 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.
11
<PAGE> 12
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
3. NOTES PAYABLE (CONTINUED)
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, consummation of acquisitions 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 and the 1996/1997 broadcast season of 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).
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 are 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. As of May 3, 1996, the
Company has made quarterly principal installment payments and prepayments
totaling $7,500,000 due through the September 1996 quarter. The remaining
balance of the Tranche A term loan is repayable in quarterly principal
installments as follows: remaining portion of the September 1996 installment,
$1,500,000; 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 business day of December 1998 (each such payment
being subject to reduction from certain prepayments). The amount which 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 Tranche E term loan which refinanced the initial cash portion of
the purchase price paid by the Company in connection with the Mark Goodson
Acquisition, the borrower is All American Goodson, Inc. ("AAG"), a wholly-owned
subsidiary of the Company and the licensee of the world-wide distribution rights
of the LLC (subject to certain existing licenses). Under the Tranche E 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 and tax distributions to the LLC, to
repay the Tranche E term loan.
In connection with the IPG/Goodson Agreement (See Note 2), the Company issued
three notes payable to Interpublic totaling $27,800,000 as follows: (i)
$12,500,000 plus accrued interest thereon at a rate of 7% per annum from January
1, 1996 to the Closing Date (paid in April 1996 from borrowings under the
Working Capital Line); (ii) a subordinated note in the amount of $12,500,000 due
12 months from the Closing Date, subject to acceleration upon either a "Change
of Control" (as defined), or the acceleration of the Tranche A term loan, plus
accrued interest thereon at a rate of 7% per annum from January 1, 1996; and
(iii) a subordinated note in the amount of $2,800,000, yielding interest at the
rate of 7% per annum from January 1, 1996, with $687,000 due 30 days from the
Closing Date and the balance due 30 days after maturity of the Tranche A term
loan and subject to acceleration upon a "Change of Control" (as defined), or the
acceleration of the Tranche A term loan.
12
<PAGE> 13
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
4. TELEVISION PROGRAM COSTS
Costs for television programs are comprised of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- --------
(in thousands)
<S> <C> <C>
Released, less accumulated amortization $79,017 $73,902
In process and development 2,009 742
------- -------
$81,026 $74,644
======= =======
</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 quarters ended March 31, 1996 and 1995 are capitalized
interest of $306,000 and $68,000, respectively and capitalized overhead of
$934,000 and $653,000, respectively.
5. COMMITMENTS AND CONTINGENCIES
The Company has reached an agreement with Atlantis Releasing B.V.
("Atlantis") whereby Atlantis will produce a minimum of 13 and a maximum of 22
one-hour live action episodes of a new series entitled Sinbad for the 1996/1997
broadcast season. In consideration for the Company providing the majority (
$670,000 per episode) of the production budget, the Company will retain
exclusive distribution rights to Sinbad in the United States and Europe
(including the United Kingdom and excluding Scandinavia). The Company, under
certain circumstances, has an annual option, exercisable on or before
February 15 of each of the initial three broadcast seasons, to cause Atlantis
to produce up to 22 new episodes in each of the three subsequent broadcast
seasons. The total commitment of up to approximately $14,700,000 for the
1996/1997 broadcast season is expected to be funded primarily through a
combination of: (i) borrowings under Tranche D of the Chemical Bank
Facilities; (ii) cash payments by international sub-licensees; and
(iii) working capital.
The Company has exercised its option to produce 22 episodes of Baywatch for
the 1996/1997 broadcast season. As of May 3, 1996, the Company has spent
approximately $1,400,000 to partially complete three episodes for the 1996/1997
broadcast season. The total production budget of approximately $22,000,000 for
the 1996/1997 broadcast season is expected to be funded primarily through a
combination of: (i) borrowings under Tranche B of the Chemical Bank Facilities;
(ii) cash payments by The Fremantle Corporation (an unaffiliated company); and
(iii) working capital. As of March 31, 1996, the Company has not met the
Baywatch Production Line conditions which must be satisfied prior to receiving
additional funding of the 1996/1997 broadcast season under Tranche D of the
Chemical Bank Facilities. Such conditions, which primarily include obtaining a
completion bond, are expected to be met prior to commencement of principal
photography, currently planned for June, 1996.
Through May 3, 1996, the Company has spent approximately $2,000,000 and
completed principal photography on two episodes of Baywatch Nights for the
1996/1997 broadcast season. The total production budget of approximately
$20,000,000 for the 1996/1997 broadcast season is expected to be funded
primarily through a combination of: (i) borrowings under Tranche C of the
Chemical Bank Facilities; (ii) cash payments received from international
sub-licensees; and (iii) working capital.
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
13
<PAGE> 14
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Company had entered into an agreement, dated as of October 7, 1992, with the
producers for the Company to distribute the series in the domestic television
market. Subject to the fulfillment of certain terms by the producers, 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 over 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. Effective as of February 5, 1996, such dispute has been
settled, with the balance of the restricted cash account being transferred (in
April 1996) to the lender on the series Acapulco H.E.A.T., less $550,000 which
was retained by the Company. The impact of this settlement has been previously
reflected in the financial statements of the Company.
On December 12, 1994, Credit Lyonnais Bank Nederland N.V. ("CLBN") made a
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 incurred
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. In a letter dated
December 22, 1994, SBEI rejected the foregoing demand based upon, among other
reasons, the following: (i) 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; (ii) the
loan purportedly guaranteed has been repaid; and (iii) 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 the statute of limitations on any claims by
CLBN 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. The Company and CLBN are currently engaged in discussions regarding
the potential resolution of all of their disputes. While the Company believes
that SBEI has good and meritorious defenses with respect to the SBEI Guarantee
and any related claims by CLBN, 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.
Minimum commitments for advances to recording artists at May 3, 1996 amounted
to approximately $420,000.
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.
14
<PAGE> 15
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is a diversified entertainment company which produces,
distributes and markets television programs and recorded music both domestically
and internationally.
The television industry may be broadly divided into three major segments: (i)
production, involving the development, financing and making of television shows;
(ii) distribution, involving the promotion and exploitation of completed
television shows; and (iii) broadcast, involving the domestic or international
airing or broadcast of programming over network affiliated stations, independent
stations and cable or satellite television.
The international broadcast television market is served principally by
network affiliated stations, independent stations and cable and satellite
television operators. The Company produces and distributes "local" content
programming internationally through its wholly owned subsidiary, All American
Fremantle International, Inc. ("AAFII"), principally using game and variety show
formats acquired as part of the Mark Goodson Acquisition or from third parties.
License agreements for international programming are typically entered into
prior to the commencement of production and generally provide for license fees
sufficient to cover the costs of production. While the Company has
international production facilities in several countries, AAFII's production
activities occur primarily in Germany, the U.K. and Greece.
The international distribution and exploitation of Baywatch Nights
(worldwide), Sinbad (Europe only, including the U.K., excluding Scandinavia),
the Company's movies-of-the-week and a portion of its library of domestic
content programming are also handled by AAFII. In addition to producing and
distributing Company owned product, AAFII provides television related
producer-for-hire and distributor services for a fee.
The U.S. broadcast television market is served principally by network
affiliated stations, independent stations and cable and satellite television
operators. Broadcasters telecast network programming, including off-network
programming (reruns) (in the case of network affiliates); self and/or locally
produced programming; and off-network programming or first-run programming from
independent producers or "syndicators" such as the Company. 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 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
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 through advertising agencies to sponsors
desiring national coverage (including, but not limited to, Proctor & Gamble,
Bristol Myers-Squibb, MCI, Beecham, Kellogg Company, Nestle and RJR Nabisco).
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.
15
<PAGE> 16
In most cases, the Company's domestic and international distribution revenues
are based on a percentage of the net revenues derived from cash license fees
and/or the sale of advertiser sponsorships. 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 advertising 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. Such advance payment may reduce the Company's distribution fee or result
in a loss if sufficient revenues are not generated. For the 1996/1997 broadcast
season, the Company has made certain guarantees with respect to Sinbad.
A small number of programs and musical recordings has historically 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. The results of the first
quarter of 1996 reflect the full consolidation of the Mark Goodson Productions,
LLC, the remaining 50% of which was acquired effective as of January 1, 1996. A
change in a program's production schedule or ratings 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.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1996 AND 1995
The following unaudited table sets forth the percentage relationship to total
revenues of certain items included in the Company's unaudited condensed
consolidated statements of operations for the three months ended March 31, 1996
and 1995:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
------- ------
<S> <C> <C>
Revenues:
Television 85.9% 91.8%
Recorded music and merchandising 14.1 8.2
----- -----
Total 100.0 100.0
Operating expenses:
Television 61.0 75.9
Recorded music and merchandising 10.3 5.0
Selling, general and administrative 13.8 15.6
Goodwill amortization 2.3 1.5
----- -----
Total 87.4 98.0
Other expense, principally interest 5.2 6.2
----- -----
Income (loss) before income taxes 7.4% (4.2)%
===== =====
</TABLE>
16
<PAGE> 17
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 1995
Revenues. The Company's total revenues increased by $11.1 million or 30% to
$48.1 million for the three months ended March 31, 1996, from $37.0 million for
the three months ended March 31, 1995. Revenues from television operations
increased by $7.4 million or 22% to $41.4 million for the three months ended
March 31, 1996, from $33.9 million for the three months ended March 31, 1995.
This increase was due primarily to the recognition of $5.6 million in revenue
from Mark Goodson Productions (before elimination of intercompany revenues),
$3.9 million of which was recognized in connection with the CBS license of The
Price Is Right and a $1.5 million increase in AAFII revenues. On a pro forma
basis, revenues from Mark Goodson Productions were comparable with revenues for
the year ago period.
AAFII revenues increased by $1.5 million or 7% to $24.6 million for the three
months ended March 31, 1996, from $23.1 million for the three months ended March
31, 1995. AAFII revenues from the production and distribution of television
programming in Germany contributed $17.9 million (73% of total AAFII revenues)
for the three months ended March 31, 1996, up $1.4 million from $16.5 million
(71% of total AAFII revenues) for the three months ended March 31, 1995 due to
the continued increase in production activities. The Company recognized $5.1
million of revenues during the three months ended March 31, 1996 from the
delivery of the remaining five episodes of the initial season of Baywatch
Nights, as compared to revenues of $4.0 million during the three months ended
March 31, 1995 from the distribution of Family Feud and Sirens, prior first run
syndicated programming.
Recorded music and merchandising revenues increased by $3.8 million or 125%
to $6.8 million for the three months ended March 31, 1996, from $3.0 million for
the three months ended March 31, 1995. This increase was primarily attributable
to higher sales of new releases in the three months ended March 31, 1996, led by
the new release, Bad Hair Day, by artist "Weird Al" Yankovic, with 403,000
albums shipped in the quarter, as compared with no comparable significant new
releases in the three months ended March 31, 1995; and merchandising revenue of
$.7 million, as compared with no merchandising revenues in the year ago period.
Operating Expenses. Total operating expenses increased by $5.9 million or
16% to $42.1 million for the three months ended March 31, 1996, from $36.2
million for the three months ended March 31, 1995, due primarily to increased
amortization of television program costs due to higher television revenues,
increased costs in connection with increased recorded music and merchandising
revenues and increased selling, general and administrative expenses, including
corporate overhead, for the three months ended March 31, 1996 of $0.9 million to
$6.7 million, from $5.8 million for the three months ended March 31, 1995. Such
corporate overhead increase is primarily attributable to increased activity in
the Company's television operations ($0.5 million, and increased marketing costs
in connection with the release of "Weird Al" Yankovic's new album ($0.3
million).
The Company's television division expenses, before overhead and goodwill
amortization, increased by $1.3 million or 5% to $29.4 million (71% of total
television revenues) for the three months ended March 31, 1996, from $28.1
million (83% of total television revenues) for the three months ended March 31,
1995. The decrease in television expenses as a percentage of total television
revenues is attributable to revenues recognized from certain programming
(principally related to Mark Goodson Productions) which has higher gross profit
percentages than the overall mix of the Company's other distributed programming.
Television selling, general and administrative expenses during the three months
ended March 31, 1996 of $3.6 million increased by $0.5 million or 15%, from $3.1
million for the three months ended March 31, 1995, due primarily to the increase
in AAFII charges of $0.3 million to $1.5 million for the three months ended
March 31, 1996 as compared with $1.2 million for the three months ended March
31, 1995.
The Company's recorded music and merchandising expenses, before selling,
general and administrative expenses, increased $3.1 million or 167% to $5.0
million (73% of total recorded music and merchandising revenues) for the three
months ended March 31, 1996, from $1.9 million (62% of total recorded music and
merchandising revenues) for the three months ended March 31, 1995. The increase
was primarily due to costs of $1.7 million incurred in connection with the
release of "Weird Al" Yankovic's new album and merchandising costs of $0.5
million as compared with no costs in the comparable prior period.
17
<PAGE> 18
Operating Income. Total operating income for the Company increased nearly
$5.4 million or 718% to $6.1 million for the three months ended March 31, 1996,
from $0.7 million for the three months ended March 31, 1995 due principally to
an increase in television operating income. Operating income from television
operations increased $5.1 million or 232% to $7.3 million for the three months
ended March 31, 1996 (after the inclusion of goodwill amortization and selling,
general and administrative expenses of $4.7 million), from $2.2 million for the
three months ended March 31, 1995 (after the inclusion of goodwill amortization
and selling, general and administrative expenses of $3.7 million). This
increase in television operating income was primarily attributable to the
revenue increases from Mark Goodson Productions and AAFII discussed above. On a
pro forma basis, giving effect to the Mark Goodson Acquisition as of January 1,
1995, television operating income increased by $1.5 million or 26% over the year
ago period. Goodwill amortization for the quarter ended March 31, 1996
increased by nearly $0.6 million or 101% to $1.1 million, from $0.5 million for
the three months ended March 31, 1995, due primarily to the inclusion of
amortization in connection with the acquisition of Mark Goodson Productions of
nearly $0.6 million for three months in 1996 as compared with no comparable
amount in the 1995 period. The Company expects to report amortization expense
of at least $1.1 million on a quarterly basis as a result of prior acquisitions,
subject to increase based upon the amount of contingent purchase price payable
to the Sellers in the MG Acquisition or in the event of future acquisitions.
The Company's recorded music division recognized operating income of $0.2
million (after the inclusion of selling, general and administrative expenses of
$1.6 million) for the three months ended March 31, 1996 as compared to an
operating loss of $0.3 million (after inclusion of selling, general and
administrative expenses of $1.4 million) for the three months ended March 31,
1995. Such increase in the operating income was primarily attributable to
increased revenues as discussed above.
Foreign Currency Exchange Gain or Loss. The Company recognized a nominal
foreign currency exchange loss for the three months ended March 31, 1996 as
compared to a foreign currency exchange gain of nearly $0.1 million for the
three months ended March 31, 1995 which results from the settlement and
valuation of certain licensing agreements, denominated in foreign currencies,
into U.S. dollars as of March 31, 1996 and 1995. The Company has experienced in
the past, and may experience in the future, gains and losses as a result of
fluctuations in exchange rates. The Company has not entered into foreign
currency swap agreements. To the extent that the Company does not enter into
foreign currency swap agreements, the Company can expect to record foreign
exchange losses and gains in the future.
Interest Expense. Interest expense, net of interest capitalized ($0.3
million) and interest income ($0.4 million), increased $0.2 million to $2.5
million for the three months ended March 31, 1996, from $2.3 million, net of
interest capitalized ($0.1 million) and nominal interest income, for the three
months ended March 31, 1995, due to increased borrowings in connection with the
Mark Goodson Acquisition and as a result of increased production activity. Such
increases were substantially offset by the temporary reduction of the Company's
borrowing facilities from the proceeds of the Company's Class B Common Stock
offering in December 1995. The Company expects that the trend of increased
interest costs 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 three months
ended March 31, 1996 of $1.5 million and income tax benefits of $0.6 million
during the three months ended March 31, 1995, representing an effective tax
rate of approximately 42%.
Net Income. The net income of $2.1 million for the three months ended March
31, 1996 compares with a net loss of $0.9 million for the three months ended
March 31, 1995. The variance is attributable to matters discussed above.
Earnings per share increased to $0.18 per primary share and $0.16 per fully
diluted share for the three months ended March 31, 1996, as compared to a loss
of $0.11 per primary and fully diluted share for the three months ended March
31, 1995, due to the quarter to quarter increase in net income (due to the items
discussed above) partially offset by an increase in the outstanding number of
weighted average common shares and common share equivalents. Such increase of
shares is due to the inclusion of the shares issued in connection with the
Company's Class B Common Stock offering in December 1995 as well as an increase
in the number of equivalent shares of outstanding options and warrants
determined using the treasury method.
18
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
This discussion should be read in conjunction with the notes to the condensed
consolidated financial statements and the corresponding information more fully
described in the Company's Form 10-K for the year ended December 31, 1995.
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 were used to complete
the MG Acquisition, to finance the Company's operations, including the
production of Baywatch and Baywatch Nights, and to pay for general operating
expenses.
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 ("Interpublic"), acquired substantially all of the assets (excluding
assets relating to the lottery business) and assumed certain specified
liabilities ( the "MG Acquisition") of Mark Goodson Productions, L.P. and the
Child's Play Company (collectively, 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, transaction costs of $0.8 million, and 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 actual
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. Substantially all of the
Company's $25.8 million portion of the initial purchase price was allocated to
goodwill and was reflected in "investment in unconsolidated affiliate" in the
condensed consolidated balance sheet at December 31, 1995.
Interpublic and the Company, effective January 1, 1996, entered into an
agreement pursuant to which the Company agreed to purchase Interpublic's 50%
interest in the LLC (the "IPG/Goodson Agreement") for: (i) $12.5 million plus
accrued interest thereon at a rate of 7% per annum from January 1, 1996 to the
Closing Date (as defined) (the "Closing Date") - such amount having been paid in
April 1996 from borrowings under the Working Capital Line; (ii) the issuance of
a subordinated note in the amount of $12.5 million due 12 months from the
Closing Date, subject to acceleration upon either a "Change of Control" (as
defined), or the acceleration of the Tranche A term loan, plus accrued interest
thereon at a rate of 7% per annum from January 1, 1996; and (iii) the issuance
of a subordinated note in the amount of $2.8 million, yielding interest at the
rate of 7% per annum from January 1, 1996, and representing Interpublic's 50%
share of the LLC's earnings through December 31, 1995, as defined, with $0.7
million due 30 days from the Closing Date and the balance due 30 days after
maturity of the Tranche A term loan and subject to acceleration upon a "Change
of Control" (as defined), or the acceleration of the Tranche A term loan. The
IPG/Goodson Agreement is in lieu of and replaces the Company's option to acquire
Interpublic's undivided 50% interest in the LLC commencing, and effective only
after April 30, 1996, for $25.9 million in cash (increasing during the option
exercise period at a rate of 7% per annum). The IPG/Goodson Agreement together
with the MG Acquisition (collectively the "Mark Goodson Acquisition") resulted
in the Company's full direct or indirect ownership of the net assets held by the
LLC. As of January 1, 1996, the Company's initial purchase price for the net
assets of Mark Goodson Productions increased by $27.8 million plus costs of $0.1
million to $53.7 million. Consistent with its treatment of its undivided 50%
interest, the Company has allocated substantially all of the increased purchase
price to goodwill which is being amortized over 25 years from October 6, 1995,
the date of the MG Acquisition. The IPG/Goodson Agreement further results in the
Company absorbing the full share of the contingent purchase price, to the extent
earned by the Sellers. Such contingent purchase price 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 would be
increased to a total of $48.5 million, annual amortization expense associated
with such additional goodwill would be $1.9 million (for an aggregate annual
amortization expense of $4.0 million in addition to annual amortization expense
of approximately $0.5 million from prior acquisitions). Through March 31, 1996,
the Company has recorded contingent purchase price totaling $3.0 million
(excluding Interpublic's share through December 31, 1995 of $0.9 million). As
of March 31, 1996, goodwill, including
19
<PAGE> 20
the total initial purchase price of $53.7 million (before allocation of $2.9
million to identifiable net assets) and contingent purchase price of
$3.0 million, totals $53.8 million. The Company has accounted for the Mark
Goodson Acquisition under the purchase accounting method effective
January 1, 1996.
In December 1995, the Company sold 3.2 million newly issued shares of Class B
Common Stock through an underwritten stock offering (the "Stock Offering"). The
Class B Common Stock is identical to the Company's Class A Common Stock, except
that the Class B Common Stock is non-voting (other than as required by law).
The Class B Common Stock is convertible into Class A Common Stock in the event
of certain "Changes in Control" (as defined). Net proceeds from the Stock
Offering totaled $30.5 million after deducting the underwriters' discount of
$2.4 million and offering expenses of $.7 million.
In April 1995, the Company secured a $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: (i) 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 International acquisition; (ii) a
revolving credit facility of up to $20.0 million in the aggregate to be utilized
for production and distribution of Baywatch (the "Baywatch Production Line" or
"Tranche B"); (iii) a revolving credit facility of up to $20.0 million in the
aggregate for the production and distribution of Baywatch Nights (the "Baywatch
Nights Production Line" or "Tranche C"); (iv) a revolving credit facility of up
to $40.0 million to be utilized to finance certain working capital needs of the
Company (the "Working Capital Line" or "Tranche D"); and (v) 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 MG
Acquisition, the Company effected a credit utilization of its working capital
line in the form of a letter of credit (the "Letter of Credit") from Chemical
Bank to fund its initial $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. On
April 18, 1996, the Company utilized the Working Capital Line to pay Interpublic
$12.5 million in connection with the Mark Goodson Acquisition. 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 Tranche E term loan matures on April 13, 1999
and the Chemical Bank Facilities are available through and mature on April 13,
1999. Under the terms of the Senior Credit Facility Agreement, the amounts which
the Company may borrow under Tranches B, C and 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) LIBOR plus 2-1/2%
(8.0% as of May 3, 1996); or (ii) 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 1-1/2% (9.75% as of May 3, 1996), as reduced upon
the Company's satisfaction of certain financial ratios. As of May 3, 1996, the
Company has outstanding borrowings of $22.5 million under the Tranche A term
loan, $23.4 million under the Tranche E term loan, and $32.9 million under the
Chemical Bank Facilities, and approximately $24.6 million was available for
borrowing under the Chemical Bank Facilities. As an interim use, the Company
temporarily paid down certain amounts borrowed under the revolving Chemical Bank
Facilities from a portion of the net proceeds of the Stock Offering. 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, consummation of acquisitions 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 and the 1996/1997 broadcast season of 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
20
<PAGE> 21
domestic exploitation of programs), be maintained at specified levels (or, in
lieu thereof, that the Tranche E 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 are applied, subject to certain exceptions for working
capital, to interest and principal amounts outstanding under the Tranche A term
loan until such time as it is repaid in full. As of May 3, 1996, the Company
has made quarterly principal installment payments and prepayments totaling $7.5
million due through the September 1996 quarter. The remaining balance of the
Tranche A term loan is repayable in quarterly principal installments as follows:
remaining portion of the September 1996 installment, $1.5 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 which 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 initial cash
portion of the purchase price paid by the Company in connection with the Mark
Goodson Acquisition, the borrower is All American Goodson, Inc. ("AAG"), a
wholly-owned subsidiary of the Company and the licensee of the world-wide
distribution rights of the LLC (subject to certain existing licenses). Under
the Tranche E 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 and tax
distributions to the LLC, to repay the Tranche E term loan.
In connection with the IPG/Goodson Agreement, the Company issued three notes
payable to Interpublic totaling $27,800,000 as follows: (i) $12,500,000 plus
accrued interest thereon at a rate of 7% per annum from January 1, 1996 to the
Closing Date (paid in April 1996 from borrowings under the Working Capital
Line); (ii) a subordinated note in the amount of $12,500,000 due 12 months from
the Closing Date, subject to acceleration upon either a "Change of Control" (as
defined), or the acceleration of the Tranche A term loan, plus accrued interest
thereon at a rate of 7% per annum from January 1, 1996; and (iii) a subordinated
note in the amount of $2,800,000, yielding interest at the rate of 7% per annum
from January 1, 1996, with $687,000 due 30 days from the Closing Date and the
balance due 30 days after maturity of the Tranche A term loan and subject to
acceleration upon a "Change of Control" (as defined), or the acceleration of the
Tranche A 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 was used to repurchase and retire all
of the Company's 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 "Prior Fiscal Agent").
During 1995, the Prior Fiscal Agent's responsibilities under the Fiscal Agency
Agreement were transferred by the Prior Fiscal Agent to First Trust of New York,
N.A. 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 is 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 rate
of $11.50 per share (equivalent to
21
<PAGE> 22
86.957 shares of Common Stock for each $1,000 principal amount of Notes), prior
to redemption or maturity. As of May 3, 1996, holders of $3.5 million
principal amount of the Notes had converted such Notes into 308,081 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
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 after October 6, 1996, at redemption prices commencing at 104.6% of
par and declining each subsequent year to 100% of par in 2001, together with
accrued but unpaid interest through the date of redemption. The Notes may also
be redeemed at any time, as a whole but not in part, in the event of certain
changes in U.S. 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 payment at 101% of par if (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 three months ended March 31, 1996, the Company generated cash of
$20.7 million from its operations compared with the nominal amount of net cash
used by its operations for the three months ended March 31, 1995. This positive
cash flow from operations was due primarily to: an increase in the collection of
accounts receivables of $12.1 million (primarily from the strip syndication of
Baywatch); and an increase in accounts payable, accrued expenses and royalties
payable and due to producers and participations payable of $4.9 million
(primarily related to increased revenues in the quarter). The Company used
$28.0 million in investing activities during the quarter ended March 31, 1996,
primarily in connection with the Mark Goodson Acquisition. The Company
experienced a net increase in cash flow from financing activities of $16.7
million during the first three months of 1996, primarily due to an increase in
borrowings in connection with the Mark Goodson Acquisition offset by net
reductions of the Company's production and working capital loans. While cash
flows were positive in the first quarter of 1996, the Company expects, from
time to time, 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 the Company's lines of credit or from
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, the
continued release of recorded music requiring related marketing, promotion and
recording expenses and the repayment of certain notes payable. The commencement
of the production of television programming for the 1996/1997 broadcast season
is expected to require 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 anticipated
cash flow from operations and other available funding sources will be sufficient
to meet its working capital needs for 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
22
<PAGE> 23
completed programs. While the Company generally anticipates that it will
recoup payments made under its guarantees from licensing fees and sales 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 is no assurance that such amounts will be recouped by the Company and, if
not recouped, that such payments will not have a material adverse effect 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 Gerber Company which provides the
services of network television producer David Gerber to the Company for the
purpose of developing and producing network programming. The cost of
production of network programming is typically partially offset by the related
network license fee.
The Company is presently in pre-production on a two hour movie-of-the-week,
On The Line, which has been licensed to the ABC Television Network ("ABC"), for
two runs, for approximately $2.8 million. The total preliminary production
budget of $3.6 million for On The Line is expected to be funded primarily
through a combination of: (i) the ABC license fee; (ii) cash payments from
international licensees; and (iii) working capital. There is no assurance that
the Company will be successful in its efforts to fully fund production of On The
Line through a combination of the ABC license fee and international sales.
Through May 3, 1996, the Company has not yet commenced its' international sales
efforts for On The Line.
The Company has reached an agreement with Atlantis Releasing B.V.
("Atlantis") whereby Atlantis will produce a minimum of 13 and a maximum of 22
one-hour live action episodes of a new series entitled Sinbad for the 1996/1997
broadcast season. In consideration for the Company providing the majority
($670,000 per episode) of the production budget, the Company will retain
exclusive distribution rights to Sinbad in the United States and Europe
(including the United Kingdom and excluding Scandinavia). The Company, under
certain circumstances, has an annual option, exercisable on or before
February 15 of each of the initial three broadcast seasons, to cause Atlantis
to produce up to 22 new episodes in each of the three subsequent broadcast
seasons. The total commitment of up to approximately $14.7 million for the
1996/1997 broadcast season is expected to be funded primarily through a
combination of: (i) borrowings under Tranche D of the Chemical Bank
Facilities; (ii) cash payments by international sub-licensees; and
(iii) working capital. Through May 3, 1996, Sinbad has been cleared in 76%
of the domestic television market for the 1996/1997 broadcast season.
The Company has exercised its option to produce 22 episodes of Baywatch for
the 1996/1997 broadcast season. As of May 3, 1996, the Company has spent
approximately $1.4 million to partially complete three episodes for the
1996/1997 broadcast season. The total production budget of approximately $22.0
million for the 1996/1997 broadcast season is expected to be funded primarily
through a combination of: (i) borrowings under Tranche B of the Chemical Bank
Facilities; (ii) cash payments by The Fremantle Corporation (an unaffiliated
company); and (iii) working capital. As of March 31, 1996, the Company has not
met the Baywatch Production Line conditions which must be satisfied prior to
receiving additional funding of the 1996/1997 broadcast season under Tranche D
of the Chemical Bank Facilities. Such conditions, which primarily include
obtaining a completion bond, are expected to be met prior to commencement of
principal photography, currently planned for June, 1996. Through May 3, 1996,
Baywatch has been cleared in 81% of the domestic television market for the
1996/1997 broadcast season.
Through May 3, 1996, the Company has spent approximately $2.0 million and
completed principal photography on two episodes of Baywatch Nights for the
1996/1997 broadcast season. The total production budget of approximately $20.0
million for the 1996/1997 broadcast season is expected to be funded primarily
through a combination of: (i) borrowings under Tranche C of the Chemical Bank
Facilities; (ii) cash payments received from international sub-licensees; and
(iii) working capital. Through May 3, 1996, Baywatch Nights has been cleared in
79% of the domestic television market for the 1996/1997 broadcast season.
Recorded Music Operations
The Company is responsible for funding all distribution activities, including
producing, marketing, promoting and
23
<PAGE> 24
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.
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 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
$0.4 million at May 3, 1996, and the Company will be required to spend
additional sums for recording and marketing expenses for several artists in its
current roster.
Inflation
The Company believes that the impact of inflation has not been significant to
its financial condition or results of operations.
24
<PAGE> 25
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1.4 Fourth Amendment to Employment Agreement dated as of
February 26, 1996 between All American Communications, Inc.
and Anthony J. Scotti.
10.3.2 Employment Agreement dated as of February 12, 1996 between
Thomas Bradshaw and All American Communications, Inc.
10.4.2 Employment Agreement dated as of February 12, 1996 between
Benjamin Scotti and All American Communications, Inc. 11.1
Statement re: Computation of Per Share Earnings - Three
months ended March 31, 1996 and 1995.
27 Financial Data Schedule.
(b) Reports on Form 8-K
None
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALL AMERICAN COMMUNICATIONS, INC.
Date: May 15, 1996 By
----------------------------
Myron Roth, Chief Operating
Officer
Date: May 15, 1996 By
----------------------------
Thomas Bradshaw,
Director, Chief Financial
Officer and Treasurer
(Principal financial officer
and principal accounting
officer)
26
<PAGE> 1
EXHIBIT 11
ALL AMERICAN COMMUNICATIONS, INC. & SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS - EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
---------------------------
1996 1995
------ ------
<S> <C> <C> <C>
Weighted average number of common shares outstanding 11,398 8,006
Assumed exercise of dilutive options and warrants under the
treasury stock method based on average market price 375 --
--------- --------
Weighted average number of common shares and common share
Additional shares from assumed exercise of dilutive options (B) 11,773 8,006
and warrants under the treasury stock method based on
ending market price 67 --
Weighted average assumed conversion of 6 1/2% Convertible
Subordinated Notes due 2003 5,011 5,217
--------- --------
Weighted average number of common shares and common share
equivalents - fully diluted (D) 16,851 13,223
========= ========
Computation of net income (loss) for per share purposes:
Net income (loss) (A) $ 2,071 $ (895)
Add: After tax reduction of interest expense for assumed
conversion of 6-1/2% Convertible Subordinated Notes
due 2003
583 606
Net income (loss) for fully diluted per share computation (C) $ 2,654 $ (289)
========= ========
Net earnings (loss) per share:
Primary (A) / (B) $ 0.18 $ (0.11)
========= ========
Fully diluted (C) / (D) $ 0.16 $ (0.02)(1)
========= ========
</TABLE>
(1) - Calculation for 1995 is antidilutive.
<PAGE> 1
EXHIBIT 10.1.4
FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT
BETWEEN
ALL AMERICAN COMMUNICATIONS, INC.
AND
ANTHONY J. SCOTTI
This Fourth Amendment to Employment Agreement ("Amendment") entered into
as of this 26th day of February, 1996, between All American Communications, Inc.
(the "Company") and Anthony J. Scotti ("Executive") hereby amends that certain
Employment Agreement, dated February 25, 1991, between the Company and
Executive, as amended by that certain Amendment No. 1, that certain Amendment
No. 2 and that certain Amendment No. 3 to Employment Agreement (collectively,
the "Employment Agreement").
In consideration of Executive's agreement to an extension of the Term (as
defined below), the parties hereby amend the Employment Agreement as follows:
1. Effective as of the date hereof, paragraph 1.4.1 of the Employment
Agreement is hereby deleted in its entirety and replaced with the following:
1.4.1 The Term of this Employment Agreement shall commence on
February 25, 1991 and shall end on the tenth anniversary of the
commencement date of this Employment Agreement (the "Term").
2. Effective as of the date hereof, paragraph 2.3 of the Employment
Agreement is hereby deleted in its entirety and replaced with the following:
2.3 Options. The Company and Executive agree that Executive's
contractual rights to annual stock option awards pursuant to the
Company's 1994 Stock Incentive Plan (the "1994 Plan") in 1996 and
in future years of the Term are hereby terminated. Simultaneously
with the execution of the Amendment, the Company and Executive
have executed one or more stock option agreements providing for
the following stock option awards (the descriptions of which are
qualified in their entirety by the respective stock option
grants):
<PAGE> 2
2.3.1 Pursuant to the terms of the Company's 1991 Incentive
Stock Option Plan (the "1991 Plan"), Executive has received a
discretionary incentive stock option grant by the stock option
committee of the Board of Directors (the "Option Committee") to
purchase 50,000 shares of Common Stock at $10.8625 per share (i.e.
110% of the fair market value of the Common Stock on the date
hereof), the entire amount of which is immediately vested as of
the date hereof (subject to certain limitations on
exercisability).
2.3.2 Pursuant to the terms of the Company's 1994 Plan,
Executive has received a non-qualified discretionary option by the
Option Committee to purchase 250,000 shares of Common Stock at
$9.875 per share (i.e. 100% of the fair market value of the Common
Stock on the date hereof), the entire amount of which is
immediately vested as of the date hereof.
2.3.3 Pursuant to the terms of the Company's 1994 Plan,
Executive has received, subject to shareholder ratification, a
non-qualified discretionary option by the Option Committee to
purchase 1,200,000 shares of Class B Common Stock at $7.875 per
share (i.e. 100% of the fair market value of the Class B Common
Stock on the date hereof), the entire amount of which is
exercisable at such time as Executive has been in the continuous
employment of the Company for a period of 9 years and 9 months,
subject to accelerated vesting in 1996, 1997, 1998 and 1999 in
tranches of 300,000 shares each year upon the achievement of
certain performance criteria established annually by the Option,
compensation or similar committee of the Board of Directors or by
the Board of Directors. Notwithstanding anything to the contrary
contained in this paragraph 2.3.2, all such shares shall vest
immediately, subject to the provisions of the 1994 Plan, upon the
occurrence of an "Event" as that term is defined in the 1994 Plan,
unless (i) such Event occurs within 6 months of shareholder
approval of the stock option grant, or (ii) such Event consists of
the occurrence of an event specified in subparagraphs (2) or (3)
of the definition of "Event" at a price (whether payable in cash,
securities, other property or a
2
<PAGE> 3
combination of the foregoing or otherwise) of less than $15.00 per
share of Class B Common Stock.
3. Effective as of the date hereof, paragraph 3.2.1 of the Employment
Agreement shall remain in full force and effect except that the first sentence
is hereby amended to read as follows:
Executive shall have the right, at his election, to terminate the
Term for "Company's Material Breach", which shall consist of the
Company's failure or refusal to comply with a material term of
this Agreement or misfeasance or gross negligence in performing
under this Agreement.
4. Effective as of the date hereof, the following is added as
paragraph 3.2.1.A:
3.2.1.A Termination on Occurrence of Event. Executive shall have
the right, at his election, to terminate the Term upon the
occurrence of an Event, by giving written notice to the Company,
stating the effective date of the termination, within 120 days of
the Event (the "Termination Period"). The ability to terminate the
Term pursuant to paragraph 3.2.1.A shall lapse if not exercised
within the Termination Period.
5. Effective as of the date hereof, paragraph 3.2.2 of the Employment
Agreement is hereby deleted in its entirety and replaced with the following:
3.2.2 Effect of Termination by Executive.
(a) Material Breach. Subject to the provisions of paragraph 3.4
below, should Executive terminate the Term due to Company's Material
Breach in accordance with the provisions of paragraph 3.2.1, the Company
shall, for the then remainder of the Term, pay to Executive or provide
Executive with (i) Executive's Fixed Annual Compensation and (ii)
Insurance Benefits. Company shall also pay to Executive (i) Incentive
Compensation and Deferred Incentive Compensation that Executive would
have earned during the fiscal year in which such termination occurred pro
rated based upon the portion of the fiscal year in which Executive
actually served prior to such termination and (ii) any
3
<PAGE> 4
bonuses related to the products of the Company that were earned by
Executive but unpaid at the time of termination hereunder. All other
benefits provided for in this Employment Agreement and compensation
payable under this Agreement shall cease on the date of termination of
employment except to the extent accrued as of such date or otherwise
provided for elsewhere herein or therein.
(b) Occurrence of Event. Should Executive terminate the term in
accordance with the provisions of paragraph 3.2.1.A, all benefits
provided for in this Employment Agreement and compensation payable under
this Agreement shall cease on the date of termination of employment
except to extent accrued and/or vested as of the termination date or
otherwise provided for elsewhere herein or therein, except for any
bonuses related to the products of the Company earned by Executive but
unpaid at the time of the termination hereunder.
(c) Termination for any other reason. Should Executive terminate
the Term other than for the Company's Material Breach or in accordance
with the provisions of paragraphs 3.2.1A, such termination shall be
treated as a termination by the Company for "Good Cause".
6. Effective as of the date hereof, the following is added as
paragraph 3.6:
3.6 Potential Excise Taxes. Should any payments from the Company to
Executive, in whatever form, made either hereunder or under any other
plan or arrangement between said parties (the "Payment"), be subject to
excise tax pursuant to section 4999 of the Internal Revenue Code or any
successor or similar provision thereto, or comparable state or local tax
laws (an "Excise Tax"), the Company shall pay to Executive such
additional compensation (the "Additional Compensation") as necessary so
that the net amount retained by Executive, after deduction of the Excise
Tax, and any Federal, state or local taxes on the Additional Compensation
(including any additional Excise Tax on the Additional Compensation),
shall be the same as the after-tax position he would have been in had no
Excise Tax (or interest or penalties thereon) been paid or incurred on
the Payment; provided however, that in no event shall the Additional
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Compensation exceed two times the amount of the Excise Tax calculated
with respect to the Payment. For purposes of determining the amount of
the Additional Compensation, Executive shall be deemed to pay Federal,
state and local income taxes at the highest marginal rate of taxation in
the calender year in which the Payment is to be made. The Company shall
pay such Additional Compensation upon the earlier of (i) the time at
which the Company is required to withhold Excise Tax with respect to any
portion of the Payment or (ii) 30 days after Executive notifies the
Company that Executive has filed a tax return that takes the position
that an Excise Tax is due and payable with respect to any portion of the
Payment in reliance on a written opinion of Executive's tax counsel that
it is more likely than not that such excise tax is due and payable. For
purposes of clause (i) of the preceding sentence, the determination of
whether Excise Tax must be withheld by the Company with respect to the
Payment shall be made by independent tax counsel selected by the Company
and reasonably acceptable to the Executive. If Executive makes any
payment with respect to any such Excise Tax as a result of an adjustment
to Executive's tax liability by any Federal, state or local authority,
the Company will pay the Executive the appropriate amount of Additional
Compensation within 30 days after Executive notifies the Company of such
payment; provided however, that without limiting the obligation of the
Company hereunder, Executive agrees, in the event Executive believes that
he is required to make any such payment, to negotiate with the Company in
good faith with respect to procedures reasonably requested by the Company
that would afford the Company the ability to contest the imposition of
such Excise Tax; provided however, that Executive will not be required to
afford the Company any right to contest the applicability of any such
Excise Tax to the extent that Executive reasonably determines that such
contest is inconsistent with the overall tax interests of Executive. The
Company agrees to hold in confidence and not to disclose, without
Executive's prior written consent, any information with regard to
Executive's tax position that Company obtains pursuant to this paragraph
3.6.
7. Except as expressly amended hereby, all terms and provisions of
the Employment Agreement shall remain in full force and effect.
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IN WITNESS WHEREOF the parties hereto have cause this Amendment to be
duly executed as of the date first written above.
ALL AMERICAN COMMUNICATIONS, INC.,
a Delaware Corporation
By: /s/ Thomas Bradshaw
Chief Financial Officer
Title: _____________________
/s/ Anthony J. Scotti
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ALL AMERICAN COMMUNICATIONS, INC.
808 WILSHIRE BLVD
SANTA MONICA, CA 90401
February 12, 1996
Mr. Thomas Bradshaw
808 Wilshire Blvd.
Santa Monica, CA 90401
Re: Employment Agreement
Dear Mr. Bradshaw:
When executed by you ("Executive") and by a duly authorized
representative of All American Communications, Inc., a Delaware Corporation
("AAC" or the "Company"), this letter will set forth the terms and conditions of
Executive's employment with AAC (the "Agreement").
1. DEFINITIONS.
AAC includes any subsidiary, or AAC Affiliate (as defined below) or any
divisions thereof now existing or formed at any time after the date of this
Agreement; any corporation which may merge into or with which AAC may be merged
or consolidated; any corporation which may acquire all or a substantial portion
of the assets of AAC; or any corporation which may result from any
reorganization of AAC. AAC Affiliate shall mean any corporation controlled by,
under common control with or controlling, directly or indirectly, AAC or AAC's
subsidiaries.
2. SERVICES.
2.1. EMPLOYMENT. AAC employs Executive during the Term (as hereinafter
defined) to serve as Senior Executive Vice President and Chief Financial Officer
of, and to render such other services (collectively, "Services") to, AAC as AAC
may from time to time reasonably request in connection with the activities of
AAC which are consistent with the duties Executive is to perform and Executive's
stature and experience. Executive's primary responsibilities shall be to
determine fiscal policies for, and to direct and exercise financial oversight
over, AAC and of each subsidiary and their respective direct and/or wholly-owned
subsidiaries as directed pursuant to paragraph 2.2 below. The Services shall be
performed at AAC's principal offices in the City of Santa Monica, and from time
to time on a temporary travel
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basis at such other locations as AAC shall reasonably request consistent with
its reasonable business needs. Executive agrees to perform such Services in a
competent and professional manner, consistent with the skills to be possessed by
a senior executive officer in AAC's business.
2.2. REPORTING REQUIREMENTS. Executive shall report solely to the Chief
Executive Officer ("CEO") of AAC and to the Board of Directors of AAC, as the
case may be.
2.3. TERM/EXCLUSIVITY.
2.3.1. The Term of this Agreement shall commence as of February 25, 1996
and shall end on the fifth anniversary thereafter, on February 24, 2001 (the
"Initial Termination Date") unless sooner terminated or extended in accordance
with the provisions of this Agreement (the "Term").
2.3.2. The Services shall be rendered on a full time basis during normal
working hours and all Services of Executive shall be exclusive to AAC. Executive
agrees that during the actual term of employment with AAC he shall not, without
the further approval of an authorized officer of AAC, directly or indirectly
engage in or participate as an officer, employee, director, agent of or
consultant for any business directly competitive with that of AAC's business.
Notwithstanding the foregoing, Executive shall be entitled to devote minimal
time to personal business matters.
2.3.3. Notwithstanding anything to the contrary contained in this
Section 2.3, Executive may acquire and/or retain, solely as an investment, and
may take customary actions to maintain and preserve Executive's ownership of:
A. Securities of any partnership, trust, corporation or other person
which are registered under Sections 12(b) or 12(g) of the Securities Exchange
Act of 1934, as amended, and which are publicly traded as long as Executive's
investment amounts to less than five (5%) percent of the equity in such entity;
and
B. Any securities of a partnership, trust, corporation or other person
not registered as set forth in 2.3.3.A above so long as Executive remains a
passive investor in that entity and does not become part of any control group
thereof and so long as such entity is not, directly or indirectly, in
competition with AAC.
2.4 CONFIDENTIALITY. Executive acknowledges that the Services will,
throughout the Term, bring Executive into close contact with many confidential
affairs of AAC, including
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information about costs, profits, markets, sales, products, key personnel,
pricing policies, operational methods, technical processes and other business
affairs and methods and other information not readily available to the public,
and plans for future development. Executive further acknowledges that the
business of AAC is international in scope, that its products are marketed
throughout the world, that AAC competes in nearly all of its business activities
with other organizations which are or could be located in nearly any part of the
world and that the nature of Executive's services, position and expertise are
such that he is capable of competing with AAC from nearly any location in the
world. In recognition of the foregoing, Executive covenants and agrees:
2.4.1. That Executive will keep secret all trade secrets of AAC which are
not otherwise in the public domain and will not intentionally disclose them to
anyone outside of AAC, either during or after the Term, except with AAC's
written consent and except for such disclosure as is necessary in the
performance of Executive's duties during the Term; and
2.4.2. That Executive will deliver promptly to AAC on termination of the
Term or at any other time AAC may so request, at AAC's expense, all confidential
memoranda, notes, records, reports and other documents (and all copies thereof)
relating to AAC's business, which Executive obtained while employed by, or
otherwise serving or acting on behalf of, AAC or which Executive may then
possess or have under his control.
2.5. INDEMNIFICATION. AAC will, at AAC's expense, defend and indemnify
Executive in respect of all legal acts or decisions made by Executive in the
course of Executive performing his duties and within the guidelines and scope of
his authority as provided herein. Executive may participate in his defense with
Executive's own counsel at Executive's expense.
2.6. OWNERSHIP OF PROPERTIES. All projects, programming and properties
developed by Executive during the term of his employment shall be, and upon
termination of employment shall remain, the sole and exclusive property of AAC.
Executive agrees that upon termination or expiration of his employment he shall
not, for a period of ninety (90) days thereafter, compete with AAC on any
projects, programming or properties submitted by Executive or a third party to
AAC. If AAC does not, within said ninety (90) day period, agree or commit to go
forward with said projects, programming or properties, then Executive shall be
free to negotiate with respect thereto.
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2.7. OFFICES. Executive is currently a member of the Board of Directors
of AAC and Executive shall continue to serve as a member of the Board of
Directors of AAC for at least the first two (2) years of the Term. In addition,
AAC may appoint Executive as a member of the Board of Directors of its
Affiliates, and/or as a member of the Committees of AAC or its Affiliates.
Executive agrees to accept such offices if consistent with his stature and
experience and with the type of offices with AAC or AAC's Affiliates previously
held by Executive. Upon termination of the Term, Executive shall immediately
resign from all such Boards and Committees if so requested by AAC.
3. COMPENSATION.
As compensation and consideration for all Services provided by Executive
during the Term pursuant to this Agreement, AAC agrees to pay to Executive the
compensation set forth below.
3.1. BASE SALARY. Executive shall receive an annual base salary equal to
Four Hundred and Seventy Six Thousand, Six Hundred and Fifty Dollars
($476,650.00), commencing on February 25, 1996, and increasing therefrom at the
rate of six percent (6%) per annum on each January 1st thereafter, payable in
equal installments on AAC's regular pay dates, subject to the usual and required
payroll deductions and withholdings ("Base Salary"), provided, however, that if
AAC adopts a general policy or enters into arrangements granting increases of
base compensation to other executives of AAC of similar stature based upon
increases in the "cost of living", then increases in the Base Salary of
Executive shall be based upon such policy or arrangements if it would result in
an increase in such Base Salary of greater than six percent (6%).
3.2. STOCK AWARDS.
Executive shall be entitled to participate in any stock plan now or
hereafter adopted by AAC, with a grant of a minimum of Fifty Thousand
(50,000)performance based options per year and such additional grant of options
as may be determined by the Stock Option Committee (or a similar body)of AAC.
3.3. INCENTIVE COMPENSATION. Executive shall receive such annual bonus
compensation ("Incentive Compensation") as determined by the Board of Directors
in its sole discretion.
3.4. SPECIAL INDUCEMENTS. AAC agrees to provide Executive with the
following:
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A. During each year of the Term, Executive shall be entitled to vacation
time consistent with Company policy then in effect (but not less than four (4)
weeks), without deduction of salary. Such vacations shall be taken at such time
or times during the applicable year as may be determined by Executive subject to
AAC's needs.
B. AAC will reimburse Executive for his reasonable approved business
expenses incurred in connection with the performance of Executive's duties under
the Agreement, in accordance with AAC's general policies regarding business
expenses.
C. During the Term, Executive shall be entitled to participate in the
health insurance policy, which shall include medical and dental insurance for
Executive, his spouse and dependents, and disability and life insurance for
Executive (collectively "Health Insurance"), available to all employees of AAC.
Executive shall be entitled to participate in any bonus, pension and profit
sharing plans made generally available to other executives of comparable title.
In no event shall AAC be responsible for the payment of the "deductible" and
"co-insurance" (or patient's portion) of the Health Insurance nor shall any
amount paid be in excess of the comparable premium paid by AAC pursuant to its
standard employee Health Insurance then in effect. Notwithstanding the
foregoing, AAC shall reimburse Executive, if Executive chooses not to
participate in the AAC health and dental plan, up to a combined total of
Thirteen Thousand Five Hundred Dollars ($13,500.00) for health and additional
life insurance and disability policies (subject to general inflationary
increases in respect of premiums for such insurance) which do not name AAC as a
beneficiary. If Executive chooses to participate in the AAC Health Insurance
plan, the amount of money contributed by AAC to such plans on behalf of
Executive shall be deducted from the sum specified in the immediately preceding
sentence.
D. If Executive is traveling outside of the Los Angeles area in
connection with the performance of his duties hereunder, AAC shall pay, or shall
reimburse Executive, for approved travel expenses incurred by Executive
(including first class, if available, air fare, hotel, meals and incidental
expenses) in accordance with AAC's general policies regarding travel expenses.
E. AAC will provide Executive during the Term (through either direct
reimbursement to Executive or direct lease or purchase by AAC on behalf of
Executive) with an automobile of Executive's choice of a similar class to the
Mercedes 500 SL series or a Porsche Turbo together with all gas, oil,
maintenance, repairs and registration fees for such automobile
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and up to Four Thousand Dollars ($4,000.00) per year in respect of premiums
actually incurred by Executive for insurance on such automobile. Notwithstanding
the foregoing, the maximum monthly lease or purchase payment that AAC shall pay
(or reimburse Executive for) with respect to such automobile shall be One
Thousand Dollars ($1,000.00) but such sum shall not be inclusive of any
maintenance, gas, repair, insurance or registration costs. Executive shall be
solely responsible for any monthly lease or finance payment in excess of the
limit specified in the preceding sentence.
F. AAC shall reimburse Executive, upon the submission of proper
documentation, up to Six Thousand Dollars ($6,000.00) per year for membership
dues in a country or athletic club of Executive's choice (and as further
approved by the Chairman of the Board of AAC or AAC's Chief Executive Officer).
3.5. TAXES. All compensation shall be subject to withholding and other
employment taxes as required by federal, state and local government entities
with respect to compensation paid by a corporation to an employee.
4. TERMINATION.
4.1. TERMINATION BY COMPANY.
(a) Executive's Material Breach. The Company shall have the right, at its
election, to terminate the Term for "Executive's Material Breach," which shall
consist of (i) material and repeated instances of misconduct or habitual
inability to perform the Services, or violation of AAC's established policies or
procedures, (ii) a single act so grievous as to constitute the equivalent of
such repeated instances (including, without limitation, theft, misappropriation
of AAC's assets, conviction of a felony, or sexual harassment), (iii)
unauthorized intentional disclosure of any of AAC's trade secrets or (iv) a
material breach of any covenant, condition, agreement or term of this Agreement
and, in each such case, only if AAC shall have given written notice to Executive
specifying the claimed cause or breach and, provided such breach is curable,
Executive fails to correct the claimed breach or fails to alter the
objectionable pattern of conduct specified in the applicable written notice as
soon as practical thereafter but no later than (30) days after receipt of the
applicable notice or such longer time as may be reasonably required by the
nature of the claimed breach.
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(b) Effect of Termination by Company. Should the Term be terminated by
Company by reason of Executive's Material Breach, Executive shall have no right
to any further Base Salary or other benefits or compensation from and after
termination.
4.2 TERMINATION BY EXECUTIVE.
(a) Company's Material Breach. Executive shall have the right, at his
election to terminate the Term only for "Company's Material Breach," which shall
consist of the Company's failure or refusal to comply with a material term of
this Agreement or misfeasance or gross negligence in performing under this
Agreement. In order to terminate the Term, Executive shall be required to give
written notice specifying the claimed breach and the Company shall have failed
to correct the claimed breach, if such breach is curable, or alter the
objectionable pattern of conduct specified in the applicable written notice, no
later than thirty (30) days (ten (10) days in the case of a breach based upon
non-payment of compensation due under this Agreement) after receipt of the
applicable notice.
(b) Effect of Termination by Executive. Should Executive terminate the
Term due to Company's Material Breach, the Company shall, for the then remainder
of the Term, in accordance with the Company's regular pay periods, (and further
subject to any right of offset for any indebtedness of Executive to AAC) pay to
Executive or provide Executive with Executive's: Base Salary; all health, life
and disability insurance benefits; and Incentive Compensation that Executive
would have earned during the fiscal year in which such termination occurred pro
rated based upon the portion of the fiscal year in which Executive actually
served prior to such termination. All other compensation and benefits shall
cease on the date of termination of employment. Upon such termination all rights
of first refusal and to call the shares of AAC Common Stock owned by Executive
and subject to that certain Shareholders Agreement dated as of February 25, 1991
shall terminate.
(c) Waiver of Mitigation. The Company waives any and all rights which it
may have to require Executive to mitigate damages as a result of Company's
Material Breach and any income received by Executive from any other source,
whether from salary, bonus, other compensation, dividends, distributions or
otherwise, shall not reduce or offset Company's obligations to Executive under
Section 4.2(b) above.
5. DEATH AND DISABILITY.
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5.1. DEATH. The Term shall immediately terminate upon Executive's death
as certified in accordance with the provisions of California law ("Death").
5.2. DISABILITY. As used herein, the term "Disability" shall mean
Executive becoming unable to perform the Services as a result of his permanent
or temporary, total or partial, physical or mental disability for any six months
during any twelve calendar months of the Term ("Disability"). In such event,
absent a Material Breach (as defined below) by Executive, AAC shall not have the
right (notwithstanding any other provision of this Agreement to the contrary) to
terminate the Term due to Disability prior to the expiration of the Disability
Period. As used herein, the term "Disability Period" shall mean the period
commencing on the first day upon which such Disability occurs and ending on the
first to occur of the following: (i) the expiration of the Term; (ii) if the
Disability is continuous throughout the six (6) consecutive months following the
month during which the Disability occurs, then the last day of such sixth
consecutive calendar month; and (iii) if the Disability is intermittent and
shall exist throughout each of any twelve (12) calendar months following the
month during which the Disability occurs, then the last day of such twelfth
calendar month.
5.3. EFFECT OF DEATH OR DISABILITY. Should the Term be terminated in
accordance with the provisions of Paragraphs 5.1 or 5.2 by reason of Executive's
Death or Disability, Executive or his estate (as the case may be) shall have no
right to any further Base Salary (other than any stock options or other awards
vested at the time of such Death or Disability); provided, however, that the
Base Salary otherwise payable during the Disability Period shall nevertheless be
payable on the terms set forth herein to Executive as a disability benefit
("Disability Benefit") as well as any Incentive Compensation Executive would
have earned for the fiscal year in which Death or Disability occurred times the
pro rata portion of the fiscal year in which Executive actually served prior to
the occurrence of Death or Disability. Any disability insurance proceeds
actually received by Executive from AAC's disability insurance carrier during
the Disability Period with respect to such Disability shall reduce on a
dollar-for-dollar basis the Disability Benefit otherwise payable by AAC during
the Disability Period pursuant to this Paragraph 5.3.
6. COVENANT NOT TO SOLICIT.
Until the earlier of either the scheduled expiration of the Term (whether
the Term expires or is terminated by any party for any reason) or one year after
actual termination of Executive's
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employment with the Company, Executive shall not, directly or indirectly,
solicit or induce any of the Company's or its parent's or subsidiaries'
employees to terminate their employment with the Company or its parent or any of
its subsidiaries or knowingly interfere with the Company's or its parent or any
of its subsidiaries' then contractual relationships or knowingly disparage the
Company or its parent or any of its subsidiaries or its executives.
7. ATTORNEY'S FEES.
In the event Executive or AAC commences any action, suit or proceeding in
respect of a dispute arising out of this Agreement, AAC and Executive agree that
the prevailing party shall be entitled to reimbursement upon demand for all fees
and expenses of counsel in connection with each claim constituting a portion of
such action, suit or proceeding in which he is the prevailing party. A party
shall be a "prevailing party" as to a claim is such party is successful in
proving or disproving the cause of action asserted or contested.
8. GENERAL.
8.1. APPLICABLE LAW CONTROLS. Nothing contained in this Agreement shall
be construed to require the commission of any act contrary to law and wherever
there is any conflict between any provisions of this Agreement and any material
statue, law, ordinance or regulation contrary to which the parties have no legal
right to contract, then the latter shall prevail; provided, however, that in any
such event the provisions of the Agreement so affected shall be curtailed and
limited only to the extent necessary to bring them within applicable legal
requirements, and provided further that if any obligation to pay the Base Salary
or any other amount due Executive hereunder is so curtailed, then such
compensation or amount shall be paid as soon thereafter, either during or
subsequent to the Term, as permissible; provided further, that nothing contained
herein shall limit any of Executive's rights or remedies hereunder in the event
that AAC fails to pay any amounts owed Executive hereunder as and when due.
8.2. WAIVER/ESTOPPEL. Any party hereto may waive the benefit of any term,
condition or covenant in this Agreement or any right or remedy at law or in
equity to which any party may be entitled but only by an instrument in writing
signed by the parties to be charged. No estoppel may be raised against any party
except to the extent the other parties rely on an instrument in writing, signed
by the party to be charged, specifically reciting that the other parties may
rely thereon.
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The parties' rights and remedies under and pursuant to this Agreement or at law
or in equity shall be cumulative and the exercise of any rights or remedies
under one provision hereof or rights or remedies at law or in equity shall not
be deemed an election of remedies; and any waiver or forbearance of any breach
of this Agreement or remedy granted hereunder or at law or in equity shall not
be deemed a waiver of any preceding or succeeding breach of the same or any
other provision hereof or of the opportunity to exercise such right or remedy or
any other right or remedy, whether or not similar, at any preceding or
subsequent time.
8.3. NOTICES. Any notice which AAC is required or may desire to give to
Executive hereunder shall be in writing and may be served by delivering it to
Executive, or by sending it to Executive by mail, telex or telegraph, at
Executive's residence or such substitute address as Executive may from time to
time designate to AAC. Any notice which Executive is required or may desire to
serve upon AAC hereunder shall be in writing and may be served by delivering it
personally or by sending it by mail, telex or telegraph to the address set forth
on Page 1 hereof with a copy to All American Communications, Inc., 808 Wilshire
Boulevard, Santa Monica, CA 90401 Attention: General Counsel, or such other
substitute addresses as AAC may from time to time designate by notice to
Executive. Notices regarding cure of an alleged breach hereof shall be sent by
certified or registered mail and shall be effective upon receipt.
8.4. GOVERNING LAW. This Agreement shall be governed by, construed and
enforced and the legality and validity of each term and condition shall be
determined in accordance with the internal, substantive laws of the State of
California applicable to agreements fully executed and performed entirely in
California.
8.5. CAPTIONS. The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
8.6. NO JOINT VENTURE. Nothing herein contained shall constitute a
partnership between or joint venture by the parties hereto or appoint any party
the agent of any other party. No party shall hold itself out contrary to the
terms of this Paragraph and, except as otherwise specifically provided herein,
no party shall become liable for the representation, act of omission of any
third party who is not referred to herein and shall not be deemed to give any
right or remedy to any such third party.
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8.7. MODIFICATION/ENTIRE AGREEMENT. This Agreement may not be altered,
modified or amended except by an instrument in writing signed by all of the
parties hereto. No person, whether or not an officer, agent, employee or
representative of any party, has made or has any authority to make for or on
behalf of that party any agreement, representation, warrant, statement, promise,
arrangement or understanding not expressly set forth in any other document
executed by the parties concurrently herewith ("Parol Agreements"). This
Agreement and all other documents executed by the parties concurrently herewith
constitute the entire agreement between the parties and supersede all express or
implied, prior or concurrent, Parol Agreements and prior written agreements with
respect to the subject matter hereof. The parties acknowledge that in entering
into this Agreement, they have not relied and will not in any way rely upon any
Parol Agreements.
Please confirm your agreement to the foregoing by signing below where
indicated.
Very truly yours, Agreed to and Accepted
ALL AMERICAN COMMUNICATIONS, INC.
By: /s/ Anthony J. Scotti /s/Thomas Bradshaw
------------------------- --------------------
Thomas Bradshaw
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EXHIBIT 10.4.2
ALL AMERICAN COMMUNICATIONS, INC.
808 WILSHIRE BLVD
SANTA MONICA, CA 90401
February 12, 1996
Mr. Benjamin J. Scotti
808 Wilshire Blvd.
Santa Monica, CA 90401
Re: Employment Agreement
`
Dear Mr. Scotti:
When executed by you ("Executive") and by a duly authorized
representative of All American Communications, Inc., a Delaware Corporation
("AAC" or the "Company"), this letter will set forth the terms and conditions of
Executive's employment with AAC (the "Agreement").
1. DEFINITIONS.
AAC includes any subsidiary, or AAC Affiliate (as defined below) or any
divisions thereof now existing or formed at any time after the date of this
Agreement; any corporation which may merge into or with which AAC may be merged
or consolidated; any corporation which may acquire all or a substantial portion
of the assets of AAC; or any corporation which may result from any
reorganization of AAC. AAC Affiliate shall mean any corporation controlled by,
under common control with or controlling, directly or indirectly, AAC or AAC's
subsidiaries.
2. SERVICES.
2.1. EMPLOYMENT. AAC employs Executive during the Term (as hereinafter
defined) to serve as Senior Executive Vice President of the All American Music
Group, a wholly owned subsidiary of AAC, and to render such other services
(collectively, "Services") AAC may from time to time reasonably request in
connection with the activities of AAC which are consistent with the duties
Executive is to perform and Executive's stature and experience. The Services
shall be performed at AAC's principal offices in the City of Santa Monica, and
from time to time on a temporary travel basis at such other locations as AAC
shall reasonably request consistent with its reasonable business needs.
Executive agrees to perform such Services in a competent and professional
manner, consistent with the skills to be possessed by a senior executive officer
in AAC's business.
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2.2. REPORTING REQUIREMENTS. Executive shall report solely to the Chief
Executive Officer ("CEO") and Chief Operating Officer ("COO") of AAC.
2.3. TERM/EXCLUSIVITY.
2.3.1. The Term of this Agreement shall commence as of February 25, 1996
and shall end on the fifth anniversary thereafter on February 24, 2001 (the
"Initial Termination Date") unless sooner terminated or extended in accordance
with the provisions of this Agreement (the "Term").
2.3.2. The Services shall be rendered on a full time basis during normal
working hours and all Services of Executive shall be exclusive to AAC. Executive
agrees that during the actual term of employment with AAC he shall not, without
the further approval of an authorized officer of AAC, directly or indirectly
engage in or participate as an officer, employee, director, agent of or
consultant for any business in the United States directly competitive with that
of AAC's business. Notwithstanding the foregoing, Executive shall be entitled to
devote minimal time to personal business matters.
2.3.3. Notwithstanding anything to the contrary contained in this
Section 2.3, Executive may acquire and/or retain, solely as an investment, and
may take customary actions to maintain and preserve Executive's ownership of:
A. Securities of any partnership, trust, corporation or other person
which are registered under Sections 12(b) or 12(g) of the Securities Exchange
Act of 1934, as amended, and which are publicly traded as long as Executive's
investment amounts to less than five (5%) percent of the equity in such entity;
and
B. Any securities of a partnership, trust, corporation or other person
not registered as set forth in 2.3.3.A above so long as Executive remains a
passive investor in that entity and does not become part of any control group
thereof and so long as such entity is not, directly or indirectly, in
competition with AAC.
2.4 CONFIDENTIALITY. Executive acknowledges that the Services will,
throughout the Term, bring Executive into close contact with many confidential
affairs of AAC, including information about costs, profits, markets, sales,
products, key personnel, pricing policies, operational methods, technical
processes and other business affairs and methods and other information not
readily available to the public, and plans for future development. Executive
further acknowledges that the business of AAC is international in scope, that
its products are
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marketed throughout the world, that AAC competes in nearly all of its business
activities with other organizations which are or could be located in nearly any
part of the world and that the nature of Executive's services, position and
expertise are such that he is capable of competing with AAC from nearly any
location in the world. In recognition of the foregoing, Executive covenants and
agrees:
2.4.1. That Executive will keep secret all trade secrets of AAC which
are not otherwise in the public domain and will not intentionally disclose them
to anyone outside of AAC, either during or after the Term, except with AAC's
written consent and except for such disclosure as is necessary in the
performance of Executive's duties during the Term; and
2.4.2. That Executive will deliver promptly to AAC on termination of the
Term or at any other time AAC may so request, at AAC's expense, all confidential
memoranda, notes, records, reports and other documents (and all copies thereof)
relating to AAC's business, which Executive obtained while employed by, or
otherwise serving or acting on behalf of, AAC or which Executive may then
possess or have under his control.
2.5. INDEMNIFICATION. AAC will, at AAC's expense, defend and indemnify
Executive in respect of all legal acts or decisions made by Executive in the
course of Executive performing his duties and within the guidelines and scope of
his authority as provided herein. Executive may participate in his defense with
Executive's own counsel at Executive's expense.
2.6. OWNERSHIP OF PROPERTIES. All projects, programming and properties
developed by Executive during the term of his employment shall be, and upon
termination of employment shall remain, the sole and exclusive property of AAC.
Executive agrees that upon termination or expiration of his employment he shall
not, for a period of ninety (90) days thereafter, compete with AAC on any
projects, programming or properties submitted by Executive or a third party to
AAC. If AAC does not, within said ninety (90) day period, agree or commit to go
forward with said projects, programming or properties, then Executive shall be
free to negotiate with respect thereto.
2.7. OWNERSHIP OF "Scotti". Notwithstanding anything to the contrary
contained herein, the name "Scotti", currently part of certain trade names,
trademarks and logos of AAC and AAC's Affiliates, together with any other right
to use the name "Scotti" in any form, shall revert to Executive at the earlier
of: (I) five (5) years from the date hereof or (ii) termination of employment of
Executive or Anthony J. Scotti with AAC (or the
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<PAGE> 4
All American Music Group, as applicable) for a reason other than "good cause"
(as defined in this Agreement). In the event of such reversion, AAC shall have
up to ninety (90) days after such reversion to dispose of all inventory and
other materials bearing the name "Scotti". Notwithstanding the foregoing, AAC
and its Affiliates shall have the right to use the name "Scotti" until such time
as all of the obligations of AAC and its Affiliates to Chemical Bank, its
successors and assigns, shall have been paid in full.
2.8. OFFICES. Executive is currently a member of the Board of Directors
of AAC and Executive shall continue to serve as a member of the Board of
Directors of AAC for at least the first two (2) years of the Term. In addition,
AAC may appoint Executive as a member of the Board of Directors of its
Affiliates, and/or as a member of the Committees of AAC or its Affiliates.
Executive agrees to accept such offices if consistent with his stature and
experience and with the type of offices with AAC or AAC's Affiliates previously
held by Executive. Upon termination of the Term, Executive shall immediately
resign from all such Boards and Committees if so requested by AAC.
3. COMPENSATION.
As compensation and consideration for all Services provided by Executive
during the Term pursuant to this Agreement, AAC agrees to pay to Executive the
compensation set forth below.
3.1. BASE SALARY. Executive shall receive an annual base salary equal to
Four Hundred and One Thousand, One Hundred and Fifty Dollars ($401,150.00),
commencing on February 25, 1996, and increasing therefrom at the rate of six
percent (6%) per annum on each January 1st thereafter, payable in equal
installments on AAC's regular pay dates, subject to the usual and required
payroll deductions and withholdings ("Base Salary"), provided, however, that if
AAC adopts a general policy or enters into arrangements granting increases of
base compensation to other executives of AAC of similar stature based upon
increases in the "cost of living", then increases in the Base Salary of
Executive shall be based upon such policy or arrangements if it would result in
an increase in such Base Salary of greater than six percent (6%).
3.2. STOCK AWARDS.
Executive shall be entitled to participate in any stock plan now or
hereafter adopted by AAC, with a grant of a minimum of Twenty Thousand (20,000)
performance based options per year
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<PAGE> 5
and such additional grant of options as may be determined by the Stock Option
Committee (or a similar body)of AAC.
3.3. INCENTIVE COMPENSATION. Executive shall receive such annual bonus
compensation ("Incentive Compensation") as determined by the Board of Directors
in its sole discretion.
3.4. TOP 10 BONUS. Executive shall receive a bonus equal to Ten Thousand
Dollars ($10,000.00) for each "Billboard Top 10" record released by AAC or its
Affiliates which shall be payable to Executive within sixty (60) days of
publication of such record's listing on any "Top 10" chart of Billboard Magazine
(the "Top 10 Bonus").
3.5. SPECIAL INDUCEMENTS. AAC agrees to provide Executive with the
following:
A. During each year of the Term, Executive shall be entitled to vacation
time consistent with Company policy then in effect (but not less than four (4)
weeks), without deduction of salary. Such vacations shall be taken at such time
or times during the applicable year as may be determined by Executive subject to
AAC's needs.
B. AAC will reimburse Executive for his reasonable approved business
expenses incurred in connection with the performance of Executive's duties under
the Agreement, in accordance with AAC's general policies regarding business
expenses.
C. During the Term, Executive shall be entitled to participate in the
health insurance policy, which shall include medical and dental insurance for
Executive, his spouse and dependents, and disability and life insurance for
Executive (collectively "Health Insurance"), available to all employees of AAC.
Executive shall be entitled to participate in any bonus, pension and profit
sharing plans made generally available to other executives of comparable title.
In no event shall AAC be responsible for the payment of the "deductible" and
"co-insurance" (or patient's portion) of the Health Insurance nor shall any
amount paid be in excess of the comparable premium paid by AAC pursuant to its
standard employee Health Insurance then in effect. Notwithstanding the
foregoing, AAC shall reimburse Executive, if Executive chooses not to
participate in the AAC health and dental plan, up to Eighteen Thousand Dollars
($18,000.00) for health and additional life insurance and disability policies
(subject to general inflationary increases in respect of premiums for such
insurance) which do not name AAC as a beneficiary. If Executive chooses to
participate in the AAC Health Insurance plan, the amount of money contributed by
AAC to
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<PAGE> 6
such plans on behalf of Executive shall be deducted from the sum specified in
the immediately preceding sentence.
D. If Executive is traveling outside of the Los Angeles area in
connection with the performance of his duties hereunder, AAC shall pay, or shall
reimburse Executive, for approved travel expenses incurred by Executive
(including first class air fare, hotel, meals and incidental expenses) in
accordance with AAC's general policies regarding travel expenses.
E. AAC will provide Executive during the Term (through either direct
reimbursement to Executive or direct lease or purchase by AAC on behalf of
Executive) with a premium luxury automobile of Executive's choice together with
all gas, oil, maintenance, repairs and fees for such automobile and up to an
additional Three Thousand Dollars ($3,000.00) per year in respect of premiums
actually incurred by Executive for insurance on such automobile.
3.6. TAXES. All compensation shall be subject to withholding and other
employment taxes as required by federal, state and local government entities
with respect to compensation paid by a corporation to an employee.
4. TERMINATION.
4.1. TERMINATION BY COMPANY.
(a) Executive's Material Breach. The Company shall have the right, at
its election, to terminate the Term for "Executive's Material Breach," which
shall consist of (i) material and repeated instances of misconduct or habitual
inability to perform the Services, or violation of AAC's established policies or
procedures, (ii) a single act so grievous as to constitute the equivalent of
such repeated instances (including, without limitation, theft, misappropriation
of AAC's assets, conviction of a felony, or sexual harassment), (iii)
unauthorized intentional disclosure of any of AAC's trade secrets or (iv) a
material breach of any covenant, condition, agreement or term of this Agreement
and, in each such case, only if AAC shall have given written notice to Executive
specifying the claimed cause or breach and, provided such breach is curable,
Executive fails to correct the claimed breach or fails to alter the
objectionable pattern of conduct specified in the applicable written notice as
soon as practical thereafter but no later than (30) days after receipt of the
applicable notice or such longer time as may be reasonably required by the
nature of the claimed breach.
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<PAGE> 7
(b) Effect of Termination by Company. Should the Term be terminated by
Company by reason of Executive's Material Breach, Executive shall have no right
to any further Base Salary or other benefits or compensation accruing from and
after termination.
4.2 TERMINATION BY EXECUTIVE.
(a) Company's Material Breach. Executive shall have the right, at his
election to terminate the Term only for "Company's Material Breach," which shall
consist of the Company's failure or refusal to comply with a material term of
this Agreement or misfeasance or gross negligence in performing under this
Agreement. In order to terminate the Term, Executive shall be required to give
written notice specifying the claimed breach and the Company shall have failed
to correct the claimed breach, if such breach is curable, or alter the
objectionable pattern of conduct specified in the applicable written notice, no
later than thirty (30) days (ten (10) days in the case of a breach based upon
non-payment of compensation due under this Agreement) after receipt of the
applicable notice.
(b) Effect of Termination by Executive. Should Executive terminate the
Term due to Company's Material Breach, the Company shall, for the then remainder
of the Term, in accordance with the Company's regular pay periods, pay to
Executive or provide Executive with Executive's: Base Salary; all health, life
and disability insurance benefits; Incentive Compensation that Executive would
have earned during the fiscal year in which such termination occurred pro rated
based upon the portion of the fiscal year in which Executive actually served
prior to such termination; and any Top 10 Bonus earned by Executive but unpaid
at the time of termination hereunder. All other compensation and benefits shall
cease on the date of termination of employment.
(c) Waiver of Mitigation. The Company waives any and all rights which it
may have to require Executive to mitigate damages as a result of Company's
Material Breach and any income received by Executive from any other source,
whether from salary, bonus, other compensation, dividends, distributions or
otherwise shall not reduce or offset Company's obligations to Executive under
Section 4.2.(b) above.
5. DEATH AND DISABILITY.
5.1. DEATH. The Term shall immediately terminate upon Executive's death
as certified in accordance with the provisions of California law ("Death").
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<PAGE> 8
5.2. DISABILITY. As used herein, the term "Disability" shall mean
Executive becoming unable to perform the Services as a result of his permanent
or temporary, total or partial, physical or mental disability for any six months
during any twelve calendar months of the Term ("Disability"). In such event,
absent a Material Breach (as defined below) by Executive, AAC shall not have the
right (notwithstanding any other provision of this Agreement to the contrary) to
terminate the Term due to Disability prior to the expiration of the Disability
Period. As used herein, the term "Disability Period" shall mean the period
commencing on the first day upon which such Disability occurs and ending on the
first to occur of the following: (i) the expiration of the Term; (ii) if the
Disability is continuous throughout the six (6) consecutive months following the
month during which the Disability occurs, then the last day of such sixth
consecutive calendar month; and (iii) if the Disability is intermittent and
shall exist throughout each of any twelve (12) calendar months following the
month during which the Disability occurs, then the last day of such twelfth
calendar month.
5.3. EFFECT OF DEATH OR DISABILITY. Should the Term be terminated in
accordance with the provisions of Paragraphs 5.1 or 5.2 by reason of Executive's
Death or Disability, Executive or his estate (as the case may be) shall have no
right to any further Base Salary (other than any stock options or other awards
vested at the time of such Death or Disability); provided, however, that the
Base Salary otherwise payable during the Disability Period shall nevertheless be
payable on the terms set forth herein to Executive as a disability benefit
("Disability Benefit") as well as any Incentive Compensation Executive would
have earned for the fiscal year in which Death or Disability occurred times the
pro rata portion of the fiscal year in which Executive actually served prior to
the occurrence of Death or Disability, together with any Top 10 Bonus earned by
Executive, but unpaid at the time of termination hereunder. Any disability
insurance proceeds actually received by Executive from AAC's disability
insurance carrier during the Disability Period with respect to such Disability
shall reduce on a dollar-for-dollar basis the Disability Benefit otherwise
payable by AAC during the Disability Period pursuant to this Paragraph 5.3.
6. COVENANT NOT TO SOLICIT.
Until the earlier of either the scheduled expiration of the Term (whether
the Term expires or is terminated by any party for any reason) or one year after
actual termination of Executive's employment with the Company, Executive shall
not, directly or indirectly, solicit or induce any of the Company's or its
parent's or subsidiaries' employees to terminate their employment
-8-
<PAGE> 9
with the Company or its parent or any of its subsidiaries or knowingly interfere
with the Company's or its parent or any of its subsidiaries' then contractual
relationships or knowingly disparage the Company or its parent or any of its
subsidiaries or its executives.
7. ATTORNEY'S FEES.
In the event Executive or AAC commences any action, suit or proceeding in
respect of a dispute arising out of this Agreement, AAC and Executive agree that
the prevailing party shall be entitled to reimbursement upon demand for all fees
and expenses of counsel in connection with each claim constituting a portion of
such action, suit or proceeding in which he is the prevailing party. A party
shall be a "prevailing party" as to a claim is such party is successful in
proving or disproving the cause of action asserted or contested.
8. GENERAL.
8.1. APPLICABLE LAW CONTROLS. Nothing contained in this Agreement shall
be construed to require the commission of any act contrary to law and wherever
there is any conflict between any provisions of this Agreement and any material
statue, law, ordinance or regulation contrary to which the parties have no legal
right to contract, then the latter shall prevail; provided, however, that in any
such event the provisions of the Agreement so affected shall be curtailed and
limited only to the extent necessary to bring them within applicable legal
requirements, and provided further that if any obligation to pay the Base Salary
or any other amount due Executive hereunder is so curtailed, then such
compensation or amount shall be paid as soon thereafter, either during or
subsequent to the Term, as permissible; provided further, that nothing contained
herein shall limit any of Executive's rights or remedies hereunder in the event
that AAC fails to pay any amounts owed Executive hereunder as and when due.
8.2. WAIVER/ESTOPPEL. Any party hereto may waive the benefit of any
term, condition or covenant in this Agreement or any right or remedy at law or
in equity to which any party may be entitled but only by an instrument in
writing signed by the parties to be charged. No estoppel may be raised against
any party except to the extent the other parties rely on an instrument in
writing, signed by the party to be charged, specifically reciting that the other
parties may rely thereon. The parties' rights and remedies under and pursuant to
this Agreement or at law or in equity shall be cumulative and the exercise of
any rights or remedies under one provision hereof or
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<PAGE> 10
rights or remedies at law or in equity shall not be deemed an election of
remedies; and any waiver or forbearance of any breach of this Agreement or
remedy granted hereunder or at law or in equity shall not be deemed a waiver of
any preceding or succeeding breach of the same or any other provision hereof or
of the opportunity to exercise such right or remedy or any other right or
remedy, whether or not similar, at any preceding or subsequent time.
8.3. NOTICES. Any notice which AAC is required or may desire to give to
Executive hereunder shall be in writing and may be served by delivering it to
Executive, or by sending it to Executive by mail, telex or telegraph, at
Executive's residence or such substitute address as Executive may from time to
time designate to AAC. Any notice which Executive is required or may desire to
serve upon AAC hereunder shall be in writing and may be served by delivering it
personally or by sending it by mail, telex or telegraph to the address set forth
on Page 1 hereof with a copy to All American Communications, Inc., 808 Wilshire
Boulevard, Santa Monica, CA 90401 Attention: General Counsel, or such other
substitute addresses as AAC may from time to time designate by notice to
Executive. Notices regarding cure of an alleged breach hereof shall be sent by
certified or registered mail and shall be effective upon receipt.
8.4. GOVERNING LAW. This Agreement shall be governed by, construed and
enforced and the legality and validity of each term and condition shall be
determined in accordance with the internal, substantive laws of the State of
California applicable to agreements fully executed and performed entirely in
California.
8.5. CAPTIONS. The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
8.6. NO JOINT VENTURE. Nothing herein contained shall constitute a
partnership between or joint venture by the parties hereto or appoint any party
the agent of any other party. No party shall hold itself out contrary to the
terms of this Paragraph and, except as otherwise specifically provided herein,
no party shall become liable for the representation, act of omission of any
third party who is not referred to herein and shall not be deemed to give any
right or remedy to any such third party.
8.7. MODIFICATION/ENTIRE AGREEMENT. This Agreement may not be altered,
modified or amended except by an instrument in writing signed by all of the
parties hereto. No person, whether
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<PAGE> 11
or not an officer, agent, employee or representative of any party, has made or
has any authority to make for or on behalf of that party any agreement,
representation, warrant, statement, promise, arrangement or understanding not
expressly set forth in any other document executed by the parties concurrently
herewith ("Parol Agreements"). This Agreement and all other documents executed
by the parties concurrently herewith constitute the entire agreement between the
parties and supersede all express or implied, prior or concurrent, Parol
Agreements and prior written agreements with respect to the subject matter
hereof. The parties acknowledge that in entering into this Agreement, they have
not relied and will not in any way rely upon any Parol Agreements.
Please confirm your agreement to the foregoing by signing below where
indicated.
Very truly yours, Agreed to and Accepted,
ALL AMERICAN COMMUNICATIONS, INC.
By: /s/ Thomas Bradshaw /s/ Benjamin J. Scotti
- ----------------------------- ------------------------------
Benjamin J. Scotti
-11-
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31 1996 AND
THE THREE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 29,881
<SECURITIES> 0
<RECEIVABLES> 103,294
<ALLOWANCES> 2,675
<INVENTORY> 82,187
<CURRENT-ASSETS> 0
<PP&E> 9,189
<DEPRECIATION> 4,048
<TOTAL-ASSETS> 326,616
<CURRENT-LIABILITIES> 0
<BONDS> 152,377
0
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<OTHER-SE> 69,910
<TOTAL-LIABILITY-AND-EQUITY> 326,616
<SALES> 6,786
<TOTAL-REVENUES> 48,143
<CGS> 4,978
<TOTAL-COSTS> 40,998
<OTHER-EXPENSES> 1,085
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,898
<INCOME-PRETAX> 3,571
<INCOME-TAX> 1,500
<INCOME-CONTINUING> 2,071
<DISCONTINUED> 0
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